To:Partners and Senior Consultants of Naib-Zoob Consulting
RE: Achieving Amorepacific’s growth objective by adding a product line in the U.S. and expanding to Brazil
Since 2008, the economic downturn has slowed down the pace of the development in the cosmetic industry. Amorepacific Corporation, a Korean based cosmetics manufacturer, also earned much lower revenue than expected. I analyzed the changes in industrial trend and developed two recommendations for the company to facilitate its growth strategy in the recession. My recommendations are:
1. Adding a new product line in the U.S.
2. Expanding to Brazil.
Vision of AmorePacific Corporation
According to the company’s 2010 annual report, the growth strategy called “The Vision 2015” indicates that the company’s vision is to become one of the world’s top ten cosmetics companies (20). Considering the on-going impact of the economic recession, this goal is not easy to achieve. I analyzed industrial trends to find effective ways to meet the objective.
Trend Analysis & Recommendations
Based on my analysis, I developed two recommendations to achieve the growth objective of Amorepacific Corporation in the world-wide economic recession.
1. Adding a Product Line in the U. S.
Amorepacific Corp. uses country-specific strategies. In the United States, the company raises its image by focusing on the prestige brand lines such as Sulwhasoo and Amorepacific. However, the strategy is not sufficient to support the company’s growth objective because of the increased price sensitivity in the U.S. In my opinion, the company should introduce a new product line that is more affordable.
Price Sensitivity is increased
Due to the high unemployment rate and decrease in disposable income, consumers cut spending and sacrificed premium-brand cosmetics for mass cosmetics. According to the WSJ article, the consumer who traded down during the recession never came back (Zimmerman, “Frontiers Of Frugality").
* Premium cosmetics were hit hard
Premium cosmetic industry was hurt hard by the consumers who trade down to mass cosmetics. In 2008, on the bar graph below, the percentage value growth of premium brands in the U.S. was negative. The other linear graph shows that in 2010, the global premium brand cosmetic industry reported only about 2% value growth when the growth of mass cosmetic industry was around 6%.
Soource: Euromonitor International 2009
Soource: Euromonitor International 2011
Therefore, as a response to the trend, I developed specific plans for a new product line in the U.S. based on the 4P strategy.
* Product: IOPE
IOPE is a cosmeceutical brand that is developed by using the stem cell technology. The company’s 2010 annual report says “IOPE products are scientifically formulated to treat skin conditions and restore users’ clear, wholesome complexions” (33).
* Cosmeceutical products are rising: The demands for cosmeceutical brand products are increasing. Consumers recognize this product as an alternative to cosmetic surgery or other procedures. According to Global Cosmetic Industry, the U.S.’ demand for cosmeceutical products is expected to increase to $8.5 billion by 2015 (“U.S. Demand for Cosmeceutical”).
* Price: Between mid-market and super premium ($30 - $70) Since the company builds its image as luxurious with the two super premium brands – AmorePacific and Sulhwasu, it is inappropriate to use low-price strategy for the new product lines without any differentiation. Instead, the company could compromise the mid-market and super premium prices.
* Place: Drug stores and Online channels