Aller three successful years in the Personal Care division of Unilever in Pakistan, Lacrcio Cardoso was considering a promising leadership role in China when he received a call from the head of Unilever’s Home Care division in Brazil, his native country. Robert Davidson was searching for someone to explore growth opportunities in the marketing of detergents for low-income consumers living in the Northeast of Brazil. Laercio, an alumnus of INSEAD’s Advanced Management Programme, had joined Unilever in 1986 after completing his business administration degree at Funda~ao Getulio Vargas in Sao Paulo.
Laercio had the seniority and marketing skills required for the project. Additionally, he had no prior involvement in the conventional marketing of detergents and was well aware of the potential harm posed by local brands targeting low-income consumers, having seen the success of Nirma in India. To work on this project named “Everyman,” Laercio put together a diverse team comprising Marcos Diniz from Sales, Antonio Conde from Finance, and Airton Sinigaglia from Manufacturing.
In the first phase of the project, extensive field studies were conducted to gain insight into the lifestyle, aspirations, shopping, and laundry habits of low-income consumers. It was during one of these trips that Laercio encountered Maria Conceic;ao, who is featured on the cover page in her home in Fortaleza. Maria resided in Fortaleza with her daughter, Elizangela, 19 (pictured on the right with two of her four children). Similar to many people in Brazil, Maria expressed to Laercio that although she desired to purchase Omo, Unilever’s flagship brand, her limited budget only allowed for cheaper local brands.
At Unilever’s headquarters in Sao Paulo, Laercio got ready for a significant meeting with Davidson to determine if the company should modify its marketing approach for detergent brands targeting low-income consumers in the Northeast. It was essential for Unilever to increase detergent usage among Maria and the other 48 million primarily low-income consumers in Brazil’s Northeast since the company already enjoyed an 81% market share in the detergent powder category.
However, within the company, there was a belief that Unilever, being a large multinational corporation, should not engage in competition within the lower-end market. This is because even small local entrepreneurs, with their lower cost structure, struggled to break even in this segment. The question arose as to whether it would be justifiable to allocate funds from Omo to invest in a market with lower profit margins. Additionally, if Unilever decided to target low-income consumers in the Northeast, it would raise more challenging concerns. Should Unilever make changes to its current marketing and branding strategy? Perhaps it could consider extending or repositioning its existing cheaper brands, such as Minerva and Campeiro. Alternatively, would it be necessary to introduce a completely new brand?
Unilever seeks to determine the optimal positioning and marketing mix for a brand targeted at low-income consumers. This poses a challenge as there is limited knowledge within Unilever and other multinational firms regarding this consumer segment and the appropriate marketing strategy. Nirma, a low-price detergent created by an Indian entrepreneur, swiftly acquired 48% of the Indian detergent market. Meanwhile, Unilever lagged behind in second place with a mere 24% market share.
Cities in the Northeast region of Brazil, such as Sao Paulo, Rio de Janeiro, Salvador, Recife, and Fortaleza, have experienced economic recessions and recoveries. During the 1970s, the country’s GDP had a significant growth rate of 8.1% per year known as the economic miracle. However, in the 1980s, referred to as the lost decade due to stagnation and hyperinflation, the GDP only grew by 2.6% per year.
In 1994, Finance Minister Fernando Henrique Cardoso implemented the Plano Real which effectively controlled inflation and introduced a new currency called Reais. This led to a strong economic recovery in 1995-1996 that particularly benefited lower-income consumers. Amongst the poorest 10% of the population, their purchasing power increased by 27% per year.
By 1996, Brazil’s per capita income reached $4,420 which was comparable to Hungary and Malaysia but significantly higher than developing countries like Indonesia ($1,050) and India ($380). Nonetheless regional disparities were evident; Exhibit I highlighted that per capita income was around $6k in Southeast similar to Uruguay or Saudi Arabia while it was only approximately $2.25k in Northeast comparable to Peru or Jamaica.
Generally speaking development indicators for people living in Northeast Brazil lagged behind those in Southeast Brazil. The literacy rates in the Northeastern states were at 40%, while it stood at just 15% for Southeastern states. In comparison with India where literacy rates were higher at 52%.In Exhibit 2, it is demonstrated that the Northeast had a significantly higher proportion of people living on less than two minimum wages (53%) compared to only 1% in the Southeast. In order to stimulate economic growth, tax incentives were implemented for companies investing in the Northeast region during the 1990s; however, agriculture remained as the dominant sector. The Northeastern states of Brazil possess a distinct culture and historical significance due to their colonization by Europeans who brought African slaves to work on plantations. In 1996, individuals with both African and European ancestry comprised 65% of the population in the Northeast, while this percentage was only 30% in the Southeast. The culture influenced by African roots showcases lively music and humor, nurturing numerous renowned artists from this area. Festivals such as Carnival and “Forró Festivals” draw a large number of attendees. Conversely, development in the Southeast occurred later through European migrants who primarily arrived to work on coffee plantations during the 1880s.
The economic and political power of modern Brazil is firmly rooted in the Southeast region. The way clothes are washed in the Northeast and Southeast of Brazil is very different. In Recife (NE), only 28% of households own a washing machine and 73% of women think that bleach is necessary to remove fat stains. In Sao Paulo (SE), 67% of families own a washing machine and only 18% of women think that bleach is necessary to remove fat stains.
Generally, women in the Northeast region of the country use bars of laundry soap to vigorously scrub clothes. They add bleach for tough stains and only use a small amount of detergent powder for fragrance. In comparison, women in the Southeast follow similar practices as those in Europe or North America by using a washing machine to mix powder detergent and softener. They also rely on laundry soap and bleach for stubborn stains. As a result, both regions have similar levels of usage for detergent powder and laundry soap. However, Northeasterners tend to use more soap and less powder compared to Southeasterners (see Exhibit 3). Additionally, clothes are washed more frequently in the Northeast than in the Southeast; Recife residents average five times a week while Sao Paulo residents wash their clothes 3.9 times per week. This is due to low-income consumers owning fewer clothes and having more free time since fewer women work outside their homes, unlike higher-income consumers. Interestingly, many women in the Northeast find washing clothes enjoyable because they often do it at public laundries, rivers, or ponds where they can socialize with friends.
In the Southeast, most women wash clothes at home alone and view laundry as a chore, seeking ways to simplify the task. Conversely, in the Northeast, people have a different perspective on cleanliness. Despite their low income, many impoverished individuals in the Northeast take pride in maintaining themselves and their families with spotlessly clean attire. The cleanliness of clothing is seen as a reflection of a mother’s dedication to her family due to the labor-intensive nature of this task. Personal and home cleanliness is a common topic of gossip. On the other hand, in the Southeast where washing machines are commonplace among women, the importance of cleanliness for self-esteem and social status is significantly reduced. In terms of detergent evaluation by consumers in the Northeast, price is a key factor. Additionally, low-income consumers in this region consider six attributes when assessing detergents (Exhibit 5 provides importance ratings, consumer expectations range, and perceived positioning of key detergent brands for each attribute). Among these attributes, the perceived power of the detergent, measured by its ability to effectively clean and whiten clothes with a small quantity of product, holds the highest significance and is often judged by the amount of foam it generates.
The second aspect is the fragrance of the detergent. Consumers frequently associate a powerful, pleasing scent with its softening effectiveness and fabric and hand friendliness.
The third aspect is its capacity to eliminate stains without requiring laundry soap and bleach.
Additionally, it is crucial that the powder dissolves readily in water and does not leave any residue on the fabric after rinsing. These two elements can be assessed by examining the consistency and granularity of the powder.
Regarding packaging, low-income consumers (who often have limited literacy skills) prefer distinctive, simple, easily recognizable packages that are also easy to open and provide protection against humidity.
Impact on colours (fading) is of least importance to these consumers. The Brazilian Fabric Wash Market Key Industry Players in Brazil include Unilever. Unilever, a US$56 billion company, is headquartered in London (UK) and Rotterdam (Netherlands), with about 300,000 employees in over 150 countries. In 1996, it had a portfolio of 1,600 brands worldwide, which included 45 key detergent brands (see Exhibit 6). Unilever is a pioneer in the consumer goods industry in Brazil.
Lever Brothers began its operations in Brazil in 1929 and established its first plant in Sao Paulo in 1930 to produce Sunlight soap. One of Unilever’s highly successful brands, Omo, was introduced in 1957 and became the first detergent powder in the country. During the 1960s, Unilever acquired Cia Gessy Industrial, which added a diverse range of personal care brands to its portfolio. In the 1970s, Unilever expanded into the food industry with the launch of Doriana, Brazil’s first margarine. As of 1996, Unilever operated three divisions, including Lever specifically for home care products.
Elida Gibbs and Vanden Bergh are Unilever Brazil’s brands for personal care and foods, respectively. However, detergents continue to be the main source of revenue for Unilever Brazil, driving growth in the food and personal care sectors. In 1996, Unilever dominated the detergent powder market in Brazil with a market share of 81%, achieved through three brands: Orno (a popular brand in Brazil), Minerva (sold as both detergent powder and laundry soap), and Campeiro (Unilever’s most affordable brand). Procter & Gamble is a company with a market value of $40 billion, headquartered in Cincinnati (USA), employing 98,000 individuals, and having operations in 80 countries.
P&G started operating in Brazil in 1988. In 1996, they purchased the detergents division of Bombril, a Brazilian company, along with its three brands: Quanta, Odd Fases, and Pop. After investing heavily in manufacturing improvements, P&G rebranded Quanta as Ace and Odd Fases as Bold, both well-known global brands, while retaining the low-priced brand Pop. Currently, P&G holds a 15% share of the Brazilian detergent market, making them the second largest player. However, the company’s potential threat is greater than its current market share suggests because P&G Brazil can leverage the extensive R&D and marketing expertise of the global company.
Market Structure The Brazilian fabric wash market is divided into two categories: detergent powder and laundry soap (sales of liquid laundry detergents are insignificant). In 1996, detergent powder accounted for a market worth $106 million (42,000 tons) in the Northeast region, experiencing impressive annual growth of 17% due to the economic upturn of the Plano Real. The barriers to entry are significant in this market, as the manufacturing process requires substantial capital investment. Detergent powder production involves the mixing of sulfonic acid, sodium sulfate, and kelp.
Premium products, such as Unilcver’s three detergents, contain specific enzymes and builders. Unilever also sells Brilhante, a brand of laundry soap and detergent powder. However, Brilhante had almost zero market share in the NE in 1996 and is therefore not mentioned any further in this case study. The goal is to improve the whitening power of the detergent when used in a washing machine. The mixture is then heated up to 400°C to form a liquid pulp, which is then transformed into powder when hot air is blown through it in a dry tower.
The drying process relies on a substantial amount of steam provided by a nearby utility plant. At the end of this process, fragrance and other substances that are sensitive to heat are incorporated. While producing detergent for hand washing is more economical, it is not effective when used in washing machines. Unilever’s market share in the NE detergent industry is below the national average. Their leading brand, Omo, holds a 52% share and is sold to retailers at $3 per kg. Minerva captures 17% of the market with its retail price being 82% of Omo’s price. Campeiro accounts for 6% of the market and sells at a price equivalent to 57% of Omo’s price.
In the NR market, P has slightly surpassed the national average with a market share of 17.5%. Ace ranks as the third highest-selling brand in Laundry Soap with an 11% market share. In 1996, both laundry soap bars and detergent powder markets were equally significant in size within the NE region ($102 million for 81,250 tons). However, their growth rates differed with laundry soap bars experiencing slower growth at 6%. The entry barriers for entering the laundry soap market were comparatively lower than those for detergent powder due to ease in production from fats and oil – both readily available from slaughterhouses and meal processing plants which generate a considerable amount of animal fat essential for soap manufacturing purposes.
Laundry soaps have a couple of drawbacks. One is that the presence of animal fat in them tends to cause clothes to turn yellow. Additionally, it is difficult to incorporate fragrance into laundry soaps because of their strong odor. Despite these issues, laundry soap is priced lower than laundry detergent powders, with soap earning an average revenue of $1,250 per ton compared to $2,520 per ton for detergent powder. However, laundry soap proves to be a versatile product with numerous applications for both household and personal care purposes. Those who own washing machines mainly use it for tackling stubborn stains like those found on shirt collars while individuals without washing machines utilize laundry soap for cleaning all types of clothing.
The high demand for laundry soaps in the NE region can be attributed to the water’s softness, indicated by its low calcium content. This characteristic aids in the soap’s dissolution and generates large amounts of foam, thereby diminishing one of the main advantages of powders. In contrast, water in Europe, the US, and India tends to be hard. The NE laundry soap market is highly fragmented, with the top four players holding only 38% of the market share. UniIever’s Minerva brand dominates with a 19% market share, offering a price of $1.7 per kg to retailers (which is a 41% discount compared to Omo). P did not produce laundry soap.
Hence, Unilever’s primary competitors were ASA, a local Brazilian company. ASA’s brand, Bem-te-vi, held 11% of the market share and was sold at $1.2 per kg. Other players in the market were smaller local companies, each with no more than 1% of the market share (except for Flora FabriL which had 6% of the laundry soap market). Brand Positioning Exhibit 8 provides information on brand awareness, brand knowledge, and brand penetration of the major detergent powder brands in the NE region in 1996. Exhibit 9 depicts the perception of these brands on two dimensions: perceived quality and perceived price.
Exhibit 10 shows that 3 toilet soap uses the same base as laundry soap. The raw material goes through a long and expensive filtering process to remove the base smell and make it neutral. This information includes details about detergent powder and laundry soap brands, such as packaging, positioning, historical facts, financial and market data. Despite facing resistance from Fernanda Machado, the category manager for detergents, Laercio believes that Unilever should target low-income consumers based on the results of the Everyman project. Fernanda argues that the low-income segment does not have money and investing in a low-price brand would cannibalize sales and increase price competition. However, Laercio believes that targeting the low-income segment is necessary to sustain growth and prevent attacks from competitors like P&G.Just observe the occurrences in India. “But Laercio, wow! Brazil is not India. The penetration of detergent is 95% here, compared to 55% in India. Our products are of much superior quality, and we have been promoting top-notch brands in Brazil since 1929.
Think about the type of message that the global investment community will hear: “Unilever has lost its marketing skills and is giving up its premium brands.” Remember Marlboro Friday? How do you think the stock market will react? What about our corporate reputation? How will we be able to attract and retain the next generation of brand managers who only want to work on premium brands?” “Que isso, Fernanda! You should spend more time getting to know your fellow Brazilians and less time behind your computer! If we develop the right strategy, low-income consumers will be willing to pay for our brand and Omo buyers won’t move.”
Also, consider the knowledge and expertise we would gain, which could be applied to our other categories. If we establish ourselves as leaders in marketing to low-income consumers, financial analysis experts will likely commend us and top students will be eager to interview with us. However, Robert Davidson remains undecided despite hearing these arguments repeatedly. He is especially concerned about the profitability of this consumer segment. In fact, on April 2, 1993, Philip Morris USA reduced the price of Marlboro by 20%, resulting in a nearly $10 billion decrease in the company’s market value.
Many analysts interpreted Philip Morris’ decision as a sign that larger brands were losing the battle against more affordable private labels and unrestricted products. The concern was that new sales would take away from Unilever’s existing brands. Unilever was questioned on what percentage of new sales coming from other Unilever brands would result in financial losses. Additionally, there were doubts about Unilever’s capabilities and organizational structure to compete in this market in the long term. The question arose of what Unilever would gain and what risks it would face if things did not go as planned. Brand and Marketing Strategy.
The text asks if there was a problem with the current positioning of Unilever’s three detergent brands and if it was necessary to create a new value proposition. It questions if Unilever could achieve the desired value proposition with one of its existing brands or through brand extension. It also discusses whether Unilever would need to create a completely new brand or use one from its international portfolio. However, the issue was complicated due to rumors of Unilever planning to reduce its brand portfolio on a large scale.
Marketing Mix Product Unilever had the option to create a product similar to Campeiro, their cheapest offering. However, they questioned if it would provide the desired benefits for low-income consumers. An alternative was to use Minerva’s formulation, but it might be too expensive for this target market. To address this issue, Unilever’s scientists considered developing a third formula priced in between Minerva and Campeiro by removing certain ingredients. The challenge was determining which attributes to eliminate, retain, or potentially improve compared to the existing brands. Another difficulty was selecting the appropriate packaging size and type. While larger packages would reduce the cost per kilo, they could make it unaffordable for the poorest consumers on a weekly budget. Unilever could opt for a plastic sachet as a cheaper option, costing only 30% of traditional cardboard boxes. However, research indicated that low-income consumers were loyal to boxes and perceived anything else as indicating lower quality products. One potential solution could be to introduce multiple types and sizes of packaging.
Choosing the wholesale price (the price paid by retailers) was the most critical decision for Unilever. If the price was too high, the product would be unaffordable for the target segment. Conversely, if the price was too low, it would lead to cannibalization of existing Unilever 5 brands. In the break-even analysis, it is assumed that developing a new brand would incur an additional cost of $0.10 per kg in incremental marketing expenses. Launching a brand extension would add $0.05 per kg, while repositioning an existing brand would not result in any incremental marketing costs.
Unilever may consider utilizing coupons or other methods to decrease the cost of the product for low-income consumers. It might also contemplate altering the price of Omo, Minerva, and Campeiro. In terms of promotion, the objective of the communication and the key message should be determined. It is possible that low-income consumers might hesitate to purchase a product that is advertised specifically for low-income individuals, as products with this type of message were typically perceived as being of lower quality. Conversely, employing the traditional aspirational communication commonly used by most Brazilian brands could confuse consumers and result in unwanted cannibalization. Additionally, the packaging and point-of-purchase displays should be considered.
Unilever needs to decide whether to use the same slogan as the television commercial. Additionally, they need to consider what information to convey to the owners of the small stores where the majority of low-income consumers shop. Gaining support from these store owners is crucial since low-income consumers rely on them for advice and financing, which is common in Brazil even for inexpensive consumer goods. Unilever has found that in regular detergent markets, the most effective distribution of communication expenditure is 70% above-the-line (media advertising) and 30% below-the-line (trade promotions, events, point-of-purchase marketing).
The main benefits of predominantly using media advertising include its affordability per contact and wide coverage, as the majority of Brazilians, regardless of their income level, are enthusiastic television viewers. A potential alternative approach would involve utilizing 70% below-the-line communication. With a cost of $0.05 per kg, this strategy would only require one-third of the budget compared to a traditional Unilever communication plan. However, it would result in reduced audience reach and higher cost-per-contact. Distribution
Unilever lacked the capability to deliver to the estimated 75,000 small stores in the Northeast region, as shown in the photo in Exhibit 12. However, it was crucial to gain access to these stores because low-income consumers typically did not shop in large supermarkets like Wal-Mart or Carrefour. When it came to distribution, Unilever could depend on its current network of wholesalers that covered the entire country and supplied Unilever’s existing detergents and various products. However, in order to reach all stores, these wholesalers occasionally had to rely on smaller local wholesalers, resultingly increasing their costs.
One option is to form agreements with multiple specialized distributors who would have exclusive rights to sell all Unilever detergents in specific regions. This decision is crucial as it significantly affects product cost, is difficult to change, and ultimately impacts sales and brand building at various points of sale (refer to Exhibit 13 for a comparison of the two distribution channels).