In recent years, Unilever (UL), the world's second-largest consumer-products company, has been overshadowed and outmaneuvered by nimbler and more aggressive rivals, including market leader Proctor & Gamble (PG). But now the once-sleepy Anglo-Dutch maker of Lipton tea, Dove soap, Knorr soups, and Surf detergent is challenging its Cincinnati-based competitor in a category the latter practically owns: antidandruff shampoo.
Sounds a bit mundane, but the battle against flaky scalps is very big business. Analysts figure antidandruff formulas account for half of the annual $40 billion global shampoo market. And the biggest opportunity lies in emerging markets, where antidandruff shampoos are considered premium products and cost more than so-called beauty brands such as P&G's Pantene.
Head & Shoulders, also from P&G, is a $1.8 billion product line and by far the leader in the so-called BRIC countries of Brazil, Russia, India, and China, as well as elsewhere in Asia. Indeed, analysts say Unilever may be as much as 40 years behind P&G in some of these markets. Now the company is fighting back with a surprising weapon: an antidandruff shampoo called Clear that wasn't created in a Western research lab, but rather in the developing world.
Waking the Sleeping Giant
The shampoo is already gaining in share. The new, faster Unilever blasted it out to seven new markets in just six months last year, racking up sales of $367 million. In the Philippines, long considered P&G territory, Head & Shoulders was unchallenged in the antidandruff category until Clear launched in July, 2007. Five months later, Unilever's shampoo had overtaken Head & Shoulders to grab 15.6% of the market.
In China, where Unilever is a much smaller player than P&G, with total sales for all products of around $1.2 billion, Clear has gone from zero to 3.3% market share in less than a year. "P&G had a free run for a long time," says Seokhee Won, global vice-president for Clear. Now, he says, the product's rapid success has "woken up the big sleeping giant."
Perhaps the biggest surprise is that Unilever now aims to bring Clear to big Western markets in Europe and the U.S. In the world of consumer products, that would make it an anomaly—Unilever's first global brand developed and launched first in emerging markets. "We are not just exporting products from the U.S. or Europe to developing markets," says Harish Manwani, head of Unilever's Asian and African businesses.
Ambitious Restructuring Program
First formulated at Unilever research centers in Shanghai and Bangkok, Clear was introduced in 1972 in just four markets: India, Thailand, Vietnam, and Indonesia. It remained confined largely to Southeast Asia for more than three decades until Unilever decided to harness it as a potential global rival to Head & Shoulders.
It's an approach that wouldn't have been possible without the ambitious restructuring program kicked off by Unilever Chief Executive Patrick Cescau three years ago. He ditched underperforming brands, divested Unilever's frozen-foods business, and stripped out layers of bureaucracy, including half the ranks of top management, that had kept the company lagging for years behind fleeter-footed rivals.
Under Cescau's "One Unilever" plan, unnecessary complexity was removed. Brands now rely on one formulation, one packaging design, and one marketing strategy, instead of the fragmented approach of the past. Local managers no longer run the autonomous fiefdoms where they were responsible for everything from marketing and sales to running factories and back-office operations.
Instead, these functions have been largely centralized, eliminating duplication and allowing for faster decision-making and global economies of scale.
The Transformation Continues
Equally important, emerging markets, where Unilever historically has been strong, were made a higher priority. To ensure products meet the needs of local consumers around the world, nearly one-third of the company's home and personal products brand development resources now are based in the developing world.
The changes are paying off. Unilever posted its best annual results in five years on Feb. 7, with sales up 5.5%, to $15 billion, and net profits of nearly $8 billion. "The transformation of Unilever continues apace," Cescau says. Unilever's London-traded shares are up 12% since a year ago.
What's more, developing markets now account for nearly 45% of revenues, up from 38% three years ago. "Developing and emerging markets, which are expected to grow at 10% per year, will account for more than 50% of sales by the end of 2008," predicts Jan Meijer, an analyst at Amsterdam brokerage Theodoor Gilissen.
A Better Binder
Cescau's new approach has made it possible for Unilever to roll out small regional brands such as Clear quickly in high-growth markets. The company put more resources behind the product and tweaked the formulation with input from labs around the world. Although Clear contains zinc pyrithione, the same active ingredient as Head & Shoulders, Unilever claims its shampoo is more effective thanks to a patented technology that helps the zinc bind better to the scalp.
The biggest innovation, however, may be in marketing. Unilever has set up hair-care centers in malls from Beijing to Moscow where shoppers can pop in and get their scalp assessed using an "i-scope"—a small camera with a powerful microscope that's hooked up to a computer. "Even people who think they don't have dandruff are shocked to discover they actually do," says Unilever's Won. "This is our most successful strategy so far, because seeing is believing."
Aiming to keep the brand's image stylish and aspirational, Unilever also has relied on good old-fashioned celebrity endorsements. Korean pop star and actor Rain hawks the brand across Asia, and his Clear ad is one of the more popular on YouTube (GOOG), with nearly 25,000 downloads.
Selling Single-Use Sizes
To reinforce the upscale image, Unilever took the risky step of pricing Clear at a 10% premium to Head & Shoulders, which is already the most expensive mass market shampoo in most emerging markets. So far, the strategy is working: Not only has Unilever avoided a price war with P&G, but by grabbing the top of the market, it has given the shampoo a certain cachet.
That doesn't mean Unilever is targeting only the wealthy, though. It offers the shampoo in individual sachet sizes as well as in larger bottles, a strategy it successfully deployed in India several years ago. "We sell to both the very rich and the very poor," Cescau says. And soon that may include consumers in the U.S. and Europe.