external strategies
TRANSCRIPT
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T able of Contents
1. Mission Statement 2
2. Market Research 2
3. Customers’ Needs 4
4. Market Analysis 7
5. SWOT Analysis 9
6. Porter’s 5 Forces Model 10
7. Product – Design and Features 11
8. Benefits 13
9. Technology 15
10. Management 18
11. Marketing Strategy 23
12. Budget 24
13. Limitations 25
14. Long Term Objectives 26
15. Timeline 27
16. Appendix A 29
17. Appendix B 30
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Company Mission
We want to bring out the unique beauty in every woman through customized cosmetic
products.
Market Research
To better understand and identify our target market, we conducted market tests by
approaching 120 female working adults. These women are aged between the ages of 25-
35, and were either executives or in managerial positions, have a monthly income of
more than $2000 a month. Make-up is important to them as they need to be presentable at
work. Therefore, they spend average of $150 on cosmetics product monthly. We asked
them to evaluate and improve Goddess.
Most of the women liked that Goddess was personalized and how it made putting on
make-up an enjoyable experience. Most of them were also willing to pay an average of
$900 for Goddess, if it were endorsed by cosmetic professionals. However, some issues
they raised against this product were the accuracy of the skin tone test, and how user-
friendly it would be.
Our targeted market size during our initial launch is 240,800, which includes employed
women from the ages of 24-40. The market share we will be targeting is estimated at 1%,
which is 2,400. We will target the mass market size of 500,000 after 5 years1. We are
1 http://www.mom.gov.sg/NR/rdonlyres/64406C8E-289B-444C-98FF-A343275407C4/2265/2004LF_t45.pdf
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estimating that we will be targeting 1% of the market share in Year 3, the product launch
year, and 3%, 6% and 10% in the subsequent years.
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Customers’ needs
Having a clear outlook of the customers’ needs plays an important part in our success. In
order to find out what maximises the fit of our product with the customers’ requirement2,
we conducted a survey targeting mostly at women at the age of 18 – 40. Questions were
mainly constructed on the basis of the problems and needs revolving around face
cosmetics, categorised under eye shadows, foundations and blushers, and application of
cosmetics. The summary of our results is as follows.
Eye-shadow
Most women find that there are many incidents where they have an impulse to put a
certain colour of eye-shadow to match their mood and clothes, yet they do not possess
that particular colour. Hence, they have to make do with the colours they have and this
results in a similar look most of the time. This colour may be a colour which they used to
have, but it is no longer in the market, therefore even if they intend to buy that particular
shade of the eye-shadow, it will be tedious to source for it from another brand.
Furthermore, women needs special colour for certain functions, shades that they will not
purchase for daily usage. Even though they find it wasteful to buy it simply for the
occasion, there is no other alternative than to purchase them.
2 Strategic Management of Technological Innovation, Melissa A. Shilling, International Addition, p. 215-216
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Above all, women love to have a wide variety of colours, yet the price, which is at an
average of S$20 for an upper-end, mass-market brand, and the short product lifespan,
deters them from purchasing these colours regularly.
Foundations and Blushers
Most Asian women have the problem of locating a foundation tone best suitable for their
yellow-based skin tone, thus they are unable to achieve an optimal look. Furthermore,
some women nowadays like the idea of having a healthy bronze glow; hence many spend
hours under the sun. However, the problem arrives when they have to purchase yet
another foundation tone that suits their tanned skin tone. As they get fairer, the
foundations that they had purchased when they are fair and tanned will not match their
current skin tone. This applies for cheek colours too, as different colours match different
shades of skin tone.
Application of C osmetics
Some women, who are not proficient in putting on make-up find it a hindrance to do so
by themselves. Furthermore, the application of cosmetics involves a lot of knowledge,
experience and exposure. Many women do not know how to blend 2 or more colours for
their foundation colours, and are even more confused about which part of the eyelid to
apply the eye shadow. Therefore, it is common to see women looking inappropriate due
to the misapplication of make-up for the wrong occasions. For instance, some women
wear outrageous-looking party-type make-up for work functions. Also, there are
particular functions which require special style of make-up, for instance, a Halloween
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party. These are the times where women will find it a problem to design a style for
themselves that bring out their best.
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Market Analysis
Overall Cosmetics Market
The cosmetic and toiletry retail market in Singapore was worth approximately US$379
million (S$659 million) in 2003. This shows an increase of 3.2% from 2002 figures. In
2003, imports from the U.S. amounted to US$97 million, which represents 15% of the
total imports.
Colour Cosmetics
Among the cosmetics, the most dynamic growth was demonstrated by colour cosmetics
over the years. In 2003, sale of colour cosmetics were worth US$49.4 million (S$86.4
million). Even though it is a modest increase of 1.4% from 2002, the growth rate over
2000 and the review period was 8.7% and 41.5% respectively. This growth is likely to
increase steadily over the coming years, as Singaporean women are more image-
conscious. Therefore, the use of cosmetics has become more of a necessity than a luxury.
Furthermore, Singaporean women are starting to use cosmetics at a younger age, as more
teenagers have the disposable income to purchase these products. Above all, with equal
work opportunities, the average working Singaporean women has the financial capability
to support their purchase of cosmetics.
Premium Product Market
With the increase of financial power, Singaporean women have the ability to purchase the
premium products. According to the figures from the Association of Perfumes and
Cosmetics Distributors of 2002, the domestic retail value for premium cosmetics and
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fragrance brands was in excess of US$78.2 million (S$140 million), which is considered
a strong growth. Furthermore, more women are likely to fork out large sums of money to
purchase a premium product if the luxury brand is particularly fashionable or attractive.
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SWOT Analysis
Strength:
Our product is the first of its kind hence we have the first-mover advantage. In addition,
our company is made up of talented people from different fields of expertise.
Weakness:
Our company currently lacks the financial resources to further develop our idea and
introduce our product into the market. We also need to further increase in-depth
knowledge on our mechanical and technical needs.
Opportunities:
The niche market of customized cosmetic products is being overlooked by major players
in the industry, who focus on producing mass-market products.
Threats:
Major players are able to enter the market using a shorter period of time. This is because
they have the resources to speed up their product development.
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Porter’s 5 Forces Model
1. The degree of existing rivalry
As our product would be the first of its kind in the market, there is currently no rival.
2. Threat of potential entrants
The threat from potential entrants is rather high as we believe that our target market is
lucrative. Furthermore, it is easy to imitate our product mechanism and the barrier to
entry is low.
3. Bargaining power of suppliers
The bargaining power of suppliers is high as we will be dependent on them for our
supply of cosmetics and equipment manufacturing.
4. Bargaining power of buyer
As we will be selling our product directly to the end users, the bargaining power of
the buyers (end users) is low.
5. Threats from substitutes
The best substitute to our product would be the over-the-counter cosmetics. The
threat is valid and should be taken seriously as there are many established mass
manufactured cosmetics brands in the market.
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Product
Design and features
Goddess is a portable device that customises make-up for the user. The features of
Goddess is categorised into cosmetics blending and consultation on the application of
cosmetics and is as follows.
Cosmetics Blending
Goddess involves the blending of the different individual eye shadow, blusher and liquid
foundation colours. The cosmetics will be from a renowned cosmetics company, for
instance, Shiseido or Shu Uemura. For the eye shadow, these colours will come in
refillable chalk form consisting of 4 primary colours- Cyan, Magenta, Yellow and Black.
An additional shimmer chalk is also available for purchase. These refill pencils come in
different lengths to cater to the needs of different customers.
The choice of colour is either chosen from the personalised template of C-M-Y-K, where
the software will differentiate it with different percentage of each colour, or it will be
selected from the professional recommendation made by Goddess. There will be an
option for the addition of shimmer.
Consultation on the application of cosmetics
This section of Goddess is separated into 2 categories, “styles” and “tutorial”. The
“styles” category consists of recommendations from the software to advise the user on
the shades of shadow to use and the methods of application. The software will design a
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variety of styles for the customers to match their clothes, skin-tone, contours, and
function. This software can be frequently updated on the Internet. Combinations
generated by Goddess can be saved and be referred to anytime. A step-by-step tutorial is
also provided, complementing the styles generated previously.
Goddess is tentatively supported with either a spectrophotometer or a colorimeter to
determine the user’s skin tone, and face structure.
Other Functions
The screen is designed to be touch-screen to make it more user-friendly. Goddess can be
personalised, with different colours and designs sticky available for sale. It is supported
by USB-port to download updates from the Internet.
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Benefits
Convenience
The social benefit that Goddess offers is that it saves time for the busy working woman.
Many often face a problem of rushing to get to work on time while having to look
presentable. With Goddess, the colours are pre-chosen and customized to what you are
wearing. With a click of a button, it dispenses personalized eye-shadow and blusher
colours, saving you the hassle of deciding what to choose.
Professional advice
Goddess is designed by a diverse team of industry experts, including software engineers,
cosmetic and material researchers. Our software system has been reviewed by a panel of
cosmetics professionals. Therefore, we can ensure that the skin-tone analysis and
blending technology is endorsed in the industry. We intend to constantly update our
technology to ensure that our software provides updated and trendy make-up templates to
suit different occasions.
Reduces wastage and Economic Benefits
An environmental benefit of Goddess is that it reduces wastage of make-up products and
packaging since there is no longer a need to purchase bulk items that last for many
months. Most women often are unable to finish using cosmetic products before the expiry
date. Thus, they have to throw away these expensive products. It makes economic sense
to purchase Goddess, since there is no longer a need to purchase pricy make-up products.
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The cosmetic pencils sold are compact and comes in an environmentally-friendly
packaging.
Improves self-esteem
More importantly, our mission is to improve a woman’s self-esteem through the use of
these products. Looking good is very important in an increasingly image-conscious
society. Being presentable will not only improve one’s social status, and create a good
impression at work and social events.
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Technology
When we are measuring skin tones or color, what we are doing is really measuring the
various wavelengths. The different wavelengths are electromagnetic energy with known
length and known amount of energy. When an object appears in a given color, it is so due
to the emission and/or reflection of light. The object may be absorbing some other
wavelengths but the remaining wavelengths of reflected light rays that enter our eyes will
then ‘allow’ our perception of color. The perception of color comes from photoreceptors
in our eyes, the L M and S cones sensitive to the light of long, medium and short
wavelengths accurately.
A device which is able to detect color is a colorimeter. This device uses sensors that
assign consistent measurement parameter to every color, no matter what the ambient
conditions happen to be. A colorimeter measures the way an object reflects or transmits
lights across the visible spectrum and records the values which correlate with the way the
human eye sees color. The light reflected off the object will be passed through a red,
green and blue filter. After that, a photodetector beyond each filter will detect the amount
of light passing through the filters, which ultimately will be translated into X, Y and Z
values.
Another more accurate method of color measurement is to use a spectrophotometer,
which records the amount of energy present at each wavelength of visible light. And we
can take measurements using a spectrophotometer, an instrument that divides the visible
spectrum into discrete bands and records the amount of energy present in each one. When
we do a color measurement with the spectrophotometer, we obtain its spectral response
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curve which shows how much radiant energy the sample transmits or reflects at each
wavelength. The operation of the spectrophotometer is basically to illuminate the sample
with a light source, of a known wavelength and spectral range, and this will be reflected
by the sample at different wavelength intervals. This is done by passing the reflected light
through a monochromating device that splits the light up into separate wavelength
intervals. The spectral data is then sent to the processor where it is multiplied together
with data table values for the selected illuminant to obtain the X, Y and Z values.
The advantage of a spectrophotometer over colorimeter is that metamerism is
automatically detected. The negative aspect is that high quality spectrophotometers are
very expensive. However, this disadvantage is set to change as instrumental development
is improving very rapidly.
Presently, the technology that is available is to recognize and analyze colors, but they are
unable to give us advice on how our customers should match their make-up. Therefore,
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our company has already contacted several esteemed programmers as well as engineers to
further develop from the available technology to come up with program languages that
can advice our customers in the most flattering way to apply their cosmetics.
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Management
Timing of Entry
A key strategic decision for firms contemplating entry into new emerging markets is the
timing of their entry. Companies can either choose to enter early (first mover) or may
prefer to enter later and wait for technical and market uncertainties to subside. Both
situations have pros and cons attached to it but which strategy to adopt will dependent on
some key advantages that each company possesses.
Metamorphosis product is a new creation for consumers to have a customized blend of
colours that suits their unique individual skin tones. After much analysis, Metamorphosis
wants to leverage on the advantages as a first mover in this market.
Unique product
From our market research, we have clearly identified a need for our product. Being a new
product with no substitutes is the greatest competitive advantage that our Metamorphosis
has. The advantage of being the first in the market is that we don’t have any competition
but it will take a huge amount of resource to educate the market. It is expensive to
educate the market, taking both time and sustaining power to do so.
Excellent research team
Our company possesses and is further developing state of the art technology to conduct
further research on this product. Together with the best talent in this industry, we are
confident of the quality that we deliver. Metamorphosis emphasis on product innovation
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is the key that we hold our success to regarding the timing of entry. With our world-class
researchers, we are confident that the company can command the relevant resources to
succeed as a first mover. In addition, the unique capital and cost structures that the
company adopts have reflect our ability to manage and allocate resources effectively.
Resource management
Talent Development
We have chosen to solely develop the necessary technologies for our product in order to
have exclusive control of and protect our designs and tacit knowledge. Although it will
require a concentrated pool of talent and strong financial backing from venture
capitalists, we feel that this will challenge us to develop new skills and market
knowledge, which will benefit us when we have built a strong foundation for expansion.
We have sourced for experts from relevant fields in cosmetics, material, engineering and
software. This will enable an all-rounded perspective for development of our product.
Our R&D department will be focusing on the development in these areas:
- portable skin tone detector
- customized make-up blending technology
- individualized make-up software system
Protection - Patents
We have decided to patent Goddess. Although patenting is an expensive and long
process, our company feels that it is necessary for our survival. This is because without
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patenting, we will have no protection against our potential competitors copying our ideas.
So even if we enter the market earlier, we may still be at a disadvantage as we do not
have the necessary resources to compete with the potential competitors as they will
mostly probably be some big companies
External party management
As our company is very new to the make-up industry, it is essential that we collaborate
with various established players in the industry, and form symbiotic relationships with
one another.
Strategic Alliance with Loreal
It makes economic and technological sense to form strategic alliances with established
make-up brands such as Loreal and Shiseido. These firms have greater capital resources
(e.g. make-up products), distribution and marketing capacities that will allow us to speed
up market penetration. With financial backing and research partnership, our in-house
R&D department is able to develop cosmetic technology (e.g. portable skin tone detector)
within a shorter amount of time. The make-up companies will stand to benefit through
this alliance because they can decide their commitment level at a later stage. There is a
resource and strategic fit between us and our alliance partners.
Outsourcing Manufacturing of Product
Due to the lack of scale and facilities, our company has decided to outsource the
production of the customized make-up machine to contract manufacturers. This move
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will reduce costs and save resources, and enable our company to focus on core activities
that provide us with a competitive advantage in the market, which is establishing
ourselves as a leader in customized make-up products and services.
Deployment strategy
Timing
When we launch Goddess we must ensure that the production capacity and customer
service are in place as customer may be unhappy if they can not get hold of Goddess after
the launch or receive sub-standard service when they need it. We will also have the
launch near Christmas so as to take advantage of the increase in consumer spending
during the festive season which can last from December to March.
Licensing and compatibility
We decided not to share information of Goddess with any other parties except for one
designated strategic partner with an established cosmetic company. This is so as the only
competitive advantage we have over potential competitors is our knowledge of Goddess.
By sharing that knowledge will be unfavorable for us as we are a small company with
little resources to compete with our potential competitors if Goddess is successful.
Pricing
We decided to use maximum market skimming during the earlier phase of Goddess
which is to set the price high to signal that Goddess is a significant innovation that offer
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a substantial performance improvement to any products available in the present market.
By doing so, we will also be able to recoup initial R&D expenses assuming high demand.
Distribution
We decided to use intermediaries as our primary distribution method although it is more
expensive. This is so as Goddess will need onsite production education and by using
intermediaries will help to achieve this aim. Another point to note is that most of the
substitutes for Goddess are using intermediaries in the form of service counters so it will
be better if we can also use the same to compete with the substitutes.
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Budget
We expect the company to be profitable in the fourth year and to break even in the fifth
year.
Funding Required
The funding for our company is estimated to be $2,000,000 which will enable us to get
through our infancy years. The six co-founders will come up with $100,000 each and the
rest which is $1,400,000 will have to come from external parties such as venture
capitalists.
We do not think net present value will be a good indicator of the company's financial
position as we only did a five year budget. Using the budget to calculate net present value
will be inaccurate as it does not include all cash flow till the end of the company.
Please refer to Appendix for the detailed budget.
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Limitations
Patent
To protect Goddess, we hope to patent it. However there are also many problems which
come along with it. Firstly, there are too many parts to patent and some might already be
patented in the previous years. Secondly, it is a laborious and very time consuming
process. Lastly, one major problem with patenting is that if Goddess enters the global
market, whichever patent that were successful applied for might also not be protected
overseas.
Joint Venture
Metamorphosis is a small and young research company. Hence, it will be difficult for
established make-up companies to believe in our cause and collaborate with us. There is
the threat of being taken over by these companies after the product is launched since they
will have more bargaining power in resources and distribution. Therefore, it is important
to find the right partner and draw out clear partnership objectives.
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Long Term Objectives
Our company aims to be at the forefront of innovation, to be the market leader in
developing beauty products. We want to bring out the best in every woman. At the same
time, we will not rest on laurels but will seek to innovate and add additional features to
our machine. From our market research, many respondents actually hope to see more
features like manicure service offered in our machine.
Being the founder and developer of this machine, we want to build a strong brand image.
We want to be known as a company that develops premium products in the areas of
beauty.
After the successful launch of Goddess, our company hopes to be acquired by a major
cosmetic player, such as Loreal, in the next few years. This is because it is not realistic to
stand alone among the big players in the industry. We want to establish ourselves into a
premiere customized-cosmetics product design company, by focusing on research and
development in this field. Upon acquisition, besides being able to concentrate on this
aspect, we will be able to provide employment for more talents in this industry. Our
venture capitalist might be able to gain financial rewards from this acquisition, in the
form of shares from our parent company.
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Timeline
Year Activity
0 Set up company1 Development of Goddess
2 Development of Goddess
3 Joint venture with major cosmetic company
Launch Goddess during Christmas
4 Marketing campaign
Development of new products and improve
Goddess
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Appendices
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Appendix A
Underlying assumptions for the budget
Sales assumed as below:
Units Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Market share gain for theyear 1% 3% 6% 10%
Total market share 1% 4% 10% 20%
Sales(cosmetics blender) 2408 7224 14448 24080
Total market share 2408 9632 24080 48160
Refills for each customer 2 3 3 3
Refills 4816 28896 72240 144480
For the first year of our launch
Since we will only launch it in the last quadrant of Year 3, we approximate that theaverage customer will only purchase two refills. Subsequently, after the first year of our launch, the average number of refills sold to our existing customer is estimated toincrease to 3.
For the first two years
Within the first two years, the increase in expenses is estimated to be about 5% becausewe focus on R&D. For the third year with the exception of lab and rental expenses, our expenses will increase by a greater percentage due to launch of Goddess and continue toincrease by 5% in the fourth and fifth year.
All expenses are assumed to be made in cash and ending inventory is assumed to be 10%of cost of good sold. Debtors are assumed to be 10% of total sales.
Cost of good sold is assumed to be 110% of material costs. Sales price of the cosmetics blenders is $500 and a cut of profits is imposed for the sales of refill at $15 each.
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