Strategic Management Assignment (Group Activity)

Marks: 10

Unilever’s Five Forces Analysis (Porter’s Model) & Recommendation

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

1
 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

2
 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.

3
 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.

4
 PORTER’S FIVE FORCES MODEL OF NESTLE

Nestle is a multinational company which works as a brand and it has many small companies
working under it. It was initially introduced in 1867 with the launch of its first product that was
dehydrated kids food and this was very successful at that time and thus Nestle got the high
profits within no time. It touched the cruising stage within very few months of its successful
existence and this lead it to achieve even more and more.

Afterwards company did quality mergers which led it to the heights of success in quality food
products among the whole market. Nestle has always focused over their customer’s need and
demands which has made it a growing and company with a good will. And one can see that it has
become a global name today. Nestle has been successful in satisfying its customers by
innovation and other strengths of the company. Porters five forces model is very important to
evaluate the internal and external environment of the company (Porter, 2008).  Below mentioned
is the Porters five forces analysis for Nestle in which we will discuss each one in detail.

PORTER’S FIVE FORCES MODEL

Porter’s Five Forces Model is a very important tool to analyze the industrial parameters and to
develop business strategy. Here five different factors would be discussed to highlight the
attractiveness and productivity of a market. Now we will discuss it for Nestle.

THREAT OF NEW ENTRANTS

If the market is attractive the new entrants would always be a threat for the company but if the
market has been restricted to a limited resource and it has very few areas of improvement so it
becomes difficult for new entrants to get into the market and hence monopolies exist. Although
Nestle has accomplished a strong name in the market but as the food processing industry is very
huge and viable; so there are a lot of companies who already entered in this market and somehow
achieved a place in the market even though they could not cross Nestle in terms of market share. 
Every year number of companies attempt to enter the market and strive for their share of profit
and productivity in the market but very few survive. Nestle has been the leader of market for a
century almost so now it has become a very big challenge for the new entrants to not only work
over their quality but they also have to cut the share of Nestle to survive which is quite equal to
impossible. Fundamentally, Nestlé is persistently on the board, and therefore the threat of new
entrants is temperate.

5
THREAT OF SUBSTITUTE GOODS
Substitutes have always been in line whenever we talk about products market, every kind of
product has a substitute present which leads it to the heights of competition when taken
seriously. As the product is very common and daily use product so the threat of substitutes is
very high here. Like if we take the example of bottled water so the substitute of this is lean
pockets that serve as a competition. So Nestle has to innovate its products tremendously to stay
in the market and to work efficiently for removing the threat of substitutes. We can take the
example of recent innovation which is health consciousness and wellness factor that has been
introduced in all products of Nestle. Such initiatives would make it easier for Nestle to go
beyond the substitutes.

BARGAINING POWER OF SUPPLIERS

Bargaining power of suppliers is very important factor to be considered in any industry as they
are the main strength of the company. Nestle is known for strong relations with the suppliers
around the globe due to its immense buying power and also because of the fact that in such dairy
and agricultural products quality is always important. Nestle as always focused over strong and
sturdy business relations to make the ongoing quality stronger. Additionally, Nestlé also presents
helpful guidance to its suppliers on how to work more proficiently to decrease redundant
expenses. And thus it cares of its suppliers which I return pays them off in the form of quality
products.

BARGAINING POWER OF CUSTOMERS

The bargaining power of customers has always been an important factor in terms of company’s
performance so this should be given reasonable value while accessing the company’s position.
Customers carry huge quantity of bargaining power concerning their utilization of different
Nestlé products. Although a lot of substitute products and competitors Nestle customers have
very influential choices but still the quality that has been maintained by Nestle has made it very
successful among the users. It is very important to understand the power of the customers and
also their needs so that they can be better satisfied. This is what Nestle always cares about and
that is reflected in Nestle health and wellness programs that ar being used wile creation of new
products as society has in progress of becoming more health conscious. 

COMPETITIVE RIVALRY WITHIN THE INDUSTRY

Competition if healthy would bring huge success but if negative would destroy the whole
industry so it should be critically analyzed for better future of the company. Nestle has a very
strong position in the food processing industry but few major rivals do exist in the industry like
Kraft Foods and Groupe Danone. Above mentioned companies are fighting continuously to get
on to each other and avoid any sort of competition but I is still there. If we talk about marketing
and advertising these companies have spent hell of their expenditures for the purpose of effective
marketing and advertising and in competition they have always ut performed each other.
Competition is violent in the food processing industry, and this is a plus point for consumers.
Provided that these companies carry on in competing with each other, consumers will
persistently enjoy improving product qualities.

6
Question: Sketch comparative Porter Five Force Model Forces for the two given companies
i.e. Unilever and Nestle.
Note: Please sketch the model in two columns simultaneously for both the companies
highlighting the differences for each force.