Have you ever wondered how companies like Unilever stay on top despite having such a wide range of products?
Well, their secret lies in strategic portfolio management. Specifically, they rely on a tool called the Boston Consulting Group (BCG) Matrix to make smart decisions about which products to invest in and which ones to let go.
This post will explore Unilever’s BCG Matrix analysis, revealing its Stars, Cash Cows, Question Marks, and Dogs.
Learn from one of the most effective tools used by multinational corporations like Unilever for portfolio management. Join us on this deep dive into Unilever’s strategy.
Introduction to BCG Matrix of Unilever
Unilever, a major player in the consumer goods industry with over 400 brands, relies on a strategic tool to effectively manage and understand its vast portfolio: the Boston Consulting Group (BCG) Matrix.
Being the world’s third largest revenue-generating company in this sector underlines Unilever’s profound knowledge of business operations. By leveraging BCG matrix insights,
This tool known as the matrix is a strategic instrument that assists in managing portfolios by classifying products or brands according to their market share and growth potential.
The BCG Matrix serves Unilever by assisting in the prioritization of investments and divestments for its products and brands across various markets.
Its aim is to sustain the growth stages of well-established Stars and Cash Cow brands while minimizing or eliminating less profitable Dogs. This tool plays a critical role in managing Unilever’s diverse portfolio of brands, nurturing their growth, and promoting long-term sustainability.
BCG Matrix of Unilever
The BCG Matrix aids in portfolio management and has been a significant marketing tool for Unilever, the third-largest consumer goods company worldwide. Its value lies in creating a strategic plan to manage diverse products and services efficiently.
Dogs
Thankfully, Unilever does not have any product segment dealing with “dogs,” which is a term used to classify products that are no longer profitable and offer bleak prospects for the future. These products consume valuable resources that could be otherwise allocated to more promising star or cash cow brands.
Dogs that don’t contribute to other brand or product sales should be removed from Unilever’s portfolio. To maximize profits, the company must prioritize investing in its star and cash cow brands while minimizing less profitable dog brands.
Unilever’s decision to sell its Slim-Fast brand in 2014 for greater appeal and growth potential. Instead of holding onto it as a “dog” shows the company’s investment strategy to ensure its position as the third largest global consumer goods giant.
Large companies like Unilever understand that focusing on their “stars” and cash cows is paramount for long-term success. It’s interesting to note that such industry leaders rarely keep unprofitable brands within their portfolios.
Stars in BCG Matrix of Unilever
Products with high relative market share that operate in rapidly growing industries are classified as Stars on the BCG (Boston Consulting Group) matrix of Unilever. While they do necessitate significant investments to uphold and enhance their position in the marketplace. these products possess the potential to become cash cows at some point down the line.
Unilever offers a diverse range of top-performing products including Sunsilk hair care, Lux body soap, Wall’s Fair and Lovely, and Energile. These products have become popular in their respective industries with high market share and are continuously growing, making investment essential.
Another excellent example of a Star product for Unilever is Lipton, the world’s best-selling tea brand, which has managed to fuel growth of 5.6% in the last two years by investing in innovative TESS technology.
Unilever plans to invest in innovative products like Small & Mighty liquid detergent, a concentrated formula that provides the same number of washes as regular detergent but comes in a bottle one-third smaller.
This is under their Omo brand, which promises high-quality cleaning performance coupled with environmental benefits.
The Star products are crucial contributors to the company’s expansion and necessitate constant investments to harness their potential for high market growth.
Question Marks
Question marks, commonly referred to as problem child brands, are segments that fall under the category of low market share but high sales growth industries. Unilever’s food segment is a live example of such brands.
Companies’ question mark products are associated with potential for high market share and can eventually become profitable stars.
However, when the market growth declines, there is a risk that these same products can become unprofitable dogs. The three products of Unilever, Clear Shampoo Rin, and Comfort, were all classified as question marks with promising trajectories.
The current products possess a meager slice of the pie in a rapidly expanding market. Such a phenomenon is common for new entrants who are seeking to make their mark in the industry.
Unilever can transform these products into successful offerings in the future by investing more funding and increasing competitiveness with rival companies to sustain their growth rate.
Unilever must prioritize investing in these products and managing its portfolio of star and cash cow brands to secure a long-term position as a global consumer goods company. When strategically managed, question marks pose a potential growth opportunity for companies.
Cash Cows in BCG Matrix of Unilever
In the BCG Matrix of Unilever, cash cows are the products that have high market share in a low growth industry. In other words, they are the products that milk high amounts of cash despite the slow growth of the industry itself.
Home care and refreshments are two imperative segments of Unilever that belong to the aforementioned category. Despite encountering a decline in sales within their respective industries. it is vital for the company’s sustenance that these segments continue to operate at their fullest potential.
The products found in home care include liquids, capsules, soap bars, powders and other cleaning essentials. However, refreshments is composed of weight-management items, ice cream flavors and tea-based drinks that are nutritionally enhanced.
The American segment is a significant contributor, generating around 33% of Unilever’s annual revenue and can be categorized as a cash cow. Unilever strategically benefits from these low investment segments by redirecting profits towards other areas that require more growth opportunities. By investing in their current cash cows, Unilever can ensure long-term stability while also maximizing profits.
With cash cows generating high profits, Unilever can allocate these earnings towards researching and developing new products or expanding into other business segments.
Importance of BCG Matrix for Unilever
1. Portfolio management
The Unilever company utilizes the BCG matrix, a strategic tool that sorts its extensive brand portfolio of over 400 into four classes: Stars, Cash Cows, Question Marks, and Dogs. By busting down their products in such categories, Unilever can prioritize investment choices and tap divestment opportunities that maximize ROI to maintain momentum and growth.
2. Resource allocation
Unilever’s brand investment strategy follows a matrix, with a particular focus on channels displaying high growth potential. The stars and question marks require higher investments, thus receiving more resources from Unilever to boost future revenue streams while ensuring that they are investing in the right mix of brands.
3. Market analysis
The BCG matrix provides Unilever with valuable information regarding market growth rates and relative market shares. This enables the company to accurately identify opportunities and threats within each unique market. With informed data, Unilever can make better decisions about its product lines in order to optimize their performance and profitability.
4. Long-term planning
The BCG matrix allows Unilever to take a long-term perspective on its business by effectively managing and extending the growth phases of Stars and Cash Cows. This strategy helps the company maintain their profitability, generating steady revenue streams while identifying opportunities for further investment in upcoming stars.
5. Risk management
Unilever reduces the risk of unsuccessful products (Dogs) by analyzing its brand’s performance in different quadrants and re-purposing or selling those products. This method helps them create a more prosperous product portfolio while minimizing risk.
Limitations of BCG Matrix
1. Limited Classification
The BCG Matrix simplifies businesses into two categories of high and low without acknowledging the fact that most businesses fall in between. Consequently, this analysis may provide an incomplete picture and fail to accurately reflect the true nature of a business.
2. Oversimplification
The matrix’s simplicity is limited to a four-celled approach that fails to take into account other profitability drivers.
3. Ambiguity
The market definition lacks clarity in the model, which results in a state of perplexity among consumers about what constitutes a market and its influencing factors.
4. Not Always Profitable
One cannot always assume that a high market share leads to higher profits. Conversely, it is possible for low market share companies to remain profitable.
5. Inability to Account for External Factors
The BCG Matrix is limited in its ability to account for political and economic factors that may impact a company’s success. This model solely considers growth rate and market share, overlooking other key external factors.
6. Disregard for Dogs’ Contribution
While Dogs may not be profitable on their own, they may still contribute to the sales of other products within the organization.
7. Only Suitable for Large Companies
The BCG Matrix is suitable only for large corporations with diverse portfolios that help in the identification of strengths, weaknesses, and opportunities.
8. Failure to Recognize Emerging Markets
The identification model may not always recognize potential profitable markets, even when the market share is low and emerging.
Conclusion
The BCG Matrix is a versatile tool that helps manage business portfolios effectively. Given Unilever’s massive collection of products and brands, the matrix method seems to be a persuasive strategy for analysis.
Unilever can effectively allocate resources and make investment decisions for long-term success by identifying Cash Cows, Stars, Question Marks, and Dogs. This approach allows Unilever to focus on high-potential products (Cash Cows &
The BCG Matrix is a useful tool to classify a company’s products and facilitate strategic decision-making, despite some limitations such as overlooking synergies between business units and market growth. Unilever’s expert handling of its extensive portfolio serves as a model for effective portfolio planning and management using this approach.
References
The Unilever Group’s global revenue share from 2011 to 2015, broken down by product category. Assesble from.
https://www.statista.com/statistics/254217/global-revenue-share-of-the-unilever-group-by-product-segment/
Sayantani Mitra 2019. Available at: https://chinwagawag.video.blog/2019/10/20/bcg-analysis-of-unilever/
