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ABSTRACT
Porters five forces model is one of the most recognized frameworks in the analysis of
competitive environment of an organization. Porters five forces mode determines the
competitive intensity of an organization and also attractiveness of the market where in this case,
Unilever is the main focus. This model is based on five important elements of an organization
and uses both internal as well as external competences and threats faced by a business
organization.
INTRODUCTION
Fast Moving Consumer Goods (FMCG) industry also called the CPG (Consumer Packaged
Goods) industry primarily is concerned with the production, marketing and distribution of
consumer packaged goods. Examples are: Household Care, Personal Care, and Food &
Beverages. They are products which have a quick turnover and at relatively low cost. Some top
fast moving consumer goods companies are: Nestle, Procter & Gamble, Cadbury, Coca-Cola,
and PepsiCo among others.
Unilever being a global company is third-largest producer of consumer goods company
measured by 2011 revenues (after Procter & Gamble and Nestl) and it is the world's largest
maker of ice cream (CBS News, 2010). Unilever has very strong competition from other strong
multinational companies also from other regional retailers. Porters five forces model determines
the competitive intensity and attractiveness of the market where Unilever operates. The model
describes the attributes of an attractive industry and also suggests when there will be greater
opportunities and less threat in the industries. Attractiveness in this context is the overall industry
profitability and reflects on the profitability of Unilever. An unattractive industry refers to the
industry where the combination of forces acts to drive down the overall profitability.
A very unattractive industry will be one approaching pure competition from the perspective of
pure industrial theories of economics. The model is based on the five important elements of an
organization using both internal and external competences and threats faced by an organization.
These five elements includes: Substitute of new products, Competitive rivalry, Threats of new
entrants, Buyer bargaining power and the Supplier bargaining power.

COMPANY BACKGROUND
Unilever officially was formed in 1930, by merging of the Lever Brothers, a British soap
manufacturer and a Dutch margarine manufacturer (Jones, G., 2002) and has since been one of
the largest direct investors in the United States of America. Unilever is unique because it has
maintained a dual ownership structure since it started, controlled by an equalization agreement
(Van Der Oever, 2005). Although Unilever has two legal entities as its parents, the Dutch
(Unilever NV), and the British (Unilever plc), it has only one board of directors and reports one
set of financial statement (Yahoo, 2006).
Today Unilever is established in 150 countries, employs over 223,000 people, with numerous
well-known brands, 12 of which have worldwide sales each exceeding 1 billion(Unilever,
2005). The company has products for three markets, food, home and personal care, which fall
into 6 primary categories: home care (17%), spreads (12%), savory & dressings (21%),
beverages (8%), ice cream & frozen foods (16%), and personal care (26%). As at December
2011, Unilever has a market capitalization of 27.3 billion (London stock exchange, 2011).
VISION STATEMENT
Creating a better future every day in helping people feel and look good to get more out of life
with quality brands and services.
Inspiring people to take small actions always that can add up to a big difference for the world by
developing new ways of doing business while reducing environmental impact (Unilever, 2012).
MISSION STATEMENT
Adding vitality to Life to meet everyday needs for nutrition and personal care with brands that
help people feel and look good to get more out of life.
Committing totally to the exceptional standards of performance and productivity (Unilever,
2012).

PORTER FIVE FORCES

The Porters five forces model, one of the most recognized frameworks in analysis of the
competitive environment of a company determines the intensity of competition and
attractiveness of the market where a company is operating. The model describes attributes of an
attractive industry suggesting when opportunities will be high, and threats less. Attractiveness
here refers to the general industry profitability. An unattractive industry will be that where the
combination of forces acts to reduce the overall profitability of the company. Also, it is that
industry that is approaching pure competition, from the perspective of pure industrial economics
theory. Meanwhile, innovation, government, and complementary products and services are
factors that affect the five Porter forces (Porter, 2008). The Porter five forces model is based on
five important elements of an organization; it uses both internal and external competences and
threats faced by a business organization. The five forces are: substitute of new products,
competitive rivalry, threats of new entrants, buyer bargaining power and the supplier bargaining
power (Harvard business review, 2008).
SUBSTITUTE OF NEW PRODUCTS
Unilever continuously is under threat of substitute products and its competitors spend huge
amount on research and development of new product. Unilever needs to be very adoptive
and close to its customers in order to get what its customers exactly want. Continuous research
and development of the consumer and household products has brought about revolution in the
consumer market and today, consumers like to try new and better things. This trend has reduced
the customer loyalty and product life cycle (Unilever, 2011).
COMPETITIVE RIVALRY
In the fast moving consumer products business, Unilever has a large number of competitors in
which the competitors in reality are very strong. They range from small local shop retailer to the
big companies like Procter & Gamble and Nestle. These competitors provide almost equally
attractive products and services and at times even better. These competitors have the power to
attract and influence the customers by introducing more attractive substitutes, prices and
marketing techniques.

THREATS OF NEW ENTRANTS

As Unilever operates in several geographical markets, so does the threat of new entrants varies in
the markets. In developed countries where big companies like Unilever have very strong hold as
well as brand image, it is very hard for new entrant to enter the market due to high cost in setting
up a business. On the other hand, in less developed country markets, the market is easier to enter
as legal requirements and capital needed is not much. Unilever has its presence in almost every
market either through subsidiaries, branches or franchises. Therefore its brand image is a very
strong barrier in the way of new entrants.
BUYER BARGAINING POWER
Unilevers buyers are scattered around the world and are in billions. In true sense, they are not
so powerful to influence prices. But on the other hand it is easier for the customers to switch to
other competitors. Therefore, Unilever needs to take precaution in deciding about prices and also
keep customers satisfied.
SUPPLIER BARGAINING POWER
Unilever has this policy of local buying and manufacturing which provides it with an edge to
break the power of its suppliers and make negotiating power weaker at its own terms. Unilever
mostly have blanket agreements with its suppliers to provide for a certain period of time and at a
certain rate. This strategy helps to prevent suppliers from switching to other competitors and
charging higher rates. Unilever also treat its suppliers fairly in order to create more loyalty
among them like customers.

PORTER FIVE FORCES MODEL

Competitive Rivalry
Threat of New Entrant
Time and Cost of
Entry
Economies of Scale
Cost Advantage
Technology Protection
Barriers to Entry

Supplier
bargaining Power

Threat of New
Entrants

Competitive
Rivalry

Supplier Power
Number of Suppliers
Size of Suppliers
Ability to Change
Cost of Changing
Threat of Substitution

Number of
Competitors
Quality Differences
Switching Costs
Customer Loyalty

Buyer
bargaining
Power

Buyer Power
Threat of
Substitution

Number of Customers
Difference between
Competition
Price Sensitivity
Ability to Substitute
Cost of Changing

Summary - Porter Five Forces

Factor

Current
Ratin

Future
Ratin

Key Rationale

Key Rationale

Y-4

Y-9

Y-8

Y-2

Y-2

Threat of New Entrants

Competitive Rivalry

Threat of Substitute Products

Supplier Bargaining Power

Buyer Bargaining Power

Factor

Threat of New Entrants

Rate of Industry Growth

Characterizatio

Future

n
(current)

Trend

Y-H

Excess Capacity

Competitive Rivalry
Significant Economies of Scale
Entrants Access to Raw Materials

Y-M
N

YL
YL

Threat of Substitute Products

Availability of Close Substitutes
Price Elasticity of Industry Demand

Y-H
Y-L

H
YL

Supplier - Relative Buying Power

Few Substitutes for Suppliers Input's
Is Supplier Industry more Concentrated than Industry itself

Y-L
N

YM
YL

Buyer - Relative Buying Power

Do buyers pose a credible threat to backward integration
Y-M
Does product represent a significant fraction of cost in buyer's

YM

business

YM

Y-M

CONCLUSION AND RECOMMENDATION

Unilever is operating in a high competitive and volatile environment especially with the current
economic crisis which has made it difficult for a lot of business to operate profitably. Legal
requirements, technical changes and change in the habits of customers created problems for the
businesses. Because of these factors, companies like Unilever have to be updated and continuous
research and development is a solution to many of the problems. An attractive business can be
said to be one with higher margins and low competitions. Therefore, the environment in which
Unilever operates is one with higher level of competition and low level of profit margins. In this
case, the best strategy is to keep customers satisfied which in turn make them loyal, continuous
research and development, cost control and be responsive to the competitors.

REFERENCES
1. CBS News (2010). An Ice Cream Machine That Measures Smiles. CBS News. 25 June
2010. Retrieved 7 January 2012.
2. Harvard Business Review (2008)
3. Jones, G., Lina G. (2001); Foreign Multinationals in the United States(London, 2001).
4. London Stock Exchange (2011). FTSE All-Share Index Ranking"stockchallenge.co.uk.
Retrieved 26 December 2011.
5. Porter, M.E. (2008) The Five Competitive Forces That Shape Strategy, Harvard business
Review, January 2008.
6. The Wall Street Journal (2006) (Eastern ed.). P. B8. Retrieved February 5, 2006, from
Business Source Premier Electronic Database.

7. USA Today (2012) Unilever buys some Sara Lee businesses for almost $2B". USA
Today. 25 September 2009. Retrieved 7 January 2012.
8. Van den Oever, R. (2005, December 20). Unilever simplifies ownership regime, keeps
two parents.
9. Yahoo (2006). Yahoo finance webpage. Retrieved February 5, 2006, from
http://finance.yahoo.com.