Unilever cracks the “virtuous circle of growth”

Perhaps smarting from December headlines about marketing cuts, Unilever struck an upbeat tone yesterday (21 January) when analysing its brand building strategy’s contribution to its better than expected fourth quarter and full year performance. 

Unilever Facebook page
Unilever said cash generated from increased gross margins will be re-invested in marketing, which is “still essential to everything we do”.

Speaking on a conference call shortly after posting improved sales, the company’s chief executive Paul Polman was quick to praise its long-term investment in brands.

The investment was possible, Polman explained, because the company had cracked a “virtuous circle of growth”.  The Dove, Magnum and Lynx maker is, in part, reinvesting the money generated from the 110 base percentage point increase in gross margin registered for 2013 in advertising and promotion, Polman explained, in all markets and all regions

The company put the increased margins down to the success of its new products and their impact on the volume of products it sold. It also credited its decision to balance promotional activity with brand building. Polman added: “It is important to have the right level of promotional activity to encourage volume growth and brand building. He said the company had acquired the “confidence to walk away” from intense promotional activity particularly in developed markets were growth is still sluggish and consumer confidence still low.

Talk of investment and reinvestment in marketing comes just over a month after Unilever announced it would be cutting the number of marketers it employs by 12 per cent globally as part of a wider plan to slash costs by €500m across the business. “Non-working” media costs such as the fees paid to agencies as well as the cost of producing advertising will also be reduced.

Polman stressed on the call that marketing is still “essential to everything we do” but that the emphasis needs to be on efficiency and quality. He stressed the increasing role digital plays in its channel mix – up 20 percentage points to claim 17 per cent of its media spend in 2013, he added.

The cuts to save the €500m will start in the summer, chief financial officer Jean-Marc Huët revealed yesterday, although it was not clear if that included marketing job cuts. Savings will be not be seen on the company’s balance sheet until 2015, he added.

Separately, Huët also announced the company will change its definition of advertising and promotional costs included in its financial statements. In-store merchandising, previously a supply chain cost, will now be included as advertising and promotion to reflect, “the way customers engage with brands”. 

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