Competitive Advantage: Business Plan

Lev Uzlaner
Marketing Consultant
416 568 5116
[email protected]
www.thisishowimarket.com

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OBJECTIVES 2
PRIMARY RESEARCH METHOD 2
QUALITATIVE DATA 2
QUANTITATIVE DATA 2
PRODUCT CATEGORY 2
PORTER’S FIVE FORCES ANALYSIS 3
BUYER POWER 3
SUPPLIER 3
NEW ENTRANT 3
SUBSTITUTES 4
RIVALRY 4
COMPANY BCKGROUND 5
COMPANY PRODUCT 5
MARKET ASSESSMENT 7
MARKET VALUE & VOLUME 7
SEGMENTATION 8
DISTRIBUTION 8
SWOT ANALYSIS 9
STRENGTHS 9
WEAKNESES 9
OPPORTUNITIES 10
THREATS 10
COMPETITION 10
TARGET MARKET 11
TEENAGERS 12
YOUNG ADULTS 12
ADULTS 12
BABY BOOMERS 12
RESEARCH FINDINGS 13
STRATEGIC SET OF COMPETITORS & PURCHASE CRITERIA 13
CUSTOMER VALUE ANALYSIS 15
IMPLICATIONS FOR AXE 16
IMPLICATIONS FOR NEXT PHASE 16
APPENDIX 17

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OBJECTIVE
The purpose of this paper is to identify and analyze potential strategic areas where Axe can
make improvements in providing greater strategic value; making their product more
appealing to customers so that it can win against its strategic set of competitors. In order to
do this, the paper will discuss valuable insight gained from both quantitative and qualitative
data acquired form research conducted with 100 respondents and a focus group,
respectively. Additionally, the paper will take an extensive look at AXE as a brand and its
current position in the market, through both primary and secondary date, enabling us to
gain a better understanding of the company’s philosophy in comparison to its competitors.

PRIMAY RESEARCH METHODS

QUALITATIVE DATA
For the purpose of this paper, a focus group was conducted consisting of eight male
participants to help us identify the various criteria that consumers consider when making a
purchasing decision for deodorant. As well, to identify our strategic set of competitors by
asking the participants which deodorant brands they consider an alternative to AXE.
QUANTITATIVE DATA
100 male respondents were surveyed to study their needs, expectations and preferences in
deodorant consumption. The results of the study tell us which competitors represent the
most significant threats and opportunities under each purchasing criteria identified.

PRODUCT CATEGORY – PERSONAL HYGIENE MARKET1

The personal hygiene market consists of bath & shower products, deodorants and soaps.
The Canadian personal hygiene market generated total revenues of $819.2 million in 2006;
this represents a compound annual growth rate (CAGR) of 3.5% for the period spanning
2002-2006. Soap sales proved the most lucrative for the Canadian personal hygiene market
in 2006, generating total revenues of $366.9 million, equivalent to 44.8% of the market's

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overall value. In comparison, sales of deodorants generated revenues of $244 million in
2006, equating to 29.8% of the market's aggregate revenues. Distribution via
supermarkets/hypermarkets was the market's most lucrative channel in 2006, generating
total revenues of $454 million, equivalent to 55.4% of the market's overall value. The
performance of the market is forecast to accelerate, with an anticipated CAGR of 3.6% for
the five-year period 2006-2011 expected to drive the market to a value of $978.8 million by
the end of 2011. (See Appendix 1)

PORTER’S FIVE FORCES ANALYSIS ON THE PERSONAL HYGIENE MARKET 2

BUYER POWER
Retailers occupy a position of power in the supply chain allowing them to negotiate
favorable contracts with manufacturers, which enhances buyer power. In contrast, a lack of
differentiation between products reduces buyer power. Differentiation exists only in terms of
brand reputation and quality of personal hygiene products which has a high importance to
end users in this market. As a result retailers are required to stock these products, which
reduce their bargaining strength. Switching costs can also be high for some buyers
particularly when they are part of a contract with a big firm. Forward integration is also
highly possible and many firms may wish to diversify their business and boost their
revenues through owning retail outlets, which threatens the position of buyers. Overall
buyer power is assessed as moderate. (SEE APPENDIX 2)

SUPPLIER POWER
The recent rise in several global commodity prices is putting manufacturers under pressure,
as they are facing short supplies of products such as palm oil, following unfavorable
conditions in the main producer regions and rising demand for palm oil as a biofuel.
Suppliers are often small in scale compared to the largest manufacturers and consequently
their power is reduced, but this countered by the fact that chemical producers gain
revenues from a wide variety of sources, reducing their dependence on personal hygiene
product manufacturers. Overall supplier power is assessed as moderate. (SEE APPENDIX 2)

NEW ENTRANTS
The Canadian hygiene market has grown moderately in recent years. Opportunities to gain
market share particularly with the growth of niche sectors such as the male grooming
market. Products in this market are subject to several safety regulations, and compliance

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costs form an entry barrier. Advertising and strong brand image can produce success in the
personal care market, but also requires capital outlay up front. Counterfeits of personal
hygiene products are widespread and can dilute a company’s brand image. A number of
large firms in this market, such as Unilever, possess scale economies which allow them to
create efficiencies in their business; companies entering the market may find it difficult to
compete unless they enjoy comparable efficiencies. Overall, the likelihood of new entrants is
moderate. (SEE APPENDIX 2)

SUBSTITUTES
For consumers, there are two possible substitutes for personal hygiene products:

 Traditional, homemade products

 Counterfeit versions of branded products.
Although retailers are considered as buyers in this market, consumer choice will have
a strong pull-through: when consumers opt for the substitutes, retailers may not buy as
many products from the manufacturers. Also, it is possible for retailers to buy counterfeit
products, knowingly or not. The costs of switching from legitimate to counterfeit goods
are often not high, and their price is favorable for retailers.
On the other hand, counterfeit products may be of poor quality and consumers may avoid
the retailer. A product that is actually made by the legitimate manufacturer, but which is
diverted from the legitimate distribution channel, will appeal just as much to end-users.
However, if it is assumed that the majority of retailer buyers will avoid illicit trading, the
impact overall of substitutes may not be as high as a purely economic assessment implies,
and the threat of substitutes is therefore considered to be weak overall. (SEE APPENDIX 2)

RIVALRY

The Canadian personal hygiene market is dominated by a small number of large

players. Dominating the market are companies such as Unilever, Colgate-Palmolive
and Procter & Gamble. The market is mature, and many of the players sell similar
products. This has led to a competitive environment with many labels, such as
toothpaste brands Crest and Colgate, competing for the same share of the market.
On the other hand, the wide range of product ranges means companies are not
reliant on one type of product for their revenues. Fixed costs are high in this market
as most companies own large production facilities. Most of these companies are
geographically diversified which weakens rivalry to some extent. Overall rivalry in the
market is moderate. (SEE APPENDIX 2)

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COMPANY BACKGROUND3

The Unilever group of companies is involved in the manufacturing and marketing of branded
consumer goods, primarily foods, detergents and personal products. Unilever operates
through subsidiaries in Germany, Switzerland, France, the UK, the US, and China. It has
operations in over 100 countries worldwide. Unilever generates revenues through four
business segments:

 Savory dressings and spreads

 Ice cream and beverages

 Personal care

 Home care and other operations

The products in the personal care segment include oral care products, deodorants and
antiperspirants, skin care and hair care products and a number of prestige fragrances. The
company's brands in this segment include Axe, Pond's, Rexona, Dove, Lux and Sunsilk.
Other important brands include Suave, Clear, Lifebuoy and Vaseline, together with Signal
and Close Up in oral care. The group operates over 300 manufacturing sites worldwide.
Unilever's products are sold through a company-owned sales force as well as through
independent middlemen such as brokers, agents, and distributors under various
agreements. Its products are distributed through distribution centers, satellite warehouses,
company-operated facilities, and public storage depots. The customer purchases occur
through departmental chains, wholesalers, co-operatives, independent grocery stores, and
various food service providers.
In 2000, Unilever announced plans to restructure its operations, which included the sale of
several subsidiaries. The new structure was intended to focus on Unilever's two main
divisions: food and home; and beauty products. Unilever and the United Nations World Food
Programme (WFP) announced a new partnership in the fight against child hunger, in May
2006.

COMPANY PRODUCT4
Axe body deodorant, sold as Lynx in the United Kingdom, is the world's most popular male
grooming brand. Its seductive fragrances and provocative packaging and advertising
campaigns, as well as the companies’ ability to come up with a constant stream of new

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ideas to keep “men a step ahead in the mating game”, for instance, by launching a new
deodorant fragrance, every year has given the Axe brand a competitive edge over other
deodorant brands. The brand has also expanded into a number of new areas; including
shower and hair gels and its award-winning advertisements and marketing are equally
adventurous. Axe has recorded a compound annual growth rate of 18% over the 2001-2006
period, making it Unilever’s fifth largest brand in terms of value sales. Following its
successful strategy of building a global brand while adapting to local preferences, Axe has
enjoyed exceptional growth development in many key markets including North America.
Launched in the region in 2002, Axe is now the number one deodorant brand in the North
American market, and enjoys top positions in several other sectors. The brand is also well
established in Latin America, one of the fastest-growing regions in the world in many
cosmetics and toiletries sectors. Predominantly targeting young men, the company has
invested heavily in marketing and advertising. Recent campaigns in North America have
marked a change in the company’s traditional use of television advertising, focusing on
video-streamed clips on the Internet in order to attract a greater proportion of its target
market. Internet advertising has already been successfully used to support the brand since
its launch, and it is likely that its importance in terms of Axe marketing will now increase
worldwide. 5

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MARKET ASSESSMENT6

MARKET VALUE & VOLUME

The deodorants market consists of aerosols, body sprays, cream, gel, pump, roll-on, sticks
& solids and other deodorants. The market is valued according to retail selling price (RSP)
and includes any applicable taxes. The US deodorants market generated total revenues of
$1,729.3 million in 2005, this representing a compound annual growth rate (CAGR) of 0%
for the five-year period spanning 2001-2005. Deodorant gel sales proved the most lucrative
for the US deodorants market in 2005, generating total revenues of $251.5 million,
equivalent to 14.5% of the market's overall value. In comparison, sales of aerosol anti-
perspirant generated revenues of $244 million in 2005, equating to 14.1% of the market's
aggregate revenues. The performance of the market is forecast to accelerate slightly, with
an anticipated CAGR of 0.2% for the five-year period 2005-2010 expected to drive the
market to a value of $1,745.3 million by the end of 2010.The United States deodorants
market grew by 0.3% in 2005 to reach a value of $1,729.3 million. The United States
deodorants market shrank by 0.5% in 2005 to reach a volume of 691.8 million units. (SEE
APPENDIX 3)

SEGMENTATION
Sticks and solids form the most lucrative sector of the US deodorants market, with a 50%
share of the market's value. Deodorant gel accounts for a further 14.5% of the market by
value. The United States accounts for 20.4% of the global deodorants market by value.
Europe is the leading region in the global deodorants market, with a 46.8% share of the
market's value. Procter & Gamble leads the US deodorants market, with sales in 2005
amounting to $782.1 million, this accounting for 45.2% of the market’s value. Other
significant players include Gillette whose market share by value was 17.3% in 2005 and
Colgate-Palmolive with segment sales of $261.4 million in 2005.

DISTRIBUTION
Supermarkets and hypermarkets form the most significant distribution channel for
deodorant sales in the US, accounting for 63.3% of the market. Sales by pharmacies and
drug stores account for an additional 22.8% of the market.
In 2010, the United States deodorants market is forecast to have a value of
$1,745.6million, an increase of 0.9% since 2005.The compound annual growth rate of the

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market in the period 2005-2010 is predicted to be 0.2%. In 2010, the United States
deodorants market is forecast to have a volume of 658million units, a decrease of 4.9%
since 2005.The compound annual rate of change of the market volume in the period 2005-
2010 is predicted to be -1%

SWOT ANALYSIS7,8

STRENGTHS:

 The strong brands of Unilever increase brand recall and promote repeat purchases.
Since Unilever operates in an industry, which is largely driven by customer
perception of brands, a strong product portfolio comprising well-established brands
provides a competitive advantage.
 Strong focuses on R&D activities enables the company to launch new products
frequently and also introduce variants of existing products.
 Diversified product portfolio reduces its business risk and global reach reduces the
group's exposure to geo-political and socio-economic risk associated with a particular
market.
 The ongoing implementation of Unilever’s “One Unilever” restructuring program
including a switch from brand management to sectored management should free up
additional funds to invest in existing brands.
 Changes to Unilever’s internal structure, with increasingly centralized and globally-
managed divisions, have led to increasing synergies within the business, such as in
its distribution activities. Ongoing restructuring will further reduce operating costs
across the company.

WEAKNESES:

 The group's European market has shown poor performance in the recent years. The
revenue from the European market has decreased from E15, 252million in 2004 to
E15, 000 million in 2006. Poor performance of the European market may affect the
overall performance of the company.

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  The company has recorded poor cash flow from operation during the period 2003-
2006. Its cash flow from operation has decreased at a compounded annual growth
rate (CAGR) of 13%. Unilever's falling cash flows from operations, against the
backdrop of rising interest rates, could lead to a liquidity crisis and adversely affect
the growth plans of the group.

 The diversity of Unilever’s overall portfolio, which includes packaged food and
household care products, means that cosmetics and toiletries may not get the
resources it needs when a sudden change in demand happens, and also may impede
the speed at which new products get to market.

OPPORTUNITIES:

 Significant growth opportunities for Unilever lie in the developing and emerging
(D&E) economies including China and India. Already, D&E markets account for more
than 40% of Unilever's turnover and that proportion is set to go on rising. Emerging
markets are expected to account for 90% of the world's population by 2010 and this
is expected to drive demand for fast moving consumer goods. Unilevers’ long-
established local roots in these markets give the company a competitive advantage
as growth from its more mature markets is likely to slow down in the future.
 Lifestyle trends, including a growing willingness by men to spend both time and
money on their appearance is favoring the men's toiletries and fragrances market.
The market has continued to show strong year-on-year growth, which can be
attributed to strong new product development and to the fact that companies have
improved their understanding of marketing toiletries and skincare products for men.
This presents an opportunity to further grow in these markets.

THREATS:

 Unilever has suffered setbacks because of its inability to cope with increased
competitiveness in key markets. Declining prices, coupled with rising demand for
discounts from the trade partners, is putting pressure on margins. In some
emerging markets, Unilever is losing the price-advantage it once enjoyed in
home and personal care products to companies such as Procter & Gamble.
Increasing competition from other players operating in multiple and niche
segments could adversely affect Unilever's market share and margins.

 Fuel costs for the company represent a significant portion of its distribution cost
hence affecting its operating margin. The oil prices have moderated to $50.5 per

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 barrel in January 2007. Standard and Poor's expects crude oil prices to average
$62 per barrel in 2007. The group's distribution and selling cost has increased
from E8, 025 million in 2004 to E9, 486 million in 2006 an increase of
18.2%.Higher fuel prices are likely to have a direct impact on the company's
distribution cost, hence directly affecting its margins.

 A challenging environment remains in North America, which has seen only

sluggish interest in cosmetics and toiletries, as a result of the slow economy. This
continues to threaten net sales and profits in this market.

 In the US mass market in particular, the rise of dollar stores and discounters
such as Wal-Mart is increasing sales of discounted cosmetics and toiletries
products which may well have a negative impact on operating margins, as well as
reducing demand for higher-priced products.

COMPETITION9, 10

Procter & Gamble leads the US deodorants market, with sales in 2005 amounting to $782.1
million, this accounting for 45.2% of the market’s value. Other significant players include
Gillette whose market share by value was 17.3% in 2005 and Colgate-Palmolive with
segment sales of $261.4 million in 2005. In addition, the company is benefiting from strong
sales experienced by TAG – a main Axe competitor in body sprays. Like Axe, TAG targets
younger men with its sexy message. Procter & Gamble is aggressively advertising TAG in
the Canadian media, including popular teen shows, such as Quebec-based Loft Story. The
product packaging and presentation are really very similar to Axe. However, Procter &
Gamble rebuffed the idea that the launch of TAG was a direct response to the launch and
success of Axe.

In the deodorant market, segmentation is driving sales higher. The focus is on the creation
of products targeted specifically to the needs of men and women. According to

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Euromonitor11 International, the market in 2005 approached $2.2 billion--with sales almost
evenly split between men and women's products. Euromonitor forecasts an increase to more
than $2.2 billion in 2006 and $2.3 billion in 2010, with the men's sector accounting for more
than $1.1 billion (2006) and $1.1 billion (2010). Increasingly, deodorants are becoming
age- and gender-specific as brands compete for the spending dollars of growing market
niches, particularly men and teenagers. For the purpose of this paper, we have broken down
the market for deodorants into 4 different segments.
1. TEENAGERS

This demographic comprises of adolescents, between the ages of 13-19 who are not
afraid to experiment with products geared towards niche markets. They are highly
susceptible to influence from their peers in product selection and are looking for an
element of excitement and novelty in products they purchase. For this segment, the
image that a product portrays is an important purchasing criteria and as such are
easily influenced by web based or Television advertising that offers a unique and
provocative message. The purchasing power they possess enables them to buy from
variety of retailers ranging from high-end drug stores such as Shopper Drug Mart to
low-end big-box retailers such as Wal-Mart.
2. YOUNG ADULTS

This segment comprises both men and women between the ages of 19-25 who are
enrolled in university or college and usually work part-time. They are extroverted
males who like to spend quality time with their peers and have active social lives.
Their purchases are influenced by word of mouth promotionThey are conscious about
their self-image and have access to disposable income which allows them to
purchase higher end products within the personal care products market.
3. ADULTS

This segment comprises people within the 26-45 age group and make up a
significant part of the workforce. This group are university graduates, are usually
married with children and have greater financial stability that any of the other
segments. This segment are also very health conscious and are known to spend
extensively on recreation activities.
4. BABY-BOOMERS

This group includes large share of the Canadian population and hence is becoming
very important to marketers, as they are considered an affluent market to tap into. A
large percentage of this group is retired, although some do continue to work after

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 they have reached retirement age. Conventional advertising strategies may not have
a big effect on them, unless the advertisements feature models or celebrities that
this group may identify with or marketers employ the use promotional packaging or
free trials to grasp their attention, as it is hard to get this segment to switch brands
and try new products. Men in the baby-boomer group practice regular male
grooming regime; but due to deep-seated traditional ideas about masculinity, they
tend to stick to their regular traditional brands.

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STRATEGIC SET OF COMPETITIORS & KEY PURCHASE CRITERIA

To understand the competitive situation faced by Axe body spray, a focus group and a
questionnaire was conducted. From this research, significant knowledge of the strategic set
of competitors, the key purchase criteria and the customer value comparisons was gained.
From the focus group, it was determined the top five purchase criteria that the target
market considers for a bodyspray deodorant were:

 Price - how much would the deodorant cost the consumer;

 Scent - the variety and pleasantness of the scents offered by a brand;
 Durability - how long would one unit last for the consumer;
 Package - how visually appealing and functional the packaging is;
 Image - the consumer’s perception of the brand in question;
 Protection – how well the deodorant’s protection is;
 Comfort – how the deodorant feels on the customer’s skin;
 Quality – the perceived value of the deodorant

The respondents were also asked which brands come in mind when considering this
product category of body spray deodorant. A total of 7 brands were named in the focus
group, however the selection was narrowed to five for the survey to minimize the
complexity of the survey. The top 4 brands considered as the strategic set are:

 Gillette,
 Adidas,
 Old Spice,
 Tag

Using the data collected from the research, we were able to determine what our
respondents ranked each brand according the specified research criterion. The following
indicates the rankings the respondents gave, a ranking of 1 indicates the top, most
preferable brand, and ranking of 5 indicates worse, least preferable brand for the criteria.

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 Scent Protection

1st Axe 1st Old Spice

2nd Tag /Gillette 2nd Gillette

3rd 3rd Axe

4th Old Spice 4th Adidas

5th Adidas 5th Tag

Packaging Comfort

1st Axe 1st Gillette

2nd Adidas 2nd Axe

3rd Tag 3rd Tag

4th Gillette 4th Old Spice

5th Old Spice 5th Adidas

Image Quality

1st Axe 1st Gillette

2nd Gillette/ Old Spice 2nd Axe

3rd - 3rd Old Spice

4th Adidas 4th Adidas

5th Tag 5th Tag

Durability Price

1st Gillette 1st Gillette

2nd Old Spice 2nd Old Spice

3rd Adidas 3rd Axe

4th Axe 4th Adidas

5th Tag 5th Tag

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CUSTOMER VALUE ANALYSIS

A customer value comparison was generated using the data available:

Ranking of
Importance

Old
Axe Tag Gillette Adidas Spice

Comfort 10 6.72 6.48 6.75 5.82 6.18

Scent 23 7.05 6.24 6.24 5.76 6.23

Durability 7 5.35 5.19 6.57 5.75 6.29

Price 20 6.2 5.51 7.02 5.98 6.78

Protection 7 6.26 5.11 6.85 6.02 6.88

Packaging 4 7.13 6.38 6.14 6.88 5.35

Image 16 8.8 6.5 8.5 7.4 8.5

Quality 13 6.54 5.1 7.13 6.06 6.37

Weighted total 100 688.96 586.42 698.62 617.33 673.08

Value of Axe compared

to Competitors - 14.88% -1.40% 10.40% 2.30%

This chart shows the Axes’ current position in comparison to its competition. When ranked
according to the weighted purchase criteria for the deodorant market, Gillette is perceived is
the top contender according to the primary research that was conducted, with Axe and Old
Spice trails closely behind Gillette. Gillette and Old Spice is no doubt the competition facing
Axe due to Procter and Gamble’s dominance of the market in North America. Though
Unilever has a larger dominance in the worldwide market, it is evident of Proctor and
Gamble’s dominance which is shown through the results of this research.

IMPLICATIONS FOR AXE

This analysis, illustrates that Axe has high performance in the category of scent, comfort
level, packaging and image. While the price of Axe, along with durability and quality needs
improvement. The negative aspects that customers associate with Axe are central to the
belief that the high price in which Axe is charging is not justified with its quality. As Axe is

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priced the highest compared to all other brands, it failed to live up to the customer’s
expectations. There are various strategies that Axe can utilize to improve their position.
Consider the following strategies:

 Promotional Strategy
While Axe has achieved tremendous success with its Axe effect campaign, where
it focuses on promoting brand image. It will be beneficial to Axe if they
advertising their brand image along with functional aspects of the product. Axe
can promote aspects such as long lasting protection, and comfort of use and high
level of protection would help increase the perceived customer value towards
Axe.

 Product Strategy

Axe is poorly rated in the performance category in comparison to brands like Gillette
and Old Spice. Modifications to the product will help increase the perceived value
and enable Axe compete with the dominating brands. This is especially important
considering that Procter and Gamble spends heavily in research and development
($1.5 billion in 200112)

IMPLICATIONS FOR THE NEXT PHASE

From the research conducted the following can be implied for the next phase, to the
competitor analysis:

IDENTIFICATION OF MAIN COMPETITORS

From this costumer analysis conducted, a greater understanding of whom

Axe’s competitors are. The consumer analysis was a tremendous eye opener as
the research team initially though the brand Tag would be Axe’s main
competition but after the analysis, it was concluded that Gillette and Old Spice
were the main competitors

IDENTIFICATION OF PURCHASE CRITERION

The consumer analysis allowed Axe to see what aspects of the product the
competition is focused on. More importantly it allowed Axe to see the level in
which they are competing on.

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 APPENDIX 113

Figure 3: Canada Personal Hygiene Market Segmentation I: % Share, by

Value, 200 6

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 APPENDIX 214

FIVE FORCES ANALYSIS:

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 APPENDIX 315

APPENDIX 4

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 US MARKET16

GLOBAL MARKET17

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