Unilever doubles down on purpose: We know it drives short and long-term growth
The FMCG giant plans to invest more of its marketing spend on “communication that is explicitly purposeful” as part of its growth framework for the next few years.
The focus on brand purpose is one of five key growth fundamentals for the company as it looks to boost both its growth rate, which has hovered close to 3% over the past four years, and improve its profit margin.
The investment in brand purpose comes alongside work Unilever has done to measure how brand purpose is perceived by the consumer and whether people truly understand this at the point of purchase.
“[Brand purpose] is important for the short-term, but also to ensure our brands remain relevant for generations to come,” said Unilever’s CEO Alan Jope, speaking on an analyst call this morning (30 January) to discuss its annual results.
“We are investing more of our marketing spend on communications that are explicitly purposeful as we have extremely strong data on the link between both purposeful communication and short- and long-term growth.”
Jope said Unilever gets the “biggest bang for its buck” when it has a high-quality innovation and motivates people to buy through purpose-led brand communications. “Then we see a multiplier in the effectiveness of our spend, it doesn’t require more [investment],” he explained.
With that in mind, innovation is another area where Unilever wants to “step up its impact” to focus on new products that can drive growth at a total category level. That means Unilever will be more decisive on which innovations to prioritise, make faster decisions on whether to accelerate, pivot or kill projects, and reduce focus on smaller projects.
We are investing more of our marketing spend on communications that are explicitly purposeful.
Alan Jope, Unilever
At the moment, around a third of its innovations are successful, a third it walks away from and a third need a pivot to see if they can be successful. Jope said he is “happy with that ratio”.
“We really know after 100 days with a high level of certainty which are the winners we should back and where we should cut our losses quicker on something that is not working,” he added.
Unilever is also focusing on improving penetration, which it defines as the number of households buying a product in a given period and where there is a direct correlation between market share and growth. That means Unilever will be addressing the long-tail of buyers, rather than core, loyal customers.
“We need to build the mental and physical availability of our brands through improvements in the quality of our advertising and strength of distribution,” Jope explained.
The final two areas of focus are designing for channels and providing fuel for growth, with Unilever able to invest in its brands due to savings from initiatives such as zero-based budgeting and organisational restructures.
Those restructures include, for example, the creation of Unilever’s 38 digital hubs and content studios, as well as its data centres. While the company admits building these has come at a “huge cost”, it was still 30% cheaper than buying in the expertise from outside and means it is set-up for growth in the future.
“With these five growth fundamentals we are trying to lay out a very important growth lever for us – execution. This is the easiest growth to unlock, but requires a step up in areas like the quality of our advertising and distribution,” said Jope. “That is what the five growth fundamentals are all about.”
The future of Unilever’s tea brands
Unilever expects brand and marketing investment to “step up” this year, both as an absolute number and a percentage of its turnover. In 2019 it was up €70m (£59.2m) in terms of spend, but flat as a percentage as it finds efficiencies in marketing spend from new digital tools and “rigorous” tracking of effectiveness.
Overall, Unilever’s growth slowed in the final quarter of 2019 to its lowest rate in a decade as it struggled in key emerging markets such as India and China, and saw intense competition in North America and Europe.
Underlying sales growth for the fourth quarter was just 1.5% year on year, although this was above analyst expectations of 1.4%. That mean growth for the year came was 2.9%, slightly below its guidance of between 3% and 5% growth.
Pre-tax profit was down 33% to €8.29bn (£7bn), in part due to tough comparisons with 2018 when the sale of its spreads business led to a bump.
Unilever has also launched a strategic review of its tea business, which includes the PG Tips and Lipton brands, that could result in its full or partial sale. The majority of the €3bn (£2.5bn) it generates in tea sales comes from black tea, which is in decline.