Industry Analysis of the Cosmetics Industry - Case Study Example

Running Head: Industry Analysis of the Cosmetic Industry Industry Analysis of the Cosmetic Industry Teacher's 22nd November 2008 History of cosmetic industry The advancement in cosmetics has changed through the centuries due to the changing consumer needs. The first saloon was opened in USA in 1909 by Elizabeth Arden but L'Oral is the oldest and the largest firm found by a French chemist in 1910, which came up with safe commercial hair dye. The cosmetics industry boomed in the 20th century and the competition was heating up. Beyond doubt, the reason for wearing cosmetics along with its application has considerably come a long way. Cosmetics have been applied for thousands of years. It traces down its roots in different cultures including: Egyptians, Greeks, Romans, French, Italians, and Americans. The pioneers of this industry were Elizabeth Arden and L'Oreal. The market became an industry in the USA in 1910. Estee Lauder and Revlon came in being just after the Second World War. Charles Revson with his brother and the chemist Charles Luchman formed Revlon in the year of 1932. An "L" was added by Luchman in the Revson to name it REVLON. Quality supplies at reasonable prices soon made Revlon a world leader. Under recognized brands such as Revlon, ColorStay, New Complexion, Revlon Age Defying, Almay, Ultima II and Flex Charlie. and Skin lights, made Revlon known worldwide. Revlon sold its goods in approximately 175 countries. A wide range of skin care and sun care products; Ultima II, Vitamin C Absolutes and Eterna 27, were also offered by Revlon. Currently, the main players in the cosmetics game are; Estee Lauder, Elizabeth Arden, Mac Cosmetics, Mary Kay Cosmetics, Avon, Clinique, L'Oreal, Bobbi Brown cosmetics, Victoria Jackson cosmetics everybody's getting into the scenario with their own lines and inventions but controlled by the price factor. Industry analysis and its structure The cosmetic industry is vast and creates plentiful jobs because of its cosmopolitan nature. The market is a multi-billion dollar industry and united States own the largest personal product market in the world accounting for 26% of global sales. The main frame of this industry relies on production value, labor production, number of employees, personnel costs and the number of enterprises. Cosmetic science is not only about formulation of a product but also takes an account of intelligent and innovative marketing decisions and cost constraints. It is lucky for the manufacturers to hold the top manufacturers position. Revlon also ruled the industry for a long time but was not lucky enough. Reconsideration, re-evaluation and innovation is the key to success and survival in cosmetic industry. In 1930' Revlon began selling its product through drug and departmental stores. During 50s, the usage of innovative ways of advertisement to gave a boost to publicity and sales. It used television sponsorship and radio ads. The advertisement sector was always supported by Revlon and generated a lot of business. This sector is one of the biggest revenue generator in United States. Advertising campaign "The Most Unforgettable Women in the World wear Revlon" of late 1980s and 1990s became very popular. Advertising the product in an effective manner is the name of the game which Revson introduced and now the industry cannot do without it. During severe financial crises even, Cindy Crawford and Claudia Schiffer were two top models signed up by Revlon. Again in 90s, in spite of loss, the company launched an expensive marketing campaign featuring Halle Berry and Julianne Moore, to boost sales. Revlon has never compromised on advertising a product in an effective manner. Anticipation of new trends brings business to this industry and the foundation of Revlon was based on it. Revlon started with a single product, nail enamel which was never available before. In only six years of new innovations, high-quality marketing strategies, sales, packaging with an effective operating system made Revlon listed in America's top five cosmetic houses. During 80s, innovative thought of serving the older population with health and fitness led to wider research program and provided a wide market to Revlon .At one time, coping with the new trends of the market was very easy for Revlon. The industry's key players always practiced a strong acquisition strategy in recent years. The purpose of this strategy was to introduce new business lines, streamline production, and expansion of products under price control. Revlon has a history of acquisition. The company's first winning acquisition came in January 1966, when Revson bought U.S. Vitamin & Pharmaceutical Corporation in exchange for $67 million in Revlon stock.Poor choices of acquisition like Knomark, a shoe-polish company gave a set back to the company. However, Revlon became a leader for a while, in the world of diabetes drugs, by acquiring Vitamin & Pharmaceutical Corporation. The main cause of Revlon's survival during 70s were acquisitions of a pharmaceutical companies which gave a way to research and development of new drugs for the treatment of osteoporosis and hypertension. In 1985, Revlon was sold to a subsidiary of MacAndrews & Forbes Holdings. In 1987 Almay joined the Revlon lineup. Innovation gives height to the sales and so did the introduction of Charlie fragrance, in 1970. The first cosmetic cream with an estrogen precursor called Progenitin (pregenolone acetate), was introduced by Revlon, keeping the need of innovation in mind. Braggi and Pub for men were also launched Revlon also launched Mitchum, a line of deodorants to fulfill this need of the industry. During 90s, Color stay line came as breath of fresh air for Revlon. It helped Revlon to close the gap with its competitors, L'Oreal, Avon, Estee lauder etc. Beside this, the Age Defying products became popular too. Short lived hope vanished when intense competition, problems overseas and inventory over stocks piled up.Taking an account of the market trend, Revlon focused on health care operations and purchased Armour Pharmaceutical Company, which again resulted in a turnover. Revlon's health-care companies were innovating and expanding rather than Revlon's beauty concerns. Constraints and limitations Cosmetic science is not only about formulation of a product but foremost concerning matters also include marketing decisions and cost constraints. It seems as if this industry is evolving for the development and improvement of products to benefit the customer. The introduction of the first transfer resistant lip color helped Revlon to close the gap with its competitors, L'Oreal, Avon, Estee lauder etc Nowadays, to assure safety and proficiency, the products are purified to the extent never before but the intended purpose remains affordability. In the beginning, Revlon hair products conquered the cosmetic world. After research and development, the company was able to produce something much gentler and softer for women hair. The product used pure and hypoallergenic ingredients. This idea continues to lead this industry till now. Overtime, the entire industry evolved to support research and development of products. Revlon" Almay was the first brand which created 100% fragrance-free which disclosed its all ingredients. It was also the primary brand which took all the safety measures for allergy and irritations Revlon also spent lot of money on research and development and the company owned many laboratories. A leading maker of diagnostic laboratory instruments, Technicon Corporation was also compounded by Revlon. Recent survey shows that Revlon spends 1.8 share of total sale spends on research and development. Cosmetic industry needs to be really cautious when introducing a product that claim to have medicinal or drug like benefits and undergoes a high regulatory testing before it is launched. In United States, cosmetics are regulated by FDA and it defines cosmetics as substances used for "cleansing, beautifying, promoting attractiveness or altering the appearance without affecting the body's structure or functions." Research and development is an ongoing process in this industry and many companies spend a lot of money on it since brand loyalty is unusual. Over the last few years, many companies have increased their research and development expenditure. Cosmetic stay out of government scrutiny but companies needs to be really cautious when introducing a medicinal product and it goes under a high regulatory testing before they are in the market for the consumer to buy. This constraint usually plays down on the effectiveness of the product. Many companies are also trying to avoid regulatory scrutiny of their products by careful claims on their promotional materials which assure them that it will not come under the classified drug heading. The major limitations of this industry are; pre-market approval, manufacturing process, limitation on composition, prohibited ingredients and advertisement. Barriers to Exit and Enter A significant role is played by the distribution channels, it covers; Mass distribution, pharmacy sales, specialized distribution and direct sales. The vibrant nature of this industry is characterized by innovation and efficient product development. Entry to this world is not limited as research and development does not appear to be very important for new upcoming companies. Cosmetic industry has a competitive environment where there are many buyers and sellers. The prices change in accordance with supply and demand. There are so many substitutes of the products are available that leaves the consumer to have a lot of variety .the producers have no leverage since the consumer can turn to the competitor for better price. The industry is characterized by a large number of firms which try to make a distinction of their products by managing a good control over their pricing. Relatively this nature of competition has low barriers to entry and exit. Cosmetic industry, like any other industry resists regulations by the government. The two most considerable barriers to enter the industry are government regulations (related to health and safety issues), and distribution channels. On the other hand, the products are developed, marketed and manufacture by power houses such as L'Oreal, Mac, Revlon etc. Competition The nature of cosmetic industry is of competition, although during 1920's, the manufacturing of cosmetics is controlled by a small number of multinational corporations, which expanded very quickly. In 1962, Revlon started its supplies to Japan and its subsidiaries were in France, Argentina, Mexico, Italy and Asia.Popular brands always find themselves having stiff competition in between them. During 80s, Revlon lost ground to Estee Lauder because of poor promotional strategies and lack of innovation in beauty- product sector. The main sources of competition in cosmetic world are the medical devices, small and medium -sized enterprises and direct approach of selling. This industry is ruled by two main factors, buying patterns and shifting trends. Consumer trends are anticipated in order to stay competitive. Intelligently, Revlon was segmented into different divisions each focusing on different target group for exp Ethera was a hypo-allergenic brand and Mood Drops was focused at dry skins. It created the internal competition .At the same time Estee Lauder created Clinique. Presently, the scenario is of perfect competition where prices are determined by supply and demand, the producers have no leverage. If one product is expensive the consumer has many options to turn too keeping the affordability factor in mind. Revson always believed in giving the premium price and it always worked for the company. Revlon was always an affordable brand. Even to avoid Revlon being narrowing down to upper-middle-class image, the company was divided into six parts, having their own price range, advertising program and image. Revlon Revlon faced tough competitors by intelligent moves and thrived throughout. A large amount of money had to be spent each year to service the debt .To prevent the company from getting defaulted by its own loan, more assets were sold, in 1990.In addition to this, by 1992, 80% of the laboratories were also sold. During this period, Procter and Gamble bought Max factor and Betrix. The cosmetic giant continues to weigh down by poor sales and debt. Plagued with problems, Revlon had always thrived hard to survive in the industry. Today Revlon is only housing Almay Mitchum and Jeanne Gatineau lines Ultima, which once offered the most expensive products, now is on the verge of closing down. Revlon has reported continuous loss for 27 quarters. Revlon always sells the products at premium prices since their first product came into the market. Capturing the market through this strategy is easy because the environment of the industry is of perfect competition. Now the company focuses on improving promotional and advertisement strategies, reducing supply and manufacturing expenditures, innovating new products at affordable prices. Revlon has always provided quality products to market and pricey products to customer. Regardless of what happened in the past and what will happen in the future, the management is optimistic about its future and continuous to thrive. Changing Trends of Cosmetic Industry Figure 1: Changing Trends of Cosmetic Industry References: Estrin, N.F. (1984). The Cosmetic Industry: Scientific and Regulatory Foundations. Published by CRC Press. ISBN 0824771052, 9780824771058 History of Revlon. (2008). Revlon.com. Retrieved 20th November, 2008, from http://www.revlon.com/Corporate/History.aspx Linaka (2007). Revlon - 2004. Business Report. Retrieved on 19th November 2008, from http://www.oppapers.com/essays/revlon-2004/117446. Read More