CNBC Business | Business Watch

Changes to bonuses and the internet

UNILEVER DEVELOPS TASTE FOR EATING-IN

Brands which can tap in to the changing needs and priorities of consumers will be able to improve their position despite the pressures of the financial crisis, according to Paul Polman, chief executive of Unilever. In a webcast interview for management consultancy McKinsey, Polman said that the food and home-care conglomerate is already starting to see slower growth in many markets. Consumer behaviour is also changing in several ways, from the postponement of big-ticket purchases to cutting back on discretionary and premium items and dining out less often, he added.

In response, Unilever has launched products such as meals branded under the label of P.F. Chang, the restaurant chain, and Starbucks ice cream, which can be enjoyed by its customers at home. To benefit from the current climate, Polman said it was vital to try to gain an insight into changing shopper preferences. As part of this process, Unilever has attempted to increase its focus on execution rather than strategy, and also regularly conducts in-store and in-home research. Moreover, while the recession may have encouraged some people to trade down to save money, Polman believes it could also offer further benefits to brand owners.

“Interestingly, especially people that are most affected by this crisis — the people concerned about unemployment or their long-term wealth — actually tend to gravitate even more back to brands, simply because they cannot afford to take the risk to experiment with other things,” he said. Polman predicted that even after the economy picks up the consumer will continuously look for products that are more convenient and that are healthier. Convenient and healthy — now there’s a marketing challenge.

WEB NO LONGER SPELLBOUND BY LATIN

The “biggest technical change” to how the internet works since its invention four decades ago is months away, according to regulatory body ICANN, which has approved plans to let web addresses be written in non-Latin characters. The proposal means domain names could be written in languages such as Greek, Chinese, Arabic, Hindi or Cyrillic and be understood natively by the servers that connect computers together over the web. Currently, domain names can only be displayed using the Latin alphabet letters A-Z, the digits 0-9 and the hyphen. In the future countries will be able to display country-code Top Level Domains in their native language. The organisation will launch a fast-track process for approving the Internationalised Domain Names (IDNs) scheme on 16 November, and the first IDN-compliant addresses should be in operation mid-2010. According to the proposal, ICANN would charge registries €18,000 for a processing fee and an annual contribution of 3% of a registry’s revenue, but this could be as low as 1% for low-volume registries.

CHINA CARMAKERS SEE VOLVO AS VEHICLE FOR GLOBAL EXPANSION

Ford Motor Company says Zhejiang Geely Holding Group, the parent of China’s Geely Automobile, is a preferred bidder for its loss-making Swedish unit Volvo Car Corp. Geely heads a consortium which includes domestic and foreign banks, according to chairman Li Shufu, and media reports suggest the price could be closer to $2bn than the $6.45bn Ford paid for Volvo in 1999. As well as providing Geely with technologies to upgrade its cars to tap the growing domestic market, Li says the Volvo deal would help the company to move beyond the Chinese market, now the world’s largest, onto the global stage. Other Chinese automakers, including Chery Automobile — which was eyeing Volvo two years ago — are keen to break into foreign markets and are aggressively developing their own brands while moving into the more upmarket vehicle sector.

LUXURY’S ANNUAL WEALTH CHECK REVEALS DOWNWARD TREND

The global luxury goods market, jolted by LVMH’s results, will post an 8% decline in revenues, to €102bn this year, before returning to growth of 1% in 2010, according to the latest forecast from analyst Bain & Co. In March, the company told CNBC Business that sales of high-end goods would contract by 9% in 2009, but while it has now slightly revised this estimate, it also warned that the category would take a considerable length of time to fully recover. Claudia D’Arpizio, a Milan-based partner at the US company, said: “2010 will be a year of consolidation. We can start talking about recovery the following year, but you need to wait until 2012 to go back to pre-crisis levels.” By region, the Americas are expected to post a decrease in sales of 16% this year, with Europe, which contributes 38% of all sector spending, also down by some 8% in all. Japan, which has a market share of 12%, will record a drop of 10% in 2009, partly down to the trend among younger shoppers to combine these brands with an increasingly diverse range of other products. China will register an improvement of 12% year-on-year, but this total constitutes less than half of the rise of 30% enjoyed in the world’s most populous nation in 2008, with Asia as a whole up by 10%. Italian luxury goods association Altagamma says it expects sales to improve in the second half of 2010. It forecasts turnover for clothes, jewellery, leather goods and perfumes rising in the low-single digits next year.

DROPS OF COMFORT FOR UK

If bottled water sales are a barometer of economic health, then the UK appears to be on the brink of recovery, according to a Mintel report. After more than two years of declining sales, the market for sparkling and still water is climbing again and by 2014 should be back to pre-recession levels, the report suggests. As the ultimate discretionary purchase, bottled water has been hit hard by the recession, with sales falling by as much as 11% between 2006 and 2008. Despite lingering consumer resistance, the recession and environmental concerns, the decline has slowed to 1%, says the report. “Consumer confidence is inextricably linked with bottled water consumption and when the decline in confidence began in the latter half of 2007, bottled water became one of the easiest products for cautious consumers to sacrifice,” said Mintel drinks analyst Jonny Forsyth.

BMW DRIVES BONUS CHANGE

BMW has become the first major company in Germany to link the bonuses of its top managers to those of its assembly line workers, amid growing global criticism of executive compensation. The move sends a strong message to other firms also examining their compensation practices, as the world’s largest banks in particular have come under fire from politicians, shareholders and the public over excessive bonuses. Starting in 2010, the company will use a new formula to award bonuses, based on the company’s performance as measured by profit, sales and other factors. That means that upper level management could potentially lose more money than their lower level counterparts for bad performance, BMW said.

Other German companies are likely to follow BMW’s lead as pressure grows on firms to curb excessive bonuses in the wake of the financial crisis. German Chancellor Angela Merkel has been outspoken about her dislike for excessive bonuses, calling them “inappropriate.” In September, Merkel wrote to French President Nicolas Sarkozy and British Prime Minister Gordon Brown ahead of the G20 summit in Pittsburgh proposing a cap on the total amount of bonus money a bank could pay out.

In October a German court rejected claims from 13 bankers for bonuses ranging from €29,000 to €450,000, upholding the argument of Commerzbank, which bought Dresdner Kleinwort last autumn, that the losses Dresdner sustained last year justified the new owner’s decision to slash the bonus pool by 90%.

Ironically on the day BMW announced its new pay formula, Goldman Sachs further enraged taxpayers by setting aside $21bn (€14bn) for bonuses this year, on par with 2007’s record payout, with the average employee is expected to pocket $527,000 (€350,000) in bonuses alone. At least the Goldman Sachs bankers will be able to splash out on a new BMW.