Fighting for the next billion shoppers

The long battle between Procter & Gamble and Unilever is intensifying in the developing world.

Both firms are trying to “straddle the pyramid” by offering products in each category aimed at three different sorts of consumer: high-end ones, who have essentially the same tastes as their counterparts in America or Europe; the rapidly emerging middle class, where the challenge is primarily to get shoppers to devote more of their spending to branded goods; and those at the bottom, who may never have brought any branded product before.

P&G is reckoned to have been slower at “reverse engineering” its products to be affordable to poorer customers: ie, starting with the price the customer can pay, then working out how to deliver a product profitably. Unilever started doing this years ago, by selling shampoo in small sachets as well as in pricier bottles. In Indonesia, one-third of Unilever’s revenue comes from purchases costing 20 US cents or less.

However, P&G is beginning to work out what these extremely demanding customers want. Its Olay shampoo is now sold in sachets. In India, P&G has launched Guard, a cheap new razor which, because customer research suggested it is likely to be used just once a week, comes with a comb in front of the blade to make the shave smoother.

P&G is one of the world’s most thoroughly integrated multinationals, whereas Unilever has only recently been reintegrated from a clutch of regional fiefs and continues to have two headquarters, in London and Rotterdam. This may have helped the Anglo-Dutch firm strike a better balance of global and local in developing markets compared with Cincinnati-centralised P&G.

Even so, both face threats from agile local firms. “Decisions on how to innovate, say, [Unilever’s] Lux brand will be made by the global head of Lux, who will try to satisfy many different markets at once, which can marginalise some markets as well as being slow and bureaucratic,” says Vivek Gambhir of Godrej, an Indian consumer-goods firm. “We can get innovation done much faster, in three or four months.” The lower profit margins available in developing markets may have discouraged P&G’s brand managers from expanding in them, until they were ordered to do so, by which time they were playing catch-up, says Bernstein’s Mr Dibadj.

Soups, soaps and science

Whereas both firms have innovation centres around the world, P&G’s Cincinnati focus may have made it less effective than Unilever at “distributed innovation”.

Consumers in Britain, continental Europe and Turkey have embraced Knorr Stock Pot, a bouillon jelly developed for Chinese consumers, who disliked existing packaged soup. Likewise, Clear, an anti-dandruff shampoo designed for China, where hair is thick, black and infrequently washed, is now being rolled out in America.

Starting in 2010, Unilever has launched Dove For Men soaps simultaneously in more than 20 countries, including Brazil, “far more efficiently than it would have done in the past”, says Martin Deboo, an analyst at Investec. He attributes this to Mr Polman’s focus on “better execution” since taking charge in 2009, a goal Mr McDonald embraced in Paris. In consumer goods, “strategy is only 10%; 90% of success is down to execution,” Unilever CEO Paul Polman has said.

These are still early days for both firms in the developing markets, which unlike rich countries may have many decades of high growth ahead of them. For now, Unilever may be doing better, but elements of its developing-market growth strategy remain as unproven as whatever P&G’s updated strategy turns out to be….

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