It is always interesting when two firms in the same industry embrace completely different strategies. Both companies are presumably led by smart and savvy business leaders, both have the same overall goals of increasing profit, driving growth and building firm value, and yet they come to very different conclusions and take divergent strategic paths.
A striking situation currently unfolding is how Unilever and P&G, two CPG giants, are managing their brand portfolios.
P&G is narrowing its brand portfolio by focusing on its top brands. In 2014, P&G announced a plan to focus the business on its 60 to 70 most important brands. The firm would cut support on about 100 other brands—selling some, shifting resources away from others. P&G is continuing with the approach. In the P&G 2016 Annual Report, “Streamlining our Product Portfolio” is the first initiative CEO David Taylor mentions.
The logic behind P&G’s strategy is quite clear: big brands have scale and efficiency. It is expensive to manage a brand, and the complexity is only increasing as traditional media vehicles fragment and consumers embrace new forms of communication. Focusing on a few big brands is a way to improve margin; small brands are a distraction and contribute little to the overall corporate results.
Unilever is taking the completely opposite approach by moving aggressively to broaden its portfolio.
The company is acquiring smaller brands with strong growth prospects. Last year Unilever purchased brands including Murad, Dermalogica, Kate Somerville Skincare and REN Skincare. Earlier this year, Unilever bought Dollar Shave Club. The company just announced plans to purchase Seventh Generation. It is also apparently considering buying Honest Company.
The logic here is also clear. Unilever has decided that consumers are looking for new options. More and more, the world is fragmenting. The idea that one big brand can serve everyone looks out of touch and out of date. To grow, Unilever will embrace more brands and capitalize on more opportunities.
So which company is right? Both.
P&G is wise to focus its portfolio. The last thing a company needs is a huge number of weak brands—especially brands that are redundant.
Unilever is smart to acquire on-trend brands that resonate with consumers. This is a formula for growth and value creation.
The challenge is balance. If P&G goes too far, it will end up with big brands that aren’t differentiated and fail to excite anyone. If Unilever goes too far, it will be distracted and fragmented. It will find itself with a host of weak brands and a portfolio in need of pruning.
Given a choice, however, I would bet on growth.
The next session of the Kellogg on Branding program is October 23 to 28. It promises to be a full week, with great insights and advice on building strong brands in today’s digital world. You can sign up here.