A Case Study of Unilever and P&G
Based on coordination game, the decision of Unilever to introduce a new product without informing P&G could result to loss-loss situation to both of them. Alternatively, if Unilever continued to pursue coordination with P&D, win-win situation that was presently offered to both firms would continue. Therefore, the strategy of Unilever is destructive to its own market share as its preemptive approach would result to lose of market for both firms.
Some consumers would think that the new product has flaws while other would view the present product line of Unilever as defective because an improvement is initiated through the product introduction. In the contrary, as Unilever and P&G were closely-branded products, consumers of P&G would be invited to buy other alternatives outside the product lines of both Unilever and P&G. The conclusion is detrimental to both companies. There is a way that Unilever can force P&G not to retaliate which is proven by coordination game.
In coordination game with at most two strategies that can be used by participants, there is no way that the shift of strategy of Unilever from Strategy 1 to Strategy 2 cannot affect the outcome of P&G’s current use of Strategy 1. When Unilever shifts to Strategy 2 through betrayal because this strategy has greater payoff, P&G has the option to do the same wanting to derive the same level of payoff. However, when both of them use Strategy 2, this can lead to Prisoner’s Dilemma where their standing is worse-off than their both use of Strategy 1.
Unilever can force P&G not to retaliate only if the former can show the latter that doing the same betrayal Unilever have done can cause the current performance of P&G to decline. In effect, knowing that P&G will be worse-off after jumping to Strategy 2, rational decision will refrain the change in current position. When Unilever decided to go with its product introduction and P&G is caught without new product, P&G must create strategies based on competition game. According to this concept, both firms have a better-off place in the market if only they can implement appropriate strategies.
Based on the payoffs of the previously coordination game, P&G must jumped into new strategies that can outperform its current performance, minimize the effects of Unilever’s new product and even outperforming Unilever though Unilever seems to have good position with its new product introduction. There are many ways and methods that P&G can practically leverage its market position against Unilever. One alternative is to initiate price war. This strategy is a means of undermining the effects of differentiation, innovation and product quality that Unilever have put into its new product.
Since the product is coming out fresh from innovation, its prices are expected to be high as it caters to quality, best practices and “thinking’ consumers. However, as P&G is selling its tried-and-tested product, consumers may see value in lowering the prices of its products. This could be an enough strategy to match the innovation-based product of Unilever. As a result, risk-averse and price-conscious consumers would shift to P&G products while high-end consumers would only be the one who will patronize Unilever’s new product.
As indicated by this strategic option, P&G can even broaden its market base while Unilever can experience contraction in its market due to ambiguity of the innovation to consumers. An extension of this alternative is for P&G to execute research and development endeavors. This add-on tactic can serve as the long-term retaliation plan of P&G especially when the time has already make the new product from Unilever acceptable to market due to familiarity.
Moreno, D. & Wooders, J. (1996). “Coalition-Proof Equilibrium”. Games and Economic Behavior 17: 80–112.