Executive Summary
Estee Lauder is one of the leading firms in the global beauty and skin care products industry. It was founded in 1946 as a private company in New York. However, it was later listed at the New York Stock Exchange. The company has achieved high growth in revenue and profits in the last ten years. Consequently, it intends to join the Nigerian market in order to achieve its expansion objectives.
The opportunity in Nigeria is that the existing beauty and skin care products do not meet the specific needs of the market. Concisely, the products are standardized: thus, they cannot help the consumers to protect their skin from harmful weather effects. Estee can solve this problem since it focuses on producing tailor-made products that satisfy the needs of each market.
Nigeria is also an important market due to its large size. The company intends to join Nigeria by acquiring shares in a local firm. Concisely, it will acquire at least 75% of the firm, while local investors will hold the remaining shares. The firm needs $80 million to finance its expansion plan. It intends to raise the capital by issuing a corporate bond and borrowing from local banks.
The risks that are likely to affect the company negatively include high cost of capital (interest) and lack of brand awareness. In the long-term, the firm intends to list some of its shares in Nigeria in order to obtain additional funds for expansion.
The Proposed Business
Estee Lauder is concerned with the production and distribution of cosmetics and skin care products. It intends to introduce its range of products in the Nigerian market in order to achieve its growth objectives. The products include perfumes, body lotions, and shower gels among others.
The Problem
Nigeria is characterized by extreme weather patterns that have negative effects on the skins of most of its citizens. There are seasonal temperature changes, which range from 12 degrees Celsius to 38 degrees Celsius. Thus, the citizens require special skin care products to help them to adjust to weather changes. However, most manufacturers are selling standardized products, which are not tailor-made for the Nigerian market.
Besides, most of the products do not meet customers’ needs because they were developed in western countries. Estee Lauder can solve this problem because its corporate strategy is creativity-driven and consumer-inspired. Concisely, it focuses on creativity and innovation in order to produce successful products that meet the specific needs of customers in each market (Estee Lauder).
The solution
The solution involves manufacturing products that will enable Nigerians to protect their skins from the harmful effects of weather. In this regard, research and development will be done in the country in order to develop the right product. Consumers’ tastes and preferences such as packaging, prices, and color will be taken into account. Thus, the citizens (market) will want to buy the products because they are tailor-made for their needs.
The brands that will be introduced in Nigeria include Lab Series, M-A-C, La Mer and Darphin. These brands protect the skin from the harmful effects of high temperatures (Estee Lauder). The perfumes also remove the bad body odor that results from sweating. The intellectual property associated with these products will be protected through patens, which will be registered in both Nigeria and the United States.
History and Background of the Market
The history of skin care dates back to ancient civilizations in Greece, Egypt, Rome, and other parts of the world. Women used facial decoration to enhance their beauty and attractiveness to members of the opposite sex. Advancements in technology, especially, in the 21st century have led to the production of a wide range of skin care products.
The increased use of these products across the world is mainly driven by globalization, westernization, and health consciousness. Estee Lauder has been successful in the industry by pursuing its philosophy, which states, “every woman can be beautiful” (Estee Lauder). In this regard, the company strives to make products that are relevant in every market.
This is because beauty and skin care are social phenomena that are interpreted differently in various cultures. Despite the convergence of consumer demands across the world, the fundamental consumer values remain divergent in the global skin care products industry. Consequently, standardized products can only penetrate the market with difficulty.
Description of the Potential Market
According to the 2011 estimates, Nigeria has a population of 162 million people (World Bank). The population growth rate is approximately 2.5 percent. People who are aged between 15 and 65 years constitute 53.8% of the population.
Women who are often the main consumers of skin care products account for 49% of the adult population. This means that most of the citizens belong to the working class who are likely to demand skin care products. Nonetheless, industry concentration is low due to the large number of firms in the market.
Market Description
In the last ten years, Nigeria’s skin care products market grew by 14.1% (Datamonitor). In 2011, the market grew by 11%. The factors underpinning this rapid growth include intense marketing activities such as discounts, advertising, and expansion of distribution networks (Datamonitor). The industry is expected to grow by 1% in the next five years.
Producers expect the country’s economic growth and consumer confidence to improve demand in future. The resulting improvement in disposable income will increase the demand for skin care products. The main players in the industry include Avon Products, Revlon, Johnson & Johnson among others.
Definition of the Market
The market for skin care products consists of people who are interested in cosmetics that help them to protect and to enhance the beauty of their skin. The product categories in the market include perfumes, facial care, hair care, shower gels, and body lotions.
In 2011, the facial care category accounted for 61.7% of the market share (Datamonitor). Customers in the age group of between 15 and 24 years account for 36% of sales, whereas consumers who are older than 24 years account for 64% of sales (Datamonitor). The urban population accounts for 53% of the total sales in the market.
Potential Purchasing Power
According to the 2011 estimates, Nigeria’s purchasing power parity is $418.7 (World Bank). Nigeria is considered a middle-income economy and an emerging market according to local standards. This means that majority of the citizens are able to afford various skin care products. Nonetheless, 45% of the population lives in poverty. Thus, the overall purchasing power is lower than that in most western economies.
Cooperation and Strategic Alliances
Estee Lauder will need to form alliances with distributors such as wholesalers and retailers. These firms will be responsible for selling Estee Lauder’s products in Nigeria. This will help it to reduce the cost of distribution and to increase the visibility of its products. Moreover, the firm will work with local agencies in order to produce adverts that are most appropriate for the Nigerian market.
Promotion
First, the products will be advertised in print and electronic media. Second, the company will use periodic press releases to promote its products. Third, free samples will be given to customers so that they can test the products. Finally, the company will use its website to promote the products by proving vital information such their qualities and prices.
Sales Plan
The target market will consist of customers who are between 15 and 60 years. This age group consists of the working class who are likely to afford skin care products. Women will be the main target since they are the main users of skin care products. The buy cycle will involve making an inquiry about the product, from a retail store or from the company and then making the purchase.
Distributors will purchase the products from the company, whereas the customers will buy them from retailers. Promotional activities such as advertising will be used to reach the customers. Additionally, the social media will be used to engage the customers in conversations concerning the products. These conversations will enable the company to overcome barriers such as high competition and negative attitudes towards the products.
The products will be positioned as superior or high quality cosmetics by highlighting the attributes that differentiate them. This will enable the company to achieve returns on investment through increased revenue. The sales territory will include major cities and urban areas.
The sales target will be to increase sales by at least 10% in the first two years; to increase the number of distributors by 5% every year; and to retain at least 85% of existing customers. The sales team will consist of a distribution manager, key accounts managers, sales executives, and merchandisers.
Members of the team will have at least college level education in marketing, excellent communication skills, customer care skills, and ability to meet sales targets. A performance-related pay system will be used to motivate the team. Additionally, they will be trained in order to improve their skills.
Customers, Orders, and Revenues
Advertising Plan
Advertising will help in promoting the products by creating awareness about them through print and electronic media. The adverts will be designed with the aid of a local agency in order to reflect the values of the market. The message in the adverts will be persuasive and informative in order to turn potential customers into actual customers. Additionally, local celebrities will endorse the products in order to increase brand awareness. The results will be measured by changes in sales volume.
Two Years Advertising Budget Plan
Management
The company will be managed through decentralization of decision-making processes and teamwork. Moreover, emphasis will be placed on innovation, managing diversity, as well as, staff training and development. The executive chair has worked for the company for the last 27 years in various management positions in different markets (Estee Lauder).
Some of his achievements include introducing the Origins brand and store-in-store concept in the USA. The chair is a graduate of Macy’s Executive Training Program in New York. The Chief Executive Officer has worked for the company since 2008. He has helped the company to develop a long-term strategic plan, which focuses on profitability and growth of market share.
Prior to joining the company, the CEO worked at Procter & Gamble for 20 years where he was in charge of operations and marketing activities (Estee Lauder). He holds a degree in Economics and Business Administration from the University of Naples Federico II.
The executive vice president for human resources is an expert in developing talent at the global level. She joined the company in 2005. She has helped it to hire and manage more than 31,000 employees across the world (Estee Lauder). Prior to joining Estee, she worked as a human resource consultant at Human Capital. She attended Pennsylvania State University.
The Chief Finance Officer has been with the company since 2012. She is responsible for treasury, taxation, internal control, and risk management. She has worked for 20 years as a finance manager in various fortune 500 companies including Pepsi (Estee Lauder). She holds a Bachelors of Science in Industrial Engineering from the University of Pittsburgh and a Masters of Business Administration in Finance from Columbia University.
Operations
Current Situation
The company has been able to maintain its profitability in the last four years. Its revenue grew by 32.7% in the last four years. In 2012, its revenue was $9.71 billion (Estee Lauder). The firm’s profits increased from $418.4 million in 2009 to $1,311.7 million in 2012. The company has two management levels namely, the non-executive board and the executive officers. Estee Lauder was founded in 1946 in New York by the Lauder family. It is listed at the New York Stock Exchange.
The Proposed form of the Company
The company will operate in Nigeria as a private limited company. It will join the market by acquiring shares in a local firm. Estee Lauder will own 75% of the new entity, while local investors will own the remaining 25%.
Technology
The company relies on advanced technology to facilitate its operations. Concisely, it uses advanced information and communication technology (IT) to coordinate its sales and marketing activities in various parts of the world (Estee Lauder). The technology also facilitates centralized management of the company’s operations by linking its subsidiaries to the headquarters.
Financial Information and Revenue Projections (Presented in the Excel File)
The projected revenue is $3,000,000 in the first year. The projected cost of producing the products is $1,200,000. The distribution costs (selling costs) and other expenses will be $900,000. Thus, the projected profit before tax is $900,000. The income tax will be $270,000 since corporate tax in Nigeria is charged at 30%. Hence, the expected net profit is $630,000.
The Amount Currently Invested in the Company
The amount of money invested in the company is $4.03 billion. The owners of the company (the Lauder Family and minority shareholders) have invested $2.74 billion in the firm (Estee Lauder). The remaining $1.29 billion is attributed to creditors. It represents the amount of money that the firm has obtained from financial institutions such as banks.
The Amount of Funding Sought
The amount of funding that is required by the company is $80,000,000. The company intends to obtain the funding through issuing a corporate bond worth $60,000,000 at the New York Stock Exchange. The remaining twenty million will be obtained from lending institutions such as banks.
Expected use of the Funding
The company needs the funding to finance its expansion activities such as obtaining licenses and to establish its distribution network in Nigeria. The effect of spending the loan is twofold. First, it will increase the company’s expenses due to the interest that it will accumulate. Second, it will increase the company’s revenue by enabling it to join a new market and to sell more products.
Competition
The competition in Nigeria’s beauty and skin care products industry is very high. The factors that underpin this competition include the large number of firms in the industry, slow market growth rate and the threat of substitutes. The leading firms in the industry include Avon Products, Revlon, and Beiersdorf.
In 2011, Beiersdorf was the market leader. It accounted for 13% of the total sales of skin care products in 2011 (Datamonitor). The strategic competitive map shows that most of the main players have a high global reach. Additionally, they are focusing on skin care products, thereby increasing competition.
Estee Lauder can overcome the competition by focusing on product differentiation. Promotional activities such as advertising and celebrity endorsements will enable the company to create awareness about its products. The resulting increase in brand awareness will facilitate high sales.
Strategic Competitive Map
Risk Analysis
The company is facing the following risks. First, it has a huge debt that is likely to increase in future. The interest paid on the debt will reduce the company’s profits and its ability to access credit in future. Besides, the lenders might lose their money if the company fails to repay its debt. Second, the company faces foreign exchange risks.
Nigeria’s currency is often volatile due to the poor economic performance of the country and high demand for the US dollar. Third, Estee Lauder’s products lack brand awareness in Nigeria. In this regard, the products will penetrate the market with difficulty because they are not popular in the market. Fourth, poor economic performance is likely to reduce sales and returns on investment.
This is because poor economic growth leads to low purchasing power among consumers, thereby reducing demand for skin care products. Finally, the company’s sales will reduce if it is not able to adapt its products to changing tests and preferences.
Exit Strategy
The company’s ownership structure is likely to change in future. In particular, it is likely to raise an IPO in order to access more capital for expansion. The importance of an IPO is that it is a non-interest source of capital. Moreover, listing a company promotes transparency through the use of acceptable corporate governance principles. This will improve the company’s credibility in the market.
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