Estee Lauder Company

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Introduction

The Estee Lauder Company is a public corporation that manufactures and sells cosmetic products such as skin products, hair products, make up and fragrances. The company’s headquarter is based in New York. The company has branch companies in different parts of the world. The company is based in different world regions including Europe, Pacific-Asia, Africa and the Middle East. The company has branches in countries such as London and Japan which were the first countries that the company expanded into. The company’s operations are influenced by both internal and external business environments. The company is a dominant player in the worldwide cosmetics industry and market. The company faces great competition from both large and small cosmetic production companies in the United States and in other countries. The company produces and sells prestigious cosmetic brands worldwide under different brand names. The company makes most of its product sales online. The company incorporated e-commerce into its operations in 1999 (Estee Lauder Management, 2017). E-commerce helps the company to reduce expenses incurred through sales operations since online transactions are cheaper. There are various factors in the internal and external business environment of the company that act as strengths, weaknesses, opportunities and threats. These business factors influence the company and its operations greatly either negatively or positively.

Segments of the business environment that have the highest influence on the company

Economic environment

The economic environment of the United States and the world is a key determinant of the company’s operations and success. The economic environment consists of economic systems and policies, factors of production and organization of capital markets (Kasshanna, 2007). The company operates in different economic and market environments that influence its operations either negatively or positively. The demand for the company’s products varies from time to time and from region to region due to various economic factors and situations presented by the American and worldwide economy. 

The economic environment influences the purchasing powers of consumers and consumer spending (Kasshanna, 2007). Economic instability results in reduced consumer spending hence the low demand for the company’s cosmetic products. Consumer spending in the U.S and other parts of the world has decreased due to economic instability. Declined consumer spending reduces the demand for cosmetic products. The production levels of the Estee Lauder Company and the worldwide cosmetic industry, in general, have declined due to reduced consumer spending. 

Technological environment

Technological advancements influence the operations of businesses greatly. Modern technology is required in the efficient production of cosmetic products. The company incorporates technology into its production, marketing, and sales operations. The production quality of the company’s cosmetic products is majorly facilitated by technology (Boccard, 2010). Adoption of modern and sophisticated technology for production purposes costs the company a lot, and this strains the company’s finances. The adoption of e-commerce increased the company’s sales greatly. Many of the company’s transactions are done online through the company’s websites. 

Technology facilitates production, marketing and sales operations of the company. Marketing through social media has increased the awareness that customers have about the company’s cosmetic products. Creation of product awareness through mass media increases the demand for the company’s cosmetic products and those of other companies in the cosmetic industry hence increased company and industry sales.

Forces of competition significant to the corporation and how it addresses them

Industry rivalry

Intensive competition from other companies in the U.S and worldwide cosmetic industry is the major force of competition that affects the company negatively (Boccard, 2010). The other large companies in the cosmetic industry position their products well in the market by producing high quality and unique products. The Estee Lauder Company brands are faced with stiff competition from the new and unique brands that other companies in the industry produce from time to time. Cosmetic companies have adopted aggressive marketing strategies that are expensive. The Estee Lauder Company cannot sufficiently afford the diverse marketing strategies adopted by larger companies. Cosmetic companies have lowered their product prices drastically to attract more customers. The Estee Lauder Company product prices are still high, and this has resulted in their customers shifting to cheap cosmetic products offered by competitors. 

The company has begun to produce cheap cosmetic products that are of good quality though not as good as its other products. The products are priced lower than other products of the company. The low prices of their products are aimed at competing with cheap competitor products in the market. The company should consider investing more in marketing and promotion of its products. The company should use social media more for marketing its products. Social media is a cheap means of marketing than conventional marketing strategies. Intensive marketing through mass media will increase the awareness that consumers have on the company’s cosmetic brands.

Bargaining power of suppliers

The costs of raw materials used in the production operations of the company have increased over the years. The increase in the price of raw materials is basically due to economic inflation and scarcity of the materials (Shaikh, 2010). The company has specific suppliers that it sources its raw materials. The suppliers increase their prices of raw materials from time to time. Increased raw material prices increase the company’s production costs, and these increased costs are transferred to the prices of finished cosmetic products. 

The company has resorted to having a diversified base of suppliers. The company does not rely solely on its longtime suppliers since it has begun purchasing raw materials from other suppliers that offer lower prices. Some of the longtime suppliers of raw materials for the company have reduced their prices since the company began purchasing raw materials from other suppliers. The company should consider sourcing substitute raw materials that are cheap than the conventional raw materials used in its production operations. Substitute raw materials that are cheap will reduce the finances that the company spends on raw materials hence reduced production expenses (Shaikh, 2010). 

External threats that affect the Estee Lauder Company

Competitors

There are many cosmetic manufactures in the United States and worldwide. Large cosmetic manufacturing companies such as the L ‘Oreal, Avon, Unilever and Procter and Gamble Corporations pose great competition to the company (Estee Lauder Management, 2017). These large competitors dominate the United States and worldwide cosmetic market more than the Estee Lauder Company. The number of small cosmetic manufacturing companies has increased greatly in the United States and other parts of the world in which the Estee Lauder Company is based. This high number of small cosmetic manufacturers further reduces the company’s cosmetics market share. Competition from large and small cosmetic manufacturing companies in the U.S and worldwide reduces the company’s sales hence reduced profits. The congestion of companies in the cosmetics industry reduces the customer base that every company in the industry has. The companies are unable to gain sufficiently from their operations due to the high number of companies in the U.S and worldwide cosmetic industry.

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Economic factors

Economic factors that influence the operations of the company include economic policies, factors of production and the organization of capital markets (Boccard, 2010). The economic situations of the countries that the company is based in are its major business environment factor that influences the company’s operations greatly. The worldwide economic situation has not been stable, and this affects the production and sales operations of the company negatively. The American economic regression in 2008 affected the company’s operations negatively. The consumer demand for the company’s cosmetic products was deficient during that period. 

The cost of raw materials for the production of cosmetic products has increased majorly due to inflation and scarcity of the raw materials. High costs of raw materials increase the company’s production expenses. Increased production costs are transferred to the prices of the finished cosmetic products. High prices of the company’s cosmetic products reduce the demand for its products. The cosmetic industry, in general, was affected by the economic regression in 2008. The current worldwide economic instability still affects it negatively. The economic instability in the world has led to the collapse of cosmetic companies in different parts of the world. The economic instability has led to the reduction of the production levels of the cosmetic industry.

How the company should deal with competition

The company should produce cosmetic products that are of more quality and cheaper than those of competitors. Cheaper and quality cosmetic products will attract more customers to the company since its products will be affordable. Demand for products increases with the reduction of prices and increase in quality.

External opportunities available for the company

The demand for cosmetic products has increased greatly in developing countries especially in African countries. Most of the company’s operations are based in developed countries, especially European countries. European markets are congested with cosmetic companies, and this reduces the company’s market share in developed countries greatly. The company will be able to make more sales in developing countries since there are few cosmetic companies in those countries compared to developed countries. Cosmetic companies in developing countries are few, and they are unable to meet the demands for cosmetic products of those countries. Since Estee Lauder Company is a big company, it will be able to meet the increasing demands for cosmetic products in these developing countries. The company should reduce its product prices when it ventures into the developing economies. Consumers in developing economies have limited purchasing powers, and they will only be able to afford the company’s products if their prices are reduced. 

The company’s greatest strength

The entity has adequate resources. The company has diverse sources where it gets its financial, material and human resources. Since the company is a public corporation, it sells its stock to the public. Selling the company’s stock to the public helps it to increase its finances. The finances gained through the sale of stock to the public supplement the company’s financial ability (Boccard, 2010). The company can sufficiently finance its operations. Adequate finances enhance proper management of the company. Moreover, the company has many suppliers that supply it with raw materials. Adequate raw materials enhance production operations. The company can produce sufficient cosmetic products due to the availability of adequate raw materials from suppliers. The company should consider increasing its suppliers to ensure that it is not faced with a shortage of raw materials. Diversifying suppliers will help the company to gain low prices for raw materials. 

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The company’s greatest weakness

High production costs are a major challenge faced by the firm. The company incurs a lot of production expenses due to expensive raw materials. The high production costs are transferred to the prices of the finished cosmetic products. The company’s high product prices are due to the high production costs incurred. The company should consider sourcing from cheaper suppliers. Cheap raw materials will reduce the company’s production expenses. Moreover, the company spends a lot of employee salaries and wages. High employee salaries and wages increase the company’s production and sales expenses further. The company should consider reducing its employees so that it can spend less on salaries and wages. Reduced spending on salaries and wages will help to reduce the company’s production and sales expenses.

Estee Lauder Company resources, capabilities and core competencies

The company has qualified and experienced managers and employees. The company hires employees and managers that have occupational experience. Employment of experienced employees and managers helps the company to reduce training expenses (Estee Lauder Management, 2017). The qualified and experienced managers and employees perform their professional roles appropriately and efficiently. 

The company incorporates modern technology in its production, marketing, and sales operations. The company has modern production equipment that it uses to produce quality cosmetic products. The technology helps in the production of large quantities of cosmetic products that are aimed at meeting the demand of consumers. The company uses digital technology to analyze consumer data and establish consumer views and preferences.

The company has a high financial capability. Since the company is a public corporation, it gains finances from the sales of its stock to the public. The finances gained through the sale of the company’s stock to the public supplement the company’s financial resources (Estee Lauder Management, 2017). 

How the Estee Lauder Company can create value utilizing its resources, capabilities and core competencies

The company can use its digital technology to collect data about its customers. The personal and public data of customers collected through digital technology will enable the company to identify the views of customers about their products. Consumer data will help the company to identify customer preferences. The company will be able to identify which products are preferred more by consumers. Hence it will start producing those produce more to improve customer experience and satisfaction. Cosmetic products that are preferred more by consumers are usually of high quality.

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Conclusion

The economic and technological environments influence how the Estee Lauder Company operates. Industry rivalry and the bargaining power of suppliers are the major forces of competition that the company is faced. Economic factors and competition pose the greatest external business threats to the company. The company should focus on intensifying its product sales’ operations in developing countries since the demand for cosmetics in these countries has increased over the years. The company’s greatest strength is adequate resources while its greatest weakness is high production costs. The company has great core competencies and capabilities that can be used to create value for the company and its cosmetic products.

Did you like this sample?
  1. Chermack, Thomas J.; Bernadette K. Kasshanna (December 2007). “The Use of and Misuse of SWOT analysis and implications for HRD professionals”. Human Resource Development International, 10 (4): 383–399.
  2. Estee Lauder Management (15 June 2017). “The Estée Lauder Companies Invests in DECIEM, the Abnormal Beauty Company”. Estée Lauder Companies.
  3. Nicolas Boccard (2010). “Industrial Organization, a Contract Based approach (aka IOCB)”, Open Source Textbook.
  4. Quincy, Ronald (2313). “SWOT Analysis: Raising capacity of your organization”. Rutgers School of Social Work.
  5. Shaikh S. (2010). “Business environment”. New Delhi: Pearson.
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