POLYTECHNIC OF NAMIBIA

SCHOOL OF MANAGEMENT SCIENCES

DEPARTMENT OF MARKETING AND LOGISTICS

MARKETING SECTION

STRATEGIC MARKETING MANAGEMENT: ANALYSIS ... & DECISION MAKING

BACHELOR OF MARKETING & HONOURS PROGRAMMES-21 BMRK & 08HMAR

SUBJECT CODE: SMG811S

DATE: November 2014

DURATION: 2Yz Hours

MARKS: 100%

EXAMINERS: Mr. V. Somosu & Ms. C. Chipeio

MODERATOR: Prof. A. Ghamsari

2N° OPPORTUNITY QUESTION PAPER

(This Question Paper consists of 3 pages including this front page, but minus the appendix)

INSTRUCTIONS

Answer all questions and sections in this question paper

Use the case-study given to you earlier which is also provided as appendix A (17 pages in all) to this question paper as your guide to answer section A

Be as precise as possible in your answer by going straight to the point.

Read each ques tion very carefully for a proper understanding of i t b efore attempting i t.

The use of calculator is allowed

Please note that there is no box to think outside of!!

AN OPEN BOOK EXAMINATION!!!

SMG811S 2N° OPPORTUNITY-EXAM-2014-QUESTION PAPER SECTION A: CASE ANAL YS/S QUESTIONS-UN/LEVER

Additional Information about Unilever

Gary Scattergood, Food Manufacture, May 2013

BOMARKS

Manufacturing giant Unilever is to begin trialling dual-fuel technology for its fleet of vehrcles in a bid to slash carbon emissions and cut costs, while also pressing for more collaboration between food firms to reduce the number of vehicles on the road.

The projects are part of Unrlever's Sustainable Living Plan, its 1 0-year blueprrnl lo double the size of the business, while reducing its environmental impact. Its year two update publrshed on Aprrl 22'd, showed that the company cut carbon dioxide emissions by 10% during 2012 and has now eliminated 1 Mt of carbon dioxrde from its manufacturing and logistics operations since 2008.

Lorrarne Amos. supply charn/logrstrcs project manager for Umlever UK and Ireland, said the firm·s marn focus over the past two years had been on filling trucks more efficrently so there were fewer and fuller shipments including storing food products next to homecare goods when rt had proved safe to do so.

During the next 12 months, however, the firm's focus wrll turn towards new technology and dual trrals where vehicles can run on petrol and lrquefred petroleum gas. 'We are looking at a number of new technologres." she said. "This will get a mrnimum of 10% reduction in the amount of fuel and rf you add that up by the number of trucks we have on the road, you'll start seeing a brg impact."

Almost 70% of Unrlever UK and Ireland's plan to improve carbon efficrency for 2013-15 rs driven by landfill and network design.

Amos said that the increasing focus on sustainabrlity and changes in retailer requirements were also providing greater opportunities for food and drink manufacturers to work together to pool deliveries. provided retailers and third-party logistics providers helped facilitate such agreements "Our flexible network is enabling us to work with one of our major retailers and other manufacturers in order to combine daily retailer orders into one consolidated load," she said.

Back in 2007, Food Manufacture reported on a similar collaboration between Nestle and competrtor Unrted Biscuits, and collaboration between Unilever and Kimberly Clarke in The Netherlands.

Unilever's latest scheme sees DHL deliver goods from rts Bawtny warehouse where rt is combrned with products from other manufacturers. This replaces the need for several separate deliverres.

Amos added: "there are further opportunrties for collaboratron and workrng together rn terms of logrstrcs, proved there is the wrll."

Unilever has now set targets for rts logrstics partners to frnd ways of using rts network wrth other firms to further improve sustainability and drive down costs. Adapted from 2013 William Reed Business Med1a Ltd

Important hints: You are self-employed marketing consultant who has been hired by Unilever You have been asked to undertake a strategrc marketing aud1t to analyse their current market position in order to understand Umlever's optionsla/lematives for growth and profitability. You have been g1ven responsibility or remit/job to consider Unilever's current strategic position and the key issues that may impact upon Umlever m developmg Its future vis10n and miss1on

Finally. you will need to consider the fmancial implications and 1mpact of Corporate Social Responslbl/lfy (CSR) on how Unilever engages with Its stakeholders wh1lst stnvmg to deliver its strategy and maintam Its global presence.

With reference to the case study, your previously prepared efforts/readings on the case at hand (Umlever) and the additional information include in this examination paper, you have been asked to produce a report that addresses the following tasks/questions.

SMG811 S 2ND OPPORTUNITY-EXAM-2014-0UESTION PAPER

Question 1:

Critically evaluate Unilever's current strategic position (using any two relevant theoretical frameworks from: EN/SLEPT, PEST, PIMS, the McKinsey 7S (seven-S) framework etc.) and key factors that will contnbute to the future growth and profitability of the company. 20

Question 2:

Critically analyse how Un1lever should manage its stakeholders as a means of achieving growth and profitability. 20

Question 3:

Critically assess the impact of Corporate Social Responsibility (CSR) on Un1lever, and explain how the organisational strategy and structure can contnbute to success of an organ1sat1on 20

Question 4:

Using any relevant theoret1cal framework/model- Porter's generic strategies, alternative directions/methods, Ansoff's Matrix, BCG Matrix etc, recommend, w1th JUStification, one strategic option or market-based strategy that you think Unilever should adopt to ensure 1ts future success 20

SECTION 8: GENERAL QUESTION NOT RELATING TO THE CASE-STUDY 20 MARKS

Question 5:

I. Bnefly explam the essence (at least four reasons) of performing a customer profitability analysis by a bank like Standard Bank. 8

The table-2.1 below depicts the market for small urban cars. Using the table below:

II. The CEO of Bowlz wants to know his firm's market share relat1ve (in revenue and unit sales) to the market leader- explain the l1kely reason(s) for any difference 1n both results in revenue and unit sales if any 12

Table 2.1 Market for Small Urb;m Cars

Units Sold (Thous;mds) Revenue ( Thous;mds)

Zipper -----------

Twister 10.0 !'200 ,01)1] ----------

A-One 7.5 !'187,500

13owlz €125,000

Chien 2.5 €50,000 --·--------

Market Total 50.0 €93 7,500

Culled from Farris, Bendle, pfeifer and Reibstein-Marketing metrics: The definitive .. ｾｲｊ＠ Edition, 2012

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Unilever

Introduction

Undever IS one of the worlds super companres_ Accord,ng to rts own webs1te. someone somewhere chooses a Unrlever product 160 million trmes a day Unrlever products are sold rn ·over 190 countnes' (out of the 196 countrres rn the world) Th1s translates into 2 brllion consumers around the world us1ng a Un1lever product on any g1ven day In total, there are 170 brllton Umlever products purchased each year In order to support such a mass1ve undertakrng. Unrlever employs 171,000 members of staff (2G11 Annual Report)

The Un1lever Group (Unilever) JOrns together two pr1nc1pal (parent) public lrmrted companres operatrng as a smgle entity_ Unilever NV, reg1stered rn the Netherlands and Unilever pic regrstered 1n England and Wales Addrtronally, rt has listmgs of shares on Euronext Amsterdam and the New York Stock Exchange The two companres have the same drrectors In addrtion Unrlever holds a number of other com pan res and collectrvely, as the Unllever Group. operates as a srngle economrc body reportmg consol1dated f1nanC1al statements Its mrssron, as stated rn the company's 2011 Annual Report, IS as follows

We work to create a better future every day We help people feel good, look good and get more out of life wtth brands and servtces that are good for them and good for oH1ers We wtlltnsptre people to take small, everyday acttons that can add up to a btg dtfference for the world We will develop ne\v ways of doing bustness wtth the atm of doublmg the stze of our company while reduang our envtronmental impact (Source 2011 Annual Report)

Unrlever owns many of the world's best-known brands in the fast-movmg consumer goods market Many of them are the sector leaders The company competes rn 11 categones and is global leader 1n seven of them In fact rn more than tnree-quarters of rts bus1ness, rt has the leadmg or second placed brand Its top 12 brar.ds eacl1 enJOY annual sales of e:1 brllton or more These comprise

Axe/Lynx (deodorants and shower gels) Blue Band (nutrrtronal margarine, cheese spreads and cream alternatives) Dove (beauty soaps, morstunsers, shampoos. condrt1oners antiperspirants and deodorants) Becei/Fiora (healthy low fat spreads and health drrnh.s) Heartbrand (rce creams) Hellmann's {mayonnatse ana mustard) Knorr (soups, stock cubes and sauces) Lrpton (teas and infusrons) Lux (beauty soaps) Omo (detergents and fabric condttroners) Rexana (deodorants) Sunsilk (shampoos and condrtroners)

Altogether Its top 20 brands account for 70'/J of all Undever s salts

Desprte is staggerrng srze, its goal rs to grow by 1 00",0 whrlst reduong rts enwonmental footprmt through rts Sustamable L1vrng Plan. Its prtorrtre:> for growth are for 1ncreasrng market share and expandmg volumes In all regrons and categor1es Growth in the ernergrng markets forms a signrfrcant part of this plan_ Much of Unlleve(s growth over the years IS attnbutable to acqursri10ilS. In 2009 and 2010, a fur1her €4.6 brllron of acqurs1trons were undertaken or announced. mclud1ng the taheover of the Sara Lee personal care busmess for €2 7 billion

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Thts conttnued durmg 2011 wtth the acqutstlton, amongst others. of Alberto Culver. a hatr product manufacturer wtth brands tncludtng TRESemme Untlever also dtsposed of Sanex {soaps) durmg the year Brands and rnno,.at10n form the essent1al components of Unilever's approach. The company's am11S to be 'b1gger. better and faster than anyone else teveragmg rts technology, channels of drstnbutron and economres of scale It strives to use innovatrons m one product to support advancement 1n another For example, the technology for whiten1ng !abr1cs 1n detergents IS fundamentally the same as the one Un1lever uses 1n rts toothpaste

The performance of Unrlever dunng 2011 was affected by turbulence and mstab1111y rn globdl markets Demand rn the Eurozone remarned vrrtually statrc due to the drfficult1es over the Eurocurrency, whilst trad1ng m North Amenca was also sluggish, rncreasing at a slower rate than prevrously expected Growth rn the total value of sales m Western Europe was only 0 7%, whrlst overall sales by volume actually decreased by 1 2% The economrc srtuat1on also added costs to supplies and production. Commodity pnce rncreases added €2.4 bdllun of costs Consequently, growth m the developed economres fell to 0 8% However, 1n th<O emerg1ng economres (espeCially lnd1a, Chrna. Turkey and South Afnca. in whrch regrons percentage growth remamed m double drg1ts), Undever enjoyed continued growth, although rt rs m these marhets thal1l expenences the greatest levels of competition Overallrn 2011 1ts sales grew by 6 S01C, wrth 11 5% growth in the emergmg economres, whrch account for more than half {54%) of rts total turnover

History of Unilever

As a conglomerate there are several strands to the h1story of Unllever The company has roots rn both the UK and the Netherlands Perhaps its most recognrsable ongms lie rn the 1880s rn the north of England, where a grocery wholesaler belongmg to the Lever fan111y run by W1ll1am Lever started to manufacture Sunlrght Soap, designed for washmg dothes Lever & Co was establrshed for thrs purpose rn 1884 Unlike most tradrtronal soaps of the t11ne rt contarned prne kernel orl, which meant that it would lather more readrly What also m:Jde 11 stand out was rts bnghtly coloured packagmg and the fact that 1ts creators had grven 11 a brand name. Sunlight, a ranty for such a product By 1887. the company was already tnakrng 450 tons of Sunlrght Soap a week Wrlliam Lever purchased a large s1te rn Lrverpool wt11ch he named Port Sunlight and where he built factories and houses for hrs workers and the1r fam111es In 1890 the ftrm became rncorporated as Lever Brothers Ltd It was based upon rrs mrssron, allred torts product Sunl1ghl Soap

to make cleanlrness commonplace, to lessen work for women, to foster healtn <.Jnd contnbute to personal atll actrveness. that life may be more enjoyable and reward1ng for the people who use our products

The product was ground-breakmg for 1ts day and the company that went on to become Un1iever embraced philanthrOpiC ideals to support the cause of rts workers and the1r fam1l1t:s ｨｾｬｰｲｮｧ＠ make advances 111 socrety through better hygrene and nutrrtron, enrrchrng commonplace food stuffs wrth v1tamrns and makrng soaps and detergents ava1lable for all These sarne prmcrples are present rn the company's approach to corporate socral responsibility today woth products that rnclude laundry agents requirrng less water and mrn1mal pachagrng. and food that 1s healthy. easily prepared and affordable

Extend1ng 1\s range to personal hygiene 1n 1894 the frrm launched Lrfebuoy Soap and llecome a publ1c ilm1ted company In 1899 rt Improved upon Sunlight by ｲｮｴｲｯ､ｵ｣ｲｮｾ＠ ｓｵｮｬｲｧｾｈ＠

Flakes, subsequently known as Lux Flakes Other products followed qurckly For example Vrm. a household scounng agent was launched rn 1904 By thrs stage the company was extendrng 1ts react1 overseas tt became rncorporated in South Afnca and rapidly e>.parltkJ rnto Europe. Australia the Unrted States and the Pac1f1c Run

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In 1907, Lever Brotr.ers, as 11 was then known was accused in the press of restncting the manufacture of the raw matenals needed for soap and puttmg up prices It won substant1al damages agamst the newspaper, but th1s was an md1cat1on of how powerful the company had already become that it should be subJect to cntJcJsm and professional jealousy_ It also highlighted how important 11 would be to secure stable sources of raw materials Without bemg at the mercy of supplier monopolies Lever Brothers started to acqu1re mterests 1n palm 011 productiOn and form trade asSoCiatiOns w1th other ftrms wtth a common 1nterest m ｷｾＱ｡ｬ･＠ 011. fats and other raw matertals

By 1914, those compan1es under the control of Lever Brothers were manufactunng 135,000 tons of soap per year. In 191711 acqu1red Pears Soap and also moved 1nto marganne produc\Jon, drawtng upon stmilar raw matertals as those needed for soap

The 1920s saw further expans1on through acquiSitions and dtverstfJcatJon, 1nclud1ng the takeover of Walls to produce sausages and 1ce cream. By 1929, the company was responstble for 60% of the UK's soap cutput. and 1t became Unilever as the result of an amalgamation wtth a margarme manufacturer

The economic hardShips of the 1930s forced a penod of rat1onalisat10n and cutbacks for Unilever Dunng this It me 11 reduced tiS 50 soap manufactunng tnterests 1n order to focus on key brands. The Second World War had a major tmpact on the bus1ness, w1th some of 1ts tnterests being lost altogether Soap and rnarganne were regarded as essential products and Un1lever supported the war effort by prov1d1ng free soap and Ltfebuoy vans that delivered much needed mobile hot showers around the UK

In 1943 Umlever acqUifed Batchelor's. a manufacturer of freeze-dr1ed food products After the war 11 was able to reconnect w1th most of 1ts mterests overseas, but 11 conttnued to operate on a decentralised structure

The 1950s and 1960s prov1ded an opportunity for rapid growth 1n a penod of post-war economtc boom Innovative products such as Sunsilk shampoo, G1bbs SR toothpaste and f1sh f1ngers were launched UK commercial TV mtroduced a new channel for promotton 1n 1955 Un11ever further d1vers1f1ed mto market research, packagmg and advertistng serv1ces

The 1970s proved to be more challengmg for the world economy generally 1n tt1e face of an 011 cr1sts. However Umlever contmued 1\S expans1on By the start of the 1980s 11 was the 26th largest busmess m the world It went on acqUifmg b1g names includmg Brook Bond tea, Cheseburgh-Pond sin the US (owner of Ponds and Vaseltne), Calv1n KJem. Elizabeth Arden and Faberge

After such growth and expans1on. Un;lever went through a phase of restructunng and consoltdatton m the 1990s, reducmg the categor1es m whJd', 1t competed from 50 to 13 Many brands were sold or wtthdrawn and four core bustness ､ｩｾｊｳＬｯｮｳ＠ were created

Home Care

Personal Care

Foods

SpeCJal1ty Chemicals

Thts last has more recently been replaced by refreshments

Unilever in the 21st century

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The last ten years have perhaps been the most dramatic 1n the long h1story of Un11ever Follow1ng the changes eHected m the prev1ous decade, there has been further organisatiOnal upheaval, coupled w1th a major in1ttat1ve to reduce enwonmental1mpact There have been more acquJSI\Ions and further ratiOnalisatiOn, especially 1n productton and manufactunng In 2001, 11 cut the number of 1ts brands from 1 ,600 to 900. and 1n the follow1ng year 87 bus1nesses were sold oH, ra1smg proceeds of €6.3 billion Attempts have been made to ensure that all of Un1lever s subsid1ar1es are aligned to a single strategy

Its un1fy1ng strategy hilS been revtsed and updated and IS now summansed by the folluw1ng

a'm

to meet everyday needs for nutntion, hyg1ene and personal care With brands that t1elp people look good, feel good and get more out of life

The company recogn1ses the major changes that have taken place m the way consumt:!rs shop not just how they go about 1t but the sooal, enwonmental and eth1cal factors that tnfluence lhe1r deCISion makmg Unilever has responded by strengthening its comm1tment to sustatnable poi1C1es It also sponsors educational campa1gns such as 1ls hyg1ene progr ammt: 1n rural commumt1es 1n lndta It has made a comm1tment to switChing to sustamable sources of palm 011 by 2015 and to enwonmentally fnendly methods of tea production by the san1e date In 2008. Umlever became the first company to be named the leader in the food sector of the Dow Jones susta1nabJiity 1ndex for the tt:nU1 year 1n a row

Business strategy

Unllever developed a document called Compass, wh1ch 1t launched 1n 2009 In 1t, tile company expresses 1ts business strategy for 1ts employees and others who may t10ld a stake. such as mvestors and customers At the heart of this is the aim to create a better ltfe for customers and the1r commun1t1es Un1lever works dosely w1th suppliers. retatlers and consumers to ensure tiJat the central message and core values of the company are delivered at a local level throughout the world 'Achiev1ng sigmficant growth objecttves wh1le decoupl1ng growth from enwonmental1mpact IS a bold but challengmg VISIOn.' says Unilever CEO Paul Pol man ·Not many compan1es have yet taken 11 on But I believe 1t's the only v1able VISIOn_ One that builds on Un1lever's long-term hentage and achievement. while supportmg a responstble future' (Compass, 2009)

The company has f1ve key prtorttles

a better future for Children. wh1ch IS supported by brands such as toothpastes S1gnal and Close-Up encourag1ng children to brush regularly, and adverts for detergents Omo and Pers1l declaring that dirt is good, as mud and grass slams are s1gns of an act1ve healthy childhood and can be easily removed

a healthter future, w1th products lrke Flora and Becel rnargartne reduc1ng cholesterol levels, and a campa1gn for Lifebuoy soap promotmg hyg1ene WhiCh IJas reached more than 70 m1llion people m rural lnd1a

a more conf1dent future w1th advert1s1ng campaigns for products like Dove usmg ·real women' mstead of models

a better future for the planet, w1th Unilever's Cleaner Planet Plan together w1th 1\S leaa1ng detergents encouragmg consumers to make critical changes to how they wash thetr clothes and so reduce water and energy consumpt1on

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a better future for farrnrng and farmers. as Umlever relies tncreasmgly on ustng mgredtents that have been Independently certtfted as sustatnable

Brand management and development

Unilever tS very aware of the tmportance and value of tts brands and tnvests heavtly tn thetr protectton and development It spent €6_1 bdlton on marketmg and promotton tn 2011. The company has a programme for ongotng tnnovatton, tmprovement and expanston Accordmg to tiS 2011 Annual Report ·the product ts the hero·. and thts begtns wtth careful testtng at a local level agatnst the brands of tis competttors ·whether tl s toothpaste in lndta tea bags m Russta, laundry ltqutds tn Turkey or boutllon in South Afrtca_ we want to fmd out what consumers destre from our products. whether they prefer them and why

Research and development. and the agiltty to enable raptd introductton are very tmportant parts of the bustness strategy. For example, new molecular technology makes tt posstble for tiS deodorant Rexana to deliver fragrance through the day as tl responds to the malton of the wearer Another element in tis strategy tS makmg sure that wherever posstble the organtsauon as a whole takes advantage of new breakthroughs Thts has resulted, for example, tn ustng the same molecular technology tn tis detergent Sktp A combtnatton of better markettng, better tnnovatton and expanston tnto new markets forms the backbone to tis strategy and has led to Dove being Untlever's ftrst €3 btllton personal care brand

Wtth such a large global presence. Untlever focuses on respondtng to a growing world populatton and seekmg advantage accordtngly Its approach tS summartsed as reachtng up {ensunng t! has premtum brands for more affluent consumers), reachtng down (addressing the needs of those consumers Wtth lower tncomes) and reachtng wtde (reaching out to new market segments)

Unilever performance

Despite world economtc condtttons, Untlever enjoyed a successful ftn:.H1Ci<JI year tn 2011 Durtng the year it was able to make cost savtngs of €1.5 btllton (wtth savtngs of €1.4 btllton the year before) In 2010, tt launched over 100 of tis brands tnto new marKets and was able to demonstrate conttnuing tmprovements tn the speed with whtch new tlems start generatmg tncome The proportion of income generated from new products launched tn the last two years exceeded 30%, tn 2011_ One of tis new products, Axe Exette was launched tn over 100 separate markets tn JUSt over a year In 2010, tn terms of volumes of saies tt had tiS largest growth for over 30 years, although th1s slowed fatrly stgntftcantly tn 2011 Growth tn volume was 5.8% in 2010 for the year. compared with 2 3% tn 2009 and only 0 1% tn 2008 However, growth slowed to 1 6% in 2011 Nevertheless. growth was sustatned tn nearly all of the geographtcal reg tons tn whtch tl has a presence (whtch ts nearly everywhere tn the world) and tn most of its categones Gro'Nth was parttcularly strong tn Asta, Afrtca, and Central and Eastern Europe_ These regtons. together wtth Laltn Amertca, constttute more than half of Untlever's total bustness. Overall 54% of tis tncome comes from emergtng markets, and lhts ftgure tS as follows

In the Amertcas, volume growth was 0 4% tn 2011 (compared wtth 4 8% in 2010) and IOta I turnover €15.3 btllton (compared wtth €14.6 billion tn 201 0) In Western Europe, volume declined by 1 2% tn 2011 {compared wtth growth cf 1 4% tn 2010), wtlh total turnover of €12.3 btllton (compared wtth t12 0 btllton tn 2010) In Asta, Afrtca and Central and Eastern Europe, volume gro'Nth was 4 2% tn 2011 (compared wtth 10_2% tn 2010) and turnover was (19 0 btllton tn 2011 (compared With €17_7 btllton m 2010)

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The company conttnued wtth tis programme of select acqutsittons and divestments In 2010 acqutstltons tncluded the Sara Lee Personal Care range (tndudtng Radox) It also dtsposed of busmess that collecttvely had a turnover of €600 million, tncluding tis tnlerests tn frozen food tn Italy

Key financial periormance indicators 2011

Underlytng sales gro'Nth for 2011 was 6 5% (compared wtth 4 1% tn 2010), betng a combtnatton of pnce growth (4 8%) and volume growth {1 6%. compared wtth 58% tn 2010) 11 5% of the gro'Nth emanated from emergtng economtes. Overall turnover grew to €46 5 btllton

In personal care. underlymg sales growth was 8 2% tn 2011 and turnover was €15 5 btllton In refreshments, under1ytng sales growth was 4.9% and turnover was €8.8 btllton In home care, under1ytng sales growth was 8.1% and turnover was €8.2 btllton. In foods, underlying sales growth was 4.9% and turnover was €14.0 btllton.

Unilever corporate social responsibility

In 2010 the company launched tis Sustatnable livtng Plan_ Thts tS expressly destgned to temper the bold expanstontsl atms and ensure that growth comes with due care and responstbtltty The atm tS to mintmtse envtronmenlaltmpact and maximtse soetal beneftts The company has long expressed tnterests in sustatnabtltty and ethical pnnaples It has run educational programmes tn hygtene and nutntton, for example In its food products tl has made great stndes tn reductng saturated fats, sugar and salt. It has also been reductng ｃｏｾ＠emisstons, water usage and wastage

Its VISIOn ts to double the stze of Untlever whtle reducing tts enwonmental footpnnt and these two elements are closely connected In tiS vtew tl can only achteve such growth by operattng sustatnably Sustatnable growH1tS deftned by Untlever as growth that

tS conststent tS compettttve ts profttable meets maJOr soctal and envtronmental needs

The CO!e of the Sustatnable Ltvmg Plan rests on three targets for 2020

We wtll help more than a btllton people take actton to tmprove thetr health and weii-Uemg We wtll halve the envtronmental tmpact of the makmg and use of our products We wtll source 100% of agncultural raw matenals sustatnably

Wtthin the detatl of the plan there are 60 targets, and success htnges upon tnnovatton and technology The bust ness model underptnntng the plan focuses on

great brands- these are bt ands the consumers can trust to be responstbly produced and destgned to enhance ltfestyles and so command great loyalty and afftntly busmess performance- thts ts drtven by the strength of brands and relies upon sustatnabtltly, whtch Untlever regards as being part of its untque selling potnt great people- the employees at Untlever are regarded as being of central tmportance to the delivery of tts objecttves and so there ts a focus on recrUitment, reward and talent management sustatnable ltv1ng - Un1lever ts happy to recogntse the compettltve advantage of b.;tng regarded as helptng people ltve more sustainably through lhetr chotces of products

ｐｩＡｧｾ＠ 14

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Ur.1lever has cont1nued to make progress on 1ts environmental targets For example the amount of water 1! uses m product1on has fallen steadily In 2009, the amount of water requ1red per tonne of produCtiOn was 2 81 cub1c metres In 2010. lhts fell to 2 68 For 2011. thiS f1gure stood at 2 48 S1milarly. the amount of wastage produced has also fallen from 6.52 kg per tonne of production to 6 46 kg In 2009, the amount of C02 released from the energy consumed per tonne of produciiOn was 142 6 kg, and m 2010. 11 was 133 59 kg In 2011. thiS fell further, to 117 41 kg Total productton waste per tonne of productton was 4 77 kg 1n 2()11, down from 6 48 kg the year before

For ItS ambitions w1th regard to corporate social responsibility, Un11ever sets 1tself a number of key performance 1ndtcators For example, the number of people reached v1a tts L1febuoy handwashing programmes promoting good hyg1ene was 34 5 mtlllon 1n 2011 (compared with 13 5 mill1on in 2010) Also. the percentage of 1ts products that meet the target of an equtvalent of 5g of salt a day was 61% tn 2011 (compared w1th 60% the year before) Gams have been made not just m the productton process but in how consumers use products For example, Comfort One R.nse reduces the amount of water needed by two Ullfds Thts IS particularly benef1etal for those who do the1r laundry by hand 1n a bucket, whtch IS true for large numbers of Un1lever"s customers. It could rtsult m a sav1ng of 30 lit res of water each ttme The use of L1febuoy soap IS bemg promoted to fight global killers such as d1arrhoea and acute resp1ratory 1nfect10ns Planned prOJects target up to 1 bill1on people whose l1ves may be improved by 2015 by usmg L1febuoy soap

Other Un1lever products and brands contnbutmg to sustainable grov.th mclude Pureit, a chemtcal capable of makmg water safe to drink Without hav1ng to use energy to heat tl or deliver it under pressure, Knorr meals, wh1Ch are cheap, nutnt1ous and eas1ly prepared wtth m1n1mum energy input. Ltpton. wh1ch draws all of lis tea leaves from sustamable sources and takes act1ve measures to 1mprove the llvel,hood of tt1e workers and the1r environment. and Dove beauty and personal care products. wh1ch promote better hyg1ene

Working with retailers

Umlever continues to embrace the fundamentals of good bus1ness m a1mmg to deltver to the customer the nght product at the nght t1me. It 1s well aware that reta111ng is largely domtnated by a relat1vely small handful of very b1g players Global reta1lers of fast-mov1ng consumer goods like Walmart, Tesco and Carrefour have thetr own challenging targets for expansion Un11ever offers support to enable them to expand successfully mto new locations Untlever has created what 11 calls Customer lns1ght and lnnovat1on Centres These are designed to help reta1lers adopt new approaches to p01nt of sale displays and m store promot1ons Untlever 1s able to adv1se retatlers on tne charactenstics of certa1n markets and so max1m1se the1r 1m pact Thts model, ftrst trtalled 1n New Jersey 1n the US, has nov. been exported to London. Par1s. S1ngapore, Shanghai and Sao Paulo

Un:lever measures 'on-shelf availability', tnd1catmg how effect1vely 1ts products are made available by retailers in a ttmely and access1ble manner Unilever ass1sts retailers wtth process re-eng1neer1ng, to 1m prove the speed and effect1veness of gett1ng products on the shelves for customers to buy Accordmg to 1ts own f1gures. Un1lever's on-shelf availab1l1ty has 1ncreased to 92% as a result of these m1ttat1ves. Tesco recogn1sed un,Jever s ass1stance by namtng the company tnternat1ona1 supplier of the year 2010/11

Unilever advertising and promotions

In 2010, Un1lever spent €6 btllion on advert1s1ng and promot1ons. malqng 1! tile second b1gyest advertiser m the world Th1s 1ncluded sponsor1ng a TV senes nl Ch1fl<:J. us1ng 1ts brand Clear sr1ampoo Th1s won the company vast exposure to a key target aud1ence at over 85%

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less than the cost of conventional means Due to cost constraints in 2011, thts ftgure was mcreased by only €150 n11ll1on. although thts contmues to be regarded as an essenttal mvestment for the long-term

Th1s investment is so substantial that the company IS very keen to measure the return 11 gets and sets great store by market1ng metr1cs It exerases great care In mounttng its campaigns It has developed 1ts own analyttcal models Dunng 2010, 11 held more than 500 additiOnal pre-tests 1n ad·vert1s1ng compared w1th 2009. and doubled the number of market1ng in1!1at1ves thot 11 was monttonng closely

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Unilever supply chain strategy

In trytng to del1ver tis products qutckly to 1ts customers and launch new ones rapidly, Un1lever is dependent on speedy and h1ghly adaptable supply chatnS Over the last few years, the company has pa1d parttcular attentton to slmpltfytng tts ct1a1ns and to ensunng SWift and high quality delivery_ It has a stngle global supply strategy and global procurement strategy which operates w1th a very flat structure and allows for quick dectsion makmg and greater responstveness to changmg needs It IS also more economtcal

One of its current projects IS tts European Supply Cha1n Responsiveness Programme_ It IS aim1ng for improvements of an average of 50% more rap1d deltvery of tis top products, usmg alternattve sou rang, collaborattng with key suppl1ers, harness1ng new technologies and secunng greater efftctencies tn productiOn. GIVen tts success tn Europe 1t now has plans to adopt Similar strateg1es m the rest of the world

Consumers have responded to Untlever's efforts. In 2011, consumer complamts per mtlhon units fell by 19% (following a decrease of 11% the year before) and what 11 terms 'product quality InCidents' feU by more than 50%. The company made direct use of feedback For example, in response to feedback regard1ng l1febuoy soap, Unilever has changed tt1e fragrance and shape of the bar Th1s has led to a 0 8% 1ncrease m tts share of the global skin c1eans1ng market

Unilever staffing

The 171,000 members of staff are split among geographrcal regtons as follows

As1a, Afr1ca. and Central and Eastern Europe 58% The Americas 25% Western Europe 17%

W1th tiS ambtlton to double 11s stze. Untlever IS aware of the need to develop Its human resources to support such growth. In some locattons 1t IS already the case that markets are douolmg 1n stze every five to SIX years It IS therefore tmperatrve to have a supply of talented staff to be able to cope w1th thts. Under tis ·talent and organtsatton readiness programme' Undever has adopted a common global approach for recruiting and developing staff, wtth a focus on

talent skills organ1satton culture

Extst1ng staff are assessed for their capabillttes and potent1al for promOtion Around the world Unt!ever has won many best employer awards Internally. staff have recogniSed improvements to the levels of engagement and support and respond pos1ttvely to staff surveys

Staff generally, but especially 1n marketing, are expected to have very good knowledge of the local enwonment in wh1ch they work Dtversrty across the organ1sat1on that reflects the customer base IS an tmportant consrderat1on The number of women m ::.en101 pos1!10ns has Increased from 23% 1n 2007 to 28% tn 2011 25°,G of H1e directors on the board are women (and for non-execut1ve dtrectors this ts 30%) The company also boasts tmprovements m the ethntc m1x of sentor pos1t1on holders

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Risks to Unilever

In 2011 Unilever's acttvity was directly affected by sooal and polittcal upnstngs m the Mtddle East, floods 1n That land and earthquakes m both Japan and New Zealand In assesstng 1ts nsks tn tiS Annual Report, Umlever considered that market condtttons tn 2011 had been 'challenging' and that thts was likely to conttnue through 2012 The biggest tmpact was felt tn developed markets. where trends have been flat or declining, whtle emergtng markets conttnued to show grow1h The proJeCtion for 2012. however, was that key markets (Ch1na. lndta and Brazil) could show stgns of a slowdown

The stability of currency ts an Important constderatton for Untlever. and 2011 exhtblted volatiltly and instabthty Uncertainty over the Eurozone and the possibtltty of countnes w1thdraw1ng from the euro were htghltghted as nsks for 2012. A complete breakdown of the euro could lead to large-scale economic ded1ne, not JUSt in Europe but globally as well

A further constderation was the posstbtltly of terronst acttvity or polittcal unrest undermmmg econom1c actJVtty

Overall in Undever's assessment, tile environment In whtch 11 operates IS compettttve and will probably rema1n so. Its local and global compelitors seem l1kely to 1ncrease thetr actrvttles m emergtng markets Competttton IS expected both on pnce and 1nnovat1on, although Un1lever feels ready to withstand thts because of Its flextbtltty and responstveness lt is set on pursumg a strategy of tncreasmg volumes whtle improving margms and cash flow. ContHlued growth 1n emergtng markets forms a maJor part of rts future plans and long-term resiltence

Un1lever s Annual Reports descrtbe the key nsks wh1ch. according to its own assessment the company faces and must address

Customer preference

Unliever IS rel1a1lt on consumers selectmg 1ts brands rn preference to those of tis competitors Tastes may change and Unilever has to mnovate to ma1ntam brand value and rdentrty Its research and development funct1on 1dentrfies trends and anttapates future preferences for whtch it formulates new products

Compe!ltJon

Unilever has many competrtors 1nclud1ng many of 1ts retailers- such as super mat kets- that offer own-brand goods It has to matntain close monttoring of the market to protect 1ts segments and tdenttfy new opportufllttes

Untlever competes across a w1de range of markets, most of them highly compettt1ve. some of them volatile and all of them requ1nng close monitoring. The company's strategy ofter1 1nvolves strateg1c alliances and partnershipS. Market share may fall 1n response to local or global condttrons and act1v1tres by cornpetttors Emerging markets tend to be more It able to vanation Market nsks are reduced by careful select1on of segments before attempted entry Untlever looks for markets where 11 has the greatest chance of hav1ng and marnta1mng compet1ltve advantage Because 1t has plenty of expenence of worktng tn developing and emerg1ng markets. 1! IS accustomed to dealmg wrth changes tn condrt1ons

Portfo/10 management

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Undever manages a large and vaned portfoliO, ｷｾＱＱ｣ｬＱ＠ IS one of 1ts strengths It has a strategy for rnax1rn1smg the ｰｯｴｾｮｴＱ｡ｬ＠ of 1ts brands and for ｡｣ｱｾＮＮｩｓｩｴｬｯｮｳ＠ that bolster and refresh 1ts portfOliO

Sustainabillfy

Long-term growth depends on bemg able to sustain act1v1ty Untlever has set ttself the goal of doublmg 1n s1ze but reducing tis overall enwonmentaltrnpact Its strategy for thiS tS set out 1n the Untlever Sustainable Ltvmg Plan. tn wh1ch there are green and soCial targets

Umlever sets very high standards for Itself for social respons1bi11ty, tncluding soc1al and environmental issues The Sustainable Ltvtng Plan IS very h1gh proftle Umlever pndes ttself on 1ts safety record for 1ts employees and customers As a result. 11 faces potential reputat1onal nsks If ir falls short of these professed standards It has made a concerted effort over recent years to ensure that all of tis brands now mclude a VISible Untlever logo, mak1ng it eas1er to tdenttfy tl as the overarchmg company name that reassures consumers. However thts also tncreases the potenlial for damage between brands tf one IS found to be inferior

The publicly announced targets for corporate soc1al respons1btl1ty are backed up by robust poltctes, wtth careful mor11tonng to ensure they are effective There IS a Sustainable Development Group of external spectal1sts that prov1de oversight and gutdance to Umlever and the board pays close attention to progress be1ng made

Customer relatJonsh1ps

Unllever needs to mamtam strong relatiOnships w1th its customers (retailers and dtstnbutors) It mtt1gates nsk 1n th1s regard by making trad1ng agreements w1lh a wide variety of customers and ensurtng a high level of customer servtce

Unilever faces 11sks assoaated w1th be1ng unable to develop and mo1nta1n bcnefiCiai relatlonshtps w1th 1ts customers, and fa11ing to rematn cc.mpdi!tve in the ccnlt::xt of Increased consol1dat1on in the market and a contmumg nse m dtscounters W1thout bemg able to get tis products presented to consumers, Untlever w1lllose sales Furthermore. the consolidation of customers. through mergers among supermarkets for example, tncreases the power of the customer and reduces the power of the supplter {narnely Unilever)

In order to address this nsk Untlever a1ms to develop long-term relattonsh1ps and to work closely Wtlh customers in a way that tS mutually advantageous This Involves havtng JOint bus1ness plans and shared investment programmes. as well as dev1s1ng the most appropriate retationshtps for the part1cular enVIfonment and culture

People

Ltke most organ1sat1ons. Unllever needs Skilled staff It often exper1ences competitiOn for talented workers To remain compet1:1ve and operationally sound. Unilever needs to attract, develop and reta1n the right skills withm the organisation H1gh levels of staff turnover could be d1srupttve and fa1lure to recru1t the talent reqwred could severely weaken 1ts ab1l1ty to deltver ItS strategy Therefore 1t pays close attention to 1ts human resourcmg requ1rements and provtdes development schemes and other mcent1ves to ensure 11 attracts and retatns the talent 1t requ1res

Each part of the bus1ness has a ded1cated resource committee responsible for mon1toring sktlls, providtng opportunl\tes tnternally for development and career ptogress1on. and harness1ng talent and leadership Staff feedback is collected rout111ely and all employees have regular performance reviews and appratsals

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Supply cham

Tt1ere are many sources of poss1ble dtsrupt1on to Un1lever's supply chatns, mcludtng natural d1sasters, mdustnal act1on f1nanc1al fa1lure of thtrd parties, and aCCidents It relies on effecttve conttngency plann1ng and ma1ntam1ng good relattons w1th a range of suppliers

Operations nsk

In order to meet its customers' needs, Un11ever tS dependent upon the success of 1ts operations Th1s 1n turn also rel1es on th1rd party serv1ces, supplies of raw matenals and dtstr1bu\lon channels It is also dependent upon effective operat1ons that are safe and reliable w1th m1nimal outages Costs must be mamtatned at a level where operat1ons rema1n competitive_ Pnces of labour, power, serv1ces and matenals may be outside the company's dtrect control Other factors. ltke the weatt1er, tndustnal action, economic crises ctvtl ｵｮｲ･ｾｴ＠and natural disasters, can tmpact upon Untlever's ability to operate

The company mon1tors the ava1labil1ty of materials very closely It maintains accurate forecasts of likely demand and matches these with Inventory and supplies It has tn plact! contmgency plans that enable tl to draw resources from alternative suppliers tf necessary, as well as betng able to sw1tch productton to other sites Operat1onal nsk management ts embedded tn tts routme management processes

Systems and informatton

The company has a growmg reliance on IT systems and the effective management of 1nformat1on It uses electrontc communtcat1on w1th all of tiS key stakeholders, and needs to be able to depend on reliable tnfrastructure There are many posstble threats to 1nformat1on flow that need to be controlled Wtth constant vigilance

Busmess trcJilsformatton

Unllever 1s contmually chang1ng through acquistttons and dtsposals It dnves 1mprovement and mnovatton through a senes of proJects Each of these carries risks

As mergers and acquiSittons cont1nue to form a s1gntftcant part of Untlever's strategy 11 ts tmportant that due care and attentton ts taken in order to realise the intended beneftts Failure to be dlltgent may damage extst1ng busmess concerns. increase costs and destabi11se operattons lntegrattng products. staff and other resources 1nto an ex1st1ng bust ness requ1res careful plann1ng and tmplementatton Otherwise, both new and current employees may become unsettled and dissat1sfted

All such undertaktngs are overseen by a member of the senior execut1ve and rnonttored closely by the board A detailed project plan With clear Objectives IS a standard requtrement The tmplementat1on IS expected to Include a communications and risk management plan

External economic and pollttcal nsks and natural dtsasters

The scale and scope of Un11ever's actiVIties and mterests bnng tttnto contact w1th many d1fferent econom1es. political systems and environments Weaknesses or failures tn these can create operat1onal d1ff1cullies for the company, w1th a knock-on effect on supply to customers Its s1ze 1s 1!s btggest buffer agamst these risks. as 1t is unlikely that 11 will be affected across all of tis Infrastructure and operat1ons by such factors Nevertheless tt J.,eeps

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close awareness of prevatling cond1t1ons and has htghly sophtsltcated conttngency plans in place

Demand may fall as a result of the econom1c downturn and customers may be unable to pay In addtllon. th1s may create difftculttes 1n Unilever's own cash flow and put pressure upon tis abiltty to pay tis suppliers The balance sheet reflects the value of some of tis major brands, whtch could be dented by falltng demand Access to credit can become more dlfftcult, which could aHect both suppliers and customers. restnct1ng supply to manufacturmg and squeezing effecttve demand

To m1t1gate aga1nst these nsks. Unllever relies tn part on the sheer dtversity of 1ts global reach tis brands and tis domtnance of markets Economtc condtltons are mon1tored carefully and tis portfoliO IS adapted accordmgly, asststed by the company's ability to respond qutckly It keeps careful control of tis debtors and revtews the viabtlity of liS suppliers on a regular baSIS

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Eurozone nsk

The Importance of Europe to Untlever as both customer and supplier, coupled With the large-scale economtc turbulence the Eurozone IS expenencing, means that 11 has been tdenttfted as a separate strategtc (ISk It has to take senously the recent downturn m growth m most of the reg ton. the poss1btlily of 1ndtv1dual countnes wtlhdraw1ng from the euro and the chance that the currency as a whole may fail Unilever has stgnificant Investments in Europe whtch 11 wtshes to mamtatn, but 11 1s also lookmg carefully to evaluate and mm1m1se 11 exposure to the current nsks

FmanCial

Un1lever faces nsks assoc1ated wtth currency and mterest rate changes It runs the nsh. of be1ng unable to meet 1ts tax and pens1on liabili!Jes. or not meeting tis short-term requirements for llqUtdtty The company has to operate across a wide spectrum of tax Junsdtctlons and economtc env1ronmcnts Fa1lure to do so effectively could result 1n ｡､ｶｾＱ＠ se performance and shortages m cash flows It has SIQn1f1cant liabilities in respect of tax and pensions that 11 must be able to meet Un1lever has an A 1/A+ credtl rattng. whtch it stnves to ma1nta1n. It uses its credit facilities to counteract any shortfalls 1n revenues and offset any market volatility Its banktng exposures are monttored and managed on a daily basis Forward contracts are used to set ･ｸ｣ｨ｡ｮｧｾ＠rates 1n advance, so as to remove uncertainties Penston funds are managed through a ｶｾｲｹ＠dtverse mvestment portfoliO

Ethtcal

Un1levers Code of Bus1ness Prmctples sets out 1ts expectat1ons for the behavtour not only of tis staff but all those 1t has dealings wtth It recognises that tiS reputation and brands are tis most valuable assets and these can be damaged Irreparably through conduct that falls below the expectat10ns custcmers. regulators and the publtc at large have of 11. It mvest1gates clatms of unethical behav1our carefully and keeps under rev1ew the traintng, awareness-ratstng and other resources 11 needs to deploy to ensure the highest standards are matntamed

Legal. regulatory and other

Mandatory requtrements vary considerably around the world and are subject to change Fat lure to be m compliance could result m legal act1ons be1ng brought agatnst the company, as well as incumng legal costs and reputattonal damage. It may also prevent the company from operattng as intended Leg1slatton Impacts on nearly all aspects of busmess act1vtty, tncludtng trademarks, patents, copyrights. labour laws. health and safety, taxat1on. tmportlexport and consumer nghts Acc1dental infringement could be detnmental to Unllever

Unilever makes use of expert legal counsel to keep 1t adv1sed of regulation and leg1slatton Staff are requtred to seek legal adv1ce when embarktng upon any act1vity 1n a Q1ven jUfiSdiC!IOn

Brands and mnovaf1ons nsks

Given the strategtc importance of tts brands as one of the chief ways of maintatnmg compet1t1ve advantage, and the need to Introduce innovative products speedily, Un1lever acknowledges that threats to these const1tute maJor sources of nsk A lack of fundmg or techntcal experttse in research and development may jeopard1se 1ts abtltly to Innovate It also requtres sh.ills tn project management tn order to deliver these to market

Pa'l'"' 22

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Consequently, Untlever continues to momtor the market. ustng market research. feedback and tnstghts to tnform new product de-velopment lt also uses well developed processes to explo1t tis experttse and accelerate thetr roll-out

ｆｾｾｾ＠ 23

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Other risks

Umlever tS exposed to a wtde range of other rtsks artstng from uncertamttes and both mternal and external factors Some of these may be unforeseeable at present Accordtngly, rtsk. analysts and management are embedded w1th1n corporate governance of the organtsat1on wtth a need for continuous vigilance

Unilever competition

Umlever operates tn htghly compettttve markets On a global scale there are few organtsat1ons that can compete wtth Untlevers SIZe and dtversity. However, Nestle, Henkd and Procter & Gamble are examples of companies that compete m many of the same markets In addtt1on, there are many compames that challenge Untlever m indtvidual segments

Henkel

Henkel AG & Co 1s a multtnattonal company based tn Germany that operates across 125 countnes m three matn segments

laundry and home care (29% of sales) cosmetics and toiletnes (22% of sales) adhestves. technologtes (49% of sales)

Its leadmg brands tnclude Persll wa::>htng powder, Schwarzkopf hatr care products Locttte glue and UntBond adhestves and sealants Accordtng to tiS 2010 annual report. tt generated €15_1 btllton through sales and tiS adjusted operating proftl was €1.9 btllton It has over 48.000 employees and total assets of €17.5 btllion

Procter & Gamble

Procter & Gamble has consumers ｾｮ＠ over 180 countries and around 4.4 btllion people use 1ts brands. from a world population of seven billion lt ma1n areas of operatton are class1fted as (wtth 0;0 share of net sales for 2011)

beauty (24%) groomtng (9%) health care (14%) snacks and pet care (4%) fabnc care and horne care (30%) baby care and famtly care (19%)

24 of tiS brands each generate more than USD 1 btllton per year Its well-kno.-m brands 111 beauty and groomtng tnclude Dolce & Gabbana. Gtllette. Head & Shoulders. Lacoste, Max Factor, Olay and Pantenc In household care 1t owns Anel. Bold, Bounce, Oaz, Ouracell, Fa try Lenor Pampers and Prtngles. among others For the ftnanctal year 2011, 11 reported total net sales of USD 82 6 btl lion

Nestle

In 2011, Nestle had sales of CHF 83 6 billton and an operattng proftt of CHF 12 5 btlltOil Nestle's range of products by sales compnse

powdered and ltqutd beverages (CHF 18 2 btllion) water (CHF 6 5 btllton)

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