The Estee Lauder Companies Competitive Market - Case Study Example

• Abstract

The Estee Lauder Companies has created several portfolios of brands. It is an American marketer and manufacturers of hair care, fragrance, makeup and skin care products. Fifteen years ago, the Estee Lauder Companies was considered as the market leader in the cosmetic business. Furthermore, the company was believed to be account for 38 percentage of the total market in the cosmetic sector. Nevertheless, The Estee Lauder Companies can no longer enjoy the crowing position in the high-priced and excusive segment of skin-care products. In spite of having diversified portfolio, the company has to face several problems and issues. The first part of the report is based on precise background information and summary on the history of the company. In the competitive market, the company is believed to assess and estimate the amount of investments that are held in unrealized lost positions. But this has become the problematic situation for the Estee Lauder Companies. The next part of the report tries to create foundational issues and problems that become challenging for the organization. It is crucial for the company to find effective solution to capture the opportunity of increasing the growth of the company. The report also tries to classify and recognize specific questions to reach ultimate solutions for the betterment of the organization. The possibilities of encouraging and supporting their future products through health professions, physicians and dermatologists can prove to be successful solution for the organization. The final segment tries to offer solutions, proposals and recommendations to address the relevant problems and issues.

• Company History and Background

The Estee Lauder Companies is one of the most important groups of organization widely recognized for the marketing and manufacturing of quality skin care, hair care products, fragrance and makeup. The products of the Estee Lauder Companies are sold in more than 120 territories and nations. Some of the most recognized brands of the Estee Lauder Companies are Aramids, Tommy Hilfiger, Clinique, Bobbi Brown, La Mar, Prescriptive etc. The Estee Lauder Company was founded in the year 1946 by Joseph Lauder and Estee Lauder. Initially the Company carried out only four products such as skin oil, cleansing oil, crème pack and super rich all-purpose crème. Later in the year 1948, a department store was established. The first department store was situated in New York. The Company initiated its first international account in 1960 at the Harrods. Initially the Company emphasized in the production of beauty products for males as well as females. In the year 1967, Estee Lauder was recognized among the top ten business organization in the United States. Estee Lauder Companies marketed its products and the various brands by using iconic spokes-models such as Hilary Rhoda and Liu Wen. This strategy was incorporated by the organization since 2003. Several actors and models were used to enhance the brands of the organization. As of 2010, Estee Lauder Company supplied its products in almost every country and it helped the organization to continue its business successfully and maintain sustainability.

The Estee Lauder Companies accomplished diversity in the marketplace by using the dynamic strategy. According to the calculations available from Morgan Stanley, it has been recorded that the organization had posted 23 percentage of annual growth after 1997. At present, there are almost 25 major brands that are being operated under the umbrella of Estee Lauder (Elcompanies, 2016). Majority of the products of Estee Lauder are critically acclaimed and they are being randomly loved and used by the people belonging from different nations. The Companies of Estee Lauder is not only situated in the United States of America but also in some of the Eastern-side nations such as Australia and China. In the year 1964, the Aramids brand was launched, which was one of the most prestigious fragrance products for men. Initially, the Company invested its business towards the development of cosmetics and other beauty products for males. Later the Company also started producing beauty products for females. Estee Lauder Company’s success is defined on its innovation and excellence. The deviant business strategy of Estee Lauder provided it an opportunity to become successful and gain fame quickly after it was founded. Estee Lauder has not only restricted its business in the production of cosmetics and beauty products but also in the innovation of hair salon, fragrances, departmental stores, leather items etc.

This organization has currently invested in the production and selling of products worth more than $10.9 billion. Estee Lauder Company’s 87 percentage of stock is owned by the members of the Lauder family according to survey reports of 2014. This shows that Estee Lauder Companies is one of the most profitable business organizations of the worlds based in US.

• Analysis of Issues

This part of the report tries to present relevant threats, issues and problems faced by the organization.

Competitive market

The present skincare industry is turning in to a fragmented dynamism and highly competitive. The rise of competitiveness in the skincare market segment has created the market more difficult for The Estee Lauder Companies. For years, it was believed that the high-end skincare products can only be created and manufactured by the big companies. The competition has made more trouble to strive in the market. The market demand required the implementation of effective strategic approach to relish substantial profit margin. In the era of globalization, the threats for new international brands have raised concern for traditional prestigious brands like The Estee Lauder Companies. Any organization with effective distribution methods and use of modern technology can become a big name in the skincare market. Such type of assessment and evaluation involves the uncertainties and assessment of risks that are associated with conditions that are affecting particular issues. These issues include the future market forecasts, the ability and intent of the company to retain its investment, the future economic conditions and creditworthiness of the issuer (The Estee lauder Companies Inc., 2015).

More Segmented market

There was a time when every people use to use all-purpose cream. But the time of this all-purpose product is gone. Nowadays, the sophisticated customers are demanding different beauty products that are not stagnant on a single product. The products in the skincare market segment are becoming more split and fragmented. Customers that are product lover would not go for a brand that primarily focuses on the technology. Whereas, the opposition believes that customers feel they are more secure and safe to use products from traditional based companies like The Estee Lauder Companies.

Economic downturn

The beauty industry has been affected by the recent economic downturn. The level of activity in the cosmetic, skincare and hair care beauty products has been uneven and irregular. Therefore, it becomes difficult for companies to deflect the decline of unit by taking actions in the pricing. Some of the organization has to shift towards the value brands and certain companies try to remain loyal to their customers. The Estee Lauder Companies has already been lagging behind from main competitors such as L’Oreal, Avon products and Revlon. Thus, it increases the rate of difficulty for the Estee Lauder Companies to find best possible or distinct ways to nullify the issues.

Aging brand

Women in their late 30s and 20s are believed to be more health conscious. These women try to focus on proactive approach for long-term benefit of the skin. Therefore, they are increasingly focusing on using skincare products that have advanced anti-aging elements. For this type of women, the Estee Lauder brand is out-of-date. The company has achieved the status of classic. The Estee Lauder Companies has not been successful to attract new 30 to 40 years old customers. Clinique is the first prestige and dermatologist created skin care brand from the Estee Lauder Companies (Carraher, 2014). The innovative products and customized approach has made Clinique one of the leading skincare experts in the world. On the other hand, Estee Lauder lacks what makes the former brand more attractive to the younger customers. Furthermore, it can also be stated that Estee Lauder does not have any benchmark product that the brand can be distinguished from the other brands. This lack of readily association from certain benchmark product makes the company down from other successful brands. Clinique brand is being benefited from having a widened customer group. When these loyal customers get older, then there is a huge possibility that this customers would stick with the brand. This is for the reason that the company has been successful to create confidence in the quality of the brand.

The deteriorating demand of the flagship brands

In its fiscal 2014, the management of the Estee Lauder Companies has admitted the growth of skincare products was slow in the important regions. One of the most important regions for the company is the United States. Towards the end of 2014, the growth of the products in the United States has been slow. United States contributes 50% of the net sales of the company. The expectancy level of the U.S. customer has been high. The customers expected to have innovative products such as oils and masks. The recent acquisition of the RODIN olio lusso has provided solution to the supply gap and skincare demand. The opposition observed that the company is lagging behind to focus on aggressive marketing strategy and social media. Some of the flagship brands of the Estee Lauder Companies such as Clinique and Estee Lauder Brand has been lagging behind in the market. On the other hand, smaller and mid-size brands of Estee Lauder have been experiencing double growth. The smaller and mid-level brands have been targeted to the specific set of consumers. This makes growth of these products much easier than that of flagship brands with a broader distribution channel.

• Arrived Questions Regarding Solution

This part of the report tries to identify specific questions to reach at creative and practical thoughts.

Revival actions

The use of social media and aggressive marketing strategy can help to accelerate the implementation of revival approaches. The revival of the flagship brands like Clinique and Lauder brands is more pivotal for the company. Furthermore, it would help to determine the sustainable growth of the overall skincare segment. But it is quiet important to notify that these revival measures might take some time to influence the sales of the company (Smith, 2007). It has been reported that the significant portion of the sales is conducted in the Asian markets and through the travel retail networks. Most of the beauty skincare products take place in the Asian Place. The slowdown of the Asian markets can impact flagship brands to take more time to improve. This raises a question whether it is important for the company to implement revival actions to reach practical solutions.

Too big problems to emphasize

Estee Lauder companies have too many product lines that create difficulty for new entrants in the market. But most of the primary lines of the company are considered as the traditional and old-style skincare products. Although Clarins do not several products line that of Estee Lauder Companies, but it dominates in the high-end skincare product line. This domination in the high-end sector decreases the inventory cost for disliked product lines. Furthermore, it helps to have expertise and authority in a particular market segment. Therefore, it is critical for Estee Lauder Companies to must stock certain items that are likeable to the customer. Moreover, the company can create a broad portfolio of skincare products. In United States, the rise of ethnic diversity led to increased focus on the requirements and needs of minority skins. This gaining popularity of the minority skins can prove to be successful option for the company. The growth of some Asian brands such as SK-II, Kose, Shiseido, etc. has created more challenges for Estee lauder Companies (Caraland, 2003). The brand loyalty and brand name can provide opportunity for the company. But, it is important to focus on creating whitening and brightening products.

Brand positioning

Lancôme has advantage over the Estee Lauder. It is a French brand that is widely associated with romance. The brand positioning of Estee Lauder has created problematic situation for the company. The company does not have particular theme and excitement that can appeal and attract new customers. The customer is relied upon their old customer. But the time has changed; people are more focused on selecting products based on how it is presented to them. Therefore, Estee Lauder can change their positioning strategy. The brand positioning would be to place the product in such a way that is tempting and attractive for women (Roberts, 2002). The appeal of the brand would to focus on women who desire the romance. This would place Estee Lauder in a situation to compete with Lancôme. The natural advantage of the competitors can be reduced by effective brand positioning and providing new quality products. Estee Lauder has to work hard to overcome the advantage of the competitors.

Technology

The Estee lauder does not put huge stress and emphasize towards the use of technology. The magazine advertisement of the Estee Lauder Companies tries to focus on beautiful models with small section on technology. The promotions of any new technology must be higher preference. Furthermore, it is quiet difficult to interpret what are products that are promoted by the company. On the other hand, the advertisement strategy used by Clinique is very simple and clear. The company should focus on developing advertisement that emphasize on its technology. The formula promoted by Estee Lauder and Clinique are different. The Estee Lauder promotes complicated formula whereas the Clinique brand endorses simple formulas. The company should highlight this and advertisement in such a way that state that Estee Lauder products use advanced formula like advanced morning and night repair system for the benefits of the customers.

• Proposals, Recommendations and Solutions

Reposition

The Estee Lauder Companies must reposition themselves to recover their market position as a premium product. The success of repositioning is determined by the development of a clear brand image (Barney, 2001). Furthermore, the customers are required to be provided with unique products. There are certain opportunities that the company must focus such as increasing emphasize on natural ingredient products and creation of new brand image through the introduction of new sub brand.

Digital shopping

In the era of digitalization, it is important for the Estee Lauder Companies to win the digital market. The company should focus on increasing their lead in the beauty industry. Over the period of time, people are starting to live online. Moreover, this process of living online will alter how consumers try, select, distinguish and purchase the products. In future, the company should make online services as their one of the main priorities for a competitive advantage. Additionally, the company should continue their investment on the High-Touch system (Butler, 2001). The Estee Lauder Companies should use the social media video and sites to communicate and educate customers.

Local relevance

In future, the Estee Lauder Companies will seek to become a global successful brand. This goal should be achieved by adapting their products to fit the requirements and needs for each of the regional market sector. The main focus of concern must be increasing their ability to recognize the favorites and concerns of the local consumers. The company should try to put more focus on developing locally relevant products. Furthermore, the company should have an attuned and adjusted approach towards the cultural differences. This will lead to inspire communication and innovation with different cultures. Therefore, it is important to star understanding the needs and wants of a culture.

New acquisition

The Estee Lauder Companies should try to focus acquisition of new business units. The acquisition can be done in holistic beauty like wellness and yoga products. People have become more health conscious than before. Therefore, the company must support products that are based on lifestyle. Furthermore, there are other possible business acquisitions such as jewelry, Wine, Spirits, boutique fashion, luxury furniture and apparel.

Gross margin performance

The gross margin performance can have a direct impact towards the operating profit of the company. Therefore, it is critical for the organization to create more precise gross margin that will help to increase the rate of profitability. Hence, the cost of goods sold must comprise of license agreements, packaging risks, merchandise, infrastructure costs, instrument manufacturing and payment portion to customers (Gephart, 2004). The structural gaps of the organization can be rectified by auditing the cost of goods sold.

Strategic development

The strategic outlook of the company must be evaluated and changed. The Estee Lauder Companies can gain competitive advantage by having further use of the scenario analysis, BCG growth model and the value. The recommended strategies for the company include the implementation of diversification, market penetration, market development and horizontal integration. The emerging markets like China and India can provide competitive advantage for the organization (Pandian, 2002). The revenue can be boosted by having grate and strong presence in the emerging markets. Therefore, it is vital to have relevant strategic analysis to have planned organization direction and vision.