Estee Lauder Essay Example for Free

Estee Lauder Essay I. BACKGROUND OF THE COMPANY Està ©e Lauder Companies, Inc. founded by Estee Lauder and her husband Joseph in 1946 started by selling four skin care products invented by her chemist uncle in beauty salons and hotels. The enterprise established their first department store account with Saks Fifth Avenue in New York in 1947. By 1960, Estee Lauder was an international manufacturer and marketer, selling their products in the famous Harrods Department Store in London. In the subsequent years, they opened outlets in Central America, Denmark, Hong Kong, Italy, Spain, Sweden, Belgium, New Zealand and Switzerland. Today, Estee Lauder markets its products through different brands in more than 140 countries and territories. It also holds the global license for fragrances and cosmetics. The company consists of a collection of prestige brands targeted at a diverse selection of consumers. The group’s portfolio of brands includes the most recognized labels for mature customers (Estee Lauder, Clinique, Prescriptives, Aramis, and La Mer), eco-correct labels (Aveda and Origins), as well as hip labels (M.A.C., Bobbi Brown, Tommy Hilfiger, Donna Karan, Stila, Jo Malone, Bumble and Bumble, Kate Spade, jane, Darphin and Smashbox). The Estee Lauder Companies is an organization which engages in the manufacturing, marketing, and sale of several beauty products. The company is divided into four sectors, skin care, makeup, fragrance, and hair care. Estee Lauder is based in New York City and currently employs 32,300 people. The products are mostly marketed through department stores, specialty retailers, upscale perfumeries, pharmacies, salons, and spars. Additionally products are sold at company owned free standing stores and through e-commerce in selected countries. The company is still controlled by the Lauder family, which controls about 70% of the voting shares. Estee Lauder’s grandson is currently the chairman of the board of directors. II. STATEMENT OF THE PROBLEM This case analysis attempts to determine the most effective strategies Estee Lauder must use in the Philippines. To determine the main objective of this case the researchers focuses on the major components of the case analysis which are as follows: A. Market Analysis 1. To what extent will the Filipino consumer will support or use Estee Lauder products? 2. What are demographic profiles of the target users of Estee lauder in the Philippines? 3. What are the information needs of the Filipino consumer to divert their patronage to Estee Lauder products? B. Technical Analysis 1. Based on the needs of the Filipinos what would consist the basic collection of Estee Lauder products that should be put up into Philippine markets? 2. Where the possible locations that will effectively inform and market to the Filipino consumer the Estee Lauder products? III. OBJECTIVES OF THE STUDY The primary objective of this study is to determine the most effective strategies Estee Lauder must use in the Philippines using market analysis and technical analysis. A. Market Analysis 1. To determine the perception of the Filipino consumer on Estee Lauder products versus other beauty product competitors. 2. To verify the demographic profiles of the target users of Estee lauder in the Philippines. 3. To determine the information needs of the Filipino consumer to divert their patronage to Estee Lauder products. A. Technical Analysis 1. To enumerate the possible collection of Estee Lauder products that should be put up into Philippine markets? 2. To plot possible locations that will effectively inform and market to the Filipino consumer the Estee Lauder products. IV. INDUSTRY ANALYSIS A. Analysis of the Macro environment 1. Demographic Environment In the next 20 years, there would be an expected growth of sales of cosmetic products because roughly 70 million people around the world will reach an income that will allow them to purchase such kind of product. In the next 40 years, aging population in the world will multiply by 2.5 times. With an increase in the world’s aging population, life expectancy would improve too. 2. Social and Technological Environment Social environment is a broad concept which may be affected by all factors to be considered in making analysis in the Macro environment of the company. There is a significant factor that may affect sale of products easily. Majority of the Filipino consumers especially those who live in the National Capital Region may support products easily because of the practice called mental colonialism. What is imported is better. Of course it is! Filipinos tend to patronize imported products most especially those that are known for years. In fact, products made by the Estee Lauder Company are sold in some known malls all over the Metro Manila region. May it be cosmetics or fragrances; consumer will buy it as long as they have the money. Social media affects Filipinos perception about a certain thing. If there is one thing that Estee Lauder to focus on in trying to caught more attention from Filipinos, it shall be in the social media. I have noticed that they cannot be seen in the TV commercials, radio stations or even print ads. They appear in print ads but rarely with the local magazines. Since Estee Lauder is based in London, cosmetics are mostly designed for the white people. This company should create cosmetics that are compatible with the Asian skin especially to the Filipinos. Filipinos are fond of social networking sites which may be an advantage of Estee Lauder to advertise products internationally easily and can hear feedbacks with just a click. Since Estee Lauder prices ranges from mid-high to high, not all Filipinos can afford to have a single product on their pouches. Mid-range to elite people may patronize the product continuously but not those who are tight with the budget. Filipinos should be aware that though it may be a little expensive, the bill spent is worth every product. It has been a practice that those who can’t have those products, shift to an imitation of the original. I believe, these products should be innovated even more where in all Filipinos can afford to use Estee Lauder products in their daily routine. They should know the big difference between the original and the imitation. What is it? We should see it ourselves. 3. Economic Environment All sectors of the cosmetics industry showed growth in the Philippines in 2008/2009, according to Euromonitor. Beauty and personal care sales were US$2.26bn, a 2% rise year on year. The highest growth was in colour cosmetics (7.9%), skin care (6.3%), deodorants (4.3%), hair care (4%) and fragrance (2.9%). The mass market is dominant in the Philippines, accounting for 96.3% of all bath and shower sales. As elsewhere in the southeast Asian region, the major players are foreign multinationals – Unilever, followed by Procter Gamble, L’Orà ©al, Està ©e Lauder and Shiseido, according to the trade association Chambers of Cosmetics Industry of the Philippines (CCIP). In the beauty and personal care sector, Colgate-Palmolive is the third largest company, behind Unilever – who in 2009 adopted a strategy of offering smaller-sized packaging, targeted at middle and lower income consumers – and Procter Gamble, according to Euromonitor. The economic slowdown in the Philippines has prompted growth in direct selling. Companies such as US-owned Avon and Philippines-based Ever Bilena Cosmetics adopted commitments to boosting revenues through discounts and tapped into a female labour market keen to increase household incomes. The market appears to be remaining vibrant. Between January 2009 and January, 2010, 511 new cosmetics products were launched in the Philippines, according to market research group Mintel – the highest number (176) was in skin care, followed by soap and bath products (131) and hair products (108). B. Competitive Analysis 1. Intensity of the Rivalry Among Existing Competitors Està ©e lauder’s brands face great competition in the cosmetics industry. Internationally it competes with Loreal, Avon, Revlon, Elizabeth Arden and Bare Escentuals. Though there are a lot of competitors in the industry, Estee lauder consists of various products that competes on each of them. Està ©e Lauder’s all-natural products face competition from Bare Esentuals. Its mid-end products compete against Revlon, Avon, and Elizabeth Arden. Additions to these competitors are the local companies in the Philippines like Ever Bilena and Careline. Rivalry intensifies because there are a lot of companies that are in to beauty products. Competition is more intense because of the local brands that use price cuts or other marketing tactics to boost unit volume. And because most Filipinos are thrifty, rivalry is stronger when the cost incurred by customers to switch their purchases from one brand, like Estee Lauder to another, like Careline, are low. Competitors might get a close competition with some EL products. But because of its variations of beauty products Estee lauder possesses, it still rises above the others internationally. Its professional makeup brands, M.A.C. and Bobbi Brown face significantly less competition because of their target marked of specialized clientele. In more than 25 years, Ever Bilena has become the number one Filipino brand. It has penetrated an industry dominated by global giants, and have made products best suited for our Filipina consumers with international quality at affordable price. Ever Bilena and Careline cater products that are way too cheap compare to EL and other international beauty companies. Ever Bilena and Careline target market are different from the target market of EL. They target teenagers who need beauty products for their everyday use. It outwits EL by selling their products in a very low price. Our country is considered as third world so along with that it gives EB and Careline the edge among competitors because of the market it targets, basically the Masa. Estee lauder is known for its reputation and expertise in beauty products. EL has been in the industry for years. They have gained loyal customers as time pass by, and as quality of their products improved along with it. They got an edge among other competitors just by the name it carries. But in the Philippines, those who cannot afford high-end beauty products will definitely not patronize Estee lauder products. It’s a really tough completion EL have in the Philippines, but it still stand a chance in competing with other local products because of the colonial mentality of the Filipino, love for foreign products. 2. Threat of the New Entrants Locally, the barrier is high but we can say that there is a great chance of any other aspiring businessman to enter into the industry. Economies of scale act as a great barrier to entry, and with EL, its sales for the past few years. The Estee Lauder Companies Inc. today reported a strong financial performance for its fourth quarter and fiscal year ended June 30, 2012 based on the financial statement posted via internet. In line with these facts gathered, we can say that the stability of the company is very strong that becomes a barrier for new entrants. Its capital requirement established in the industry by Estee Lauder is so large that it becomes a discouragement for the new companies planning to enter the industry. Another barrier is the Estee Lauder product differentiation. It offers different products that create a barrier by forcing entrants to incur expenditure to overcome existing customer loyalties. New entrants must spend a great deal of money and time to overcome this barrier. Filipinos will always patronize products that are affordable and with good quality. They can enter the industry by taking the form of aggressive price-cutting and increased in advertising. Estee Lauder is considered as high-end beauty products for the Filipinos. Only few can afford to buy fragrances, skin cares and make-up Estee Lauder offers. If the new entrant penetrates in the market by having the strategy of offering its products in a relatively low- price, it will definitely boom Filipino consumers. Watson beauty care, easily took Filipino patronage by selling different variety of products in a low prices. The barrier is really high when it comes to reputation and quality. But in the Philippines, the door in entering the industry is very much open to those who are willing to produce quality products in affordable prices. 3. Bargaining Power of the Buyers The consumers can bargain in this industry simply because they are the buyers purchases are a sizable percentage of the selling industrys total sales. The products are unimportant to the quality of the customers product or service. The item being purchased is sufficiently standardized among sellers that not only can buyers find alternative sellers. 4. Bargaining Power of the Suppliers Suppliers do not play a big roll and have little bargaining power in this market. Big brands like Està ©e Lauder develop essential ingredients in their own RD department, and only outsource basic and non-value-adding chemicals and packaging. 5. Threats of Product Substitute As a rule, the lower the price of substitutes and the higher the quality and performance of substitutes, the more intense are the competitive pressures posed by substitute products. We Filipinos go for the ones that are almost free of charge that gives us the same result that a costly product offers. We are the most resourceful race. Filipinos are naturally creative and imaginative people. Filipinos can invent a lot of things to substitute any products just so they can save money. We are also fan of herbal products which is the result of our being authentic Filipinos. Along with these ideas, the threats of product substitute are very high in the Philippines. Though Estee Lauder produce a brands, Aveda and Clinique, which focus on producing products made with natural ingredients and anti-allergens, many will still go for the naturals, literally, to make their skin or hair really good. V. ENVIRONMENTAL ANALYSIS Threats: * Intense competition in cosmetics has increased and market initiators with quality providers are a serious threat to the firm. * New entrants, even though the market has considerably mature in the sense that it has captured customer loyalty, but there is always room for improvement in this field. * Counterfeit commodities affect the sales of the branded commodities. 9%, according to the Global Congress on Combating Counterfeiting, of all the world trade comprises counterfeit goods. Opportunities: * New markets are emerging in various countries where the firm can inject its products, such as India, China (known to be the 2nd largest cosmetics market in Asia) etc. * Markets where wealthy rule is also a good opportunity to tap in because of the tendency of the wealthy to own luxury commodities. * Many nations are growing to be beauty conscience every passing day; the firm will do well in order to tap-in without any delay and initiate in order to get customer loyalty attached to its products. * Diversification of the distribution channels. * Expansion to global markets, worldwide. Weaknesses: * Lack of concentration regarding customer value (Client.) * Profit oriented (loses sight of the customer) * Weak Liquidity Position (decline in the firm’s liquidity in the past few years.) * Distribution Network’s lack of reach to other viable markets. * Declining operating income in various market marks the weak penetration of the products in those specific markets. Strengths: * Strong Brand Reputation (The brand is associated with luxury quality. Also has a strong brand portfolio). * Research Development (Role model and leader in identifying consumer needs, and preferences and developing products accordingly). * Strong Distribution Network (The products are sold to a limited stores that compliments the image of the brands such as department stores, upscale perfumeries, specialty stores, professional hairdressers etc. specially in U.S.) * Vigorous Revenue Profitability (Net Earnings for fiscal year 2010 $478 million while Net sales were $7.8 billion.) * 31,000 employees working under its umbrella, full-time. (approximate value) * Products are sold in more than 150 countries. * Powerful marketing techniques used by the firm: Free Gift, Gift-With-Purchase, Makeup Artist Events (for trying out the new products) etc. * Operations and cost maintenance with the firm holds a strong positive attitude in the long run. * Regulations are increasing due to the voicing of different groups about harmful chemical ingredients in cosmetic products. VI. GENERIC STRATEGIES Differentiation â€Å"Differentiation is a competitive business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firm’s products and services† – Charles W.L. Hill, Gareth R. Jone No other companies has done better than Estee Lauder company. They are already on top but the concept of being unique or different is far more important today that it was years ago. The company should consider strategies in differentiation. First, they can use quality/price differentiation for Estee Lauder. The company can improve more on the quality of their cosmetic products so that customers will build loyalty to the company. Next, said company could use product differentiation by adding more features, specifications, design or the image, packaging and benefits on their products. Also, they can use differentiation by repositioning. To regain its position as a premium product, Està ©e Lauder must reposition itself. A successful repositioning would require the Està ©e Lauder brand to develop a clear brand image and provide its customers with something that is unique. There are a few possibilities that Està ©e Lauder could take; Està ©e Lauder could emphasize the natural ingredients in a product, the romance and sexiness, or the technology involved in a product. Another possibility for Està ©e Lauder would be to create a new brand image through the release of a sub-brand. In considering each of these strategies, it is also important to take into account how Està ©e Lauder’s competitors will react. Natural Ingredients. Currently, Està ©e Lauder’s customers are not interested in the naturalness of the ingredients used in Està ©e Lauder skincare products. This is evidenced by the fact that Està ©e Lauder does not promote the natural ingredients and yet they still have customers. To redefine the brand as one that emphasizes natural products might ostracize the current Està ©e Lauder customers. In addition to this, the natural ingredient skincare market is not high-end. The main competitors in that market are Biotherm and Clarins. These brands are well recognized by those customers that place natural ingredients above technology; however, they cannot demand as high a price as Està ©e Lauder for their skincare products. This would not be a wise move for Està ©e Lauder. Romance. Another option for Està ©e Lauder would be to position the brand so that it is appealing for those women who desire the romance and sexiness that is associated with cosmetics. This positioning strategy would place Està ©e Lauder in direct competition with Lancà ´me. As Lancà ´me is a French brand, it already has an advantage over Està ©e Lauder as France is widely associated with romance. The Està ©e Lauder brand would have to work very hard to overcome Lancà ´me’s natural advantage. A first glance comparison of an Està ©e Lauder and a Lancà ´me booth at Macy’s will show that Està ©e Lauder’s image is lacking the luscious, red lips of Lancà ´me. Instead, Està ©e Lauder’s image is of the elegant Carolyn Murphy and Liya Kebede. Their images are beautiful but distant and lacking passion. To rework this image would be extremely difficult. Direct competition with Lancà ´me would also be unfavorable. By more heavily emphasizing its technology, Està ©e Lauder also has the opportunity to occupy the trendy end of the technology market as opposed to being a complete dermatologist-brand. This is due to the elegance and fashion that is associated with Està ©e Lauder. Presently, the bestsellers in the skincare market in general are anti-aging formulas. In the growing Asian skincare market, the bestsellers are anti-aging and whitening formulas. Both these formulas rely heavily on technology, so it is a good time for dermatologist-brands to enter the market. By occupying the trendy end of the technology market, Està ©e Lauder will have a good position against these strong new entrants. VII. ALTERNATIVE COURSES OF ACTION Estee Lauder can implement Horizontal Integration where the company will buy another company. If they really want to increase the sales in the Philippines, they can buy local brands and kill the competition. VIII. RECOMMENDATION/ CONCLUSION Based on the data gathered we can conclude the following: 1. Filipinos are aware of Estee Lauder and they consider this as a very high-end product. They patronize competing product that offers more reasonable price. Estee Lauder should formulate products that they can offer to Masa, a product for Filipinos. Same as to what L’Oreal did in the Philippines, when they introduced shampoo and conditioner that is close to the price of local brands. 2. Estee Lauder’s target market is middle-aged female whose buying power is relatively secure and thus are less price-sensitive. Filipinos are price sensitive, with that they should formulate strategy that is similar from the first conclusion. 3. Filipinos need lots of information about beauty care. We should be informed about the importance of Estee Lauder’s product, and what are the difference between their product to other companies and substitute product we are using. They should increase their advertisements in the Philippines. Technically, they are so known in the industry that they don’t need any advertisement, but Filipinos are fan of idiot box that they rely mostly to what they see on TV. 4. The collection should consist of products that can be offered to middle market. It should be affordable and with good quality. The collection should be focusing on whitening skin and affordable cosmetics. 5. Aside from department stores and exclusive beauty shops, Estee Lauder should try putting up a place for their products in drugs store like Mercury and Watsons, which include every product they offer. They are already doing this but just to chosen products. They should start advertising their cosmetic products to these places where people have easy access and this will help people to get familiar to Estee Lauder’s product.