Strategic Company Analysis on The Body Shop - Case Study Example

APPLIED STRATEGIC MANAGEMENT (Degree for which this dissertation is being submitted) Submitted in part fulfillment of the Date of Submission Table of Contents 1. Executive Summary 3 2. Introduction of selected organization: The Body Shop 4 3. Marketing Environment 4 4 PEST analysis for the general environment 6 4.1 Michael Porters' Five Forces Model 6 4.2 Opportunities and Threats 10 4.3 Porter's generic strategies 12 5. Competitive analysis 13 6. The Market and Customer Analysis 13 7. Marketing mix 14 8. Recommendations 18 9. Conclusion 19 Bibliography & Reference 21 1. Executive Summary No organization exists in isolation. Every organization exists in an environment where it interacts with, and is influenced by, the general public, specific groups (whether they be customers, clients, suppliers, pressure groups, etc) and/or various government bodies. The organization is also affected by the economic, political, legal, social, technological and international variables of the times. All managers, whether they work in the public or private sector, operate in the same external environment. They face common pressures that the environment exerts on them. However, the nature of their work and the type of organization they work for will determine how these common environmental factors are perceived - whether they are seen as positive or negative, threats or opportunities (Yvonne 15). Strategy is the most exciting part of manager's work in an organization because it gives the chance to put all his new skills to work. Strategic thinking involves a comprehensive analysis of a business in relation to its industry, its competitors, and the business environment in both the short- and the long-term. Ultimately, strategy is a company's plan to achieve its goals. Corporate managements often do not know clearly what they want or how they'll get there. Organizational strategy is about the effective processing, interpretation of, and response to, information both inside and outside the organization. Organizational strategy helps in bringing administrative efficiency and inculcate within element of success through several ways. Managers should keep informed about important factors and developments in both their external and internal environments. They can do this by constantly 'scanning' their environment, which is, by establishing and maintaining a network of contacts, maintaining good communication channels, keeping up-to-date in their field and monitoring important issues and activities. This proposal is going to provide a case strategic company analysis on The Body Shop. The focus of the report is to show strategic analysis of the company and the environment around it that influences the organization. An assessment of the organization's existing strategies and impact of the external environment with recommendations to improve will also be included 2. Introduction of selected organization: The Body Shop The Body Shop is an international public limited company and was founded in United Kingdom in 1976 by Dame Anita Roddick. The Body Shop is part of the L'Oreal family which is their parent company. Today the company has 2100 stores in 54 countries with a range of over 1200 products all animal cruelty free and many with fairly traded natural ingredients (Thebodyshopinternational.com) 3. Marketing Environment The Body Shop works in a clean environment where they have managed to keep their competitive edge. They work is a diverse environment and they also aim to encourage a healthy environment in the world by working against torture of any kind to humans and animals. Marketing activities are influenced by several factors inside and outside the business firm. These factors or forces influencing marketing decision-making are collectively called marketing environment. It comprises all these factors, which have san impact on market and marketing efforts of the Body Shop. According to Philip Kotler, marketing environment refers to "Eternal factors and forces that affect the company's ability to develop and maintain successful transactions and relationships with its target customer." The marketing environment of Body Shop may be broadly divided into two parts Microenvironment Macro environment Microenvironment implies the factors and forces in the immediate environment, which affect the company's ability to serve its market. These factors are given below: Suppliers Market intermediaries Customers Public Macro environment refers to those factors, which are external forces in the company's activities and do not concern the immediate environment. Macro environment are uncontrollable factors, which indirectly affect the concerns ability to operate in the market effectively. The components of macro environment affecting the company are as stated under (a) Demographic forces (b) Economic forces (c) Political and legal forces (d) Social and cultural forces (e) Physical forces (f) Technological forces (Source: Stephen, 2005, page 101) The environment in which the company operates can be analyzed through Porter's five forces, and PESTEL analysis. 4. PEST analysis for the general environment Forces in an organization's general environment have profound effects on its task environment. In fact, managers most constantly analyze forces in the general environment because these affect long term decision-making. PEST analysis for the general environment are including economic forces; social, cultural, demographic and environment forces; political, government, and legal forces; technological forces; competitive forces; and Global forces. 4.1 Michael Porters' Five Forces Model Michael Porter created the Five Forces Model to help managers identify forces in the environment that are potential threats. According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces (Source: Stephen, 2005, page 112) Porter's five forces include three forces from horizontal competition and the last two from vertical competition. 1. The threat of substitute products: When close substitutes exist the demand tends to become price elastic. Since price increases tend to influence the consumer to switch to other products that are cheaper comparatively. It is true that body shop's prices are extremely high and they are the most expensive cosmetic company. It's the costs they incur since their products are animal cruelty free and the ingredients used are grown with the right fertilisers in order to produce the most natural form of any ingredient used in the cosmetics. Natural products require a lot of labour and hand work which is expensive. The company uses the best and the most natural ingredients for their cosmetics. Due to this they incur extremely high costs and their products tend to be the most expensive in the market. Substitutes are available in the market at comparatively cheaper prices. The basic cosmetics are available in various brands such as Rimmel, Maybelline etc. These are comparatively cheaper and also of good quality. The propensity of the buyer switching to another brand is high and so are switching costs. Since every customer lost is a loss to the company but The Body Shop has a certain class of extremely loyal customers who can well afford to buy body shop products. This product is not aimed at the masses anyways. There is a huge difference in the prices of the substitutes so the people switching to other products are high as well. But there is a perceived level of product differentiation since body shop uses natural products and it has been proved that their product do what they claim to do unlike other companies. This does pull consumers towards the shop but it totally depends on the customer's affordability. But it is true that the product is aimed at the elite class and serves to a niche market. This product is a luxury and a novelty. It does give value to the customers and is a status symbol. 2. The threat of the entry of new competitors: The Body Shop does not face this threat of new competitors because it is the first company to produce beautiful cosmetics products, inspired by nature and ethically made. It is also the first company to be awarded the Humane Cosmetics Standards for the companies against animal testing policy. They have their own fair trade policy program called Community Trade and they are the only cosmetics company with such an extensive commitment to trading fairly. The company is also a leader in terms of corporate transparency and they have always worked for positive social and environmental change through their five policies; support community trade, defend human rights, against animal testing, activate self-esteem and protect our planet. They also have their own charity program. No company has ever been able to do what body shop has done and they have a, exclusive name in the market. They are growing so fast that no other company can match their pace. They are a giant and can easily shove of any new competitor since the trust and loyalty is present in their customers. Body shop has taken years to be at this position with a clean reputation that has been proven again and again. It's not easy to be where Body shop is and it is the Market leader. Thus the company enjoys learning curve advantages. The company has excellent brand equity that has been proven with time. The company also enjoys economies of product differentiation since no company's products do what they claim. The entire product making process for body shop is transparent and different. Such entry barriers to the market are present to discourage a lot of new entrants. 3. The intensity of competitive rivalry: The body shop not only produces unique products but also expensive ones. The body shop does have competitors but only in terms of price. It does not have rivals working in non price dimensions. Since, they are the only ones producing such products and having such policies. But when it comes to price there are people who switch to other substitutes due to the highly priced products at body shop. Body shop does provide discounts and other sales promotions which attract customers towards them. Body shop advertises in a very different way the environment in focus but their most important value is to provide the best products since every woman deserves to look her best. The Body Shop is a huge name and is irreplaceable so it does not have many competitors. 4. The bargaining power of customers: Body shop has highly priced products but its loyal customers do not expect the company to bring down the price level since the price quality heuristic relates price with quality, status and luxury of using the product. Although the company serves a niche market but it has a class of loyal customers. It is a novelty and is supposed to be expensive. But there are people who want to go for body shop but can not due to high prices so the company does give discounts from time to time in order to enable more people to be able to afford the products. 5. The bargaining power of the suppliers: The body shop has a fair trade program that is called the community trade program and it has 31 suppliers in 24 countries. The body shop has chosen its suppliers itself based on a criteria that supports their program of fair trade. Their suppliers usually do not pose any problems for the company because they themselves believe in fair trade. The fair trade benefits the suppliers as well since they benefit from receipts of actual orders; this program helps the suppliers fulfil their community goals. They gain access to different markets and build their business skills. Since being connected to body shop means the suppliers believe in fair trade they are able to maintain a good name in the market and also gain more business. Thus, the suppliers feel honoured to be part of the prestigious business of body shop and they do not pose any problems in pricing or other aspects (Wikipedia.org). 4.2 Opportunities and Threats: These can be analyzed with the PESTEL (Political, economical, socio-cultural, technological, environmental and legal) analysis (i) Political: These include the regulations, laws, tariffs etc. Cosmetics companies are usually regulated to stop animal testing and produce environmental friendly products. Plus they are entitled to produce products that should not harm the different skin types of women around the world. Body shop's competitive advantage is this only since it is against animal testing and aims to produce environmental friendly products. They have different products using ingredients that suit all skin types but they also provide products that are for specific skin types only. So body shop does not have a problem with regulations and regulatory bodies. Body shop has always given the landfill tax introduced in 1996 in the UK and has always abided by the health and safety regulations that requires employers to inquire from their employees about their health and safety. The company also broadened its pension schemes to offer more choices to employees including investment funds. (ii) Economical: Economic changes depend on the country the shop exists in. The Body Shop in USA is expensive as usual but there they have a greater fan following and more loyal customers since it's a developed country with a high GNP level or income per capita level so more people can afford the product in America. But Body shop is also present in Pakistan which is a third world country but people have been loyal to the product in this country even when it did not exist in the country people made an effort to get it from abroad. But naturally, in this country since GNP level is low the segment of loyal customers is lesser than in America which is developed and has a high economic growth rate. (iii) Socio-cultural: This again depends on the country the shop is present in. Once again in America people are extremely brand conscious and more aware of environmental problems so they have more reasons to buy body shop products. Similarly, in Pakistan there is a segment of the population that is aware and the rest will go for cheaper products. Since people are not very aware even if they go for the products they will have a different reason and that maybe the status symbol attached to the product or any other reason. So different cultures react differently. (iv) Technological: The body shop innovates continuously but even if they use a lot of technology they still use natural ingredients for their products. Technological advances have helped the company just like any other corporation by enhancing the production methods and also good communication within and outside the organization to support the internal plus external environment it operates within. But most importantly technology has enhanced research and development which is a necessity for the company in order to produce more and innovative cosmetic products to increase their market share. (v) Environmental: The environment the company is functioning within has already been discussed in detail with focus on the competitors, customers, suppliers, technology, economic conditions, social, political and their strengths plus weaknesses. (vi) Legal: Body shop has always functioned within the legal requirements since it is a leader in corporate transparency. Everyone knows the company has policies against animal testing and their products do what they claim to do. They have never produced products that will harm skin types. 4.3 Porter's generic strategies include the following: (i) Cost leadership strategy: Body shop serves a niche market and it is a status symbol. Thus, body shop uses the best and the most expensive products so that their finished good is expensive and unique. Plus they don't deal in standardized products because they believe in innovation. Body shop does not need to incorporate this strategy because every market has different requirements for different manufacturers. (ii) Differentiation strategy: This is Body shop's basic strategy because they aim to be different in every way and they spend a lot on research and development. They always produce something that is unique and no competitor can copy it exactly. Thus body shop has many brand loyal customers and the price elasticity of demand for their products has reduced. (iii) Segmentation strategy: Body shop has incorporated this strategy since it caters to a niche market and it aims to target a particular sector in the market that never compromises on quality, will always pay more for quality than quantity and give importance to corporate social responsibility since they care for the environment. (Wikipedia.org) 5. Competitive analysis Business is taking place in a steeply competitive, volatile environment, so it is important to understand the competition. (SBA, Competitive Analysis.) The Body Shop is a leader in many aspects and has a competitive advantage over its other competitors. It is the first company to be awarded the Humane Cosmetics Standard for it's against animal testing policy. The Body Shop is the only cosmetics company that produces cosmetics with pure and natural ingredients that no other cosmetics company has been able to achieve as yet. They are the only company that has a strong commitment towards fair trade and they have a community trade program to back their commitment. The Body shop is a market leader in terms of corporate transparency and they have brought about environment and social changes in the world. 6. The Market and Customer Analysis "According to the American Marketing Association, marketing research is the systematic gathering, recording, and analysing of data about problems relating to the marketing of goods and services." (SBA, Marketing research.) Although market research is imperfect science, it deals with customers and their continual changes feels and behaviours, which are influenced by innumerable subjective causes. (SBA, Marketing research.) Inputs Channels Processor Output (Response) Factors influencing buying behavior for Body shop (Source: Stephen, 2005, page 135) 7. Marketing mix Marketing mix represents the total marketing programme of Body Shop. It involves decision, with regards to product, price, place and promotion. Marketing mix serves the linkage between a business firm and its customer. Thus marketing mix is a blending of decisions in the 4 P's. It is a system comprising the subsystems of product, promotion and distribution. These elements of the marketing mix are interrelated because decisions in one area affect the others. Marketing mix is a dynamic concept as it keeps on changing with changes in markets and the environment Philip Kotler has defined the term marketing mix as "the set of controllable variables that the firm can use to influence the buyer's response". (59) The marketing mix denotes a combination of various elements, which in their totality constitute Body Shop's "marketing system". These elements are often described as FOUR P's: Product, Price, Distribution (Place) and Promotion. Concept of Market Mix In order to fulfill the objectives there are several variables that have to be incorporated into the elements of the marketing mix: Product - must be high in quality. Price - must be at a premium price/high value. Promotion - media and merchandising coverage. Place - must be available at local shops, supermarkets and other retail outlets. People - people provide most services. Physical evidence - must illustrate the service quality through physical evidence. Process - choose among different processes to deliver the service. Thus, Human Resource in Body Shop system has designed a marketing mix to analyze the mark the marketing problems. The problems are analyzed: (a) By utilizing the importance emanating from the market, which influences the marketing problems operations of Body Shop. For example, product acceptance, demand, price etc. (b) Adopting, procedures and policies for an efficient marketing programme. For example, distribution policies, promotional policies, etc. The company's distinct values and policies give it a competitive edge over other cosmetics company and this transparency has made the company a leader and a novelty product in the market that everyone trusts and wants to use. Unlike other cosmetics company's Body shop is not available on all stores because it has its own separate shop where all the products are available in all countries. All these things make Body shop different and give it a competitive edge. A Strategic Planning Cycle Externally Imposed Strategy can be imposed by two ways: 1. By powerful external stakeholders. (i) Government regulation/deregulation (ii) International requirements for alliances (iii) Imposition of strategy from parent to operating unit 2 Deliberately forces strategic change by interventionist special measures Strategy Consultants Reasons for using consultants includes getting an external objective view of issues, to cut through internal disagreements, and to symbolize the importance of the work Consultants' roles Analyzing, prioritizing and generating options Knowledge carrier Promoting strategic decisions Implementing strategic change 8. Recommendations The company has an extremely well built strategies and values that increase the goodwill and market share for the company. They worked hard to bring about environmental and social changes but their products are highly expensive and can not be afforded by every woman. They should give discounts and good bargains at least twice a year to let the masses enjoy their products as well. Since everyone wants to use Body Shop and they can make it possible by running a special campaign that is consistent with their image to bring about a social change. They can run such a campaign under their "activate self-esteem" policy. They can run this campaign at least twice a year to let the masses enjoy Body Shop. This will be consistent with their image and will also give them another competitive advantage. 9. Conclusion Strategic Skepticism The corporations are successful as a result of expert strategic planning. In the area that called strategic skepticism, strategic planning is not quite the analytical process preached by academics. According to James Brian Quinn of MIT's Sloan School, Strategy is based on a process of logical incremental. In his view, strategy is the result of many smaller decisions taken over a long period of time. Other theorists also hold that strategy is not as formal a process. Strategy can take five forms, all starting with "P": Plan Ploy Pattern Process Perspective In one company, strategy is the result of a formal plan. For example, General Electric buys and sells its divisions using McKinsey's portfolio techniques. (Silbiger, 1999,p.327) Strategy can also be just a pattern, a process, or perspective of conducting business and making decisions. For examples in a small jewelry business, a simple philosophy is followed. They treat customers well, gave them the best prices, and were completely honest about the merchandise. It was a consciously chosen way of conducting business and it was a successful strategy. Strategy can be the product of an entrepreneur's insight as a result of being hit with the boom of his or her sailboat, or it can be a series of ad hoc plans that develop over time. Either way, the formal planning processes sold by consultants are not always the answer. Thus, this is a strategic company analysis on The Body Shop with a detailed analysis of its environment, capabilities, competitive advantages and recommendations for improvement. This report has been critically analyzed and this report proves that The Body Shop is a successful business venture, it's a profitable company but it is incredibly socially responsible as well. As an external consultant I would give a clean card to the Chief Executive since this company is an example for other organizations and it is perfect in all aspects. Overall, the company is a success and an example for the rest to follow. Bibliography & Reference From book: Anita Roddick. (1985) The Body Shop Book. About Body Shop. Macdonald publications. Anita Roddick. (2005) Business as Unusual: My entrepreneurial journey. The business environment and competitive advantages of body shop. Anita Roddick publications. Brock, Pope. "Anita Roddick: Life is short, and the restless mind behind the Body Shop is determined to take no time-outs." People Weekly. May 10, 1993: 101-06. Ian Wycherley. (1999). The case of the Body Shop. Competitive advantage. Vol 8, Issue 2. Pgs 120-127. Kotler, P. (2003) Marketing management, 11th ed., America: Prentice Hall. Silbiger Steven, (1999) A Step-By-Step Guide to Mastering The Skills Taught in Top Business Schools. Piatkus Books. London. Pp 305-329 Stephen P. (2005) Fundamentals of Management. 3rd ed. The PEST analysis: The Body Shop. India. Pearson Education, New Delhi:101-178 From website: About The Body Shop. Available from [Accessed 24 October 2007] Porter's five forces. Available from [Accessed 24 October 2007] The Key capabilities and Competitive advantage. Available from < http://www.thebodyshopinternational.com/NR/rdonlyres/BC4D6E4A-DA4F-4FB7-8F6A-A68988D863DF/0/tbs_values_report_1997.pdf> [Accessed 24 October 2007] General Information on The Body Shop Available from [Accessed 24 December 2007] Porter's generic strategy Available from [Accessed December 18, 2007] SBA. (no date) Marketing research. Available from [Accessed on January 12, 2006] SBA. (no date) Competitive Analysis. Available from ,http://www.sba.gov/starting_business/marketing/analysis.html> [Accessed on January 15, 2006] Read More