2 SITUATION ANALYSIS3
2.1 General Environment—PEST Analysis3
2.2 Industry Environment4
2.2.1 Industry Definition and Overview4
2.2.2 Competitors Profile4
2.2.3 Porter’s Five Forces6
2.2.4 Critical Success Factors7
2.3.1 Financial Analysis7
2.3.2 Product Mix10
2.4 Problem Identification11
4 STRATEGY FORMULATION13
4.1 Strategy Formulation13
4.2 Target Market15
4.3 Product Mix Changes19
6 CONCLUDING REMARKS25
Estée Lauder Companies, Inc. (ELC) is one of the world’s leading manufacturers and marketers of quality skin care, makeup, fragrance, and hair care products. The Company’s products are sold in over 150 countries and territories. Their vision and mission ELC state in a short, succinct statement: “bringing the best to everyone we touch”. The company goes on explaining: “By "The best", we mean the best products, the best people and the best ideas. These three pillars have been the hallmarks of our Company since it was founded by Mrs. Estée Lauder in 1946. They remain the foundation upon which we continue to build our success today". Furthermore, the company is committed to uncompromised ethics and integrity. For all employees domestically and globally, and the board of directors, the highest standard of ethics is a condition of employment. The company’s official home page elaborates by stating the following:
“We are a family company committed to working together with uncompromising ethics and integrity. We strive to always: 1. Provide customers with innovative products of the highest quality 2. Deliver outstanding services by treating each individual as we ourselves would like to be treated. 3. Create an environment that fosters personal growth and well being. 4. Build partnership with our suppliers, retailers and colleagues based on fairness and trust. 5. Enhance our reputation of image, style and prestige.
6. Pursue profit, but never at the expense of quality, service or reputation. 7. Eliminate waste and reduce inefficiencies in order to provide maximum value to our customers. 8. Be responsible citizens in every community we serve”. Notwithstanding ELC’s strong historical performance and strong brand positioning in the “beauty” segment, few problems requiring more active intervention from the company’s management became apparent by the year 2006. The company has recorded weak returns in the last few years. Its return on assets, return on investment and return on equity during the period, 2002-2006, were 9.5%, 14.3% and 20.6%, respectively, below the industry average of 11.4%, 17.2% and 31.6% respectively during the same period.
2 SITUATION ANALYSIS
2.1 General Environment—PEST Analysis
The main political, economical, social and technological trends that can potentially affect personal products market and are considered as external factors for the industry—are beyond company’s control—are shown in the Exhibit 1. Exhibit Evaluation of External Environment—PEST Analysis
Political| * Differences in taxes and tariff laws across the countries * Stringent FDA regulations (USA): according to FDA guidelines, products claiming to offer medical benefits or physiological effects were over-the counter (OTC) drugs. If FDA deemed a cosmetic product to be an OTC drug, it was regulated as a new drug. The manufacturer was then required to demonstrate product safety and efficiency to gain FDA approval. Furthermore, even though FDA does not require testing of cosmetics, the agency has notified manufacturers that it would start to enforce labeling that included the statement “Warning—the safety of this product has not been determined”. | Economical| * Globalization: necessity to develop global brands “with a regional twist”, as well as to manage global...