mba power point sample wesley d. gougeon

Wesley D. Gougeon21 October 2009

History of Cosmetics Industry

Cosmetics Industry Present Day

Five Forces in the Beauty Products Industry

Case Discussion Questions

Questions

4000BC: › the earliest documented use

of cosmetics in Egypt› Emergence of eye

decorations and scents› Ancient Romans and Greeks

also used makeup Middle Ages:

› makeup was frowned upon and banned by the church

1800s: › makeup was primarily used

by prostitutes› Queen Victoria commanded

that makeup was only to be worn by actors and actresses

1909: L’Oreal of France was founded

1910: Max Factor and Elizabeth Arden were founded in the United States

1911: Nivea of Germany and Shishedo of Japan were founded

$160 billion-a-year global industry

Industry encompasses:› Makeup› Skin and Hair Care› Perfumes› Cosmetic Surgery› Health Clubs› Diet Pills› Nail Polish› Spa Treatments

According to our text, the cosmetics industry has been growing at roughly 7% per year, as a result of:› Wealthier, aging baby-boomers in developed

economies› More prosperous middle class in rising economies› Women outlive men by roughly eight years› Our rapidly growing youth-obsessed culture› “Men can age in an attractive way while women

are expected to replicate – and Restylane – their 20s into their 60s.” Maureen Dowd, Op-ed Columnist

The world is more youth and looks obsessed than ever

There is a vast-array of cosmetic procedures to make people look more youthful› Botox› Lip Injections› Face Lifts› Teeth whitening

Rue McClanahan, 51

Golden Girls

Madonna

Madonna, 51

Large number of competitors in the cosmetic industry

While rival companies are all different sizes, they offer very similar products› Example: lipsticks,

moisturizers, blush Example: CoverGirl

CoverGirl› Sold primarily in drugstores, convenience stores and

supermarkets› Competitors include:

L’Oreal Olay Garnier Fructis Revlon Maybelline Almay Neutrogena Physician’s Formula Max Factor Sally Hansen Milani Rimmel Wet ‘n Wild NYC Cosmetics Private Label

A number of new entrants have emerged:› Chanel› Dior› Ralph Lauren› Yves Saint Laurent

Johnson & Johnson, Procter & Gamble and Unilever pose major threats to the industry

Procter & Gamble and Unilever pose the most serious threats to the industry› As their products such a diapers and soaps advance,

they continue to add resources into their beauty divisions

In 2008, L’Oreal, Procter & Gamble, Estee Lauder, Unilever and Johnson & Johnson became the top five companies in the cosmetics and toiletries markets › They had a combined market share of around 43%› The market became more consolidated from 2003-2008› 2008: Unilever and Johnson & Johnson gained share

while L’Oreal and Estee Lauder lost share› Procter & Gamble’s share held steadily

Incumbents in the industry combat potential entrants through non-scale base advantages.› Example: L’Oreal actually

advertised how many patents they have filed on their products

Product differentiation may also be used as a weapon› The two underlying

sources are brand identification and customer loyalty

› Brand loyalty: Are customers loyal?

› Example: Maybelline

Walmart› Supermarkets are the

leading retail outlet for cosmetics

› Changes in consumer behavior help low-cost retail chains such as Wal-Mart gain bargaining power

› Has the ability to significantly reduce prices of cosmetic goods

› Wal-Mart only wants to work with several big suppliers, such as L’Oreal and Procter & Gamble

› Smaller cosmetic companies such as Estee Lauder and Revlon are hurting as a direct result

Competitors of Wal-Mart are fighting back, by highlighting the unique benefits and qualities of their products› Shiseido stated that its Body Creator skin

gel can melt 1.1 kilograms of body fat per month

› Estee Lauder boasts about its Advanced Night Repair that has a ‘Synchronized Recovery Complex’

In addition to supplying cosmetics to traditional department stores, companies may establish a number of free standing stores through forward integration› Example: MAC Cosmetics

Companies that have extensive brand portfolios are in a better position to bargain and negotiate with retailers than their smaller counterparts

Given smaller household budgets, consumers are more cautious about buying certain beauty products › Retail sales of fragrances declined 5% in

2008 › Sales of premium cosmetics declined 3% in

2008› Salon hair sales also declined 6% in 2008› Not all cosmetics and toiletries were

negatively effected in 2008

Substitute products for salon and spa visits such as hair dye, perms and nail polish had a strong performance in 2008› Women preferred to color their

hair at home› Gave themselves

manicures/pedicures› Adapted a ‘do-it-yourself’

attitude Other buyers include retail buyers

› Example: CVS› Private Label› Now CVS’s private label

competes with other suppliers for shelf space

› Backward Integration

Private label experienced gains in 2008› Shares increased to 3% of value › In 2003, private label only had a 2% value

share› Private label’s share growth in 2008 was

mostly on account of the weakening economy› Consumers cut back by purchasing private

label products, Large gains for private label occurred in bath and

shower products, oral hygiene and sun care.

Between 2008 and 2013:› Sales of cosmetics and fragrances are

forecasted to decline by 3% in constant value› Men’s grooming products are expected to

show great growth› Anti-aging products are expected to grow 17%› Battery toothbrushes and teeth bleaching kits

are expected to grow 15%› Body wash, shower gel, liquid soaps and hand

sanitizers are expected to grow as well› Private label brands are expected to grow

Why do incumbents have long staying power in the industry?› Great brand recognition› Ability of industry leaders to reinvent

themselves› Strong competition forces them to strive to

work harder on developing the highest quality products at the best possible price

How do new entrants overcome entry barriers?› Luxury good firms, such as Chanel and Dior

have developed cosmetic products and fragrances

› Procter & Gamble and Unilever are pouring resources into their beauty divisions

› Private labels How do incumbents react to new entries?

› Incumbents highlight their unique products› Focus on their quality and brand loyalty

Why do retail chains gain bargaining power as buyers at the expense of department stores? › Changes in consumer behaviors help

chains such as Wal-Mart gain bargaining power

› Department stores have higher selling costs

› Sales in premium cosmetics are declining

Should traditional competitors focus on expanding new country markets in emerging economies, or on entering hot new growth product markets in developed economies?› In order to stay on top of this competitive

environment, traditional competitors should focus their efforts on both

› Traditional competitors should focus on expanding new country markets in emerging economies such as Brazil, China, India, Russia and South Korea

› They should also enter into new growth product markets such as teeth whitening and anti-aging products in developed economies, such as the United States

http://www.articlesbase.com/health-articles/history-of-makeup-1163802.html

http://www.portal.euromonitor.com/passport/ResultsList.aspx

http://www.nytimes.com/specials/women/nyt9http://www.thehistoryof.net/the-history-of-cosmetics.html8/21angi.html

http://www.nytimes.com/2009/09/20/opinion/20dowd.html