Aller three successful years in the Personal Care division of Unilever in Pakistan , Lacrcio Cardoso was contemplating an attractive leadership position in China when he received a phone call from the head of Unilever’s Home Care division in Brazil, his native country. Robert Davidson was looking for someone to explore growth OPPOrtunillCS in the marketing of detergents to low-mcome consumers Iivmg in the Northeast of Brazil. An alumnus of INSEAD’s Advanced Management Programme, Laercio had joined Unilevcr in 1986 after graduating in business administration from Funda~ao Getulio Vargas in Sao Paulo.
He thus had the seniority and marketing skills that were necessary for the project. More importantly, he had never been involved in the traditional approach to marketing deterg nts and, having witnessed the success of Nirma I III India. he was acutely aware of the threat posed by local brands targeted at low-income consumers . For this project, named “Everyman”, Laercio assembled an interdisciplinary team including Marcos Diniz from Sales, Antonio Conde from Finance, and Airton Sinigaglia from Manufacturing.
The first phase of the project involved extensive field studies to understand the lifestyle, aspirations, shopping and laundry habits of low-income consumers. It was during one of these trips that Laercio met Maria Conceic;ao, picttrred on the cover page in her home in Fortaleza, wbere she lived with ber daughter, Elizangela, 19 (shown on the right with two of her four children). Like almost everyone in Brazil, Maria told Laen:io that a1thougb she would love to buy Orno, Unilever’s flagship brand, her tight budget meant that she could only afford cheaper local brands.
Back at Unilever’ s headquarters in Sao Paulo, Laercio prepared for an important meeting with Davidson to decide whether the company shouJd change the way it marketed its detergent brands to low-income conswners in the Northeast lncreasing detergent usage by Maria and the other 48 million predominantly low-income consumers in Brazil’s Northeast was crucial for Unilever, given that the company already had an 81% share of the detergent powder category .
However, many in the company believed that a large multinational like Unilever should not fight in the lower-end of the market, where even small, local entrepreneurs with a lower cost structure struggled to break even. How could one justify diverting money from Omo to invest in a lower-margin segment? Deciding to target low-income consumers in the Northeast would throw up some more difficult questions: Should Unilever change its current marketing and branding strategy ? For example, could Unilever extend or reposition its existing cheaper brands, Minerva and Campeiro, or would a new brand be necessary?
What would be the ideal positioning and marketing mix of a Unilever brand targeted at low-income consumers? Finding the answers would not be easy as few at Unilever (or other multinational firms ) had any knowledge of low-income consumers or first-hand experience of the kind of marketing strategy that would work faT this segment Nirma, a low-price detergent developed by a small Indian entreprene ur. qui ckl y gai ned 48% of the Indian deter ent marke t. leaving Vnilever in a distant second place with a 24% market snare.
Sao Paulo and Rio de Janeiro , and the other m the Northeast. , whose main CIties are Salvador, Recife and Fortaleza. During the last three decades Brazil has experienced cycles of deep recession and strong economic recovery. GDP grew by 8. 1% per year during the “”economic miracle” of the 1970s, but omy by 2. 6% per year during the I 980s, the so-called “lost decade” characterized by stagnation and hyperinflation . In 1994, the Plano Real initiated by the Finance Minister (and later President) Fernando Hcmique Cardoso introduced a new currency (the Reais, R$) and succeeded in ontrolling inflation, which led to a strong economic recovery In 1995- 1996. The boom was particularly beneficial to lower-income consumers and the purchasing power of the poorest 10% of the population grew by 27% per year dunng this period. In 1996, Brazil’ s per capita income was $4. 420, on a par with countries like Hungary ($4,370) and Malaysia ($4,310) and well above other developing countries like Indonesia ($ 1,050) and Indi a ($380). As shown in Exhibit I, however, this average hid large regional differences. Per capita Income was around $6. 00 in the Southeast (comparable to Uruguay or Saudi Arabia) and omy around $2. 250 in the Northeast (comparable to Peru or Jamaica). More generally, the 48 million people living in the Northeast lagged their Southeastern counterparts on Just about every development mdicator. For example. 40% of the population in the Northeast (NE) are illiterate. a level comparable to India (52%), whereas only 15% are illiterate in the Southeast (SE) . As shown in Exhibit 2, 53% of the population in the Northeast lives on less than two mirumum wages (social classes E+ and E-) vs. 1% in the Southeast. During the 1990s. federal and local governments started providing tax mcentives to companies investing in the NE ref,rion, yet the economy in the NE was predominantly rural and remained heavily dependent on agriculture. The Northeastern states of Brazil also have a distinct cuLture and history . It was the first region of Brazil to be colonized by Europeans. who brought large numbers of West Africans to work as slaves on sugar cane and cocoa plantations as early as the sixteenth century . n 1996, 65% of the population in the NE was of mixed African and European origins (vs. 30% in the SE). Lifestyle, culture and religion all share African influences. Music and humour are key elements of their culture and many of Brazil’s best-known artists come from the region. PopuJar parties like Carnival, “Forr6 Festivals” and ” Maracatu ‘ bring millions of people onto the streets and are major events In the regIOn. In contrast, the Southeast was developed later. maimy by Europeans who migrated in the 1880s to work on the coffee plantations.
The economic and political power of modem Brazil is firmJy rooted in the Southeast region. Clothes Washing in the Southeast and Northeast of Brazil 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 machme and 73% of women think that bleach is necessary to remove fat stains. In Sao PauJo (SE), 67% of families own a washing machine and only 18% of women think that bleach is necessary to remove fat stains.
In general, women in the Northeast scrub clothes using bars of laundry soap, a process which requires intense and sustained effort. They then add bleach to remove tough stains and only add a little detergent powder at the end. primarily to make the clothes smell good. In the Southeast, the process is Similar to European or North American habits : women mix powder detergent and softener in a washing machine and use laundry soap and bleach only to remove the toughest stains. As a result of these differences, the penetration of detergent powder and laundry soap IS almost the same in the NE and the SE. ut Northeasterners use a lot more soap and less powder than Southeasterners (see Exhibit 3) Another difference is that clothes are washed more frequently in the NE than the SE (5 Limes a week in Recife versus 3. 9 in Sao Paulo) This is because low-income consumers own fewer clothes and have more free lime (because fewer women work outside the home) than higher-income consumers. Interestingly, many women in the NE view washing clothes as one of the more pleasurable activities of their week. This is because they often do their washing in a public laundry, river or pond where they meet and chat with their friends .
In the SE. in contrast, most women wash clothes at home alone. They perceive domg laundry as a chore and are primarily interested in ways to make the task easier. People in the NE and SE differ in the symbolic value they attach to cleanliness. Many poor No rtheasterners are proud of the fact that they keep themselves and their families spotless ly clean despite their low income. Because it is so labour intensive, many women see the cleanliness of clothes as an indication of the dedication of the mother to her family . Personal and home cleanliness is a main subject of gossip. In the Southeast.. here most women own a washing machine, it is much less important for self-esteem and social status. How do Northeastsn Consumers Evaluate Detergents? Along with price, the primarily low-income consumers of the Northeast evaluate detergents on six key attributes (Exhibit 5 provides importance ratings, the range of consumer expectations, and Ute perceived positioning of key detergent brands on each attribute). The most important attribute is the perceived power of the detergcnt (its ability to clean and whiten clothes with a small quantity of product), which is often judged by the quantity of foam it produces.
Second is the smell of the detergent consumers often associate a strong, pleasant smell with softening power and gentleness to fabric and hands. Third is the ability to remove stains without the need for laundry soap and bleach. Next is the ease with which the powder dissolves in water and the absence of residue on the fabric after rinsing, two elements that are evaluated by the consistency and granularity of the powder. Packaging comes ne;. 1. low-income consumers (who are often barely literate) prefer distinctive, simple and easy-to recognize packages that are also easy to open and protect against humidity.
Impact on colours (fading) is the least important attribute for these consumers. The Brazilian Fabric Wash Market Key Industry Players in Brazil Unilever Uoilever is a US$56 billion company, headquartered in London (UK ) and Rotterdam (Netherlands). It has about 300,000 employees in more than 150 countries. In 1996 it had a portfolio of 1,600 brands worldwide, including 45 key detergent brands (see Exhibit 6) Unilever is a pIOneer of the consumer goods industry in Brazil.
Lever Brothers started operations in Brazil in 1929 and opened their first pLant in Sao Paulo in 1930 to manufacture Sunlight soap. Omo, Unilever’s most successful brand, was launched in 1957 and was the first detergent powder in the country. Unilever acquired Cia Gessy Industrial and its rich portfolio of personal care brands in the 1960s and started its food operations in the 1970s with the launch of Doriana. the first margarine in Brazil. In 1996 it operated with three divisions: Lever for home care.
Elida Gibbs for personal care, and Vanden Bergh for foods Yet detergents remain the cash cow of Unilever Brazil, providing fuel for growth in the food and personal care categories In 1996, Unilever was a clear leader in the detergent powder category in Brazil” with an 81% market share achieved with three brands: Orno (one of Brazil’s favorite brands across all categories), Minerva (the onJy brand to be sold as both detergent powder and laWldry soap), and Campeiro (Unilever’s cbeapest brand) 2 Procter & Gamble Procter & Gamble is a US$40 billion company, headquartered in Cincinnati (USA ), with 98 ,000 employees and operations in 80 countries.
P&G started operations in Brazil only to 1988. In 1996 they acquired the detergents business of Bombril, a Brazilian company, and its three brands: Quanta, Odd Fases and Pop. After spending a large amount on manufacturing improvements, P&G migrated Quanta towards Ace and Odd Fases towards Bold. two of it global brands, but kept the low-price brand Pop. P&G i a distant second player with only a 15% share of the Brazilian detergent market However, the real threat is largeT than its current market share suggests because P&G Brazil can draw on the fonnidable R&D and marketing expertise of the company worldwide.
Market Structure The Brazilian fabric wash market consists of two categones: detergent powder and laWlciry soap (sales of liquid laundry detergents are negligible). Detergent Powder Ln 1996, detergent powder was a $106 million (42,000 toos) market in the Northeast. growing at the remarkable annual rate of 17% thanks to the economic upturn of the Plano Real. The barriers to entry in this market arc high because the manufacturing process is capital intensive Detergent powder is made by mixing sulfonic acid. sodium sulphate and kelp.
Premiun1 products, like Unilcver’ s three detergents, also contain specific enzymes and builders which 2 Unilever also sells Brilhante. a brand of laundry soap and detergent powder. However. It had almost zero market share in the NE in 1996 and is therelo re not mentioned arty further in this case study Improve the whitening power of the detergent when it is used in a washing machine. The mix IS then heated up to 400″C to fonn a liquid pulp which is then transfomled into powder when hot a1f is blO through it in a dry tower.
The drying process consumes a great quantity of steam which is produced by a local utility plant. Perfume and other heat-sensitive substances are added at the end of the process. Detergent designed for hand washing is cheaper to produce but performs very poorly when used in a washing machine. At 75%, Unjlever’s share of the NE detergent market is below its national average (see Exhibit 7). Omo, its dominant brand. has a 52% share and is sold to retailers at $3 per kg. Minerva has a 17% share and its retail price is 82% that of Oroo. Campeiro has 6% of the market and is sold at 57(Yo of Omo’s price. n the NR P’s market share is slightly above its national average (1 7. 5%). Ace is the third highest-selling brand with an 11 % mark t share Laundry Soap In 1996. the NE market for laundry soap bars was as large as the detergent powder market ($102 million for 81 ,250 tons), but growing at a slower rate (6%). The barriers to entry were lower in the laundry soap market than in the deterg nt powder market because soap is relatively easy to produce from fats and oil. In fact. the animal [at that is a primary component of soap is produced in large quantities by slaughterhouses and meal processing plants.
One of the limitations of laundry soaps is thal animal fat tends to leave the clothes yellow. They are also difficult to perfume because the base has a very strong smelP Laundry soap was sold at a much lower price than laundry detergent powders (average revenues of $] ,250 per ton vs. $2,520 per ton for detergent powder). Laundry soap is a multi-use product which has many home and personal care uses. People with washing machines primarily use it to remove tough stains (e. g. , on shirt collars); for those without. , laundry soap is used to wash all clothes.
The popularity of laundry soaps in the NE is also due to the softness of the water in this region (i. e. , its low calcium content), which helps the soap to dissolve and produces great quantities of foam, thus reducing one of the key advantages of powders. In comparison. most water in Europe. US and India is hard The NE market for laundry soap was very fragmented. As shown in Exhibit 7. the top four players have only 38% of the market. UniIever’s Minerva brand is the leader with a 19% market share, selling to retailers at $1. 7 per kg (a 4 1% discount relative to Omo). P did nol manufacture laundry soap.
Hence Unilever’s main competitors were local Brazilian companies The biggest competitor was ASA. Its brand, Bem-te-vi, bad 11% of the market and sold at $1. 2 per kg. The other players were even smaller local companies with no more than 1% of the market each (except for Flora FabriL which had 6% of the laundry soap market) Bran d Positioning Exhibit 8 provides information on brand awareness. brand knowledge and brand penetration of the major detergent powder brands in the NE in 1996. Exhibit 9 shows the perception of these brands on two dimensions: perceived quality and perceived price.
Exhibit 10 provides 3 Toilet soap uses the same base as laundry soap bUllhe raw malerial is submitted 10 a long and costly process of fi ltering. which removes the base smell and leaves II neu tra l. C o p yright © 2007 INSEAD 5 04 / 2008-5188 504-009-1 I. J S E . I) key information on all detergent powder and laundry soap brands (packagmg, posiuoning. key historical facts. and [mancial and market data) Decision-making Time The results of the Everyman project increased Laercio ‘s conviction that Unilever should also target low-income consumers. Still. e was facing strong internal resistance from people like Fernanda Machado, the category manager for detergents. A typical argument between Laercio and Fernanda would nm like this: “Laercio. I think that we should Slay away from the low-income segment. These people j ust have no money and I really don’t see why we should divert money ;rom our premium brands to invest if in a low price brand! In the short term this would simply cannibalise our high-margin sales wilh lower-margin ones. In the longer term this would certainly increase price competition in the category. How Wi ll I be able to sustain Omo ‘s price remium ijpeople can buy almost the same product at halfthe price? ,. “fernando. I understand your concerns but we need to do something lor the low income segment. We already have 81% of the markel and I really see no other way 10 grow. Besides. if we don ‘1 do anything. P&G will attack liS in this segment where we are most vulnerable. Just look al what happened to us in India. ,. “But Laercio. caramba! Brazr/ is not India. l Detergent penetration is 95% here vs. 55% in India, our products are oj’ much higher quality, and we have been marketing premium brands in Brazil since 1929.
Think about the kind ofmessage thai the global investment community will hear: “Unilever has 10SI its marketing skills and is abandoning ils premium brands. ” Remember Marlboro Friday ? 4 How do you think the stock market will respond? Whal about our corporate reputation? How are we going 10 be able 10 attract and retain the next generation ofbrand managers who only want to work on premium brand~.? ” “Que isso, Fernanda ! You should spend more nme getnng 10 know your follow Brazilians and less time behind your compUler! If we get the right strategy. low Income consumers will be ready to pay for our brand and Omo buyers won ‘, move.
Also, think about the expertise that we would gain, which we could apply 10 our other categories If we become a leader in marketing 10 low-income consumers 1 bet that finanCial analYSIS will praise us and that top students will line up to interview with us. .. GolNo Go Decision Robert Davidson bad heard these arguments over and over, yet he was still undecided . He was particularly concerned with the profitability of this consumer segment Certainly, part of the 4 On 2 April 1993. Philip Morris USA cut the price of Mar lboro by 20%, and in the process knocked almost $1 0 billion otT the lTllIrlcet value of the company.
Many analysts interpreted Phili p Morris’ decision as a sign that big brands were losing the battle against cheaper private labels and unbOinded products . new sales would come at the expense ofUnilcver ‘s cxisling brands . At what cannibalization rate (percentage of new sales coming from other Unilever brands) would Unilever start losing money? More generally, he wondered whether Unilever had the right skills and organization to compete in this market In the long run. what exactly would Unilever gain and what would it risk if things went wrong’] Brand and Marketing Strategy
VaJue proposition Was there something wrong with the existing positioning of Uoilever ‘ s three detergent brands? Would it be really necessary to develop a new value proposition? If so, what should it be? Br and Strategy Could Unilever deliver the desired value proposition with one of its three existing brands, or with a brand extension? Would Unilever really have to develop a new brand from scratch? Could it use a brand from its large international portfolio? This was a thorny issue, especially considering the rumor coming from headquarters that Unilever was about to embark on a large-scale effort to reduce its brand portfolio 5
Marketing Mix Product Unilever could produce a product comparable to Campeiro, its cheapest product, but would it deliver the benefits that low-income consumers wanted? Alternatively, Unilever could use Minerva’ s formulation, but it might be too expensive for low-income consumers. Unilever’s scientists could develop a third formula priced half-way between Minerva and Campeiro if they could eliminate some ingredients. The question was to determine which attributes could be eliminated. which should be retained, and which. if any. ould actually need to be improved relative to both existing brands. Selecting the right packagmg size and type was another difficult task. Larger packages would reduce the cost per kilo but could price the product out of the weekly budget range of the poorest consumers. Unilevcr could use a plastic sachet, which would cost 30% of the price of tradi tional cardboard boxes, but market research data showed that low-income consumers were attached to boxes and regarded anything else as good for only second-rate products. One solution might be to laW1ch multiple types and sizes. Price
Choosing the wholesale price (the price paid by retailers) was the single most important decision for Unilever Priced too high, the product would be oul of reach for the target segment Priced too low. it would increase the inevitable cannibalization of existing Unilever 5 foo r the purpose of the break-even ana lysis. assume that developi ng a new brand would add $0 . 10 per kg III inc remental marketing cos ts, that launching a brnnd extensIOn would add $0 . 05 per kg and that re positio ning an existi ng brand would not lead to any incremental ma rketing oosts brands.
Should Unilever use coupons or other means to reduce Ule cost of the product for lo, income consumers? Should it change the pnce of Omo, Minerva and Campeiro? Promotion What would be the objective of the communication? What should be the key message? Low income consumers might be reluctant to buy a product advertised -‘for low-income people”, especially as prooucts wIth that kind of message were typically of inferior qUality . On the other hand. using the classic aspiraLional communication of most Brazilian brands could confuse consumers and lead to unwanted cannibalization. What about packaging and poinl-of purchase displays?
Should they use the same slogan as the television commercial? Finally, what should Unilever tell the owners of the small stores where most low-income consumers shopped? Getting buy-in from small store owners would be crucial because low-income consumers relied on them for advice and for financing (which is widely used in Brazil, even for inexpensive consumer goods). In re gular detergent markets Unilever had established that the most effective allocation o f communication expenditure was 70% above-the-line (media advertising) and 30% below -the line (trade promotions, events, point-of-purchase marketing).
The advantages of using primarily media advertising were its low cost-pcr-contact and high reach because almost all Brazilians, irrespective of income, are avid television watchers. One alternative would be to use 70% below-the-line communication. At $0. 05 per kg, this plan would require only one third of the cost of a traditional Unilever communication plan. On the other hand, it would lower the reach and increase the cost-per-contact. Distribution
Unilever did not have the ability to distribute to the approximately 75,000 small outlets spread over the Northeast (see photograph, Exhibit 12) Yet getting access to iliese stores was key because low-income consumers rarely shopped in large supermarkets like Wal-Mart or CarrefoUT. For distribution. , Unilever could rely on its existing network of generalist wholesalers, which supplied Unilever’s existing detergents and a wide variety of products and had national coverage, but which sometimes had to rely on secondary, smaller local wholesalers to reach all stores, which increased ilieir cost.
Alternatively, it could contract with dozens of specialized distributors who would get exclusive rights to sell all Unilever detergents in certain areas (see Exhibit 13 for a comparison of the two distribution channels) Choosing the right distribution channel was important because it was a large component of the product cost. , would be hard to reverse, and ultimately would have strong implications for the ability to push sales and build brands at points of srue.
Cite this Laundry Detergent
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