Axe Competitive Advantage Plan Part 1

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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 MARKET2

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

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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

Axe Tag Gillette Adidas

Old

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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Axe Competitive Advantage Plan Part 1

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