Strategic Strategic Management Management Case AnalysisCase Analysis

By,By,Jisha & RemyaJisha & Remya

CURRENT POSITIONCURRENT POSITION

26 brands; over 130 26 brands; over 130 countries; 9,000 products; countries; 9,000 products; 22,000 employees.22,000 employees.

Growth in Sales in different Growth in Sales in different segment segment 20072007 20062006

Skin careSkin care 8.33%8.33% 2%2%

Make upMake up 8.38%8.38% 6%6%

FragranceFragrance 7.85%7.85% - 4%- 4%

Hair CareHair Care 18.32%18.32% 16%16%

OtherOther 42.16%42.16% 0.75%0.75%

Geographic Revenue Geographic Revenue analysis in different analysis in different

regions:regions:20072007 20062006

Asia/PacificAsia/Pacific 13.05%13.05% 6%6%

Europe/Middle Europe/Middle East/ AfricaEast/ Africa

16.1%16.1% 2%2%

AmericasAmericas 3.32%3.32% 3%3%

PerformancePerformance

SALES:SALES: 9.38% (2005)9.38% (2005)2.93% (2006) 2.93% (2006) 8.89% 8.89%

(2007)(2007) COST OF SALES as a percentage of COST OF SALES as a percentage of

total sales:total sales: 25.5% (2005) 25.5% (2005) 26.1% (2006) 26.1% (2006) 25.2% 25.2%

(2007)(2007)

Vision StatementVision Statement

““Bringing the best to everyone we touch”Bringing the best to everyone we touch”

Comments:-Comments:- Short, Readability & Inspiring Short, Readability & Inspiring Needs to be more specificNeeds to be more specific Does not answer the basic question what Does not answer the basic question what

they want to becomethey want to become Does not provide a foundation for Does not provide a foundation for

developing a clear mission statement.developing a clear mission statement.

Mission StatementMission StatementWe are a family company committed to working together with We are a family company committed to working together with

uncompromising ethics and integrity. We strive always:uncompromising ethics and integrity. We strive always: Provide customers with innovative cosmetic products of the Provide customers with innovative cosmetic products of the

highest quality.highest quality. Deliver outstanding service by treating each individual as Deliver outstanding service by treating each individual as

we ourselves would like to be treated.we ourselves would like to be treated. Create an environment that fosters personal growth and Create an environment that fosters personal growth and

well being.well being. Build partnerships with our suppliers, retailers and Build partnerships with our suppliers, retailers and

colleagues based on fairness and trust.colleagues based on fairness and trust. Enhance our reputation of image, style and prestige.Enhance our reputation of image, style and prestige. Pursue profit, but never at the expense of quality, service Pursue profit, but never at the expense of quality, service

or reputation.or reputation. Eliminate waste and reduce inefficiencies in order to Eliminate waste and reduce inefficiencies in order to

provide maximum value to our customers.provide maximum value to our customers. Be responsible citizens in every community we serve.Be responsible citizens in every community we serve.

Analysis Of Mission Analysis Of Mission StatementStatement

N0N0..

ComponentsComponents Yes/NoYes/No

11 CustomersCustomers Yes

22 Products or Products or ServicesServices

YesYes

33 MarketsMarkets NoNo

44 TechnologyTechnology NoNo

55 Concern for Concern for survival, growth survival, growth and profitabilityand profitability

YesYes

66 PhilosophyPhilosophy YesYes

77 Self-ConceptSelf-Concept YesYes

88 Concern for public Concern for public imageimage

YesYes

99 Concern for Concern for employeesemployees

YesYes

ObjectivesObjectives

To enhance their leadership in prestige To enhance their leadership in prestige beauty around the world.beauty around the world.

To deliver innovative, cutting edge To deliver innovative, cutting edge products and build strong global brands.products and build strong global brands.

Reach diverse consumers by leveraging Reach diverse consumers by leveraging numerous distribution channels in key numerous distribution channels in key markets all over the world.markets all over the world.

To optimize, diversify and grow the To optimize, diversify and grow the business over the long term.business over the long term.

EXTERNAL EXTERNAL ANALYSISANALYSIS

a)a) PESTLE ANALYSISPESTLE ANALYSIS

Political, Governmental and Legal Political, Governmental and Legal ForcesForces

The company made sure they licensed The company made sure they licensed some of their global brands like Tommy some of their global brands like Tommy Hilfiger, MAC, Bobbi brown, Donna Karan Hilfiger, MAC, Bobbi brown, Donna Karan and a few others.and a few others.

The dollar fluctuations would have an The dollar fluctuations would have an impact over the sales as the company has impact over the sales as the company has a global presence. (E.g. Japan, Australia) a global presence. (E.g. Japan, Australia)

The company’s manufacturing operations The company’s manufacturing operations conform to the ISO 14001 standards.conform to the ISO 14001 standards.

Contd…Contd… The Food and Drug Administration The Food and Drug Administration

would bring in rules for companies to would bring in rules for companies to follow statutory warnings. (E.g. The follow statutory warnings. (E.g. The safety of this product has not been safety of this product has not been determined) The company should determined) The company should instead take safety tests and rely on instead take safety tests and rely on passing this message onto the passing this message onto the customers to win their confidence. customers to win their confidence.

There have been restrictions on There have been restrictions on products that can be carried in-flight. products that can be carried in-flight.

Contd…Contd…

Economic ForcesEconomic Forces Strengthening of U.S. dollar against Strengthening of U.S. dollar against

the Japanese Yen. Thus it has a the Japanese Yen. Thus it has a negative impact in Japan.negative impact in Japan.

Price varies from product to product Price varies from product to product and brand to brand, but tend to be in and brand to brand, but tend to be in the mid-high to high range of the the mid-high to high range of the industry.industry.

Contd…Contd… Social, Cultural, Demographic Social, Cultural, Demographic

and Environmental Forces.and Environmental Forces. Opportunities arise from increase in Opportunities arise from increase in

aging population and hence there will aging population and hence there will be increase in income from anti-be increase in income from anti-aging products.aging products.

Younger consumers(20-30) & Teens Younger consumers(20-30) & Teens investing in preventive cosmetics.investing in preventive cosmetics.

Complaints have been received into Complaints have been received into the use of animals for testing for new the use of animals for testing for new products.products.

Contd…Contd…

Estimates show that the 70 million Estimates show that the 70 million people across the globe will reach an people across the globe will reach an income level in the next 20 years that income level in the next 20 years that allows purchasing of cosmetic products.allows purchasing of cosmetic products.

Emissions of fluorocarbons and other Emissions of fluorocarbons and other harmful gases has been an harmful gases has been an environmental threat. The company environmental threat. The company must take strict measures to control must take strict measures to control this. this.

Contd…Contd…

The life expectancy of the aging The life expectancy of the aging population will continue to improve with population will continue to improve with difference between men and women difference between men and women gradually diminishing.gradually diminishing.

Technological ForcesTechnological Forces InternetInternet Rapid technological changes in product Rapid technological changes in product

development. development.

b)b) PORTERS 5 FORCESPORTERS 5 FORCES

1.1. Rivalry among competitive Rivalry among competitive firms - Highfirms - High

With the presence of large and With the presence of large and powerful competitors like L’Oreal, powerful competitors like L’Oreal, P&G, Avon etc who also have a P&G, Avon etc who also have a variety of brands under different variety of brands under different price ranges ESTEE LAUDER needs price ranges ESTEE LAUDER needs to innovate constantly in order to to innovate constantly in order to stay ahead of the competition.stay ahead of the competition.

Contd...Contd...

2.2. Potential entry of new competitors Potential entry of new competitors – Low– Low

Given the size of the market and Given the size of the market and that of the existing players it will be that of the existing players it will be extremely difficult for a new player extremely difficult for a new player to enter into the market and to enter into the market and emerge as a serious threat to emerge as a serious threat to ESTEE LAUDER or any of the other ESTEE LAUDER or any of the other big brands.big brands.

Contd…Contd…

3.3. Potential development of Potential development of substitute products-Lowsubstitute products-Low

With a rapidly ageing population With a rapidly ageing population around the world especially in the around the world especially in the developed markets the demand developed markets the demand for cosmetics is expected to be for cosmetics is expected to be strong and the threat of strong and the threat of substitutes looks unlikelysubstitutes looks unlikely

Contd…Contd…

4.4. Bargaining power of suppliers- Bargaining power of suppliers- LowLow

Since ESTEE LAUDER is a billion Since ESTEE LAUDER is a billion dollar brand it is expected that dollar brand it is expected that because of the volume of goods it because of the volume of goods it procures from its suppliers around procures from its suppliers around the world, the suppliers would the world, the suppliers would have limited bargaining power .have limited bargaining power .

Contd…Contd…

5.5. Bargaining power of consumers Bargaining power of consumers – High – High

Due to the presence of large Due to the presence of large number of brands who cater to number of brands who cater to different segments of the different segments of the market consumers can switch market consumers can switch easily and inexpensively from easily and inexpensively from one brand to another easily.one brand to another easily.

c)c) External Factor External Factor Evaluation (EFE)Evaluation (EFE)

List of OpportunitiesList of Opportunities Scope for anti aging products.Scope for anti aging products.

Americans over 65 years(1/5 th of the population) Americans over 65 years(1/5 th of the population) spend a substantial income on anti aging spend a substantial income on anti aging products.products.

Life expectancy of the aging population will Life expectancy of the aging population will continue to improve.continue to improve.

Youngsters and teenagers purchase age Youngsters and teenagers purchase age preventive cosmetic items to battle effects of preventive cosmetic items to battle effects of aging.aging.

The world’s aging population increasing over 2.5 The world’s aging population increasing over 2.5 times next 40 years times next 40 years 33%33% China and India. China and India.

EFE Contd…EFE Contd… 70 million people across the globe will 70 million people across the globe will

reach an income level in the next 20 years.reach an income level in the next 20 years. Rising demand from emerging and Rising demand from emerging and

developing markets for personal products developing markets for personal products industry.industry.

The Europeans buying pattern was The Europeans buying pattern was changing from buying skincare products changing from buying skincare products from mall-based specialty stores to from mall-based specialty stores to pharmacies. Concentrate on selling skin pharmacies. Concentrate on selling skin care products through pharmacies and care products through pharmacies and through skin care clinics in the Europethrough skin care clinics in the Europe

List of ThreatsList of Threats Top competitors in the cosmetics businessTop competitors in the cosmetics business Currency fluctuation risksCurrency fluctuation risks Consumer complaints and inquiries due to animal Consumer complaints and inquiries due to animal

testing for new products and many personal care testing for new products and many personal care companies are dropping this form of product companies are dropping this form of product testing. The company will loose its brand image if testing. The company will loose its brand image if it receives complaints that it has been using it receives complaints that it has been using animals to test new products. animals to test new products.

FDA regulationsFDA regulations Increase in damaging environmental pollutions Increase in damaging environmental pollutions

due to the use of aerosol and fluorocarbons.due to the use of aerosol and fluorocarbons. Restrictions on products that can be carried in-Restrictions on products that can be carried in-

flight will affect travel retail businessflight will affect travel retail business

Contd…Contd…

Changes in the distribution policy Changes in the distribution policy and a difficult retail environment and a difficult retail environment particularly in fragrance category.particularly in fragrance category.

The sale of the product is dependant The sale of the product is dependant on the disposable income of the on the disposable income of the consumers, a fall in their incomes consumers, a fall in their incomes would result to a fall in the sales of would result to a fall in the sales of the company’s products. the company’s products.

Competitive pricing at mega stores.Competitive pricing at mega stores.

EXTERNAL FACTOR EXTERNAL FACTOR EVALUATION MATRIXEVALUATION MATRIX

EF.xlsEF.xls

d)d) COMPETITIVE PROFILE COMPETITIVE PROFILE MATRIXMATRIX

EL_CPM.xlsEL_CPM.xls

INTERNAL INTERNAL

ANALYSISANALYSIS

a)a) Financial Ratio AnalysisFinancial Ratio Analysis

financial ratios(2).xlsfinancial ratios(2).xls

List of StrengthsList of Strengths

Estee Lauder companies have 26 brands, Estee Lauder companies have 26 brands, selling in over 130 countries. selling in over 130 countries.

Each of the brands has a single global Each of the brands has a single global image which is promoted with consistent image which is promoted with consistent logos, packaging, and advertising designed logos, packaging, and advertising designed to differentiate it from other brands.to differentiate it from other brands.

Estee Lauder was awarded one of ten Estee Lauder was awarded one of ten Outstanding Women in Business in the US Outstanding Women in Business in the US by business and financial editors in 1967. by business and financial editors in 1967. This helped in building their brand.This helped in building their brand.

Strengths Contd…Strengths Contd… Early use of internet in 1998 added Early use of internet in 1998 added

strength to their sales. strength to their sales. Good promotional strategies: Good promotional strategies:

Discounts, gifts and free samples with Discounts, gifts and free samples with purchases.purchases.

Celebrities endorsements.Celebrities endorsements. Advertisements which differentiates their Advertisements which differentiates their

products from others. products from others.

Global license and globalized operation.Global license and globalized operation. Many channels of distributionMany channels of distribution Manufacturing operations match ISO Manufacturing operations match ISO

14001 standards.14001 standards.

Strengths Contd…Strengths Contd… InnovativenessInnovativeness

First dermatologist-guided, allergy tested, First dermatologist-guided, allergy tested, fragrance-free cosmetics brand.fragrance-free cosmetics brand.

First major prestige cosmetic firm to offer First major prestige cosmetic firm to offer shopping via internetshopping via internet

First to introduce consistent brand imagery First to introduce consistent brand imagery around the world. around the world.

Wide range of distribution channels.Wide range of distribution channels. Advertisements which differentiates their Advertisements which differentiates their

products from others. products from others. Global expansion as a result of Global expansion as a result of

strengthening of the U.S dollarstrengthening of the U.S dollar

List of WeaknessesList of Weaknesses Indistinguishable organizational structureIndistinguishable organizational structure Lower sales in Fragrance product Lower sales in Fragrance product

category. As a result of this the company category. As a result of this the company is struggling particularly in American is struggling particularly in American region.region.

Most of the powers in the company were Most of the powers in the company were with the family members.with the family members.

It is not clear whether even the four It is not clear whether even the four presidents have authority over the 4 presidents have authority over the 4 product lines.product lines.

b)b) INTERNAL FACTOR INTERNAL FACTOR EVALUATION MATRIX EVALUATION MATRIX

(IFE)(IFE)

IFE+MATRIX.xlsIFE+MATRIX.xls

4.4. STRATEGY ANALYSISSTRATEGY ANALYSIS

b)b) INTERNAL EXTERNAL INTERNAL EXTERNAL MATRIX(IE)MATRIX(IE)

Total Weighted score of IFE = 2.86Total Weighted score of IFE = 2.86

Total Weighted score of EFE = 3.4Total Weighted score of EFE = 3.4

Recommended StrategiesRecommended Strategies

Grow & BuildGrow & Build Backward, Forward and Horizontal Backward, Forward and Horizontal

IntegrationIntegration Market penetrationMarket penetration Market developmentMarket development Product developmentProduct development

d)d) SPACE MATRIXSPACE MATRIXSPACE Matrix.docSPACE Matrix.doc

Recommended Recommended StrategiesStrategies

Backward, Forward, horizontal Backward, Forward, horizontal Integration.Integration.

Market Penetration.Market Penetration. Product DevelopmentProduct Development Market DevelopmentMarket Development DiversificationDiversification

GRAND STRATEGY GRAND STRATEGY MATRIX MATRIX

Recommended Recommended StrategiesStrategies

Market developmentMarket development Market penetrationMarket penetration Product developmentProduct development Forward integrationForward integration Backward integrationBackward integration Horizontal integrationHorizontal integration Related diversificationRelated diversification

IV.IV. STRATEGIES FOLLWED STRATEGIES FOLLWED BY THE COMPANYBY THE COMPANY

After failing to convince Madison After failing to convince Madison Avenue, they sold product Avenue, they sold product directlydirectly targeting the targeting the high-class customers. high-class customers. Sold through boutiques and Sold through boutiques and departmental stores initially. The departmental stores initially. The products were later products were later selectively selectively distributed to other store in US. distributed to other store in US.

They were able to beat the competition They were able to beat the competition by continuously introducing different by continuously introducing different brands into the market. brands into the market.

Contd…Contd…

A separate department, ELC A separate department, ELC Online, was created to maintain Online, was created to maintain all online strategies and all online strategies and activities for all of its brands. activities for all of its brands.

Prices are kept very Prices are kept very competitive to match the target competitive to match the target segment (the rich)segment (the rich)

IV.IV. STRATEGIES THAT STRATEGIES THAT COULD BE SUGGESTEDCOULD BE SUGGESTED

Rely on the global brand awareness and Rely on the global brand awareness and build it further by endorsing celebrities build it further by endorsing celebrities from the local markets. from the local markets.

Have tie-ups with beauty salons, clinics Have tie-ups with beauty salons, clinics etc to push their brands. etc to push their brands.

Using market research, find the brands Using market research, find the brands that have been doing poorly and makes that have been doing poorly and makes strategies to either improve it or close its strategies to either improve it or close its operations. Having an idle brand will add operations. Having an idle brand will add on as a burden to the company. on as a burden to the company.

Contd…Contd…

Do not have too many brands for the same Do not have too many brands for the same product category since it will lead to product category since it will lead to cannibalization. cannibalization.

Innovation is the key. Identify new customer Innovation is the key. Identify new customer needs like anti aging products and bring in needs like anti aging products and bring in products that suit the customers better. products that suit the customers better.

Focus more on selling over the internet. It Focus more on selling over the internet. It would be the best channel to attract the would be the best channel to attract the youth with so much happening over the youth with so much happening over the internet. internet.

Contd…Contd…

The company should go ahead with The company should go ahead with the plan of acquiring Murad Inc.the plan of acquiring Murad Inc.

Introducing new brand that is priced Introducing new brand that is priced more economically.more economically.

New strategies for testing.New strategies for testing.

ReferenceReference

Strategic Management by Fred R. Strategic Management by Fred R. DavidDavid

http://www.esteelauder.com/http://www.esteelauder.com/