Strategic Analysis of Lush Cosmetics UK Subsidiary - Term Paper Example

Strategic Analysis of Lush Cosmetics UK Subsidiary Introduction Lush Cosmetics is a UK based personal care product retailer. It was founded in 1995 by Mark and Mo Constantine and its headquarter is situated in Poole, England. Currently they own more than 800 stores in 51 countries across the world. Lush Cosmetics is a well known organisation for their fresh, handmade and less preservative cosmetic products and fragrances. Their cosmetics product category includes shop, shampoo, bath bombs, conditioner, face mask, bubble bar and body lotions (Ku, 2014). They are promoting various environmental campaigns such as elimination of usage of animal by products. Their marketing strategies include usage of natural ingredients such as fresh fruits, vegetables and essential oils for product manufacturing. Their main objective is to manufacture handmade cosmetics product with good values. They prefer to select offbeat and interesting product name, such as Be Never Too Busy, Shave the planet and Happy Hippy, to attract customers (Bosteels, 2014). Their market strategies also involved elimination of the usage of any animal ingredient and animal testing in their product manufacturing process (Lush fresh handmade cosmetics, 2014a). Lush has failed to achieve desired profit in the last few years and needs to re-evaluate its marketing strategies. The report will analyse the internal and external challenges in the current business environment. It also proposes valuable marketing strategies to increase their market share. Analysis of current internal environment SWOT analysis SWOT analysis of Lush cosmetics will provide help to understand the internal strength, weaknesses of the organisation and external opportunities and threats of the industry. This analysis will help the organisation to introduce new marketing strategies (Pahl and Richter, 2009). Strength Lush Cosmetics offers innovative products and packaging. The organisation is following green policy and uncompromising ethical practices (Lush fresh handmade cosmetics, 2014b). They provide superior customer services and in-store experiences (Ku, 2014). Weaknesses Their product prices are very high and a huge portion of consumers cannot afford it. The organisation has less number of branches in comparison to its competitors. The financial performance of the organisation is decreasing every year (Ku, 2014). Opportunities Increasing demand of the luxury beauty products and organic products The growing success of health and beauty related loyalty cards (Bosteels, 2014). Threat Availability of a number of strong contenders such as Body Shop, Rocky Mountain soap and Boots. Customers are getting inclined towards less priced products with similar values (Bosteels, 2014). Resources, capabilities and core competencies Understanding the proper utilization of the resources and capabilities helps any organisation to develop their competitive advantages in the market. VRIO analysis is one of such tools that help any organisation to analyze their core competencies (Wiklund and Shepherd, 2003). The tangible resources of Lush Cosmetics include their employees, production laboratories and product packaging ingredients. The employees of the organisation are well trained and highly efficient to produce innovative products as per the requirement of the market. Their technologically developed production laboratories give them competitive advantage. Lush Cosmetic is following green policy in their product packaging procedure by using recycled and environmental friendly products. Their intangible resources are the innovative product formulas and brand recognition (Marketline, 2008). The products of the organisation follow a unique and innovative formulation that helps them to stand out in the market. The uniqueness of their products has earned customer loyalty and positive market reputation for their brands. The ability to recognise consumer preference over freshness of product and recognise the limitations of natural products in the earth can be counted as their core capabilities (Ku, 2014). These resources and capabilities provide help to identify their core competencies which includes innovative products, environment friendly business approach and trustworthiness. The organisation has utilized their unique product formulas and the state of the art production facilities to develop natural personal care products for health conscious customers. Though the market competition is very high, their innovative products help them to successfully capture the market (Marketline, 2008). Their policy to use fresh and natural ingredients and environment friendly packaging material helps them to create comfortable environment for the consumers. Therefore, it helps them to enhance their brand standard and establish them as an environment friendly business (Ku, 2014). Core Competencies Valuable Rare Inimitable Supported by organisation Competitive impact Innovative products Yes No No Yes Temporary competitive advantage Environment friendly business approach Yes Yes No Yes Temporary competitive advantage Trustworthiness as an ethical brand Yes Yes No Yes Temporary competitive advantage Value chain analysis Value chain analysis is a business tool to identify organisation’s primary and support activities. This also helps to understand the values of these activities in the final product and its cost (Schmitz, 2005). The primary value chain activities are: Inbound logistics Lush Cosmetics deals with suppliers who provide natural and fresh raw materials. They maintain efficient storage facility. They maintain transparency in all their transaction of logistics by deploying developed IT facilities (Buchwalter, 2007). Operations The organisation has capital product manufacturing division which ensures product development of global standard. Their training courses ensure steady delivery of skilled and efficient manpower. They follow automated manufacturing process (Buchwalter, 2007). Outbound Logistics They have warehouses in various parts of the UK and US. They have efficient security procedure to restrict any kind of pilferage. They generally follow heavy vehicle transportation facility to distribute their products (Buchwalter, 2007). Marketing and Sales They drove the market by offering offbeat products and then educating consumers about their usage. Lush Cosmetics maintain a highly trained sales force. They generate clear idea about different product requirement by different market segments through their marketing campaigns. Therefore, it helps them to develop new products (Buchwalter, 2007). Services Their services involve product education to their customers. They also provide beauty care and spa facilities to its customers. They have easy product return facility (Buchwalter, 2007). Support activities of value chain Firm infrastructure The firm has multi location facilities. The organisation has large product portfolio. The company has small number of shares to offer and their growth is mainly based on partnership (Ku, 2014). Human resource management They are focused on development of managerial and technical capabilities through various training procedures. Lush Cosmetics provide rigorous customer service training to its employees (Ku, 2014). Technology development They have introduced new technologies to assess toxic ingredients cosmetics (SpecialChem, 2013). Lush cosmetics have collaborated with QlikView to introduce a technology that promotes the internal communication of the organisation (McKenna, 2014). Procurement The procurement facility continuously works on the relationship with suppliers. They also tend to boycott products of those suppliers who practice slavery (Ku, 2014). Analysis of current competitive environment PESTEL analysis Political influences: The political decision of increasing low wages of the employees in the UK business market is affecting the strategies of various organisations. Wage increase of the low-earning workers will result in the increase of the disposable income. This increase in wages will directly affect the business cost of Lush Cosmetics (Buchwalter, 2007). Economic influence: The unemployment ratio in the UK has increased in last few years. This resulted in the decrease of the disposable income of a huge portion of the market. This situation has adversely affected the company by decreasing its customer base. The cost of raw materials increased due to the rise in inflation rate. It also has increased the production cost of Lush Cosmetics. Therefore, it has decreased the profit margin of the organisation (Buchwalter, 2007). Socio-cultural influence: Increase in small and nuclear family culture can be seen in various developing countries. Generally all the family members are earning to pursue a luxury lifestyle. This urge is helping the organisation to promote their product as a luxury brand (Nguyen, 2014). Technological influences: The tendency of online marketing of beauty product is increasing drastically. Researchers have shown that the m-commerce sale of beauty products have increased by 2.9%. This technological development has positively influenced the online sales of Lush Cosmetics (Nguyen, 2014). Environmental influence: The European Commission has marked the sales of animal tested cosmetics products as an illegal practice. In this area, Lush Cosmetics has a competitive advantage over all the competitors who are still following the animal testing procedure. The demand of environment friendly products is increasing day by day. This situation is working in the favour of Lush Cosmetics as all of their products are natural and environment friendly (Nguyen, 2014). Legal influence: Consumer credit act permit customers to buy luxury goods on credit. This credit contracts is influencing the buyer’s behaviour towards the luxury products. Consumers are tending to buy more luxury goods as they can pay for them as per their convenience. This act is helping Lush cosmetics to increase their sales (Nguyen, 2014). Porters five force analysis Threat of new entrants: The required capital investment and the manufacturing cost for the new entrant are very low in cosmetics market. The major players of the cosmetic industry such as L’Oreal, Lush cosmetics, Body shop and Faces are offering very high prices to the consumers. New company with competitive priced product can capture the market very easily (Organic Monitor, 2014). So it can be said that the threat of new business entry is moderately high. Bargaining power of supplier: The supplier’s network is very large in cosmetics industry. This situation provides the cosmetic manufacturers the freedom of choice. The switching cost from one supplier to another is also very low (Organic Monitor, 2014). Therefore, the bargaining power of the suppliers is very low. Bargaining power of buyers: The targeted segment is narrow for the cosmetic industry and the switching cost for consumers is also low. So, buyers have some power to bargain for price and quality (Kumar, 2005). However, Lush Cosmetics is providing a different kind of product with unique values (Kumar, 2012). Customers have less options of substitute for these kinds of products. So, it can be said that the bargaining power of consumers is medium for this product. Threat of substitutes: The substitutes of natural cosmetics product are home remedies and medicinal products. These home remedies are not very well known among due to the scarcity of time and awareness. The awareness about different medicinal products is also very limited (Kumar, 2005). Therefore, the threat of substitute for Lush Cosmetics is moderately low. Rivalry among existing competitors: There are many brands who are offering natural and environment friendly products now days. It is increasing the competition and rivalry between different brands in the market (Kumar, 2005). Industry life cycle Industry lifecycle analysis comprises four different stages such as introduction, growth, maturity and decline (Frankl, Rubik and Bartolomeo, 2000). Any organisation goes through its introductory stage when they first enter in their respective market. Their product is not very well known in the market and promotional cost is very high. In the growth stage, the organisation witness sales growth as consumers get familiar to them. In this phase, organisations generally offer lower price for higher quality products to attract more customers (Parker, 2006). In the third stage organisation generally face huge competition in the market due to availability of different substitutes. In this stage organisation needs to focus on introducing innovative products to eliminate the market saturation. In the decline phase organisations face negative market growth due to rise in competition (Baum and McGahan, 2004). Lush Cosmetics is currently in the mat.urity phase of its lifecycle. There are a large number of competitors available in the market such as Boots, Body Shop, Cult Beauty, Pai Skincare and Being Content (Addicted to blush, 2010). Various organisations are introducing new and innovative product range. New organisations are tending to offer competitive prices for similar goods. Therefore, it is distracting the core customers of Lush Cosmetics. Lack of new product innovation is causing saturation of their potential market. Technological developments are influencing consumers to compare different brands of products. This is also increasing the threat of brand switching by potential consumers. Potential scenario for the future competitive environment The uncertainty of political, economical and technological factors can influence the future competitive environment of the organisation. The most uncertain factors affecting the business are the fluctuating market share, economical slowdown and political influence to increase labour wages (Pearson, and Henryks, 2008). The market share of Lush Cosmetics is decreasing due to the availability of new and innovative products (Kumar, 2012). It can be predicted from the increasing market competition that the brand value of Lush Cosmetics can decrease in the near future. The organisation is offering only premium priced products to its consumers. Due to economical slow down and increasing unemployment, consumers are more inclined towards affordable products (Addicted to blush, 2010). The decrease in the disposable income of the consumers of different parts of the world is adversely effecting the market growth of the organisation. This is also hampering the brand loyalty of the consumers as well (Ku, 2014). Therefore, it can adversely affect the sales of these highly priced personal care products in the near future. The political influence to increase the labour wages is already affecting the business strategy of the organisation. The increase in the human resources cost can provoke them to cut down their employee strength. This may further affect on the efficiency of the organisation. The availability of more price effective and competitive products in the market can drive out the customer’s preference from this brand. These potential threats in the future competitive environment of Lush Cosmetics are indicating decline phase of the business in the near future. Potential strategies for consideration Lush Cosmetics need to restructure its business and marketing strategies to create a strong position in the competitive market. Their market position is deteriorating day by day. The management need to evaluate all the drawbacks of the organisation and introduce new and innovative procedures to attract more customers. Exploring new market strategies will help any company to understand the market better. It will also influence the business growth (Johnson, et al., 2014). Elaborated discussion of different market strategies will be beneficial for the company in the long run. These potential strategies include: The organisation needs to restructure their product prices as per the market competition and customer demand. They need to thoroughly analyse the pricing procedure of competitors and introduce new pricing strategy. They need to introduce a new batch of products with competitive price structure which will be targeted to the middle class consumers. Lush Cosmetics must follow some innovative brand promotion activities and consumer education procedure to generate their brand awareness. This will help them to generate their customer database and customer loyalty. Frequent campaigning to generate consumer awareness about the benefit of natural and organic products will be very fruitful for the organisation. Generating social awareness to eliminate the usage of animal tested products. They need to introduce new product line such as anti-aging and scar removal products. The organisation must widen the variety of their makeup range such as Matt finishing and longer stay lipsticks and smug proof eye makeup. They must restructure the employee wages and their benefits to increase employee satisfaction. This will help them to retail the skilled employees. They need to focus on the global market acquisition to expand their business in all those countries with higher disposable income. This will help them to attract new and potential customers. The organisation needs to increase the number of stores in different parts of the market. They need to work on their visibility through third party online marketing and online advertising. Strategy implementation The organisation needs to concentrate on the implementation of few major strategies for the development of the market condition. These major strategies include Introduction of new and innovation product line, Competitive pricing to attract more customers and driving their focus on the global market. Lush Cosmetics is selling a range of organic bath and cosmetics products for a long time. Availability of similar kinds of products is causing market saturation for the organisation. The organisation needs to widen their horizon by introducing new genre of products such as anti aging cream, sunscreen, scar removal cream and acne treatment materials. Due to the change in food habit and increased stress in daily life, the population is facing the problems of early aging and acne. These products will be in high demand and can assure increase in sales of the organisation with right amount of promotion. The organisation needs to thoroughly research on the market preference of these kinds of products. A separate team of research and development need to be created for these products. After the development of the product they need to create some prototypes to introduce in the market. The right amount of promotion of this prototype will help the organisation to capture a interest of the consumers. They also need to restructure the pricing strategy of their existing product line. Due to their premium pricing strategy they are losing their potential customers. They need to study the market to understand consumers’ pricing preferences. The organisation needs to lower down the price of their slow moving products to increase their sales. They can also provide some discount schemes to their highly accepted products to push the sales and increase the profit margin. The organisation needs to focus on their global presence. They need to explore new global markets where the demand of these products can be higher. Developing countries with rising disposable income such as China and India will be their primary target. They need to focus on the tie-ups with major cosmetics brand of those countries for the easy marketing of their products. Tie-ups with various e-commerce site and third party online sellers will give their products more visibility to the global customers. The proper execution and right implementation of these marketing strategies will help the organisation to attract new customers and retain their old customers. Therefore, these will be beneficial for the company to increase their market reputation and profit margin. Reference List Addicted to blush, 2010. Why are lush products so expensive? [online] Available at [Accessed 5 January 2015]. Baum, J. A. C. and McGahan, A. M., 2004. Business Strategy Over the Industry Life Cycle. New Delhi: Elsevier JAI. Bosteels, K., 2014. Lush Cosmetics’ ethical soaps are popular. [online] Available at [Accessed 5 January 2015]. Buchwalter, C., 2007. Living a lush Life with Lush fresh handmade cosmetics. [pdf] Lush. Available at [Accessed 5 January 2015]. Frankl, P., Rubik, F. and Bartolomeo, M., 2000. Life Cycle Assessment in industry and business: adoption patterns, applications and implications. Italy: Springer science & business media. Johnson, G., Whittington, R., Angwin, D., Regnr, P. and Scholes, K., 2014. Exploring Strategy Text Only 10e. New Delhi: Pearson Education, Limited. Ku, J., 2014. Lush: “Happy people making happy soap.” [pdf] Lush marketing plan. Available at [Accessed 5 January 2015]. Kumar, R., 2012. Creating a ‘Lush’ organic cosmetics market. [online] Available at [Accessed 5 January 2015]. Kumar, S., 2005. Exploratory analysis of global cosmetic industry: major players, technology and market trends. Technovation, 25(11), pp. 1263-1272. Lush fresh handmade cosmetics, 2014a. Fighting animal testing. [online] Available at [Accessed 5 January 2015]. Lush fresh handmade cosmetics, 2014b. Our green policy. [online] Available at [Accessed 5 January 2015]. Marketline, 2008. Lush another contender in Body Shop race. [pdf] Marketline. Available at [Accessed 5 January 2015]. McKenna, B., 2014. Lush cleans up on data with QlikView. [online] Available at [Accessed 5 January 2015]. Nguyen, V., 2014. How the making and marketing of sustainable brand affect consumer behaviour. [pdf] Lahti university of applied sciences. Available at [Accessed 5 January 2015]. Organic Monitor, 2014. Sustainable cosmetics summits highlight key challenges. [online] Available at [Accessed 5 January 2015]. Pahl, N. and Richter, A., 2009. Swot analysis - idea, methodology and a practical approach. Germany: BoD – Books on Demand. Parker, S., 2006. The Life Cycle of Entrepreneurial Ventures. New York: Springer Science & Business Media. Pearson, D. and Henryks, J., 2008. Marketing organic products: Exploring some of the pervasive issues. Journal of Food Products Marketing, 14(4), pp. 95-108. Schmitz, H., 2005. Value chain analysis for policy-makers and practitioners. Switzerland: International Labour Organization. SpecialChem, 2013. Lush recognizes technologies developed to assess toxicity of cosmetic ingredients. [online] Available at [Accessed 5 January 2015]. Wiklund, J. and Shepherd, D., 2003. Knowledge‐based resources, entrepreneurial orientation, and the performance of small and medium‐sized businesses. Strategic management journal, 24(13), pp.1307-1314. Read More