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The Estée Lauder Companies Inc. Strategic Analysis Report

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Updated: Jun 28th, 2022

Introduction

The report provides a strategic analysis of Estee Lauder, a giant in the cosmetics and skin care company which extensively manufactures and distributes its products in multiple markets globally. The following sections present the background and the history of the company, proving insight into the working of the organization, its existing vision, mission, and strategic objectives. The strengths and the weaknesses of the company have been highlighted along with the identification of the threats and the opportunities that are apparent for the company. The case analysis of the Estee Lauder Company also provides the internal and external evaluation of the company along with the position of the company and the level of competitiveness that it has. Aside from this the following sections also provides an alternate developed vision and mission statements for the company. Recommendations are also provided on how Estee Lauder can improve its strategic position in order to be more effective and efficient in the market while striving to achieve the developed goals vision and mission of the company.

Organizational Background

The Estee Lauder Companies are based in the United States and are considered as one of the largest conglomerates in the field of beauty and personal care around the world. The Estee Lauder Company was founded by a woman named Estee Lauder in 1946 with “four products and an unshakeable belief: that every woman can be beautiful. Today, more than 60 years later, that simple notion has literally changed the face of the beauty business” (‘About Estee Lauder: Estee Lauder, the woman a life of beauty’, 2009).

The Estee Lauder manufactures and sells multiple personal care products that include shampoos, perfumes cosmetics, skin care and hair care products as well as beauty treatment products. The brand names that fall under the Estee Lauder Companies include the bid brand names like Clinique, Aveda, Aramis, M.A.C, American Beauty and Flirt. The company sells it products to the customers through multiple channels of distribution that include the specialty stores, departmental stores, retail outlets, as well as pharmacies and more recently the innovative and technology based world wide web. The company was a privately owned company until 1995 when it became a publicly held group of companies.

The Estee Lauder Companies have operations spread out around the world with regional operations in North America, Europe, Latin America, Middle East, Asia as well as Africa. As of 2007, the number of employees that were employed by the company totaled approximately 28,000. As of 2008, the sales of the company topped at a figure of eight billion dollars.

Being a successful giant in the personal care and cosmetics industry, the Estee Lauder companies face stiff competition in the market from other companies that are equally powerful as well. These power houses are Proctor and Gamble a multinational consumer product provider and L’Oreal a French cosmetics and personal care group of companies.

Some of the world renown names that are associated with the Estee Lauder companies include those the likes of Karen Graham, Shaun Casey, Carolyn Murphy, Elizabeth Hurly as well as Paulina Porizkova and Gwyneth Paltrow. These icons have served as the face of Estee Lauder adding to the brand and value of the companies.

Strategic Analysis

Existing Vision, Mission, Objectives and Strategies

The investor profile at the corporate website of the Estee Lauder Companies provided detailed information pertaining to the vision, the mission, objectives and the strategies of the company.

The mission of the company as provided by Estee Lauder Companies is as follows: “Our mission is to keep expanding by moving our brands into new geographies and the best retail opportunities and developing must-have products. Wherever the future takes us, the consumer will be at the center of our thinking. We plan to invest greater resources in consumer insights, so we can continue creating products and services that will surprise and thrill consumers across the globe.” (‘From the Executive Office of The Estée Lauder Companies’, 2009) The vision of the company is to “reinforce our position as the worldwide leader in prestige beauty” (‘From the Executive Office of The Estée Lauder Companies’, 2009)

The current strategic objective of the Estee lauder Companies is to be cost effective and fuel high sales for the organization. As a result the company strives for initiatives which leverage the strength of the company and its brands in order to make it more effective, efficient as well as increase the sales for the company. Aside from this the company also sees itself as an active socially responsible corporate citizen.

The slogan employed by the company is to ‘imagine, integrate and innovate’ which used by the company to achieve its vision, mission and set strategic objectives. The Estee Lauder Companies use technology and innovation as part of the operations of the company to development superior reputation for themselves that pertains to elegance, luxury and extremely good quality. The company and seek to uphold the finest possible standards of excellence when it comes to providing the customers with its good s and services. The company seeks to understand its customers and the target market to comprehend their diverse needs.

The company is extensively involved in the research and development of products which fulfill the skin care, hair care, perfume and make up needs of its target markets.

Developed Vision and Mission Statements for Estee Lauder

The developed vision for the company is to favorably position the company as the best in the field of personal care providing high quality products and services to the customers, based on their personal care needs.

The developed mission of the company is to use innovation in operations and research and developments in order to provide relevant products and services to the customers while operating in a socially responsible manner.

External Opportunities and Threats for Estee Lauder

The opportunities that face the Estee Lauder Companies are depicted include the following:

  • The company has extensive room for expansion. Even through the Estee Lauder is a world renown brad, there are markets like Central Asia and Parts of Europe and Southern America where the company has not yet ventured. As a result the company can easily establish itself in these markets easily based on its current market position and brand name.
  • There are multiple well known brands that fall under the canopy of the Estee Lauder companies. These brand names target different types of customers enabling the company to comprehensively cater to a diverse range of customers for their personal care requirements in makeup, perfume, hair care and skin care.
  • As a company Estee Lauder is a giant with extensive resources, this enables the company to take on and launch more brand names while buying out brands in the foreign markets
  • The Estee Lauder Companies have prestige associated with them along with high level of brand loyalty. This can enable them to expand further into the personal care fashion industry and provide additional products and services to the customers in the field.
  • The brand name, reputation and the brand value of the company enables it to charge premium for its products through premium pricing.

The threats that face the Estee Lauder Companies are depicted include the following:

  • The company faces extensive and intense competition from other giant conglomerates like Proctor and Gamble and L’Oreal
  • Increased competition means faster research and development processes which can compromise the results of the research and tests resulting in negative lawsuits against the company.
  • As mentioned above the Estee Lauder Companies provide their products and services in multiple markets throughout the world which makes them vulnerable to exchange rate fluctuations as well as the trade restrictive policies of different regions. These factors can impact the profitability of the business.

The Key External Forces (PESTL Analysis)

Economic Forces

The main economic factors which effect the business for Estee Lauder pertain to the disposable income of the customers, their tendency to spend and save as well as the macroeconomic and microeconomic conditions which effect the regional markets. The employment rate of the women in the markets is also of importance as the main clients of the company are women.

Social and Cultural Forces

The demographic aspects of the social and the cultural environment are of importance as the products that are manufactures and sold by the company are consumer by the consumers over the span of their life as per their ;life cycle stage. However as the population is aging and the demand for younger looking skin increases, Estee Lauder needs to expand its product line for catering to the requirements of the older customers. Moreover as the company caters to diverse markets around the world, the company needs to adhere to their different social and cultural norms regarding personal care. The level of income and the demographics of the customers in these markets need to be accounted for as well.

Political and Legal Forces

As Estee Lauder operates in multiple markets around the world and as a result is effected by the political conditions and the legal environments in their regions of operations. The company has to adhere to the tax laws, trade tariffs as well as regulations regarding trade. The growth of the region of operation and its political/ legal situation has to be accounted for by the company,

Technological Forces

The technical developments in the filed of communication like the internet as well as the technology used for Research and Development both influence the operations of the company. The technological changes can effect the way research and developments is conducted by the company while the advancing internet technology and the growing online market enables the company to provide its products and services to its customers trough the internet channel.

Competitive Forces – Porters Five Forces Model

Barriers to Entry

There are low barriers to entry in the industry of personal care and cosmetics. The factors that influence the barriers potential include the brand loyalty, the credibility of the company. The history and time since establishment as well as the nature of research and development department the company has.

Rivalry

The level of rivalry in the industry is very intensive and strongly competitive as numerous brands offered by other personal care giants as well as smaller retailers and departmental stores operate in the market catering to similar target markets. The switching costs in the industry are low, therefore the companies aim for customer loyalty.

Threats of New Entrants and Substitute Products

The threat of new entrants in the industry is relatively low, while the threat of substitute or alternative personal care products is high in diverse markets like Africa, China and India where local products are much preferred by the customers.

Competitive Profile Matrix (CPM)

The following table presents the Competitive Profile Matrix for Estee Lauder Companies, and two of its main competitor Procter and Gamble and L’Oreal.

CPM Matrix
Estee Lauder Proctor & Gamble L’Oreal Group
Critical Success Factors W R W.Sc R W.Sc R W.Sc
Brand loyalty 10% 4 0.4 3 0.3 4 0.4
Brand value 10% 4 0.4 3 0.3 4 0.4
Advertising 10% 4 0.4 4 0.4 4 0.4
Product quality 10% 3 0.3 3 0.3 4 0.4
Price 10% 3 0.3 4 0.4 4 0.4
Management 5% 3 0.15 4 0.2 3 0.15
Financial position 5% 2 0.1 3 0.15 4 0.2
Market share 10% 2 0.2 3 0.3 3 0.3
R&D 10% 3 0.3 4 0.4 4 0.4
CSR 10% 3 0.3 2 0.2 4 0.4
Global markets 10% 3 0.3 4 0.4 3 0.3
100% 3.15 3.35 3.75

The CPM analysis and the above depicted Matrix provides that the L’Oreal Group is dominating on the critical success factors with a total weighted score of 3,75 which is very good.

Internal and External Factor Evaluation Matrix

The Internal Factor Evaluation Matrix based on the internal strengths and weaknesses of the Estee Lauder Companies is depicted below.

IFE Matrix
Internal Strengths Weight Rating Weighted Score
Brand loyalty 15% 4 0.6
Brand value and representation 7% 4 0.28
Wide international presence 7% 3 0.21
Strong brand and product portfolio 10% 3 0.3
Strong R&D function 10% 4 0.4
Good liquidity position 5% 3 0.15
Efficient use of resources 10% 4 0.4
CSR Initiatives (Corporate Social Responsibility) 5% 3 0.15
Internal Weaknesses 0
Decreasing income from hair care business 5% 2 0.1
Decreasing income from Americas segment 10% 1 0.1
Company reliance on few customers (loyal customers) 6% 2 0.12
Slow declining market share 10% 1 0.1
100% 2.91

The weighted score of 2.91 on the IFE matrix depicts Estee Lauder has relatively above average internal position.

The External Factor Evaluation Matrix based on the opportunities and the threats faced by the Estee Lauder Companies is depicted below.

EFE Matrix
Opportunities Weight Rating Weighted Score
Room for expansion 10% 3 0.3
Wide customer reach 8% 4 0.32
Access to prospective markets for new products 8% 4 0.32
Ability and resources to take on additional brands 7% 3 0.21
Increasing popularity of online shopping 7% 4 0.28
Ability to buy brands from regional markets 7% 3 0.21
Premium pricing based on brand value allows for high profits 8% 4 0.32
Threats
Intense competition in the market 20% 4 0.8
Inadequate R&D due to competition can result in lawsuits 15% 3 0.45
Restrictive trade policies 5% 2 0.1
Fluctuations in exchange rate 5% 2 0.1
Total Weighted Score 100% 3.41

The weighted score of 3.41 on the EFE matrix depicts Estee Lauder has an above average ability

Strengths, Weaknesses, Opportunities and Threats Matrix (SWOT)

The following depicts the SWOT Matrix, along with the strategies that can be employed leveraging the strengths to overcome the threats and using the opportunities to do away with the weaknesses of company.

Strengths Weaknesses
Brand loyalty Decreasing income from hair care business
Brand value and representation Decreasing income from Americas segment
Wide international presence Company reliance on few customers (loyal customers)
Strong brand and product portfolio Slow declining market share
Strong R&D function
Good liquidity position
CSR Initiatives (Corporate Social Responsibility)
Efficient use of resources
Opportunities S-O Strategies W-O Strategies
Room for expansion Use brand value to extend into new markets Develop new products despite the decreasing income form the hair care business
Wide customer reach
Access to prospective markets for new products The current customers of the company can be further profiled for niche products that can be sold to the target market. Venture into new markets to remain competitive despite the decreasing income form the Americas. India and China can be focused upon as new main markets
Ability and resources to take on additional brands Use established reputation, brand value and image to enter into new markets
Increasing popularity of online shopping Provide the customers with products through the internet medium Access a wider range of customers instead of just loyal ones by promoting online purchase and sale of products and services for the Estee Lauder brands.
Ability to buy brands from regional markets Purchase successful local brands from regional markets that fit with the brand profile of the company Purchase profitable alternative products for personal care in the developing markets like India and China to launch under the Estee Lauder name
Premium pricing based on brand value allows for high profits Charge brand based premium pricing in multiple markets depending on the economic and demographic profile of the target market.
Threats S-T Strategies W-T Strategies
Intense competition in the market Develop new products that best suit the customers and can help the company stay competitive in the market
Inadequate R&D due to competition can result in lawsuits Develop on the strong R&D function to be more innovative, advanced and efficient for the competitive economy.
Restrictive trade policies Use the reputation and the brand value of the company to come into agreements with the local governments for mutually beneficial free trade
Fluctuations in exchange rate Employ forecasting models to manage the exchange rate by using the management and the resources available to the company.

Strategic Position and Action Evaluation Matrix (SPACE)

The SPACE matrix is used from the analysis of the porters five forces model and the analysis of the external factors which has been depicted already. The following SPACE matrix presents that the Estee Lauder should pursue an aggressive strategy.

Internal Strategic Position External Strategic Position
Axis X Competitive (CA) Industry (IS)
-2 Brand & Image 4 Barriers to Entry
-1 Product Quality 6 Growth Potential
-3 Market Share 6 Access to Financing
-1 Customer Loyalty 3 Consolidation
Av. Av.
-1.75 4.75
Total X axis score: 3
Axis Y Financial (FS) Environmental (ES)
5 ROA -2 Customer Demand
6 Leverage -3 Technology – R&D
6 Liquidity -3 Inflation
3 Cash Flow -1 CSR Issues
Av. Av.
5 -2.25
Total Y axis score: 2.75
space matrix

Boston Consulting Group Matrix (BCG)

The following diagram depicts the BCG Matrix where the main brands of the Estee Lauder Company are depicted as stars, cash cows, dogs or question marks. As the diagram shows that the company has a significant number of big brands in the star category the future prospective growth for the company can be very good.

BCG Matrix
Stars Question Marks
American Beauty Good Skin
Estee Lauder Grass Roots
Flirt! Sean John
MAC Cosmetics
Cash Cows Dogs
Bobbi Brown Aramis
Aveda Stila
Lab Series

Grand Strategy Matrix

Through the analysis of the internal strengths and weaknesses and the external factors that influence the organization, it has been derived that Estee Lauder does have a relatively string competitive growth, however the market growth of the company has suffered recently, specially in the Americas and for its hair care products. As a result the company lies in the fourth quadrant on the Grand Strategy Matrix as depicted below.

Grand Strategy Matrix

Recommendations

The strategic analysis depicts that the company should employ an aggressive approach in order to make itself more competitive in the market and to create a more favorable position to foster market growth for company in its regions of operations The recommendations for Estee Lauder are presented as follows.

  • Estee Lauder should strive to be more competitive, innovative and proactive
  • The company should invest in new markets proactively in order to increase market share through volume
  • The company should develop new products which target the untapped niche of the markets like a more exhaustive range of products for the older woman.
  • Develop on the Research and Development function to make it responsive to the customers requirements as well as make it efficient
  • Estee Lauder should make the R&D function at the company as one of the main strengths of the company
  • The company should also seek to target the customers through alternative channels of communication and customer touch points like the internet. The company can develop on online shopping in order to provide its products to its diverse customers through a single portal

Conclusion

The current position of the Estee Lauder Company is adequately favorable, however the current trends depict that the Estee lauder is facing slow market growth in Americas as well as declining growth in the hair care segment. Moreover the company has been focusing on customer loyalty only to drive its business. The company now needs to start being more proactive, more innovative as well as strategically competitive in order to reposition itself as the industry leader for personal care. The company can do this by investing in new markets as well as launching new and innovative products that proactively target the market.

References

”, Official Estee Lauder Company Website, 2009.

“From the Executive Office of The Estée Lauder Companies”, Official Estee Lauder Companies Corporate Website, 2009.Web.

“Estee Lauder Companies Inc Financial and Strategic Analysis Review”, Bharat Book Bureau, 2009. Web.

Hatch, M.J., Schultz, M., “Are the strategic stars aligned for your corporate brand”, Harvard Business Review, 2001. Web.

Kumar, S., Massie, C., Dumonceaux, M.D., “Comparative innovative business strategies of major players in cosmetic industry”, Journal of Industrial Management & Data Systems, 2006, Vol. 106, Issue 3, p285-306. Web.

Hamilton, R.D., Eskin, D., Michaels, M.P., “Assessing competitors: the gap between strategic intent and core capability”, Long Range Planning, 1998, Vol. 31, Issue 3, p406-417

Görsch, D., Pedersen, M.K., “E-Channel Competition: A Strategic Approach to Electronic Commerce”, Copenhagen Business School

Scherer, F.M., “The Pharmaceutical Industry — Prices and Progress”, 2004, Volume 351:927-932. Web.

Kim, W.C., Hwang, P., “Global Strategy and Multinationals’ Entry Mode Choice”, Journal of International Business Studies, Vol. 23, 1992. Web.

“Estee Lauder Companies Inc. (EL)”, Yahoo Finance, 2009. Web.

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