Porter’s Five Forces Analysis of Nivea
|Name||Nivea (owned by Beiersdorf Global AG)|
|Founded||March 28, 1882|
|Revenues||€ 7.63 billion (CY2021)|
|Profit||€ 699 million (CY2021)|
|Competitors||Vaseline, Ponds, Neutrogena, Dove and Neutrogena|
Nivea is a German company that operates in the Personal Care sector. The produces Body lotion, body face, face creams, shower gels and other products. The company prides itself on a long 100+ year journey in the personal goods segment with innovative products that suits modern day lifestyle. The company operates across the globe and provides go solutions for creams, lotions and other skin care products.
The company is famous for its Nivea-crème which as world’s first created from just oil and water. The primary ingredient was an emulsifying agent wax. The cream was colored as Snow white which hence gave the cream its name (Nivea means snow).
Nivea is owned by a German multinational Beiersdorf AG that operates from Hamburg, Germany and make products in Personal Care segment. As per the Financial Statements, the company reported Net Sales and Profits of € 7.6 billion and € 699 million, respectively. The Earnings Per share clocked in at € 3.00 against € 2.73, up 10% YoY. The company operates in Consumer and Organic Segments. Nivea is one of their multiple brands in Consumer segment along with Eucerin (Derma), Aquaphor (Derma), Hansaplast (Healthcare), Elastoplast (Healthcare) etc.
In 4QCY21/FY21 Nivea sales increased by 1.7%/5.5%. The country wise breakup for the Consumer Segment includes Americas (€ 1.30 billion / 16% YoY), Europe (€ 2.91 billion / 6% YoY) and Africa, Asia & Australia (€ 1.92 billion / 9% YoY).
Nivea markets its 100% neutralized climate, natural oils and vegan formulas with complete recycled aluminum cans for packing to become a part of more environment friendly world.
Nivea Rivalry among Existing Competitors
- Intense Competition
Theconsumer goods market operates in a highly competitive landscape. With Nivea being a global brand, the company not only competes with major cream products around the world but with also local products as well which offers attractive prices to the consumers.
- Vaseline, Dove and Ponds
Vaseline, Dove and Ponds – Unilever brands innovate on its industry leading pro-lid technology developed by dermatologists across the globe to cater to different skins across the world.Vaseline performed strongly in CY21 according to Unilever financial reportsbecause of their innovations in brightening, therapeutics and hydration. Ponds offers customers with premium minerals for which supports and hydrates skin care.
Neutrogena owned byJohnson and Johnson, one of the most giant US personal care brands invested USD 14.7 billion, 21% more than last year in Research and Development in 2021 as it is a foundation of growth for the company. The company operates around 85 facilities worldwide (US 26, Europe 25, Western Hemisphere 9, Asia, Africa and Pacific 25). The company generated Net Sales of USD 93.78 billion, up 13% YoY. The Profits reported in at USD 20.88 billion, up 42%.
- Key differentiating factors
Nivea is considered by most women daily as one of the most reliable brands. Although the industry is dominated by a lot of large players operating on a global level, there are all doing the same things but differently! The things that add unique flavor to products from different brands is the distinctive formula (smell), constant investment in research and development, high consumer engagement with feedback and extremely strong digital marketing strategies.
Nivea Threat of New Entrants
- Research and Development Costs
The dynamics of the cream business is mostly related to a pharmaceutical company with dermatologists working to create formulas that best fit the skin-needs of most people and provides skin with the most nutrition while also protecting consumers from dry skin, dust particles and other materials. For that goal, as per our research, most brands set up houses in countries across the globe to gather data on local taste and environments and hence calibrate products according to their distinctive needs. This task takes millions of dollars in setting up facilities, obtaining licenses, and hiring research personnel.
- Extraordinary Working Capital Requirements
There is immense capital required for setting up facilities that can actually manufacture creams, lotions, and healthcare goods. Moreover, extremely highly skilled workers are required to run these facilities. In many countries, either such kind of skill is not present or it is expensive which reduces the threat of new entry.
- Excessively Regulated
This sector of the personal care business is highly regulated with many certifications and licenses required from different agencies, local regulatory bodies and international standards. As the products directly interacts with the users Skin, it has to pass multiple assessments along with audits at regular intervals.
Nivea Bargaining Power of Suppliers
- Global Presence
The company operates with offices and distribution network across the globe(more than 50 countries). Nivea products can be found in any cosmetic shop or medical store with ease thanks to vast supply network and efficient production. The presence of large number of small suppliers reduces supplier influence.
- Supply Chain disruptions
The company operates since more than 100 years and have faced extreme supply shortages during the WW2 and Covid19/Russia-Ukraine scenes that it is completely equipped to deal with such challenges. However, the volatility in energy prices and soaring inflation has led Nivea to increase the product prices across the globe. However, the company expects the volumes to return to pre-covid levels after the settlement of this new world order.
- Standardized Products
The company sells multiple variants which are standardized by professionals for masses. The company retains the blue color for its logo and most packaging as it is associated with Trust in Nivea’s perceived brand image. The presence of unified products lets different supplier have the exact same products which distinguish the need for differential pricing and hence prices can be controlled by the company without the intervention of middlemen which charge a certain percent for products.
Nivea Bargaining Power of Buyers
- Continuous Brand Development
Nivea has spent an entire century working on its brand image with various television advertisement to promotions in the local grocery stores. The marketing campaigns are effective in presenting the companies motto of Care and Wellbeing. According to the company’s website, the company wants to create a product for every single type of skin. The company is also innovating in the Men’s segment with developing products as men grows more conscious of skin issues.
- Ability to pass on Cost-push inflation
The last year has been extremely painful for consumers in the FMCG (fast moving consumer goods) segment as the supply chain disruption caused by the Russia-Ukraine war with increase in energy prices made difficulties in costing and maintaining margins. However, as evident, Nivea was successfully able to pass the impact of inflationary pressures to consumers with exceptional product quality (with women treating products as a necessity for skin rather than a luxury). Going forward, with the reversal of commodity super cycle, we anticipate that the margins will increase as the product prices are not expect to come down(upward-sticky prices).
- Diversified client base
Nivea has a distribution network in 50 countries but products sell in almost everywhere around the world with the help of middlemen, people across the world with different ages, skins and ethnicities demand Nivea products because of its exceptional quality and perceived brand image.
- Nivea’s thrusts for Racist advertisement
Nivea has been time to time been part of controversies due to their choice of words and messages in advertisement. Nivea has been categorized by a racist company and been under investigation of FCB Advertising agency. The FCB took part with Nivea because of bad will and low contribution to total revenues (less than 1%) in 2019 according to Zarko.
Nivea Threat of Substitute Products or Services
- Changing beauty standards – demand for Organic products
As per estimates by Techavio, the organic cosmetic market share is estimated at USD 17.63 billion by 2021, estimated CAGR of 10%, however, the actual number came out more than this. Organic products are manufactured with the use of herbs, plants and other minerals without pesticides and chemicals. The rising standard of living across the globe are leading to different standards of beauty and health with primary focus on using things that do minimum damage to skin and body. This creates threat of substitute for creams like Nivea, Dove and Neutrogena. However, all the top brands are now venturing in to organic products.The organic market is estimated to be at USD 182.65 billion by 2027 as per GCI Magazine (2021).
- Low Switching Cost
Creams contain less than 2% of total monthly household for any family. This gives us the impression that these products are luxury and low in costs as compared to other expenses. Since all the products compete in the similar price range, there is low switching cost financially and mentally for these products and that is why large brands such as Nivea invests heavily in building strong brand perceptions.
- Limited Shelf life
Cosmetic Products comes with an expiry date (and can be considered partially perishable) and have a limited shelf life. Also, buyers expect to use the product for around 8-10 months and come for another purchase. Due to such nature of the product and intense marketing from all sellers and unavailability of regular discounts, the products are highly switchable.
- Local vs. Branded Products
Imported cosmetic brands like Nivea also compete with local manufacturers which offers products at lower price, with more cultural touch, and intense marketing locally which makes it difficult to compete in such markets specially Asia and Africa. Having said that, there is extremely high populations in counties like China, India and Pakistan where there are large wealth gaps that makes product extremely expensive for a large population. Hence, such consumers never get to experience quality products like Nivea and Dove due to affordability and continue buying local products.
- The Wall Street Journal, Topic: Beiersdof AG [online], Available at: WSJ
- Company Website [Online], Nivea, Available at: Nivea
- Company Website [Online], Beiersdof, Available at: Beiersdof
- Forbes [Online], Nivea, Available at: Forbes
- Statista, (2022), Brand value of Nivea worldwide from 2016 to 2022 [Online], Available at: Statista
- ZarkoDimitrioski, (2019), Advertising Agency FCB ‘Resigns Nivea Account After Turmoil Over Alleged Anti-Gay Remarks’ [Online], Available at: Forbes
- Statista,(March 17,2022) Annual Revenue of Beiersdorf worldwide from 2001 to 2021 (in million euros).Available at Statista
- Beauty Packaging, (2018), Natural and Organic Beauty Products in High Demand [Online], Available at: beautypackagin.com
- Global Cosmetic Industry Magazine, (2021), Demand Increases for Organic Skin Care and Brightening Products [Online], Available at: GCI Magazine