Unilever’s Five Forces Analysis (Porter’s

Model) & Recommendations

UPDATED ONUPDATED ON FEBRUARY 21, 2017 BY DANIEL
KISSINGER

A Unilever factory
in Poland. A Five Forces analysis of Unilever shows competition and consumers have the
biggest impact on the firm, based on external factors in the consumer goods industry
environment. (Photo: Public Domain)
Unilever effectively competes in the global consumer goods market. A Five Forces Analysis
(Porter’s model) of the company shows the need to strategically prioritize competition and
the bargaining power of customers in the industry environment. Michael Porter’s Five Forces
Analysis model is a management tool for understanding the impacts of external factors in a
firm’s environment. In Unilever’s Five Forces Analysis, competitive rivalry is viewed as one
of the strongest external forces, along with the bargaining power of buyers. To ensure long-
term success, the company must address the issues related to these forces. Unilever’s market
position and organizational strengths are adequate to address such forces.

A Porter’s Five Forces analysis of Unilever identifies competition and consumers as the most
important forces in the company’s industry environment. The external factors related to these
forces have a direct impact on Unilever’s financial performance in the consumer goods
market.

Overview: Unilever’s Five Forces Analysis

Unilever deals with a wide variety of external factors, considering the extent of its operations
in the global consumer goods market. However, as shown in this Five Forces analysis, such
external factors lead to variations in the intensities of the five forces impacting the business.
The following are the intensities of the five forces in affecting Unilever:

1. Competitive rivalry or competition (strong force)

2. Bargaining power of buyers or customers (strong force)
3. Bargaining power of suppliers (moderate force)
 4. Threat of substitutes or substitution (weak force)
5. Threat of new entrants or new entry (weak force)

Recommendations. This Porter’s Five Forces analysis highlights competitive rivalry and the
bargaining power of buyers as the issues with the highest intensity in affecting Unilever’s
business. The bargaining power of suppliers is also important, but has limited impact on the
company. The threats of substitutes and new entry have minimal effect on Unilever and the
consumer goods industry environment. In this regard, strategic action must prioritize
competition and the bargaining power of customers. A recommendation is for Unilever to
further build its competitive advantage through product innovation. For example, the
company can increase its investment to produce better and more competitive variants of its
current personal care and home care products. This effort should reflect Unilever’s generic
strategy and intensive growth strategies, which emphasize product uniqueness as a strategic
approach. It is also recommended that the company must enhance its customer relations to
attract and retain more consumers. For example, in applying Unilever’s organizational culture
of performance on customer relations processes, higher quality request and complaint
processing can improve consumers’ perception on the company and its brands. The company
has the strengths needed to strategically address these issues (Read: Unilever’s SWOT
Analysis: Strengths, Weaknesses, Opportunities, Threats).

Competitive Rivalry or Competition with Unilever (Strong

Force)
Competition is a major force in Unilever’s industry environment. This section of the Five
Forces analysis identifies the external factors that present the impact of firms on each other.
The strong force of competitive rivalry against Unilever is based on the following external
factors and their intensities:

 High number of firms (strong force)

 High aggressiveness of firms (strong force)
 Low switching costs (strong force)

There are many firms operating in the consumer goods industry. This external factor imposes
a strong force on Unilever. In addition, these firms are generally aggressive, further adding to
the intensity of competition. Unilever also experiences tough competition because of low
switching costs. For example, it is easy for consumers to switch from one firm to another.
Thus, a high level of competition is shown in this section of Unilever’s Five Forces analysis,
highlighting the need to consider competitive rivalry as a high-priority force in the
company’s industry environment.

Bargaining Power of Unilever’s Customers/Buyers

(Strong Force)
Unilever’s business and industry environment depend on the response of consumers to its
products. The influence of buyers on business performance is considered in this section of the
Five Forces analysis. Unilever must address the following external factors that lead to the
strong force of the bargaining power of customers:
  Low switching costs (strong force)
 High quality of information (strong force)
 Small size of individual buyers (weak force)

The low switching costs make it easy for consumers to transfer from Unilever’s products to
other companies’ products. This external factor contributes to the strong intensity of the
bargaining power of buyers. In addition, consumers have access to high quality of
information about consumer goods, making it even easier for them to decide when
transferring from Unilever to other providers. For example, buyers can compare products
based on online information. The small size of an individual consumer’s purchases has
minimal impact on Unilever’s profits. However, the low switching costs and high quality of
information outweigh this third external factor in the industry environment. Based on this
section of the Five Forces analysis, the bargaining power of customers is one of the strongest
forces affecting Unilever’s consumer goods business.

Bargaining Power of Unilever’s Suppliers (Moderate

Force)
Suppliers impact Unilever’s industry environment by affecting the level of supply available
to firms. This section of the Five Forces analysis presents the influence of suppliers on
companies. The following are the external factors that contribute to the moderate force of the
bargaining power of suppliers on Unilever:

 Moderate size of individual suppliers (moderate force)

 Moderate population of suppliers (moderate force)
 Moderate overall supply (moderate force)

While Unilever has large suppliers like foreign firms that supply paper and oil, the average
supplier is moderate in size. This external factor imposes a moderate intensity force on the
consumer goods industry environment. In addition, the moderate population of suppliers
enables them to impose significant but limited influence on firms like Unilever. Similarly, the
moderate level of the overall supply adds to such significant but limited influence of
suppliers. For example, any supplier’s change in production level leads to significant but
limited change in the availability of raw materials used in Unilever’s business. Other firms in
the industry are similarly affected. As shown in this section of the Five Forces analysis of
Unilever, the bargaining power of suppliers is a significant but moderate consideration in the
consumer goods industry environment.

Threat of Substitutes or Substitution (Weak Force)

Substitutes can reduce Unilever’s revenues and the strength of firms in the consumer goods
industry environment. The impact of substitution is determined in this section of the Five
Forces analysis. In Unilever’s case, the following external factors are responsible for the
weak force of the threat of substitution:

 Low switching costs (strong force)

 Low substitute availability (weak force)
 Low performance to price ratio of substitutes (weak force)
The low switching costs enable consumers to easily use substitutes to Unilever’s products.
This external factor imposes a strong force on the company and the consumer goods industry
environment. However, the overall impact of substitution is weakened because of the low
availability of substitutes. For example, it is easier to access Unilever’s Close-Up toothpaste
from grocery stores than to obtain substitutes like homemade organic dentifrice. In relation,
most substitutes have low performance with minimal or insignificant cost difference when
compared to consumer goods readily available in the market. This condition makes
Unilever’s products more attractive than substitutes, thereby further weakening the intensity
of the threat of substitution. This section of Unilever’s Five Forces analysis shows that the
threat of substitutes is a minor issue in the business.

Threat of New Entrants or New Entry (Weak Force)

Unilever competes with established firms as well as new firms in the consumer goods market.
This section of the Five Forces analysis considers the influence of new firms on the industry
environment. The following external factors create the weak force of the threat of new
entrants against Unilever:

 Low switching costs (strong force)

 High cost of brand development (weak force)
 High economies of scale (weak force)

The low switching costs enable new entrants to impose a strong force against Unilever. For
example, consumers can easily decide to try new products from new firms. However, it is
costly to build strong brands like Unilever’s. This external factor weakens the intensity of the
threat of new entrants against the company. Also, Unilever takes advantage of high
economies of scale, which support competitive pricing and high organizational efficiencies
that new firms typically lack. As a result, the company remains strong despite new entrants.
Based on this section of the Five Forces analysis, the threat of new entry is a minor concern
in Unilever’s industry environment.

References

 Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of
industry analysis templates. Competitiveness Review, 24(1), 32-45.
 Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces
model. Strategic Change, 15(5), 213-229.
 Roy, D. (2011). Strategic Foresight and Porter’s Five Forces. GRIN Verlag.
 U.S. Department of Commerce – The Consumer Goods Industry in the United States
– Select USA.
 Unilever – Investor Relations – Annual Reports and Accounts Overview.

TAGS: CASE STUDY & CASE ANALYSIS, CONSUMER GOODS

INDUSTRY, EXTERNAL ANALYSIS, PORTER'S FIVE
FORCES ANALYSIS, UNILEVER
COPYRIGHT NOTICE:

 Copyright by Panmore Institute - All rights reserved.

 This article may not be reproduced, distributed, or mirrored without written permission
from Panmore Institute and its author/s.
 Educators, Researchers, and Students: You are permitted to quote or paraphrase parts
of this article (not the entire article) for educational or research purposes, as long as the
article is properly cited and referenced together with its URL/link