Documente Academic
Documente Profesional
Documente Cultură
cosmetics industry
Case
study
2
Aditya
Ishan
09/08/2014
Introduction
The following report presents an analysis of the cosmetic industry as well as a study of The
Body Shop. First, an overview of the business will be presented followed by the analysis of
the current market. The third chapter is dedicated to the study of Porters forces. Then,
the segmentation of the market will be detailed followed by a SWOT analysis. Finally, the
preconized strategy is presented before concluding this document.
II Environment analysis
A) PESTEL analysis
1) Europe
a) Political factors
-
The
lobbying:
to
attempt
of
influencing
the
decisions
made
by
government
bodies
-
The
forbidden
product:
like
products
that
are
not
under
prescribed
use
for
human
beings
-
Governments
stability:
it
affects
the
prices
and
rise
of
taxes
on
each
products.
b) Economic factors
-
Economic
crisis:
it
affects
the
purchasing
power
of
the
people
-
Exchange
rate
-
Transportation
fee
-
Taxes:
rise
in
taxes
can
increase
the
price
of
a
product
and
reduce
the
sales
of
a
product
c) Social factors
-
Environmental
engagement:
the
population
care
about
environment
and
maintaining
the
ecological
balance
-
Ethnicity
-
Mentalities:
cosmetics
considered
as
healthy
-
Lifestyle
-
Traditions
d) Technological factors
-
Plants
studies
and
product
exploration
-
Product
packaging
-
Active
ingredients
e) Environmental factors
-
Animal
testing
-
Plants
used
in
the
product
conception
-
Toxicity
of
the
chemical
solutions
-
Environmental
policies
-
Sustainable
development
f) Legal factors
-
Cosmetic
regulations
-
Environmental
regulations
-
Chemical
regulations
b) Economic factors
-
Economic
crisis:
it
affects
the
purchasing
power
of
the
people
-
Exchange
rate
-
Transportation
fee
-
Taxes:
rise
in
taxes
can
increase
the
price
of
a
product
and
reduce
the
sales
of
a
product
c) Social factors
-
Ethnicity
-
Mentalities:
cosmetics
considered
as
healthy
-
Power
of
the
mass
marketing
-
Lifestyle
-
Traditions
d) Technological factors
-
Plants
studies
and
product
exploration
-
Product
packaging
-
Active
ingredients
e) Environmental factors
-
Animal
testing
-
Plants
used
in
the
product
conception
-
Toxicity
of
the
chemical
solutions
f) Legal factors
-
Brand
names
issues
-
Cosmetic
regulations
-
Environmental
regulations
-
Chemical
regulations
B) Analysis
1) Political
The
lobbying is a practice which is affecting the market for both United States of America
and Europe. The regulations for is more strict in Europe than in United States of America
with a list of forbidden ingredients. In the other hand, in United States of America, it is
mandatory to have a label on the product describing the ingredients within. Government
stability is also an important factors which affects the flow of the economy in a country. A
war in a supplying country can have a huge impact on the business.
2) Economic
The changes in the global economy has affected the purchasing power of the customers.
The exchange rates and the taxes on the products are an important part of the product
price. The same apply to the transportation fees.
3) Social
The product sales are affected by the change of the type of customers, for instance a
young male will not buy the same product than an old lady. The market segmentation
takes is also impacted by the different ethnicities as well as the traditions. These factors
have to been take in consideration to add a unique value to a product, making the
customer appropriate the product and thus increasing the confidence of the customer
about it. The culture and the ethnicities of America are very different from the European
ones. Thus the strategy in the American market is very different from the one used in
Europe. For instance, the American customers are more sensitive to marketing sensitive
than the European one who are more environmentally engaged.
4) Technological
The post-consumer recyclable plastics bottles which are full recyclable is one of the new
technologies that impact the product packaging. Moreover, every day the R&D
departments of the cosmetic laboratories discover new active ingredients from plants. The
new products and materials developed with them permit to renew the consumers choices.
5) Environmental
Animal testing is not forbidden yet but should be according to PETAs act. Likewise, the
control over the toxic ingredients is not done everywhere. The recycling becomes a major
concern for maintaining the decorum of the environment.
6) Legal
Environmental regulations are an important factor of the legal regulations that applied to
the product created with natural resources as plants and animals. Chemical regulations are
also important to control the use of chemicals in the production. Here the American
market is stricter and thus it is difficult to create a product which fulfil all these
requirements.
Suppliers
Rivals
-
Bank
(=)
-
Insurance
(=)
-
State
(+)
-
Products
factories
(+)
-
Raw
material
supplier
(+)
-
Distribution
Channel
(+)
-
LOreal
(++)
-
Neutrogenia
(++)
-
Aveda
(+)
-
Unilever
(+)
-
Avon
(+)
-
Johnson
&
Johnson
(+)
Substitutes
- Non-organic product (+)
-
Homemade
product
(++)
2) Analysis
a) Low threat of new entry
The cosmetic industry has a low threat of new entrants due to several factors. The first
one is the huge costs of entry. Developing unique cosmetic products requires a lot of
resources both in terms of research and development and manufacturing process. Few
middle and small scale firms have access to the funds and expertise required to perform
this effectively. Another factor which discourages entry into this industry is the huge
competition. Companies like Avon, Revlon, Clinique, Estee Lauder, LR, Mac and Unilever
have large market shares. Moreover, there are many other small scale competitors who
also have a small market share and who reduce the overall profitability of the firms in the
industry. This market is a red ocean.
b) High bargaining power of customers
The high bargaining power of the customers is due to the importance of the competition
and to availability of cosmetic products from a variety of manufacturers. Since these
products have many substitutes, then it is possible for consumers to force manufacturers
to reduce their product prices. Of course, the bargaining power of the customers depend
of his purchasing power and of the segment to which his belong. Indeed, the cosmetic
industry is attracting the people of all age groups and social backgrounds. There are many
cosmetic products which are made to meet to the needs of different market segments.
The buyer concentration can therefore be deemed as low since there are many buyers who
cut across different market segments both in the developed countries and the developing
countries.
c) High bargaining power of suppliers
The suppliers have a high bargaining power due to the high number of market players. If
manufacturers sell their products at higher prices or if the countries taxes increase, the
cosmetic companies would have to reduce their margins.
d) High threat of substitutes
In the cosmetic industry, there are many competitors but also high threat of substitute
products. The consumers are able to purchase substitutes. It is therefore essential for the
market players in the cosmetic to be innovative if they are to tackle the challenge of the
threat of substitute.
e) High competition
The competitor concentration may be deemed as high in developed countries. Many large
scale cosmetic producers are concentrated in develop countries such as the United States,
France and Germany.
f) Exit barriers
Barriers to exit include the high development and research costs. Due to the high costs
associated with developing cosmetic products, it is difficult for firms to leave the industry
without achieving the costs for production. There are also many machines and equipment
used in developing cosmetic products and disposing these at a fair market value is difficult
hence making it an exit barrier.
IV SWOT analysis
1) Proctor and Gamble
A) Strengths
-
Large
incomes:
total
sales
of
$83.1
billion
in
sales
for
the
fiscal
year
2014
with
Olay
as
the
highest
selling
brand
-
Worldwide
presence:
market
leader
in
China,
United
States
of
America
and
United
Kingdom
-
Strong
reputation:
elected
the
best
anti-aging
creams
in
a
2006
by
a
consumer
association,
outperforming
some
much
more
expensive
brands
-
Large
investment
in
development
of
alternative
testing
methods
-
Large
investment
in
R&D
-
Acquire
different
companies
to
increase
their
catalog
-
Powerful
marketing
policy
B) Weaknesses
-
Animal
testing
controversy:
they
received
criticisms
from
the
animal
advocacy
group
PETA
-
Expensive
products
C) Analysis
Proctor and Gamble has a powerful marketing policy and lots of sponsors that permit the
company to invest a lot on the R&D to develop new products and indulge new
technologies. The company also invested in buying the new small companies and new
entrants to offer new products.
The company weakest point is that it received a lot of criticism from the animal advocacy
group PETA as it have the policy of testing the products on animals and that it is not
environmental friendly. Their packing materials are also not eco-friendly. The company
worked on the market prices but failed for the values of the products in much of the
market and the value for the customers.
A) Strengths
-
A
charismatic
leader
-
Brand
reputation:
The
Body
Shop
received
a
Petas
Award,
give
money
to
charity
organizations
-
Ethical
business
practice
B) Weaknesses
-
Have
many
mature
products
-
No
advertising:
it
is
using
a
word
of
mouth
strategy
-
Lacking
in
introduction
of
celebrities
to
attract
young
crowd
-
High
transportation
costs
-
Avoid
traditional
distribution
channel
-
Though
candidate
selection
- Controversies: criticized for charging 50% more Irish customers than the British ones
C) Analysis
The most important strength of The Body Shop is that its products are never tested on
animals and the packing of the products are 100% post-consumer recyclable. The Body
Shop believe in community empowering. It targets small communities to import the raw
materials, which permits to increase their employment rate. The agenda of the company is
to take care about its employees, customers and the environment. The brand has a huge
network, it possesses shops in 61 countries, and they all provide the same ambience which
is a full part of the customer experience. Its involvement into charity as well as its leader,
Anita Roddick, made media report of it. Another important steps taken by The Body Shop
is the study of the customers behaviours and need as well as its unique management
techniques.
One of The Body Shops weakness is the presence of many mature products in its catalog
which means that there is a lack of renewal so a lack of research and development. Due
their non-advertisement policy, their products are not known by many people and reaching
customers is becoming much more difficult as the new entrants are targeting the market
by large marketing campaign. For instance, many companies are using celebrities to
promote their products, especially to reach young customers. The high transportation cost
also impacting on the companys product cost. The hiring process is really tough and cost a
lot in time to the company.
3) LOreal
A) Strengths
-
Many
brands
name
for
different
customers
-
Local
strategy
with
a
global
base
-
Target
developing
countries
-
Many
partners
-
Global
presence
-
A
large
R&D
investment
-
Invest
a
lot
in
marketing
B) Weaknesses
-
Management
of
the
whole
organization:
it
is
decentralized
and
the
communication
is
not
easy
between
the
different
entities
-
Controversy
about
the
use
of
animals
to
test
products
-
Big
marketing
expenses
-
Hair
care
sector
not
dynamic
-
Not
proactive
in
the
field
of
natural
and
organic
products
10
C) Analysis
The main strength of the LOreal is that they have many kind of products for different kind
of customers from every segments. They target them through their different brands and
adapt their strategy to countries. They are also targeting the developing countries in which
they can provide products like China, Japan, India... They have created an online help
centre where customers can put their request on a product and they receive help. They
also help the customers to know which product is best for them. The company has many
partners that help it to stand in the current market in addition of its global presence.
Their income are used for large marketing campaigns and investment in R&D to innovate,
implement new solutions and develop new products every day.
The biggest weakness of the company is the management which is decentralized and
makes hard for the company to manage its resources and communicate within. For some of
the countries, like China, products have to be tested on animals, even if the usual policy of
the company is to not test products on animals. As a result LOreal gets criticism for
testing its products on animals. Introduction of lots of celebrities and market the product
takes away a lot of profit. Moreover, every products of LOreal are not very dynamic like
for instance hair lotions. Another important factor is the lack of organic and natural
products that most of the customers prefer.
4) Cosmetic Industry
A) Threats
-
Hardening
of
the
laws
on
animal
testing
in
Europe
-
New
ingredients
banned
by
the
European
legislation
-
Unstable
supplies
of
raw
materials
-
Strong
competition
in
market
-
Requirement
for
suppliers
to
adhere
to
ecological
standards
-
Need
of
environmental
certification
B) Opportunities
-
Growth
of
the
male
market
-
Improvement
the
packing
quality
to
make
the
product
attractive
-
Increased
awareness
of
organic
and
eco-friendly
product
-
Increasing
number
of
online
buyers
11
C) Analysis
The biggest opportunity of the business is the male customers segment which just
emerged. An improvement of the packing qualities, to make the product more attractive
could bring more customers from all the segments. An expansion of the online market
could be a good opportunity. Therefore, cosmetics are very personal and need to be tested
before to be bought so the online platform will not bring new customers but it would
develop the loyalty of the existing ones. A conscientiousness-raising of customers to the
environmental challenges could open the door to new products but also to new entrants.
In the other hand, the promulgation of new laws on animal testing and a growing concerns
of the states about environment could affect the product manufacturers. For instance, if
some environmental certifications are required to release some products, the market will
be totally changed. The unstable supplies of the raw materials due to economic problems
as well as the transportation problems could also affect the production.
V Segmentation
A) Market segmentation
1) Anatomy of the global beauty market
According to the estimation of CAGR over the last two decades the global beauty market
has grown of 4.5% per year on average. Products such as cosmetics, toiletries and personal
care have risen in demand unrelated to the economic conditions. The global market for
cosmetic industry could be segmented into five main area: skincare, hair care, color
(make-- up), fragrances and toiletries. The Body Shop could fulfil its customers
needs and
wants based on this segments for cosmetic needs. Market can also be segmented based on
premium or mass production. The premium segmentation can be beneficial for developed
markets such United States of America, Japan and France.
The mass production segmentation could be a concentrated on geographic aspects where
the market share are rather small. Compared to the above larger revenues generators,
North America, Latin America, Asia-Pacific and Western Europe are the other regions to
focus on for mass production. There have an emergence of new markets to segment such
as BRIC (Brazil, Russia, India and China). In 2010, these four countries accounted for 21% of
global beauty and personal care markets and is expected to rise to 25% in 2015 (Leonard,
2011).
Looking at the entire worldwide cosmetic industry, sales is estimated to reach about $170
Billion dollars a year which can be uniformly divided around the world; with $40 billion
from American market, $60 billion in Europe, $60 billion in Australia & Asia and $10 billion
in Africa.
The top 5 of the largest beauty brands
1. Olay
$11.8 billion
2. Avon
$7.9 billion
3. LOreal
$7.7 billion
4. Neutrogena
$6.2 billion
5. Nivea
$5.6 billion
12
2011
2013
Asia
31%
32%
Western Europe
24%
22%
Eastern Europe
9%
8%
North America
20%
21%
Latin America
13%
12%
Break
down
of
the
cosmetic
market
worldwide
from
2011
to
2013
The geographical analysis of cosmetic analysis suggests significant change in largest beauty
market. While the North America and the Eastern Europe doesn't see any gradual change in
their market shares, new emerging markets from Asian countries are becoming bigger
players. With rise in the market share of Latin America and Asia pacific BRIC (Brazil,
13
Russia, India and China) seems to be profitable for The Body Shop where the mass
production segmentation would be appropriate.
14
B) Targeting
Above 40 years people
Industry is targeting the ageing section of the society for which the market is very new. In
this section of the society there are people who are not using the products as the products
are mainly designed for younger people.
Mens in Korea and India
In some Asian countries, like Korea and India, there is a development of metrosexual
sector in the society and even men are willing to groom and use the products. The industry
should target those countries for the same sector.
Loyal customers
The industry should also see about the loyal customers which are using this products for a
long time and check regularly about their experiences with the products. More interactions
with the customers about the feedback of the products can help the industry to know the
same in a better way.
C) Positioning
Advertisement
Advertisement of the products with details can help the industry to gain the customers
from developing as well as developed countries.
Strong stakeholders
Industry should see the position of the strong stake holders and then check how the same
can be utilized for the benefit for the company.
Innovative product
As most of the products are declining and are matured new products has to be launched
with better technologies and effect and easy to use for the customers.
Quality and design
The quality of the products has to increase as based on demand by the company and the
design of the packing has to be improved to attract the customers from all the segments.
Trust of the product
The customers should always trust the products and it is the responsibility of the industry
to maintain it. So the industry to launch campaigns and advertise about the details of the
product and try to improve the originality of the same so that the customers can trust the
product.
VI Summarisation of Analysis
PESTEL : lobbying and money fluctuation is affecting the market , need to the follow
ecosystem regularization. Technology improved a lot that makes product quality.
PORTERs: entry of the entrants is less but have high competition among the other
well known brands substitute and buyer demand is high
15
16
****
BIGGER QUESTION****
Conclusion
After
analysing
the
Global
cosmetic
market
it
leads
to
the
following
conclusions:-
1.
The
demand
for
the
cosmetics
in
on
rise
and
will
continue
to
grow,
with
many
new
emerging
markets
such
as
BRIC
(Brazil,
Russia,
India,
and
China)
with
are
highly
populated
countries
and
are
combined
with
already
bigger
markets
such
as
USA
and
Europe..
2.Product
differentiation
becomes
must
for
the
manufactures
in
order
to
meet
the
new
and
emerging
demands
of
the
customers
as
well
as
to
keep
to
their
competitors
of
the
toe.
3.
Out
of
all
skincare
cosmetics
segment
seems
to
remain
and
grow
over
the
coming
year,
with
its
increasing
popularity,
thanks
to
scenes
and
many
other
skin
diseases
or
infections.
4.
Focusing
on
Mass
sales
of
cosmetic
could
be
a
deciding
success
factor,
advertising
the
mass
cosmetics
same
as
the
prestige
cosmetic
would
lead
to
a
new
masstige
segment.
5.
Focusing
and
utilizing
the
best
distribution
channels,
as
the
online
sales,
supermarkets
and
the
hypermarkets
have
managed
to
increase
their
shares
in
the
overall
market.
6.
Heavy
investment
are
done
on
R&D
for
new
product
launch,
where
the
emphasis
are
growing
toward
more
organic
and
sustainable
products
often
based
on
fair
trade
policy.
18
Bibliography
BBC,
Avon
to
close
its
French
operations,
14th
October
2013,
http://www.bbc.com/news/business-
24522756
BrandonGaille.com,
26
Cosmetics
Industry
Statistics
and
Trends,
http://brandongaille.com/26-
cosmetics-industry-statistics-and-trends/
Cincinnati
News.Net,
Around
100
brands
to
be
dropped
by
Procter
and
Gamble
to
boost
sales,
1st
August
2014,
http://www.cincinnatinews.net/index.php/sid/224358103/scat/3a8a80d6f705f8cc/ht/Around-100-
brands-to-be-dropped-by-Procter-and-Gamble-to-boost-sales
19
20