Estee Lauder Case 1 Analysis

Lauder| | Table of Contents Case Abstract3 Vision Statement & Mission Statement4 Vision Statement:4 Mission Statement:4 External Audit5 Opportunities & Threats5 Competitive Profile Matrix (CPM)6 External Factor Evaluation (EFE) Matrix7 Internal Audit8 Strengths & Weakness8 Financial Ratio Analysis9 Internal Factor Evaluation (IFE) Matrix10 SWOT Matrix11 SPACE Matrix12 Internal External Matrix13 Recommendations14 Case Abstract The Estee Lauder Companies Inc. engages in the manufacture, marketing, and sale of skin care, makeup, fragrance, and hair care products worldwide.

It offers skin care products, including moisturizers, creams, lotions, cleansers, sun screens, and self-tanning products; and makeup products, which consist of lipsticks, lip glosses, mascaras, foundations, eye shadows, nail polishes, and powders, as well as related items, such as compacts, brushes, and other makeup tools.

The company provides its fragrances products in various forms, including sprays and colognes, lotions, powders, creams, and soaps. Its hair care products comprise hair color and styling products, shampoos, conditioners, and finishing sprays.

The Estee Lauder Companies sells its products under the Estee Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, M A C, Bobbi Brown, La Mer, Aveda, Jo Malone, Bumble and bumble, Darphin, American Beauty, Flirt! , Good Skin, Grassroots, and Ojon brand names.

It also operates as a licensee for fragrances and/or cosmetics sold under the Tommy Hilfiger, Kiton, Donna Karan, Michael Kors, Sean John, Missoni, Daisy Fuentes, Tom Ford, and Mustang brand names.

The company sells its products through department stores, specialty retailers, upscale perfumeries, pharmacies, salons, and spas, as well as through company-owned stores, spas, and Web sites; authorized retailer Web sites; stores on cruise ships; in-flight and duty-free shops; and self-select outlets.

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The Estee Lauder Companies Inc. was founded in 1946 and is based in New York, New York. Vision Statement & Mission Statement Vision Statement: Bringing the Best to Everybody We Touch Mission Statement: We are a family company committed to working together with uncompromising ethics and integrity.

We strive to always: 1. Provide customers with innovative cosmetic products of the highest quality. 2. Deliver outstanding service by treating each individual as we ourselves would like to be treated. 3. Create an environment that fosters personal growth and well being. 4. Build partnership with our suppliers, retailers and colleagues based on fairness and trust. 5. Enhance our reputation of image, style and prestige. 6. Pursue profit, but never at the expense of quality, service or reputation. 7. Eliminate waste and reduce inefficiencies in order to provide maximum value to our customers. 8.

Be responsible citizen in every community we serve. External Audit Opportunities & Threats Opportunities 1. Expected growth in the personal products industry is fueled by rising demand from emerging and developing markets. 2. Optimization of brand portfolio. 3. Strengthening of global markets 4. Expansion of global markets 5. Diversification of distribution channel 6. The world’s aging population represents an increased investment in the cosmetic industry. | Threats 1. Domination of the Asian department store channel 2. Australia has a slower and difficult retail environment particularly in the fragrance category. 3.

Unemployment rate increase will disable Americans to buy the high-end products 4. The use of aerosols & fluorocarbons in products damaging the environment. 5. Animal testing for new products | Competitive Profile Matrix (CPM) Companies indentify strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context through which to identify opportunities and threats. Competitor profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.

We used the same idea with Estee Lauder, L’Oreal, and Revlon. L’Oreal and Revlon is a real big competitor for Estee Lauder. Estee Lauder and L’Oreal perform above average on the CPM analysis. Revlon performed average compared how Estee Lauder and L’Oreal rated. | | Estee Lauder| L’Oreal| Revlon| Critical Success Factor| Weight| Rating| Score| Rating| Score| Rating| Score| Advertising| . 13| 3| . 39| 4| . 52| 4| . 52| Product Quality| . 12| 4| . 48| 4| . 48| 3| . 36| Price Competitiveness| . 10| 2| . 20| 4| . 28| 4| . 28| Management| . 12| 3| . 36| 2| . 4| 2| . 24| Financial Position| . 10| 3| . 30| 3| . 30| 3| . 30| Customer Loyalty| . 12| 3| . 36| 3| . 36| 3| . 36| Global Expansion| . 09| 4| . 36| 2| . 18| 2| . 18| Sales Distribution| . 08| 3| . 24| 3| . 24| 2| . 16| Manufacturing| . 07| 3| . 21| 3| . 21| 3| . 21| Research and Development| . 07| 2| . 14| 2| . 14| 2| . 14| Total:| 1. 00| | 3. 04| | 2. 95| | 2. 75| External Factor Evaluation (EFE) Matrix An External Factor Evaluation (EFE) allows strategies to summaries and evaluate economic, social, and cultural factor through the uses of a numerical rating.

In our case we evaluated the EFE of Estee Lauder. By numerically scaling Estee Lauder’s opportunities and threats we analyzed the importance of the programs they have to offer. First assigning each factor a weight of importance from 0. 0 to 1. 0, letting 0. 0 (least important) and 1. 0 (most important). Next we rated between 1 and 4 each key external factor to indicate how effective Estee Lauder structure. Finally multiplying the weight and the rating we got a score the show how effective each factor was. Key External Factors| Weight| Rating| Weighted Score| Opportunities| | | | 1.

Expected growth in the personal products industry is fueled by rising demand from emerging and developing markets. | 0. 08| 2| 0. 16| 2. Optimization of brand portfolio. | 0. 10| 3| 0. 30| 3. Strengthening of global markets| 0. 10| 3| 0. 30| 4. Expansion of global markets| 0. 10| 3| 0. 30| 5. Diversification of distribution channel| 0. 09| 3| 0. 27| 6. The world’s aging population represents an increased investment in the cosmetic industry| 0. 08| 2| 0. 16| Threats| | | | 1. Domination of the Asian department store channel| 0. 09| 2| 0. 18| 2. Australia has a slower and difficult retail environment in the fragrance category| 0. 9| 2| 0. 18| 3. Unemployment rate increase will disable Americans to buy the high end product. | 0. 13| 4| 0. 52| 4. The use of aerosols and fluorocarbons with damaging the environment. | 0. 09| 2| 0. 18| 5. Animal testing for new products| 0. 05| 1| 0. 05| Total:| 1. 0| | 2. 60| Internal Audit Strengths & Weakness Strengths 1. Sells products through upscale department stores, specialty retailers, and prestige salons. 2. Has 26 brands, sells products over 130 countries a territories. 3. One of the first major cosmetic firms to offer online shopping. 4. Prestige pricing is an effective strategy given the target markets 5.

First company to offer free samples and gift with purchase. 6. In 2006, the travel retail business comprised approximately 7% of total sales and 20% of operating income 7. First industry to introduce consistent brand imagery around the world 8. The company uses celebrities as endorsers in the testimonial advertising| Weakness 1. Does not sell at lower class retail outlets. 2. They do not put FDA warning labels on the products. 3. Increase in long term debt from 2006 to 2007 from 698. 2 million to 1,404. 7 million. | Financial Ratio Analysis The financial ratios are computed from both the income statement and balance sheet.

Comparing ratios over time and used to industry averages is more likely to result in meaningful statistics that can be used to identify and evaluate strengths and weakness. Financial factors often alter existing strategies and change implementation plans. For Estee Lauder, we were only able to compute 4 of the financial ratios. The four financial ratios that we were able to compute were Return on Total Assets (ROA), Return on Equity, Net Profit Margin and Revenue per Share. The figures I used to compute the ratio’s came from the 2007 Financial Statements of Estee Lauder. Ratio| Calculation| | | 880. | . 587| | 1500. 7| | | 1383. 6| . 9219| | 1500. 7| | Return on investment = net before-tax profit / net worth| 711. 0| . 10| | 7037. 5| | ROA| 449. 3| . 1089| | 4125. 7| | Return on Equity = Net Income/Shareholder’s Equity| 449. 3| . 375| | 1199| | Revenues per Share = Revenues/ Shares Outstanding| 7037. 5| 32. 37| | 217. 4 shares| | Net Profit Margin = Net Earnings/Sales| 449. 3| . 064| | 7037. 5| | Internal Factor Evaluation (IFE) Matrix Internal Factor Evaluation is a strategic management tool for auditing or evaluating major strengths and weaknesses in functional areas of a business.

IFE matrix also provides a basis for identifying and evaluating relationships among those areas. As for Estee Lauder their weaknesses were not as detrimental as their strength nor would they have a long term effect on Estee Lauder. Key Internal Factors| Weight| Rating| Weighted Score| Strengths| | | | 1. Sells products through upscale department stores, specialty retailers, and prestige salons. | 0. 09| 3| 0. 27| 2. Has 26 brands, sells products over 130 countries and territories| 0. 12| 4| 0. 48| 3. One of the first major cosmetics firms to offer online shopping. | 0. 11| 4| 0. 44| 4.

Prestige pricing is an effective strategy given the target market. | 0. 11| 4| 0. 44| 5. First company to offer free samples and gift with purchase. | 0. 12| 4| 0. 48| 6. In 2006, the travel retail business comprised approximately 7% of total sales and 20% of operating income| 0. 10| 3| 0. 30| 7. First industry to introduce consistent brand imagery around the world| 0. 11| 4| 0. 44| 8. The company uses celebrities as endorsers in testimonial advertising. | 0. 12| 4| 0. 48| Weakness| | | | 1. Does not sell at lower class retail outlets . | 0. 04| 1| 0. 04| 2. They do not put FDA warning labels on the | 0. 4| 1| 0. 04| 3. Increase of long term debt from 2006 to 2007 from 698. 2 million to 1,404. 7 million| 0. 04| 1| 0. 04| Total:| 1. 0| | 3. 45| SWOT Matrix The SWOT Matrix helps visualize the analysis. Also, when executing this analysis it is important to understand how these elements work together. When an organization matched internal strengths to external opportunities, it creates core competencies in meeting the needs of its customers. In addition, an organization should act to convert internal weaknesses into strengths and external threats into opportunities. | Strengths 1.

Sells products through upscale department stores, specialty retailers, and prestige salons. 2. One of the first major cosmetic firms to offer online shopping. 3. Prestige pricing is an effective strategy given the target markets 4. First company to offer free samples and gift with purchase. 5. In 2006, the travel retail business comprised approximately 7% of total sales and 20% of operating income 6. First industry to introduce consistent brand imagery around the world 7. The company uses celebrities as endorsers in the testimonial advertising| Weaknesses 1. Does not sell at lower class retail outlets. 2.

They do not put FDA warning labels on the products. 3. Increase of long term debt from 2006 to 2007 from 698. 2 million to 1,404. 7 million. | Opportunities 1. Expected growth in the personal products industry will be fueled by the rising demand from emerging and developing markets. 2. Optimization of brand portfolio. 3. Strengthening of global markets 4. Expansion of global markets 5. Diversification of distribution channel| SO Strategies 1. (S5, S4, O2) Create more products. 2. (S1,O1,S3) Adding more online marketing to developing markets. | WO Strategies 1. (W3,O2) Add FDA warning labels to new products being developed. . (W4,O1) Decrease long term debt give opportunity to enter more global markets. | Threats 1. Domination of the Asian department store channel 2. Australia has a slower and difficult retail environment particularly in the fragrance category. 3. Unemployment rate increase will disable Americans to buy the high-end products 4. The use of aerosols & fluorocarbons in products damaging the environment. 5. Animal testing for new products | ST Strategies 1. (T1, S3,S4) Use strategy of free samples and online retail to market into the Asian market. 2. (T2, S4) Give more free samples to Australian market to increase sales. . (S6, T5) Have advertising with celebrities expressing that products are not animal tested. | WT Strategies 1. (W2, T3) Sell to lower class retail chain stores such as Wal-Mart. 2. (W3, W4,W5) Add to label that products used are eco-friendly | SPACE Matrix The Strategic Position and Action Evaluation (SPACE) Matrix, is Stage 2 matching tools. Its four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization. After constructing the SPACE Matrix for Estee Lauder, Estee Lauder will fall under an aggressive quadrant.

Internal Strategic Position| External Strategic Position| Financial Strength (FS)Return on investment 5Leverage 5Liquidity 4Working Capital 5Cash Flow 6 Total: (25/5) 5| Environmental Stability (ES)Technological changes -1Rate of inflation -5Price range of competing products -4Competitive pressure -4 Total: (-14/4) -3. | Competitive Advantage (CA)Market Share -1Product quality -1Customer Loyalty -1Competition’s capacity utilization -5Control over suppliers and distributors -5Total: (-13/5) -2. 6| Industry Strength (IS)Growth Potential 6Profit potential 5Financial stability 4Total: (15/3) 5| X-axis: -2. 6+ (5) = 2. 4 FS Y-axis: -3. 5+ (5) = 1. 5

CA IS (2. 4, 1. 5) ES Internal External Matrix The Internal External Matrix positions Estee Lauders various divisions in this display shown. From the given information it is recommended that Estee Lauder Grow and maintain. This is based on the EFE & IFE Score Averages of 2. 7 & 2. 5 respectively. They should involve the company in: Backward, Forward and Horizontal Integration, Market penetration, Market development, and Product development. The IFE Total Weighted Scores The EFE Total Weighted Scores 4 | 3 Strong| 2 Average| 1 Weak| 3 High| I| II| III| 2 Medium| IV| V| VI| 1 Low| VII| VIII| IX| Total Weighted EFE = 2. 7 Total Weighted IFE = 2. 5

Segments| $ Revenue| % Revenue| EFE Scores| IFE Scores| 1. Skin Care| $2,601,000| 37. 0%| 3| 3| 2. Makeup| 2,712,700| 38. 5%| 2. 5| 3| 3. Fragrance| 1,308,600| 18. 6%| 3| 2. 5| 4. Hair Care| 377,100| 5. 4%| 2. 0| 2. 0| 5. Other| 38,100| 0. 5%| 3| 2| Total| $7,037,500. 00| 100. 0%| 2. 7| 2. 5| Recommendations We recommend the follow for The Este lauder companies: 1. To respond to the economic crisis if Estee lauder finds new service solutions and ways of utilizing social media to address the consumers’ new mindset. 2. Come up with brands for lower and middle class consumers. 3. Estee lauder can give out complimentary make-up application classes and free facials to market products. 4.

Create less expensive sizes of best selling products and use of discreet pricing at make-up counters. 5. Develop a recycling program for products by giving out discounts when consumers bring outdated and empty make-up containers. 6. Create limited edition products that appeal to the fashion conscious consumer. 7. Shift in preference of products to demographic and cultural regions on how consumers shop. 8. Foreign currency fluctuations affecting the Company’s results of operations and the value of its foreign assets, the relative prices at which the Company and its foreign competitors will sell products in the same markets and the Company’s operating and manufacturing costs outside of the United States. 9.

Social, political and economic risks to the Company’s foreign or domestic manufacturing, distribution and retail operations, including changes in foreign investment and trade policies and regulations of the host countries and of the United States. 10. Increased competitive activity from companies in the skin care, makeup, fragrance and hair care businesses, some of which have greater resources than the Company does. 11. The Company’s ability to develop, produce and market new products on which future operating results may depend and to successfully address challenges in the Company’s business. 12. Changes in product mix to products which are less profitable.

Changes in global or local conditions, including those due to the volatility in the global equity markets, natural disasters, real or perceived epidemics, or energy costs, that could affect consumer purchasing, the willingness or ability of consumers to travel and/or purchase the products while traveling, the financial strength of the customers, suppliers or other contract counterparties, the Company’s operations, the cost and availability of capital which the Company may need for new equipment, facilities or acquisitions, the returns that the Company is able to generate on its pension assets and the resulting impact on its funding obligations, the cost and availability of raw materials and the assumptions underlying the Company’s critical accounting estimates.