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Strategic Management Seminar course. In order to better understand the opportunities, threats, strengths and weaknesses of the company Estee Lauder, one has to get the insight of the corporation. The Estee Lauder Companies Inc. manufactures and markets skin care, makeup, fragrance and hair care products. Estee Lauder Companies Inc products are sold in over 130 countries and territories under the following brand names: Estee Lauder, Clinique, Aramis, Prescriptives, Origins, M.
A. C, Bobbi Brown, La Mer, Jane, Aveda, Stila, Jo Malone, Bumble and bumble, Darphin and Rodan & Fields. The Company is also the global licensee for fragrances and cosmetics sold under the Tommy Hilfiger, Donna Karan, Kate spade and Michael Kors brands. Speaking about the distribution, I would like to note that Estee Lauder sells principally through limited distribution channels to complement the images associated with its brands.
These channels consist primarily of upscale department stores, specialty retailers, upscale perfumeries and pharmacies and, to a lesser extent, freestanding Company-owned stores and spas, its own and authorized retailer Websites, stores on cruise ships and in-flight and duty-free shops. It also sells products at self-select outlets and prestige salons. 1. Who are Estee Lauders major competitors? The main competitors of Estee Lauder are LOreal company, Procter&Gamble Co, and Unilever NV which fight for the given market in cosmetics for men and women. It should be noted that Estee Lauder is actually one of the smallest companies capitalization wise with 8. 58 billion in capitalization compared to P&G 125 billion, Unilever 33 billion and the whole industry capitalization is 230 billion. 2. What are the most important product lines?
The Company's range of skin care products addresses various skin care needs for women and men. These products include moisturizers, creams, lotions, cleansers, sun screens and self-tanning products, a number of which are developed for use on particular areas of the body, such as the face or the hands or around the eyes. Its makeup products, including lipsticks, mascaras, foundations, eyeshadows, nail polishes and powders, are offered in an extensive array of shades and colors. The Company also sells related items such as compacts, brushes and other makeup tools. In addition, Estee Lauder offers a variety of fragrance products for women and men. Its hair care products are offered mainly in salons and in freestanding retail stores and include styling products, shampoos, conditioners and finishing sprays. 3.
In the aggregate, is demand in this industry growing, stable or declining? The cosmetics industry in the USA totals up for over 500 billion annually and comprises products intended for men, women and children. At the same time the product for each market comprises products for daily, and weekly uses. The product also can be anti-aging, refreshing, skin-care or aromatic (perfumes). Each of these product lines are influenced by various factors such as weather conditions (impacts the sales of tanning lotions), population aging (older population buys more anti-aging products), or demographics (women buy more skin care products and perfumes than men and children). According to the cosmetics market analyst, Raymond Reed at web the cosmetics industry in aggregate is growing.
The main factors that impact the demand in this industry is the general improvement of welfare which leave people more income to spend on cosmetics and beautifier's. The ads and commercials also promote young and fresh skin and faces which also prompts people to buy cosmetics. In the aggregate the demand in cosmetics industry in the USA grows at a rate of over 7 % annually. 4. What are the relative market shares of the major players in the industry? Proctor and Gamble comprises over 25 % of the total US cosmetics market, Estee Lauder possesses 45 %, LOreal- 12 %, and Unilever- 22 %. It should be noted that these figures apply to total product ranges in the cosmetics for men and women industry.
The cosmetics product used for children or animals are omitted for the fact that the sales of such products account for less than 5 % in each company of the total sales, which in total picture of the market share positions of each company would alter the given results by some 2 %. SWOT analysis is the analysis of the corporate strengths, weaknesses, opportunities and threats, while this essay will focus on the relationship of the opportunities and threats of the company Estee Lauder to the Porters Five forces that impact the external business environment of any company. I. OPPORTUNITIES of Estee Lauder with respect to Porters five forces. Porters Five-Forces Model: A. Risk of Entry by Potential Competitors; The cosmetics industry possesses rather high entrance barriers for the competition.
The fact that the cosmetics are used on humans and therefore in the worst case can damage human health, makes the regulatory agencies very demanding of the new entrants in terms of product testing, safety and usefulness. The Advertisements aimed at promotion of at least one brand can cost millions per 30 sec TV Ad to several hundreds of thousands for magazine ads establishing barriers for new entrants. Brand Loyalty. Brand loyalty is very high in the cosmetics industry and Estee Lauder makes a great use of it enjoying the customers buying Tommy Hilfiger, clinique and Aramis brands without even looking at other brands. Yet still if customers are used to some skin care products like the one from the P&Gs series Oil and Ol ay Estee Lauder will face this barrier if it wants to launch a new brand aimed at that very same market. Absolute Cost Advantage.
Estee Lauder does not deploy the absolute cost advantage and focuses on the upscale, prestigious brands that are sold at high prices and that bring high returns for the company. It should be noted that Estee Lauder has an average mark up on production cost for its products of over 500 %, meaning that a $ 100 bottle of perfume costs Estee Lauder only $ 20. For new entrants, estee lauder does not pose the entry barriers on this one. Plus it should be noted that customers are willing to pay more for something that cost only 1 / 5 of the price they pay because of the image. I am confident that if customers would watch the brands like Origins or Estee Lauder sell for only 20 % of their previous price-they would consider these brands cheap and would not buy them at all.
Economies of Scale Unlike the competing Proctor and Gamble with its Oil and Ol ay brand that is aimed at mass production, Estee Lauder does not engage in mass production in the traditional sense. The main reason for mass production is to be able to sell at cheap prices and because of the large volume to make much money. Estee Lauder prefers to sell at high prices, custom made perfumes for the most part, yet also having some semi-custom, semi-mass production brands (like Hilfiger and aveda). Perfume and cosmetics market is not usually aimed at mass production for image reasons, yet companies like Unilever and P&G indeed create these barriers. Customer Switching Costs. The customer switching costs in the perfume and cosmetics industry are pretty low.
Apparently, the brand loyalty plays the main role psychologically for the Estee Lauder customers, yet cost-wise, it is even cheaper for a customer to buy most perfumes from P&G, LOreal, or Unilever simply because Estee Lauder aims at high-income customers. Government Regulations (any legislative / judicial issues that heighten / lower the entry barriers of potential competitors? ) The government requires a lot of testing and adherence to the safety standards and certainly it creates additional costs and thus, barriers for new entrants into the cosmetics market. B. Rivalry Among Established Companies Industry Competitive Structure; the cosmetics industry is still fragmented yet now more efforts are made to consolidate the most revenues in three companies like Estee Lauder, P&G, Unilever and LOreal.
Other companies like Avon, or Mary Kay that are also present on the market currently lose their share to the big four. As it has been previously noted the demand is growing at a rate of 7 % annually for the past 5 years and this certainly provides a lot of opportunities for Estee lauder and new entrants. The exit barriers are less high than the entrance barriers, yet the company estee lauder strives to remain in the industry to assure the correspondence with the tradition of the company creators, the Lauders. C. Bargaining Power of Buyers. The consumers can hardly bargain in this industry simply because they associate value with high costs.
As for the skin care products like creams, tanning lotions, the customers indeed prefer mid-priced products that appear to possess high quality and reasonable price. D. Bargaining Power of Suppliers. The main products used in production of cosmetics are natural herbs, oils, or perfume spirits that companies use for most of its products. As it has been said the costs usually account for only 20 % of the total price on most cosmetics and therefore unless the supplier double the prices the modest raises cannot be harmful for the companies.
Another thing worth noting is the fact that most of the natural products used in cosmetics can be bought in third world countries and therefore can be bought at cheap prices. E. Substitute Products. There can hardly be any substitutes for perfumes. Various skin creams can be substituted by the regular sour cream, cucumber rings put on the face, or olive oil applied to the skin, things popular in the 1950 s, and which are nowadays are hardly even considered to be useful for cosmetic purposes by the customers. Therefore, companies like estee lauder can enjoy the market with hardly any substitutes, yet can watch the customers switch to competitors which provide competing substitute alternatives.
II. THREATS A. Risk of Entry by Potential Competitors; Potential competitors also provide the biggest threat to the company like estee lauder. Brand Loyalty. If the consumers get loyal to the competing brands established by Loreal, P&G, Unilever, estee lauder will not be able to market its own products. As it has been said in the opportunities section, estee lauder should try to establish brand loyalty in its customers to assure constant sales.
Absolute Cost Advantage. For the company like estee lauder the cost advantage is not the issue of threat at all simply because this is the industry that stresses image as a representation of price. Thus, any price (high or low) is considered to be a representation of either good or bad subjective quality. Economies of Scale. The economies of scale appear to become a useful issue in the future, when more and more customer prefer the middle-class mid-price range products from companies like P&G and Unilever. It should be noted that these companies watch an increase in revenue growth 3 - 4 % higher than the revenue growth in estee lauder which states that mass produced brand products can be also profitable.
Customer Switching Costs. The customer switching costs in the perfume and cosmetics industry are pretty low and therefore, the company like estee lauder can witness drastic drops in sales once there is some bad news about the safety of its products or something. In this case the customers will simply buy another companys products. Government Regulations. If estee lauder fails to meet the government requirements for safety, it will not be able to market these products and will face lawsuits. B.
Rivalry Among Established Companies The competing firms that pose the greatest danger to estee lauder are procter& gamble, unilever, and loreal which go very close with each other in terms of market coverage and product development. These competitors in my opinion pose the greatest threat to estee lauder. C. Bargaining Power of Buyers. The buyers can the have the only power regarding the actual product. In other words, the customers may prefer liquid soap and force the companies produce it.
Also they may want a perfume that does not leave spots on the shirt and the companies like estee lauder will follow it. Yet if the customers demand the perfumes for $ 10 /bottle which is still profitable for estee lauders some perfumes, they will not be able to do so simply because other customers will not buy these cheap products. I personally can hardly imagine a woman who would go on a date and put on some $ 10 /bottle perfume and feel great about it. D. Bargaining Power of Suppliers. The suppliers do not pose any threat to estee lauder simply because there are too many of them located in the third world countries like Egypt, Middle East and Africa.
E. Substitute Products. As it has been said previously there are hardly any substitutes for creams or perfumes these days and therefore the companies like estee lauder do not see any threat from this type of Porters force. Bibliography: Thompson, Andrew, Marketing, McGraw Hill, 2002. Donahue, robert, Using Porters forces, Prentice hall, 2001.
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Research essay sample on Porters Five Forces Skin Care Products
