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Lush Company’s International Expansion Strategy Report

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Updated: Sep 7th, 2021

Executive Summary

Lush, the UK-based organic cosmetics company, presents comparably beneficial products manufactured, in large part, from fresh fruits and vegetables. This paper proposed the expansion of Lush to the Indian market, focusing on the external and internal analysis of the company as well as the key indicators of the target market. In particular, the macro environmental analysis explored such factors as economic, political, legal and cultural ramifications.

On the micro environmental level, the company was evaluated with the help of Porter’s Five Forces model that revealed the strong market position and competitiveness of Lush. Next, the Indian market’s tendencies were assessed in order to specify motivations for expansion, among which the growing trend for personal care and awareness of cosmetics importance was discovered. Based on the mentioned analysis, Lush’s unique brand and marketing approach were described as constituents of the competitive advantage of the company.

Ultimately, a set of recommendations was proposed in relation to production, ethics, organisational culture and some other factors related to entry to the Indian cosmetics market. Thus, the overall appropriateness of the global expansion of the Lush company was clearly identified and supported by convincing arguments based on credible sources.

Introduction

Company and Product

Lush represents a network of branded stores, selling natural cosmetics for facial and body care. The name is an English industrial trademark, with a history going back to the 20th century. The history of Lush began in 1978,when a team of experts engaged in the manual production of cosmetics and become suppliers of the famous international perfume and cosmetics corporation, The Body Shop. In 1994, they established the Lush company and opened the first store in London. The brand is the creator of a huge number of innovative cosmetics products – bath bombs, shower gels, hard sugar scrubs, shampoos for hair and toothpaste. The company uses safe, natural ingredients, including freshly squeezed juices from fruits, vegetables and plants as well as an assortment of essential oils.

According to the organisation’s official website, the company purchases ingredients for cosmetics only from other companies that do not allow animal tests, believing that people themselves should experience cosmetics (Lush 2017). The company also develops recipes for products and flavors and produces them manually, using a minimum of preservatives, packaging and exclusively vegetarian ingredients and always informing customers when the products were manufactured. The company devotes great attention within the context of the company’s performance to the organisational culture, environmental protection and customer care.

Problem

This beauty brand manages approximately 900 stores all over the world and is always seeking for new opportunities to expand. This paper proposes the expansion of Lush to the Indian market for beauty cosmetics as India presents a fruitful market with regard to the opening of new stores and attracting more customers. In particular, investment in this market is likely to provide essential profits to the company while simultaneously benefiting Indian customers.

In order to conduct the expansion, it is necessary to assess both external and internal environments, including political, economic, social and cultural peculiarities of the target market. Furthermore, along with the above aspects, the paper will focus on motivations for internationalisation and subsequent recommendations elaborated on the basis of thorough analysis of the recent data, including journals, books and official websites.

Macro Environmental Factors

Economic Aspects

The company holds 51st place in terms of turnover on the world market for cosmetics and perfumery. Lush’s estimated revenue for 2013 was $630 million, and the company was included on the top ten list of popular cosmetic companies (Voigt, Buliga & Michl 2016). The estimated growth rate is 5,6 percent per year, and the company donates two percent of its profit to Charity Pot on an annual basis. As a part of following and sharing innovative technology opportunities, Lush designed its own website that describes products in detail and provides an online purchase option. The website captures the viewer’s attention by its creative and simple presentation along with 10–15 percent discounts (Lush 2017).

With regard to price-setting strategy, the price category is related to expensive products without crossing the line into luxury. For example, the bestselling Dream Cream costs $35 compared to the top lotion offered by L’occitane Shea Butter Ultra Rich Body Cream, sold for $44, and Shea Whip Body Lotion offered by The Body Shop for $12. In other words, compared to other beauty brands, it is possible to argue that Lush products are competitively priced.

This price strategy is directed at the target market of upper-middle class women aged 25–35 years (Lush 2017). The mentioned target audience is primarily composed of the so-called Millennials or Generation Y represented by women who aim to be attractive and spend significant time and effort on their appearance. Such a strategy, however, misses women aged 40–60 years who also use cosmetics and perfumery and, thus, may be regarded as providing an opportunity for the company to enlarge its market share by embracing a new audience.

Political and Legal Issues

Lush adheres to a ruling put forth by the UK government as well as to a new EU cosmetic product regulation, both of which focus on escalating product safety. In terms of the development of the company outside the UK, it is notable that it expands through the franchise model with the condition that the target city’s population is at least 500 000 people. A potential franchise licenceholder who has not yet paid for a franchise is required to attend meetings and other conferences aimed at protecting nature and the environment and supporting the company’s corporate vision and mission. At the same time, the store owner cannot be a part of any other business that involves animal testing or killing, such as the sale of meat.

Furthermore, the company initiates various campaigns for the promotion of animal rights (Seidle 2013).As part of its mission to protect nature, Lush produces so-called charity pots of lotion, implying that products are to be bought from the farmers who participate in the SLush Fund program. Depending on the harvest, charity pots can contain up to seven SLush ingredients. This body lotion continues to fund good deeds as all profits from its sale are to be applied to support nature preservation as well as animal welfare and charity.

It is also essential to note the company’s close cooperation with Greenpeace and the World Wildlife Fund, organisations that aim at protection of animals and ecology. Lush, “through which hundreds of thousands of petition signatures were collected in mere weeks – to achieve a victory to be celebrated: a Europe free from cosmetics animal cruelty”, accepts plastic containers for recycling and also tries to create cosmetics for which packaging is not needed at all or where the packaging can be replaced with paper – for instance, dry shampoos or toothpaste in tablets (Seidle 2013, p. 453). The policy under discussion contributes to the fact that today, more and more people are bringing packing to be recycled, while plenty of these customers have long been ready to sort and separate garbage at home and understand why this is necessary.

Social and Cultural Factors

The slogan of the company’s global positioning can be identified as follows: fresh, handmade cosmetics, consisting solely of natural ingredients and not tested on animals. These cosmetics are regarded as handicraftsand manufactured primarily within short periods of time that allows preserving them fresh and effective for customers. As a rule, 25 percent of Lush’s products are updated on an annual basis (Hughes 2016). This illustrates the fact that Lush adheres to principles regarding health awareness. According to the official website, Lush “believes in happy people making a happy soap and puts employees’ faces on products so that their mothers are proud of them” (Lush 2017, para. 1).

The company positions itself as an ethical brand as it is engaged in the production of handmade cosmetics, thus emphasizing the belief that the products should be useful if they are made of fresh organic materials: fruits and vegetables (Aronczyk 2013). The company’s adherence to natural organic ingredients can be clearly observed in all activities. All products – soap, powders, shampoos – are sold by weight to save packaging materials and to demonstrate how carefully the company philosophy treats the gifts of nature (Marati 2012). Simply put, it is possible to state that in everything that the Lush company does, its methodology expresses openness to the customers and an individual approach.

Micro Environmental Evaluation

It seems appropriate to analyse the external environment of the company with the help of Porter’s Five Forces Analysis instrument as it presents comprehensive grounds to evaluate the company’s internal issues.

Bargaining Power of Suppliers

First, it is of great importance to emphasise that Lush collaborates solely with those suppliers who match its ideology regarding natural cosmetics. Any potential suppliers are to agree on the kind of natural ingredients that should be delivered: “materials purchased by Lush do not contain animal derivatives that are unsuitable for vegetarians” (Lush 2017, para. 5). The company purchases raw materials from various farming projects located all over the world.

Second, the bargaining power of suppliers can be specified as middle due to no lack of vendors. Lush has agreements with plenty of suppliers of fresh fruits and vegetables, and their number may change easily at any time. Thus, the company’s price-setting strategy and shipment regulations may be altered by suppliers that, in turn, may impact Lush’s performance in general.

Bargaining Power of Customers

One of the focuses of successful marketing is customer satisfaction. This can be gained in various ways: for example, by understanding their desires and needs. As a rule, customers are loyal only to those companies with which they feel comfortable and heard. In order to meet customers’ expectations, Lush offers excellent staff who are considered to be the pride of Lush. Many employees have worked in brand stores for years, may possess higher education and work experience in other companies and have often received high remuneration (Mendon &Achar 2014). Everyone who works for Lush is imbued with the culture of the company and the way of life.

The employees with piercings and tattoos lend credence to the idea that the company does not attach significance to conventional business appearances. More importantly, Lush emphasises outstanding communication skills with an eye to encouraging empathy and interest in products. Furthermore, the company has broken a number of established stereotypes. The management asks the team to focus on customer service at a new level that involves a structural approach and individual consultations as “if you have the right people and they have the right attitude, it’s surprising how brilliant it can be” (Mendon & Achar 2014, p. 40).

In other words, during a conversation with a customer, employeesare expected to understand a buyer and his or her image and lifestyle so that they will be equipped to provide the appropriate recommendations.

In addition to the excellent communication promulgated within the company, Lush uses media to communicate its values in the context of the company’s promotion strategy. The major focus is on social media and other online means of information sharing, such as Twitter, Instagram, and Facebook, that are quite popular among the target audience members. A set of online coupons and specials also serves as one more option to lead to customer satisfaction. Moreover, there is the Lush Times Catalog – a printed publication that is mailed at no cost to the company’s subscribers to notify them about new products or prospective innovations.

Thus, considering the above statements, one may conclude that the bargaining power of cosmetics-buying customers is quite high as the customers have a wide range of choices in the field of cosmetics, and it requires concerted effort to keep them concentrated on the Lush brand. There is always the possibility of selecting cheaper cosmetics or reducing consumption if the price characteristics turn out to be unaffordable.

Faced with this situation, Lush tries to initiate actions, promotions and other strategies to decrease the bargaining power of buyers. In particular, among well-implemented strategies, one may capitalise on the high awareness of customers regarding the benefits of natural cosmetics and a significant level of product differentiation. These options help Lush to reduce the power customers may exercise to manipulate the company.

Intensity of Existing Rivalry

The rate of contemporary competition in the industry presented by Lush is rather intense. As mentioned earlier in this paper, Lush is a competitive company that is facing some strong rivals. In precise terms, The Body Shop and Skincare are the largest companies and competitors of Lush that are striving to enhance their products and gain the attention of the same customer base (Christodoulou & Bertilsson 2013).

The companies under discussion also adhere to the same production principles as Lush does, including non-animal tests, eco-friendly production, and raw ingredients. However, The Body Shop offers certain performance factors that seem to be more attractive than those of Lush; for example, it offers lower prices. At this point, it is essential to clarify that Lush does not strive to compete largely on price. Lush customers seem to be ready to purchase products they believe in and willing to pay high prices for superior quality and customer care.

The fact that Lush leads with a transparent marketing strategy and, thus, keeps customers aware of all the processes in the course of product manufacture creates trust in the brand (Mendon & Achar 2014). Furthermore, Lush’s ethical position, adherence to corporate social responsibility and use of organic products all work together to generate customer loyalty.

Threat of Substitutes

The concept of Lush is notably a market style and dynamic factory that is based on the idea of ​​secondary use of resources and environmental friendliness, which area part of the brand’s philosophy. There is relatively low threat from substitutes due to the uniqueness of products, as described previously in this paper, as well as due to innovation practised in each of the stores. For example, recently Lush adopted a new form of opening stores based on a larger format. New stores in the UK have at least 250 square meters of retail space. The larger area makes the purchase process more comfortable, which allows adding extra services and helps to significantly increase sales. In this regard, the threat of substitutes seems to be negligible.

Threat of New Competitors

Currently, there is a rapidly increasing trend toward eco-friendly products and protection of nature and the environment in general. In this context, Lush can be regarded as ahead of the game as all of its products were initially based on organic ingredients and products of a nature-friendly approach (Sahota 2014). Therefore, it is possible to anticipate that new companies will emerge as competitors, yet none of them would likely replace Lush due to the strong brand value and ethical stance of the latter. In other words, the threat of new entrants can be evaluated as relatively low.

Motivations for Expansion

Taking into account that the paramount goal of Lush is to grow in global market share and retain its image as a sustainable cosmetics company, the expansion to some unreached countries seems to be a useful option. At this point, in proposing the Indian market as a target, it is necessary to identify the key indicators that seem to be attractive to Lush and should be considered before the expansion. First, the Indian beauty market is represented by a variety of local and international brands, including L’Oreal, Oriflame, The Body Shop and more, while only a few of them specialise in organic cosmetics.

Among the core motivational factors is the growing potential of the beauty market of India. In particular, the cultural traditions and fashion sense cultivated by Bollywood make people interested in personal care and attractive appearance. According to recent data, cosmetics sales would double, demonstrating the growing demand for beauty products (Strategy: five facts on Indian beauty market 2016). At this point, the entrance of organic Lush products into the market under discussion seems to promise a revolution in the cosmetics industry due to the company’s values and ethics as described earlier in this paper. At the same time, the Indian potential target audience is comprised not only of women of the upper class but also those of middle income, enlarging the volume of customers.

The fact that Indians highly value nature and their culture serves as one more indicator that illustrates their huge purchasing power. As mentioned, Lush co-operates with many farming projects, and the local farmers may be involved as well. Local products seem to appeal to Indian customers. For example, considering the experience of L’Oreal, Colossal Kajal from Maybelline New York became a top-selling product as it accounts for customers’ perceptions and expectations of cosmetics. Following a similar approach, Lush may use local fruits and vegetables along with opening local manufacturing facilities.

At the same time, Luckman (2013) states that handmade products are gaining in popularity all over the globe. In other words, India can be regarded as a sizeable country that is open to original cosmetics entrants and ready to try something new.

It should also be noted that the fact that there is a significant portion of Indians who are living without using shampoos and skin care products means that this industry is untapped. The majority of people continue unmoved by contemporary beauty requirements (Strategy: five facts on Indian beauty market 2016). Thus, the right strategy, time and place would play a great role in the Lush company’s expansion.

A recent research report claims that “India’s cosmetic market is anticipated to more than double by 2021” (India cosmetics market outlook, 2021 2015, para. 1). The Indian customers, just as their counterparts in the rest of the world, are steadily embracing globalisation trends with regard to global communication and collaboration, resulting in a growing awareness of the importance of personal care. However, there is still a dire need for education of the local population about the role that organic cosmetics play in one’s health and lifestyle. Thus, it is possible to anticipate that demand for natural cosmetics could increase in future.

On the other hand, an alternative course of action would presume operating on a local basis without expanding. This strategy involves such positive features as follows: awareness of the product, knowledge of the market, low investments and high profit on investments and diversification to new industries that would decrease the risk of failure due to the elimination of dependence on one sector. This approach would also involve no need for cultural adaptation (Strategy: five facts on Indian beauty market 2016).

However, numbered among the negative points are increasing competition both within and outside the domestic market, the need for entering new industries and necessity for new investments and implementation of organic products. In other words, expansion to the Indian market presents more opportunities and benefits to grow and serve more customers, resulting in an affirmative impact on people and the environment.

Competitive Advantage Assessment

What makes Lush competitive is that it keeps its unique stance and remains independent (Lush 2017). In spite of interest on the part of cosmetics corporations, Lush stays out of mergers and acquisitions, thus preserving its individual right to develop and identify a leading strategy. Even though the benefits of the collaborative decisions under discussion may be high, Lush operates successfully on its own.

The focal competitive advantage of Lush is that it provides its own unique marketing approach, focusing on handmade products, creative design and packaging (Aronczyk 2013). Cosmetics and perfumery comprise one of the most competitive markets in the world. Every company that is leading the business in this area, is seeking to create an original andout standing brand and to acquire a whole army of loyal consumers. It appears to be extremely complicated to come up with something radically new in this market, but the British company Lush has succeeded.

The brand and product positioning work together to strong advantage, allowing Lush to remain competitive as well. In particular, the company pursues clarity, credibility and consistency throughout its marketing strategy and utilises a comprehensive approach to positioning (Hughes 2016). Every store possesses specially manufactured showcases containing natural products, demonstrating the composition of lotions, shower gels and other products. This clearly shows customers that the Lush brand consists of solely organic ingredients and therefore is worth purchasing. The visibility of the products, along with their transparent presentation, unequivocally paints an excellent image and, also essential, engenders customer loyalty.

At the same time, the competitive advantage lies in the fact that “as well as promoting good causes, Lush also practices what it preaches, with 100 percent of the earnings from its ‘charity pot’ body cream going to environmental, animal protection, and human rights organisations” (Christodoulou & Bertilsson 2013, p. 9). Lush considers corporate social responsibility to be one of its values, thus supporting non-profit organisations such as Shark Savers or All Out (Lush 2017).

Lush has also engaged in a series of supportive actions made in collaboration with other companies, for instance, the Body Shop. From the above observations, it becomes evident that the company’s values and vision are strong and focused, resulting in clear and comprehensive competitive advantages.

Strategic Recommendations

Considering the observations provided above, it seems appropriate to assume a range of evidence-based suggestions for the expansion of Lush to the Indian market. To begin with, it is essential to explore the target market in the context of a comprehensive approach that would pay attention to the culture, society, politics and economy of India and, in particular, its cosmetics industry. In order to enter a new market and succeed, it is essential to comply with the regulations of the target country. Likewise, in the framework of the domestic market, Lush may focus on the same target audience of women aged 25–35 years, steadily expanding to cover wider categories of customers.

It is appropriate to recommend paying attention to both tangible and intangible resources. While the first group involves employees, production, packaging, ingredients and so on, the latter focuses on culture, knowledge, image, relationships, attitudes, online presentation etc. For instance, regarding demonstration techniques and store design, it is possible to suggest that a new concept may be implemented in a modern style with elements of old materials.

For example, parquet flooring having received a second life, the wood from commercial furniture, the authentic cranes of the 80s, the stylised “grandmother’s chairs”, as well as experiments with light to properly color products can be utilised. The production may be re-considered and adjusted to the local requirements and be driven by innovative technology, for example, lightning design (Trefler 2014). More to the point, certain local ingredients may be used in order to meet the customers’ expectations and build an atmosphere of the highest possible trust and openness.

At present, Lush possesses superior ethical considerations and exercises them in practice, and this will also be an essential pursuit in the framework of the target market (Molthan-Hill 2014). This strategy would clearly show customers the company’s vision and goals. It is of great importance to ensure that the introduction of Lush into the market under discussion would be associated with proper promotion and presentation (Molthan-Hill 2014). The latter may introduce the products’ composition and the raw materials that were used to manufacture one or the other lotion or shampoo. In effect, these measures are likely to boost the company’s awareness of the target audience and subsequently enhance the company’s effectiveness, competitiveness and customer-centeredness.

Moreover, organisational culture also makes up a significant part of the international project. It is important to develop conflict tolerance and risk tolerance so that employees from different groups might communicate effectively. In addition, the company may partially outsource its operation to India, which would contribute to reduced costs. To adapt the product to honor cultural diversity, it is important to hire local employees and focus on product customisation (Shenkar, Luo&Chi 2015).

These employees may not only help to introduce the product but also to establish potential alliances that, in turn, would help to promote subsequent growth. In addition, the development of business ethics standards is a considerable and integral part of company management. In this case, the company establishes a position that describes the values and rules of etiquette within the company.

In particular, Lush should prohibit any fraudulent transactions, extortion, violation of the laws, exploitation or child labor and focus on creating adequate living and working conditions, providing well-managed work organisation and decent wages and ensuring the availability of a sense of security and confidence in the future, in terms of social benefits expressed in long-term employment.

It is self-evident that a socially responsible business has more favorable long-term prospects, and in improving the lives of people, an enterprise participates in public life. A company that is more prosperous from asocial point of view enjoys more favorable conditions for business and shapes an attractive image of the company (Mermod&Idowu 2013). In this regard, it is necessary for Lush to continue its policy towards social responsibility so that the manifestation of the company’s social responsibility meets the expectations of public opinion.

The involvement of the company in solving social problems would reflect its attitude towards employees and the environment. It is expected that Lush would take over a part of India’s social needs as the first possesses considerable financial resources. The implementation of the corporate policy regarding social responsibility is a factor that would also increase the profitability of the company through addressing investors, governments and society to clarify the impact of its central production upon the surrounding world.

Such a strategy is likely to lead to significant growth, benefiting both potential international customers and the company. Summing up, the strategy under discussion in this paper presents advantages such as facing down the competition, using unique marketing strategy and brand positioning, access to new markets and independence. First, it is of great significance to meet competition on the proper level so that competitors will not be able to crush the company. Second, there is an opportunity to promote organic cosmetics to wider populations. Third, opening new offices overseas creates a plethora of opportunities to explore a new environment and come up with appropriate ways to protect and preserve it.

Conclusion

In conclusion, it should be emphasised that the international expansion strategy aimed at India should be consistent and thoroughly elaborated. Before entering the new market, local positions need to be enhanced, and the overseas market should be examined in-depth. Developing a strong plan of expansion might be recommended, focusing on long-term operation and relevant evidence. In short, international expansion seems to be more preferable than an exclusively local operation, yet this expansion should occur appropriately and in a timely manner, thus leading to the development of a comprehensive strategy that focuses on product, ethics, culture and social responsibility.

Reference List

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Mermod, AY & Idowu, SO 2013, Corporate social responsibility in the global business world, Springer, Berlin.

Molthan-Hill, P 2014, The business student’s guide to sustainable management: principles and practice, Greenleaf, Sheffield.

Sahota, A 2014, Sustainability: how the cosmetics industry is greening up, Wiley, London.

Seidle, T 2013, ‘Humane society international’s global campaign to end animal testing’, Animal Studies Repository, vol. 41, no. 6, pp. 453-459.

Shenkar, O, Luo, Y &Chi, T 2015, International Business, Routledge, New York.

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Trefler, A 2014, Build for change: revolutionizing customer engagement through continuous digital innovation, Wiley, London.

Voigt, KI, Buliga, O & Michl, K 2016, Business model pioneers: how innovators successfully implement new business model, Springer, London.

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