Unilever's leverage: Consumers

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"In my view, the broadcast, mass-marketing approaches that helped build Unilever are doomed," said Charles Strauss, president-CEO of Unilever U.S., in a speech to the Internet World conference last month. Bold words -- especially for a man whose business is in the midst of an $800 million media review due to conclude this month.

Mr. Strauss acknowledged that the death of mass marketing isn't just around the corner for Unilever or anyone else. He admitted his industry still spends considerably more on newspaper coupons than interactive marketing, which he estimates gets only 3% of package-goods industry marketing dollars and 5% of Unilever's media budget. But that doesn't change Mr. Strauss' conviction that marketing to individuals, not mass markets or even demographic groups, is the centerpiece of Unilever's marketing future. He's leading the charge toward Unilever's version of customer relationship management with the 20% of consumers who account for 80% of each brand's business the target.

In an interview with Ad Age correspondent Jack Neff, Mr. Strauss outlines some of his vision and how it affects Unilever's agency relationships.

Advertising Age: In terms of time frame, how long do you think it will it be until whatever replaces mass marketing actually replaces mass marketing for Unilever?

Charles Strauss: I think this is going to be developing over time. If you look at Unilever today, I'm talking about the U.S. business, 95% of our media dollars are still spent in broad reach approaches -- whether it's network, cable, print advertising and the like -- and only 5% on the Internet. Obviously this will change. . . . When I'm talking about mass-marketing techniques and broadcast models, I'm saying as it's known today. We're already seeing changes in broadcast media. The development of cable over the past decade has made enormous changes in viewing audiences and marketing approaches by companies like our own. So I think what you're going to find is that [with] mass marketing -- we won't be talking about mass audiences anymore. We'll be talking about more individualized audiences.

AA: But that doesn't necessarily mean a wholesale plunge into the Internet or other targeted vehicles?

Mr. Strauss: No. When you look at the convergence of media -- with AOL and HBO, the work that NBC is doing -- they get it. They're rapidly changing their approaches.

AA: How important is customer relationship management for you in the near and long term?

Mr. Strauss: I think it's very important, and we're putting a lot of emphasis on that. . . . We know how important to the top and bottom line the relationships [are that] we have for our best brands with their most loyal brand users. The loyal Dove consumer is very valuable to us. So investing in building, more broadly and deeply, CRM capability is . . . a fast payback investment. And we've learned that from a number of pilots we've done on brands like Dove and Lipton and others. As media . . . become less efficient, less effective, we will put more money into CRM. It just makes good business sense to do that.

AA: CRM is often used in categories where the lifetime consumer relationship is perceived as higher value, because they're higher-ticket items -- things like automobiles or financial services. Why is it starting to make sense now for CRM to be applied to consumer package goods? Is it because of the economics of the Internet and targeting becoming less expensive, or media becoming more expensive?

Mr. Strauss: It's all of those things. First of all, it's the fact that some of the mass marketing approaches are less effective and less efficient. That has to do with audiences and costs and the dispersion of audiences and the difficulty in reaching people and the waste that's involved. I think it's also the greater understanding that companies like Unilever have of the value of its most loyal customers -- as I mentioned in my speech -- the 20% of the user base that's generating 80% of the top and bottom line for a brand. And I think the third is the technical capability. Not just the technical capability but also the intelligence or knowledge of our marketers in our company about what CRM is and how you use it. That's why we're doing a lot of experimentation and a lot of pilots.

AA: What would be some examples of things of high value that you've been able to provide consumers?

Mr. Strauss: For a company like Unilever, which is the largest personal care company in the world, when you look at all our brands and categories, it's really the ability to be able to respond to them . . . women especially, in terms of personal care, skincare, haircare. To be able to respond to them is something of great interest to them and obviously is relevant in terms of how we go to market with a number of our brands -- whether it's skincare, haircare, fine fragrances.

AA: Is it more a matter of being able to provide solutions or answers to questions?

Mr. Strauss: Yes, because every consumer has their own interests and personal needs and problems. Same on the food side of our business. Half of Unilever is foods, and as I mentioned, feeding the family nutritiously and economically is a very big issue for a lot of working women. Meal planning, preparation, nutrition, help and getting into broader family issues are all concerns for them. And if you can address those issues in a trusting way that's relevant to them, that's available to them when they want it in a way they want it, that is very important to consumers. And it helps us build the trust, loyalty and intimacy that's the way we define what a brand is all about.

AA: At this point, how satisfied are you with the way your agencies have adapted to the CRM model?

Mr. Strauss: It's a mixed bag. Some are doing exceptionally well and have really focused some of their best people in interactive communications, including CRM. And some are just getting out of the starting blocks. Clearly we will reward those agencies that have the most insight, the best thinking and the most expert people, and I think that's what we're doing. I'm not going to name names.

AA: In general, do you think it's important for an agency to bring the capabilities in-house, or should they just know how to source it elsewhere?

Mr. Strauss: Well, if you buy what I said that over the next decade we're going to be redefining how we go to market -- even a big company like Unilever -- and our major competitors are doing the same, the agencies are going to have to go with the consumer and go with their clients. So I would say they need to have it in-house. Now whether they have it in-house within the agency or as a free-standing unit within the agency's corporate parent, it's up to them to decide what's best.

My own view, however, is that they need to integrate it pretty fast over the next several years. And I think they will. Let's face it, they also have to follow the money. . . . With Unilever -- and I'm just talking about the U.S. now, but the numbers are probably even less exciting globally -- [we're still spending] 95% on traditional media. . . . The agencies are going to go with where the money is. But [interactive and CRM] are definitely where the money is over time.

AA: In following that lead of going where the money is, in terms of agency compensation, I know Unilever made some changes some years back to be less dependent on media commissions as part of the overall compensation picture. But as you move forward and further away from mass approaches to targeted approaches do you think you're going to need to change compensation more?

Mr. Strauss: At any time we have to look at how we compensate our advertising agencies in order to be fair, motivating and align remuneration with our business strategy. And so I'm not making any announcement here, but I would say there is an ongoing review on how we approach agency remuneration.

AA: In regard to Unilever's recent restructuring along food and home and personal care lines and appointing executives with profit and loss responsibilities for each, as a practical matter, how will that change -- if at all -- the way Unilever approaches branding on a global basis?

Mr. Strauss: The new structure will allow us to move more quickly, especially as it regards the globalization of innovation. It will also have a significant impact on our announced plans to reduce the size of our brand portfolio to far fewer leading brand positions globally. . . . We want to give much greater emphasis to brands that are global and have global opportunities. And the new organization structure will allow us to do that.

The structure will also allow us to implement more cost-effective, efficient supply chain operations. In doing so, we free up margin in order to support brand building. "In my view, the broadcast, mass-marketing approaches that helped build Unilever are doomed," said Charles Strauss, President-CEO of Unilever U.S., in a speech to the Internet World conference last month. Bold words -- especially for a man whose business is in the midst of an $800 million media review due to conclude this month.

Mr. Strauss acknowledged that the death of mass marketing isn't just around the corner for Unilever or anyone else. He admitted his industry still spends considerably more on newspaper coupons than interactive marketing, which he estimates gets only 3% of package-goods industry marketing dollars and 5% of Unilever's media budget. But that doesn't change Mr. Strauss' conviction that marketing to individuals, not mass markets or even demographic groups, is the centerpiece of Unilever's marketing future. He's leading the charge toward Unilever's version of customer relationship management, with the 20% of consumers who account for 80% of each brand's business the target.

In an interview with Ad Age reporter Jack Neff, Mr. Strauss outlines some of his vision and how it affects Unilever's agency relationships.

Advertising Age: In terms of time frame, how long do you think it will it be until whatever replaces mass marketing actually replaces mass marketing for Unilever?

Charles Strauss: I think this is going to be developing over time. If you look at Unilever today, I'm talking about the U.S. business, 95% of our media dollars are still spent in broad reach approaches -- whether it's network, cable, print advertising and the like -- and only 5% on the Internet. Obviously this will change. . . . When I'm talking about mass-marketing techniques and broadcast models, I'm saying as it's known today. We're already seeing changes in broadcast media. The development of cable over the past decade has made enormous changes in viewing audiences and marketing approaches by companies like our own. So I think what you're going to find is that [with] mass marketing -- we won't be talking about mass audiences anymore. We'll be talking about more individualized audiences.

AA: But that doesn't necessarily mean a wholesale plunge into the Internet or other targeted vehicles?

Mr. Strauss: No. When you look at the convergence of media -- with AOL and HBO, the work that NBC is doing -- they get it. They're rapidly changing their approaches.

AA: How important is customer relationship management for you in the near and long term?

Mr. Strauss: I think it's very important, and we're putting a lot of emphasis on that. . . . We know how important to the top and bottom line the relationships [are that] we have for our best brands with their most loyal brand users. The loyal Dove consumer is very valuable to us. So investing in building, more broadly and deeply, CRM capability is . . . a fast payback investment. And we've learned that from a number of pilots we've done on brands like Dove and Lipton and others. As media . . . become less efficient, less effective, we will put more money into CRM. It just makes good business sense to do that.

AA: CRM is often used in categories where the lifetime consumer relationship is perceived as higher value, because they're higher-ticket items -- things like automobiles or financial services. Why is it starting to make sense now for CRM to be applied to consumer package goods? Is it because of the economics of the Internet and targeting becoming less expensive, or media becoming more expensive?

Mr. Strauss: It's all of those things. First of all, it's the fact that some of the mass marketing approaches are less effective and less efficient. That has to do with audiences and costs and the dispersion of audiences and the difficulty in reaching people and the waste that's involved. I think it's also the greater understanding that companies like Unilever have of the value of its most loyal customers -- as I mentioned in my speech -- the 20% of the user base that's generating 80% of the top and bottom line for a brand. And I think the third is the technical capability. Not just the technical capability but also the intelligence or knowledge of our marketers in our company about what CRM is and how you use it. That's why we're doing a lot of experimentation and a lot of pilots.

AA: From the pilots you've done so far, what stands out as far as tactics as the best ways to build brands with consumers?

Mr. Strauss: To give real value to consumers and to treat them on an individual basis and provide the capability of being able to do that efficiently and effectively.

AA: What would be some examples of things of high value that you've been able to provide consumers?

Mr. Strauss: For a company like Unilever, which is the largest personal care company in the world, when you look at all our brands and categories, it's really the ability to be able to respond to them . . . women especially, in terms of personal care, skincare, haircare. To be able to respond to them is something of great interest to them and obviously is relevant in terms of how we go to market with a number of our brands -- whether it's skincare, haircare, fine fragrances.

AA: Is it more a matter of being able to provide solutions or answers to questions?

Mr. Strauss: Yes, because every consumer has their own interests and personal needs and problems. Same on the food side of our business. Half of Unilever is foods, and as I mentioned, feeding the family nutritiously and economically is a very big issue for a lot of working women. Meal planning, preparation, nutrition, help and getting into broader family issues are all concerns for them. And if you can address those issues in a trusting way that's relevant to them, that's available to them when they want it in a way they want it, that is very important to consumers. And it helps us build the trust, loyalty and intimacy that's the way we define what a brand is all about.

AA: At this point, how satisfied are you with the way your agencies have adapted to the CRM model?

Mr. Strauss: It's a mixed bag. Some are doing exceptionally well and have really focused some of their best people in interactive communications, including CRM. And some are just getting out of the starting blocks. Clearly we will reward those agencies that have the most insight, the best thinking and the most expert people, and I think that's what we're doing. I'm not going to name names.

AA: In general, do you think it's important for an agency to bring the capabilities in house, or should they just know how to source it elsewhere?

Mr. Strauss: Well, if you buy what I said that over the next decade we're going to be redefining how we go to market -- even a big company like Unilever -- and our major competitors are doing the same, the agencies are going to have to go with the consumer and go with their clients. So I would say they need to have it in-house. Now whether they have it in-house within the agency or as a free-standing unit within the agency's corporate parent, it's up to them to decide what's best. My own view, however, is that they need to integrate it pretty fast over the next several years. And I think they will. Let's face it, they also have to follow the money. . . . With Unilever -- and I'm just talking about the U.S. now, but the numbers are probably even less exciting globally -- [we're still spending] 95% on traditional media. . . . The agencies are going to go with where the money is. But [interactive and CRM] are definitely where the money is over time.

AA: In following that lead of going where the money is, in terms of agency compensation, I know Unilever made some changes some years back to be less dependent on media commissions as part of the overall compensation picture. But as you move forward and further away from mass approaches to targeted approaches, do you think you're going to need to change compensation more?

Mr. Strauss: At any time we have to look at how we compensate our advertising agencies in order to be fair, motivating and align remuneration with our business strategy. And so I'm not making any announcement here, but I would say there is an ongoing review on how we approach agency remuneration.

AA: In regard to Unilever's recent restructuring along food and home and personal care lines and appointing executives with profit and loss responsibilities for each, as a practical matter, how will that change -- if at all -- the way Unilever approaches branding on a global basis?

Mr. Strauss: The new structure will allow us to move more quickly, especially as it regards the globalization of innovation. It will also have a significant impact on our announced plans to reduce the size of our brand portfolio to far fewer leading brand positions globally. . . . We want to give much greater emphasis to brands that are global and have global opportunities. And the new organization structure will allow us to do that.

The structure will also allow us to implement more cost-effective, efficient supply chain operations. In doing so, we free up margin in order to support brand building.

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