History and Business Growth of Natura - Case Study Example

The Natura case study

Definition of the context

• Industry: Cosmetics
• Category: Perfumes, skin care, hair care, color cosmetics, sunscreen, and deodorant among other children products.
• Founded: 1969
• Currently active in: Brazil, Argentina
• Main competitors:
  • Local Brand: O’Boticario
  • Foreign Brands: L’Oreal, Gessy Lever, P&G, J&J, Avon, Shiseido, Colgate-Palmolive, Revlon, AMWAY, Estee Lauder and Mary Kay (Ghoshal et al. 651).
• Current diversifications: it may seem like Natura is not a high tech company in terms of product innovation. However, they are very innovative in terms of purchasing existing products and coming up with innovative concepts and marketing schemes.
• Revenue generation: proceeds from the sale of Perfumes, skin care, hair care, color cosmetics, sunscreen, and deodorant among other children products.

History and growth

Natura was founded in 1969 by Luiz Seabra with an initial capital of only $9,000. Since its inception,Natura experienced has experienced many ups and downs both internally and externally. The partnership created by three main people namely: Luiz Seabra (founder/president), Guilherme Leal (CEO/president) and Pedro Passos (COO/president) ensured that the company grew exponentially to where it is today. After their introduction of direct sales approach in 1974, they had took over nearly all the market of door to door sales benefiting from rapidly growing middle / upper middle class segments. Combining their “Truthful” approach of their good quality products to the consumers and direct sales method, they occupied both high market share and loyalty from the consumers.

Issues and problems

• Increased competition

When Natura came into the market, it took advantage of incorporating ethics and honesty in its marketing approaches and through this, it was able to gain a competitive advantage in the market. Natura gained their reputation of being faithful to consumers, a good position with large market share and most importantly loyalty from its customers like no other competitor could match (Ghoshal et al. 650).

However, after Brazil removed its barriers of foreign entry, high import tariffs, and recession on the way, many large firms were merging or acquiring in order to reach consumers of all income brackets, for example, Avon, the largest direct sales player, starting to sell through stories in malls and capture wealthier customers. This all meant that market share of Natura was being gained by much bigger firms entering with massive R&D and marketing budgets that Natura could not compete with.

• The fact that the three presidents want to step down from day to day company operations indicates that the company has to do something to ensure effective transition. However, this is difficult in an organization when many managers continued to rely on Seabrea’s inspiration and Leal’s leadership. The leadership structure was done in such a way that the company was dependent on their founders and there were no true successors.

Concepts applied

• PESTEL

PESTEL analysis displays how Natura had many external influences affecting it both positively and negatively. Nevertheless, Natura managed to stay successful and retain consistent customer loyalty under difficult circumstances.

P-political factors

E-economic factors

S-social factors

T-technological factors

E-environmental factors

L-legal factors

Political factors

During the 1970’s after the inception of Natura, the Brazilian government blocked entry of international firms by charging high import taxes and this meant that Natura could dominate the market. However, this lasted only until the 1990’s when the Brazilian government opened its market to foreign competition.

Economic factors

Brazil was affected by recession which led to a poor economic growth. This could meant that Natura was to lose their market share for cosmetic products, however, by that time, Natura had already created reputation and brand loyalty to be able to compete with bigger foreign firms.

Social factors

In the 1990’s, Brazil was the fifth best market in the world in terms of hygiene and the consumption of beauty products. At the same time, inflation was reduced and this led to the emergence of new middle class people who spend more on cosmetics hence increasing Natura’s productivity. Natura’s products were also perceived to be safe and of high quality and came with the truth during advertisements. This increased the company’s trust to consumers and hence increased brand royalty.

Technological factors

Natura concentrated on offering a truthful approach to consumers and this differentiated itself from the competitors. The direct sales approach also assisted the company to grow since it was a cheap method and also allowed them to pass their well-being messages to consumers to continue increasing their brand royalty. The emergence of new foreign forms was a blow for Natura as they had much bigger budgets for R&D and marketing departments, which Natura could not compete with. Since Natura wouldn’t be able to compete with its own R&D, they focused on coming up with innovative concepts and marketing schemes and then tracking patents and buying the technology from universities and research centers around the world.

Environmental factors

Natura was the first cosmetic firm to go against the industry norms and reveal the truth behind its clean ingredients and this contributed to the “well-being” of its consumers. The company could state anything that could be harmful and this approach brought brand royalty and trust from its consumers.

Legal factors

Over the years, some ingredients in cosmetic products have been banned. It’s costly for firms to research and develop new ingredients that is less harmful. Natura keeps it perfectly healthy and safe in every of its product ingredients.

• Training and development of its employees

Natura has been providing continued training programs to its workforce especially for the sales team on areas such as product portfolio, ethics, citizenship etc. The management could chose courses for a certain and ensure that every employee registers for these course. For instance, in 1998, the courses were corporate management, computer programs, production security, operations and quality. These were voluntary programs but each employee was encouraged to do them. In addition, each employee was also well trained on the mission and values of the company as well as its products and the structures of the company. This ensured that at the end, Natura could obtain the best talent for specific technical posts such as engineering and this has immensely assisted the company to achieve what it has today.

• Technological/business model innovation

Natura was very much innovative in terms of its direct selling approach of marketing its products. Its sales agents were paid more than any other firm could offer them. In addition to this, no other company understood the benefits of direct selling, thus Natura could enjoy the monopoly of this approach. The sales agents were important to the firm since they would be the ones encountering with the end consumers, therefore, they had to be highly educated on the products they sell and also have very truthfully informative to be able to pass the “well-being” message to the consumers which store keepers nor internet could do. This has greatly impacted on the profitability of Natura and is one of the major factors that form the magic behind its success.

• Natura’s nature of recruitment

Hiring from within the company has been Natura’s policy of recruiting new people to join the workforce. This means that a direct sales representative could work for a certain period of time and then be promoted based on factors like performance and availability of business (Ghoshal et al. 658). This has continuously acted as a motivator to the junior staff who rise through the ranks to become managers within the company. In addition, such an approach helps in retaining the best talent for a company. Natura’s managers and the directors were recruitment a word of mouth or personal recommendations and this has ensured that Natura finds the best fit for its work. (Ghoshal et al. 658).

• Direct sales approach: Win through relationships

After its entrance into the market, Natura mainly used the approach of direct selling where they employed various competent direct sales representatives hose work was to market the company, represent it and create long term relationships with potential customers. This approach was an integral part of Natura’s business identity since its inception up to today. A group of 220,000 consultants were employed to represent the company and were offered very high commission rates so as to motivate them to work harder. This has created a significant competitive edge for the company in the cosmetics industry and has made it difficult for competitors to succeed especially for the new comers (Ghoshal et al. 655).

• Product development/innovation

The process of innovation started when the company was still young and it came as a result of a meeting convened by the three presidents together with managing director and the R&D director. New ideas and technological advancements were discussed in this meeting and were ready to be tasted in the market. After the sale of brand new product, sales agents were expected to give reports about the customers’ experiences and reactions and the truth is that large numbers of customers would be happy and ready to make referrals for Natura. A good example of a daring idea launched by Natura was the Mother/baby product line launched in 1993. The reputation for high quality and truthful nature of the company has continuously ensured that almost all its new ideas and products emerge successful in the market.

• R&D: Buy instead of producing in-house

In the cosmetics industry, innovation forms the key barrier to new entry of firms. Natura knew that it was not possible to compete with global competition on creating technology from the scratch, thus the company’s model has been innovative concepts and marketing strategies and then track patents as well as buying technology form universities and research centers (Ghoshal et al. 655). This has ensured success in the R&D department of the company.

• Mintzberg’s management roles

The top management at Natura has created a culture that follows the management culture as proposed by Professor Henry Mintzberg who argued that a manager’s work boils down into 3 main categories which are informational, interpersonal and decisional. Luiz Seabra (founder/president), Guilherme Leal (CEO/president) and Pedro Passos (COO/president) believed from the company’s inception that a manager should always work hard to seek and obtain work-related information at all times, try and apply the best communication methods when disseminating such information to the rest of the team, direct and motivate the rest of the team and also to ensure that all decisions made are in line with the interests of the business. Once they created this culture, Natural has been able to achieve a lot, courtesy of Mitzberg’s roles of management.

Alternative courses of action

For Natura to remain profitable and continue its growth trends, some actions have to be taken and may include:

• Venture into new products
• Joint venture with an experienced firm-this will help in expanding production and distribution channels and hence beat competition from multi-national corporations.
• Acquire smaller brands- Natura could purchase smaller brands to broaden its segments and even create sub brands.
• Venture alone- this would mean they would have to invest into R&D and marketing department themselves.
• Go IPO- These would allow financing their future projects
• Change the channel of sales- Natura can introduce product sales through stores and the Internet and help broaden its audiences.

Alternatives

Advantages

Disadvantages

Weight

Venture into new products

• Expansion of distribution channels
• Improve innovation
• Increased coverage and profitability

• May be costly
• May risk failure
• Risky

3.5/5

Changes sales channel

• Expansion of distribution channels
• Audiences will be broadened

• Risky since people are used to direct selling
• May take time to pick

3/5

Go IPO

• Possibility of success is huge
• Its best for profitability in the long term

• May be costly
• Risky
• May restrict power of action enjoyed before.

4.5/5

Course of action

From the table above, going IPO has been the most highly rated and this means that Natura can use it as the beat alternative. After the presidents retire, Natura may be left with no true successors. By going IPO, it would mean less concentration in trying to create such replacement leaders and instead allow the investors and shareholders to create board of directors from ground up that would drive the firm. They would also get finance for their future projects and be able to implement new ideas.

Action plan

In the short term, Natura is recommended to rush and go IPO since its presidents will retire soon and the company requires a good transition so as to ensure that its culture is maintained. The outgoing presidents ought to prepare a couple of managers as their successors that have a similar vision and passion for the firm before the IPO. Identify the key shareholders. The three presidents will retain some of Natura’s shares and will have access to the board. They should also see the general attitude of employees about the decision of going IPO and try to convince them of the new change.