The Estee Lauder Group - Essay Example

?How Can a Company like The Estee Lauder Group Satisfy Consumers Globally While Sustaining a Luxurious Image through Effective Strategic Management? Table of Contents Introduction 5 Section 1: Estee Lauder: A Functional Domestic Structure 6 1.0 Internal & External Analysis 6 1.01 History 6 1.02 Vision, Mission and Objectives 6 1.03 Micro and Macro Environment 7 (A) Micro Environment 7 (B) Macro Environment 7 1.2 Strategic Analysis 8 1.20 Objectives 8 1.21 Means for Objective 8 1.23 Resources for Objectives 8 1.24 Key Dimensions of the Organisational Structure 9 1.24 (A) Specialisation 9 1.24 (B) Standardisation 9 1.24 (C) Centralisation 10 1.3 Competitive Strategy 10 1.35 Eco-Friendly Company with Environmental Sustainability 12 Section 2: Global Expansion: a Difficult Process 13 2.1. New Market Analysis 14 2.1.0. History of Aveda and Bumble and bumble 14 2.1.1. New region’s Marketing Environment 15 (A) Micro Environment 15 (B) Macro Environment 16 2.1.2. Global Expansion through Trans-national Strategy 16 Advantages 16 Disadvantages 17 2.2. Implementation of New Strategic Management 17 17 2.2.1. Functional Structure 17 2.2.2. International Division Structure 18 2.3. Main Challenges Encountered 18 Section 3: Global Expansion: A Constant Process 19 3.01 Strategic Planning 19 3.02 Market Analysis 20 3.03 Relationship Marketing 22 3.03 (A) Products 22 3.03 (B) Education 23 3.03 (C) Procedures and Rules (Luxury Image) 23 3.03 (D) Collateral Needs 23 Conclusion 24 References 25 Introduction Estee Lauder Group was established in the year 1946 in New York by Estee Lauder and initially marketed four products along with a belief that “every woman can be beautiful”. The company operates in cosmetic industry and deals with luxury products. At present, it has many brands under its corporate authority (Estee Lauder Companies, 2011). Globalisation has made it possible for firms to expand their businesses in international market through extensive expansion of their products and services. The global expansion strategies of firms assist in gaining higher market share in the targeted markets within a short term period. Due to the global expansion strategy, the sales of the firms increase which result in increasing the profit of the firms. The Estee Lauder brands are well known and they have captured many markets. The global expansion will facilitate the existing brands to increase the sales that will assist in bringing more profits to the company with the existing product line. Section 1: Estee Lauder: A Functional Domestic Structure 1.0 Internal & External Analysis 1.01 History Mrs. Lauder had invented several products and brands. She had developed skin care solution and fragrance or scents that were accepted globally and gradually became famous (Estee Lauder Companies, 2011). The Estee Lauder’s brand portfolio is diversified. The portfolio consists of classic, core brands, Lab Series, Aramis and Estee Lauder that have been able to set standards and has gained brand value in the entire prestige beauty industry. The origins, urban prescriptive and customized are the company’s category-defining lifestyle brand. From 2004, they had introduced several brands and have sold them through alternative distribution channels (Estee Lauder Companies, 2011). Aveda and Bumble and bumble, each in its own way, are foremost organisations in the prestige salon business. As men are more interested in grooming and treatment products, Lab Series Skincare and Clinique Skin Supplies for men are both balanced to confine a larger share of this emergent category (University of Pennsylvania, 2008). 1.02 Vision, Mission and Objectives The vision and mission statements of Estee Lauder is “bringing the best to everyone we touch”. By “the best” the company means the best products, ideas and people. These three foundations have been the trademark of Estee Lauder from the time it was established. These three pillars remain the foundation upon which the company has been able to succeed till date (Sample, 2006). The objectives of the company are currently executing the strategic modernization enterprise to assist in transforming the business, enhance the value of their shareholders and support the objectives of sustainable growth through integrating the company across brands and regions. The company is dedicated in shielding the communities and the environment in which they function through determination for excellence and incessant improvement of the operational activities (Estee Lauder Companies, 2011). 1.03 Micro and Macro Environment (A) Micro Environment The micro environment emphasises that there is demand for cosmetic products in the EMEA market. There are demands for hygiene products that are natural and Estee Lauder is known for their products in this category (Dow Corning Corporation, 2005). (B) Macro Environment The EMEA regions consist of greater populace and there are demand for many products that are related to cosmetics and hair care. There are many brands present in these regions with quality products and technical advanced products. Due to the increasing demand of natural cosmetic products, there have been more rigid regulations put in place for the cosmetic industry (Barbalova, 2008). 1.2 Strategic Analysis 1.20 Objectives The global oriented leadership of Estee Lauder has enabled the company to achieve its objectives and it has also been awarded with New York International Trade Alliance and New York Export Assistance Centre. The vision and strong global leadership have made the company successful in the global market (Xenias, 2011). 1.21 Means for Objective In the year 2001, there was 61% of net sales that was generated from America’s market, 26% was generated from the European, African and Middle Eastern markets and 13% was generated from Asia/Pacific countries. The international sales had increased by 9.8% during the last five years annually (Xenias, 2011). 1.23 Resources for Objectives Estee Lauder has research and manufacturing units in different parts of the world in order to fulfil the objectives. Estee Lauder has manufacturing facilities in Switzerland, the United States, Canada, the United Kingdom and Belgium. Their research and development laboratories are in Japan, the United States, Belgium and Canada (Xenias, 2011). 1.24 Key Dimensions of the Organisational Structure 1.24 (A) Specialisation The Estee Lauder Companies Inc has elected Wei Sun Christianson as the director of the company due to her superior financial expertise, strong business insight and understanding of the Chinese and other markets for global expansion (Estee Lauder Companies, 2011). There are expert teams engaged in the research and development section for innovative product developments. There are professional marketing personnel assisting in achieving the objective of the company. William P. Lauder, the Executive Chairman and Fabrizio Freda, President and Chief Executive Officer of Estee Lauder have shown leadership quality in achieving the goals of the company and in expanding the company in the global market (Estee Lauder Companies, 2011). 1.24 (B) Standardisation To ensure excellent performance Estee Lauder fosters a unique workplace culture that encourages innovation, teamwork, and passion and shared values. These assist in working as a team towards the achievement of the goals (Estee Lauder Companies, 2011). Estee Lauder is dedicated to the premier standards and values of professional and personal conduct (Estee Lauder Companies, 2011). 1.24 (C) Centralisation Estee Lauder has various professionals working in every department as heads to execute the responsible work for the success of the business. The structure is well divided and controlled by the heads of the departments (Estee Lauder Companies, 2011). 1.3 Competitive Strategy 1.31 Product Development Estee Lauder’s strategy is to optimise the brand portfolio with product category. They are adding more brands to their product lines through the acquisition strategy (University of Pennsylvania, 2008). 1.32 Market Development Estee Lauder is expanding and strengthening their geographical presence through the global expansion strategy. They are entering in new markets such as China, Russia and many more countries (University of Pennsylvania, 2008). 1.33 Diversification Estee Lauder is in the beauty and personal care products and they have diversified in the development of the products that are eco-friendly. They are in process of developing more enhanced products in the same sector (University of Pennsylvania, 2008). 1.34 Customisation To enhance the customer satisfaction, Estee Lauder with new innovative products also offer certain customised discontinued products. This strategy is implemented to provide the consumers with innovative and newest trends of product line (Estee Lauder Companies, 2011). 1.35 Eco-Friendly Company with Environmental Sustainability Estee Lauder has products that are eco-friendly and are known as natural cosmetics that help to lead the brand in the global market (Estee Lauder Companies, 2011). 1.35 (A) Pollution Preventions Estee Lauder makes use of ‘EPA-regulated hazardous material’ at low amount in the manufacturing process that has minimum effect after they are released in the air and water (Estee Lauder Companies, 2011). 1.35 (B) New Environmental Technologies Estee Lauder has implemented the new technology for energy conservation, air emission, and water conservation and to control greenhouse emissions. This has also been part of the corporate social responsibility of the company (Estee Lauder Companies, 2011). 1.35 (C) Sustainable Vision Estee Lauder is committed towards the community and environment in which the business of the company operates through continuous improvement in the operations and by striving for excellence (Estee Lauder Companies, 2011). Section 2: Global Expansion: a Difficult Process In order to achieve an extra level of competency and a stimulated growth, companies often intend to expand their operations globally. However, there are various challenges which are most likely to arise during the course of global expansion. Globally expanding the business means implementation of a new market with due consideration to its competition level, culture and future prospects. In a nutshell, the company requires analysing the microeconomic and macroeconomic environment of the new market and design its strategic alliances accordingly. This can be referred to as the short-term challenge faced by any company expanding globally, such as Estee Lauder Group. 2.1. New Market Analysis 2.1.0. History of Aveda and Bumble and bumble Aveda Aveda was launched in the year 1978 by Horst Rechelbacher. It was then merely a manufacturer of beauty products which were plant-based. During its initial years, the company launched its hair-care and essential oil compositions pioneering the term “Aromatherapy”. Since its launch in 1978, the company continued its diversification until the year 1987 when it shifted focus on global expansion. In its first global launch the company adopted the strategy to focus on the corporate social responsibility and enter the market with its most renowned and competitive product, i.e. Shampure Shampoo. It also concentrated on its differentiation strategy based on the beautifying treatment with ayurvedic medicines. Later the company continued expanding globally with its trans-national strategies successfully until 2007 when it was acquired by Estee Lauder Group. Presently the company has over 30 stores all around the world (Aveda, 2007). Bumble and bumble Bumble and bumble was founded by Michael Gordon in 1977 in New York City. Initially it was established as a hairdresser salon. However, it was in 1990 when the company launched its first product line concentrated on the hair-care segment. It initiated its global expansion with its strongest service, i.e. Hairdressing in a modern and unique fashion which currently serves the targeted customers in more than 25 countries. It also launched its products in the new markets as a competitive and differentiation strategy (Bumbleandbumble.Products, LLC, n.d.). 2.1.1. New region’s Marketing Environment (A) Micro Environment However, the microenvironment trends of the industry reveal that the demand shall be highly focussed on the multifunctional products, colorants and fragrances in the near future. The demands are also tending to favour hygienic and safer products while the texture and after use expectations are still recorded to depend on the geographic limitations. In terms of logistics, the focus has been recorded to shift towards direct selling in the EMEA region (Dow Corning Corporation, 2005). (B) Macro Environment The EMEA region comprises of large population belonging to the age group of above 40 years which depicts that the anti-ageing beauty products are likely to be favoured. On the contrary, luxurious departmental stores are likely to loose their grip in the developed economy. However, the impact shall be on rise in the developing economies of EMEA, such as Turkey and Russia. Furthermore, it is predicted that the industry can witness few major transformations in terms of technology and social aspects. The regulatory framework of the industry will also become more rigid with the shifting demand towards safer products and thus create a strong impact on the industry value chain (Barbalova, 2008). 2.1.2. Global Expansion through Trans-national Strategy Advantages Trans-national strategies focus on the achievement of both global competence and local receptiveness that enhances its applicability in the current scenario. It also concentrates on an integrated network to exploit the experience curve effects and locate potential economies. It also benefits the organisation with its assistance to customise the products based on the local preferences which can turn to be highly advantageous for Estee Lauder Group. Another advantage of this strategic approach is that it provides the opportunity of global learning to facilitate the flow of knowledge and integration which in turn rewards higher competency (Doole & Lowe, 2008). Disadvantages Along with these advantages the application of trans-national strategies also comprise of few disadvantages. For instance, it is termed to be a complex process which raises the challenge to organise all the facet of global as well as local environment with efficiency. Therefore, it also becomes quite challenging to be implemented in the realistic practices (Doole & Lowe, 2008). 2.2. Implementation of New Strategic Management 2.2.1. Functional Structure A functional structure of organisation depicts that the human resources are divided into separate specific groups according to their responsibilities and specializations. However, functional structure also possesses few limitations which affect the organizational interests to a large extent. According to researchers, in the modern day context where the market is continuously changing, rigid functional structure emerges to be inappropriate and ineffective (Hill & Jones, 2009). 2.2.2. International Division Structure In order to perform the operations in a global platform with efficacy, a company today requires focusing on international division structure. According to the concept, the company needs to design a specific task force in its organisational structure which would be responsible for any and every kind of foreign affairs. This not only helps to control the undertaken strategies with effectivity, but also ensures lesser risk in the internal environment of the company (John & Gillies, 1996). 2.3. Main Challenges Encountered In this context, it is most likely that the company will have to face few challenges from both the short-term and long-term perspectives. For instance, if the company opts to employ a new strategic management it shall need to transform its organisational structure which can make the internal environment complex and thereby hampering the stability of the organisation. Moreover, as the industry is tending to be highly competitive and regulated there is a minimum scope for the expansion of the company which can raise risks in the long-term perspectives. Section 3: Global Expansion: A Constant Process 3.01 Strategic Planning New Objectives According to Mr. Freda of Estee Lauder, long-term strategic plan is focused upon acquisition of market share in the international prestige beauty industry and producing sustainable and profitable growth (Estee Lauder Companies, 2011). New Means of Objectives For the strategy, Estee Lauder is investing in consumer knowledge, motivating innovation and developing creative products and services. They are expanding the distribution and geographic area of operations especially in the European, Middle East and African region (Estee Lauder Companies, 2011). New Resources for Objectives The strategy contains prioritising resources in order to utilise large potential opportunities and integrates globally the company’s brands, functions and regions to generate cost efficiencies and leverage benefits at large scale (Estee Lauder Companies, 2011). 3.02 Market Analysis Aveda was acquired in the year 1997 and is presently sold in more than 30 countries. It is a lifestyle, hair care and body care product (Estee Lauder Companies, 2011). 3.02 (A) Turkey Istanbul is the largest production as well as trade centre in Turkey. There are approximately 1372 companies producing personal care products and cosmetics in the cosmetics and personal care industry and nearly 14000 employees (Bektasoglu, 2011). The current economic growth of Turkey has increased the production and consumption of personal and cosmetic care products. The personal and cosmetic care products production value has reached nearly 1.5 billion Euros. Among all the categories of the personal and cosmetic care products, the hair care segment has the largest share. Men’s grooming products are in greater demand in Turkey market (Bektasoglu, 2011). The Estee Lauder Aveda product has greater potential market in Turkey. The men’s grooming segment and the products related to this segment have shown excellent performance. The Aveda products are especially in this segment and can achieve market share in the increasing potential of Turkey’s cosmetic and personal care market (Bektasoglu, 2011). There is huge competition as there are domestic brands that operate not only in Turkey market but also in the international market and have established their brands. There are many international companies that operate in Turkey market in selling their products as well as manufacturing units are also present there (Bektasoglu, 2011). 3.02 (B) Russia The cosmetic and personal care industry is the second fastest growing retail sector in the Russian economy. There had been 15% to 20% annual growth in this sector over the past five years. There is huge potential of this segment in the Russian market and it has been estimated that the value will increase approximately more than US$ 18 billion in the upcoming years (Aginsky Consulting Group, 2007). The anti-ageing and skin protection has been the major drivers for the growth in the cosmetic industry in Russia. The hair care and make-up products are known to be the largest segment in this industry in Russia. According to 2006 report, the hair care consisted of 19% and make up products consisted of 14% in the sector. In the year 2007, AC Nielsen Company conducted a research and found out that out of 10 fastest growing categories 4 is in the skin care segment in Russia. Among the mentioned categories there have been 25% growth in the facial care category and 39% in the anti-ageing category (Aginsky Consulting Group, 2007). The Aveda has huge potential in the Russian market as it deals in the facial care category as well as in the anti-ageing category. Aveda is known for its hair treatment and products for hairs. The Russian market in the hair care segment had shown great potential and consequently developed. There are more opportunities in the hair care segment in this economy (Aginsky Consulting Group, 2007). 3.03 Relationship Marketing 3.03 (A) Products When a company differentiates its products, then it looks to charge premium prices for its luxurious as well as superior quality products. This strategy is implemented by Estee Lauder in the luxury segment where the prices are premium. Estee Lauder is known as the retail brand for its luxurious skin care, fragrance and cosmetics products and the major target market is the female consumers. The company has a reputation for high performance and technological advanced products. To recover its place as a premium product, Estee Lauder needs to reposition itself in the market. It needs to provide a brand image that is clear and offer unique products to the consumers (Tai & Et. Al., 2005). 3.03 (B) Education Estee Lauder is investing in developing customer knowledge in order to gain more market share. They are educating the customers about the products in the salons to increase their sales. This strategy is implemented by Fabrizio Freda, the President and Chief Executive Officer of Estee Lauder Company Inc (Estee Lauder Companies, 2011). 3.03 (C) Procedures and Rules (Luxury Image) To maintain the image of luxury brand, Estee Lauder’s procedures and rules have been focused upon new social media strategy. With this strategy the company not only targets younger social media savvy audience but also wealthier female audience. Merging in-store efforts with online presence provides more opportunity to maintain an image of luxury brand with premium pricing (Ceria, 2011). 3.03 (D) Collateral Needs Estee Lauders Company Inc should provide their fact sheet, product fact sheet, bibliographies of founder and senior management, mission statement, company’s background, current list of clients and partners, press kit and clip files in different languages as the company is globally present in the market. The customers belonging to different cultures, regions and having different tastes should be able to communicate with the brands and products. Conclusion Estee Lauder Inc has been successful in business in the international market and is in the global expansion position through the increase in portfolio of brands with newly developed natural products. There are challenges present in the market as there are many international brands competing in the global market. The EMEA region is the market with opportunities where Estee Lauder can expand and increase their sales by generating more business. Since the cosmetic industry is growing there is vast potential for companies to expand and grow in this sector. References Aveda, 2007. History of Aveda since 1978. About Aveda. [Online] Available at: http://www.aveda.co.uk/aboutaveda/history.tmpl [Accessed April 01, 2011]. Aginsky Consulting Group, 2007. Cosmetics Market Research Summary. Cosmetic Industry. [Online] Available at: http://www.aginskyconsulting.com/downloads/ACG%20Industry%20Summary%20Reports%20-%20Q4-07/ACG%20Russian%20Cosmetics%20Market%20Overview.pdf [Accessed April 01, 2011]. Barbalova, I., 2008. In Search of Beauty: Key Strategies for Growth in Global Personal Care. Euromonitor International. 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