GROUP

Alba de Vera
Ruiz
Yaiza
Guerrero
Romero
Rebeca

INDEX
EXECUTIVE SUMMARY...........................................................................................................................3
COMPANY DESCRIPTION.........................................................................................................................4
EXTERNAL ANALYSIS..............................................................................................................................5
1.

Macroeconomic analysis:.................................................................................................................5
A.

Beauty Industry............................................................................................................................5

B.

Organic Beauty Industry..............................................................................................................5

2. Industry analysis....................................................................................................................................6
A.

Customers.....................................................................................................................................6

B.

Suppliers.......................................................................................................................................6

C.

Current competitors......................................................................................................................6

D.

Barriers of entry...........................................................................................................................7

E.

Substitutes....................................................................................................................................7

INTERNAL ANALYSIS...............................................................................................................................8
1.

Current trends of the company.........................................................................................................8

2. Resources and capabilities.....................................................................................................................8

COMPETITIVE STRATEGIES..................................................................................................................10
CORPORATE STRATEGIES......................................................................................................................12
1.

Vertical integration.........................................................................................................................12

2.

Diversification................................................................................................................................13

3.

Internationalization.........................................................................................................................14

4.

Justification of strategies................................................................................................................15

INTERNAL GROWTH METHODS...........................................................................................................16

1. Market penetration..............................................................................................................................16
2. Product development...........................................................................................................................16
3. Market development............................................................................................................................17
EXTERNAL GROWTH STRATEGIES................................................................................................18
1. Mergers & Acquisitions.......................................................................................................................18
2. Cooperation agreements (Partners and franchises).............................................................................18
CONCLUSIONS.........................................................................................................................................20
RECOMMENDATIONS.............................................................................................................................21
APPENDICES.............................................................................................................................................22
Appendix 1: Lush Mission Statement.....................................................................................................22
Appendix 2: Resources and Capabilities 1..............................................................................................23
Appendix 3: Resources and Capabilities 2..............................................................................................24
BIBLIOGRAPHY........................................................................................................................................25

EXECUTIVE SUMMARY
In this report we have performed an exhaustive analysis of a company named LUSH
Cosmetics. First of all we analysed the industry this firm is in. It is a cosmetics
company but, as the beauty industry is so big, we narrowed down the scope of study to
focus on the organic beauty cosmetics industry. This would allow us to give much more
specific and in-depth information about the company.
Organic beauty products are more and more in demand today given the fact that people
are now more and more interested in these kinds of products and what ingredients they
are putting on their skin.; which is why we thought of analysing this company to see if
they were really offering what they were promising. This industry shows a lot of growth
potential. However companies entering this market have to take into account that these
customers are very specialised and have knowledge and they will be scrutinised to make
sure they really are organic.
The relationship this company has with its customers makes it very unlikely for them to
switch to another company.
LUSH Cosmetics is growing and we would like to show how its competitive advantage
is based and whether or not it can be maintained through time. In order to do so, LUSH
must keep a sustained and coherent strategy throughout its value chain. One of the main
intangible resources the firm has is its brand name, as it has been able to establish a
close relationship with its customers through the use of it. People now associate it to
fighting animal testing and eco-friendliness, something the company wanted to achieve.

The human resources of the company are also very important, given the constant
addition of new staff and the very specific traits they want them to have. Finally,
something that this company has tried to use in its basic operations is its ethical way of
selling and producing. They are selling a concept, a way of life: vegan, organic and
natural, cruelty-free cosmetics for those who live for these ideas.
We will further analyze other resources and capabilities the company has that helps
LUSH achieve and maintained its competitive advantage. We will give reasoning why
the company is so vertical integrated, as they are in control of producing the products as
well as directly selling them through their retail stores. Furthermore, we will see how
their product differentiation strategy comes into play. All the different aspects we have
mentioned, allow us to have a general and specific view of the company, its operations
and its customers. This report follows a very schematic and easy to follow structure so
that anyone who is interested in knowing something about LUSH can easily guide
themselves through this project.

COMPANY DESCRIPTION
LUSH is a natural handmade cosmetic company founded in 1995 in England. It
operates in the Beauty industry, which is also called Cosmetics or Personal Care
industry. This industry contains many different sectors and Lush Cosmetics competes in
the Natural Cosmetics sector as its mission statement (written below) clearly states this.
We will define the natural cosmetic sector as the one that deals with organic cosmetic
products.
When opening their first store LUSH received the support of the area as they tried to be
close with the community they were in. Moreover, as they already had some experience
with cosmetics for being The Body Shops supplier in the early 80s, in addition to
having a mail order cosmetic business immediately before starting LUSH, they counted
with loyal customers for their products. At that time, however, they were called
Cosmetic House and they made an open competition for customers to suggest a new
name for the company. This is how the name LUSH came to life. It is defined as being
fresh, green, verdant, and drunken women1.
LUSH is globally present, but still maintains the feeling of a small business as they
expand by investing in people that share their ideas. As Lush itself says: when we
expand we employ more people not machines 2. So, the human factor in this company
is decisive for its growth internally as well as externally. They hire and do business with
people that engage in their beliefs. They are very strict about what they believe in and
they are so successful because Lush partners itself with people with the same principles.
The company has clear ideas of what it is they want to achieve. Its mission statement
is specified in Appendix 1.

1 Our History. (2014). [online] Available at: http://www.lushusa.com) [Accessed

12 Nov. 2014].
2 Lush Sg, (2014). History of Lush. [online] Available at: http://www.lushsg.com
[Accessed 12 Nov. 2014].
3 Lush U.S.A, (2014). A Lush Life. [online] Available at: http://www.lushusa.com [Accessed 25 Oct.
2014].
4

EXTERNAL ANALYSIS

At this point, it is essential to carry out an study of the general characteristics of the
environment as well as to see the general trends of the industry and the market LUSH
competes in. We will do this by doing a macroeconomic analysis and a later competitive
environment analysis by using Porters 5 Forces Model.

1. Macroeconomic analysis:
A. Beauty Industry

There has been a mean growth of 3,82% in the last 10 years in the Cosmetics Industry
according to the data provided by Statista4. There is a distinction that should be made at
this point: Growth is not evenly distributed by region. On one hand, North America and
Europe are considered to be in the mature stage with a value growth of +1,9% and 1,3%
respectively. On the other hand, South America (+12,0%), Africa (+13,0%) and Asia
Pacific (+6,0%) are the areas with the highest growth rates5. The latter is the one with
the highest value in 2013 (US$129 billion). So, growth is concentrating on emerging
countries. Moreover, a growth increase is expected in the next forty years due to a raise
in population in those areas according to the forecast by the UN in its 2012 revision 6. As
Irina Barbalova explained in her session in the In-Cosmetics 2014, the countries
showing the highest absolute growth are Brazil and China with more than doubled of
that of the US (3rd in ranking). There exists a lot of brand loyalty for hair and skin care
products, which implies that, for other cosmetic products, people tend to buy similar
products but at lower cost.

B.

Organic Beauty Industry

4 Statista, (2014). [online] Available at: http://www.statista.com/ [Accessed 28 Oct. 2014].

5 Barbalova, I. (2014). The multifaceted evolution of global beauty. Euromonitor international- Incosmetics
6 The 2012 Revision of the World Population Prospects, United Nations, Department of Economic
and social affairs. (2014). [online] Available at: http://esa.un.org/wpp/ [Accessed 3 Nov. 2014].
5

Organic beauty products are in increasing demand. During the last years there has been
a steady growth and, according to a market report, published by Transparency Market
Research published in June 26th 20137, the compound annual growth rate for the period
2012-2018 is expected to be 9,6%. This may be due to the increasing concern about the
chemicals we use on our skin in a daily manner as well as better distribution channels.
Sustainability is becoming a matter of major importance too. However, it is still
expected to be a niche market in developed countries. Organic cosmetics in emerging
countries will increase sales in the near future and are considered to have market
potential. So, after analyzing its trend, we can conclude by saying that this sector is in
the growth stage.

2. Industry analysis

As the cosmetics and beauty industry is so large and varied, we have narrowed our
scope of study and centred our efforts in the natural and organic cosmetics sector of the
industry. Therefore, our analysis and the data collected is specific to organic cosmetics.
We have carried out Porters Competitive Forces Model in order to better understand the
external environment of Lush Cosmetics. In this way, we can analyse the potential of
this sector.

A. Customers
As the natural cosmetic industry is very specialized, target customers are a niche of the
whole cosmetic industry. In this way, customers do not have much power as they are
considered organic lovers. Most products available in the market are not organic so
natural products are highly differentiated and, as such, customers are willing to pay a
premium price for them. Buyers, then, are not competitive among themselves because
not everyone can afford these products. Therefore, companies are not concerned about
this particular and they are not interested in reducing prices. However, customers have a
relatively high bargaining power thanks to their knowledge and concern about the sector
and the different available companies. Suppliers are not threatened by this power as
buyers do not have a lot of opportunities to switch to another similar product.

B. Suppliers
7 Organic Personal Care Products Market for Skin Care, Hair Care, Oral Care and Cosmetics Global Industry Analysis, Size, Share, Growth, Trends and Forecast, 2012 - 2018. (2013).
Transparency Market Research, (6th June).
6

There are not many established companies in this industry; so, the number of suppliers
required for this industry is relatively small. This means that there are many different
farmers that can provide the necessary raw materials to those companies. So, in the
general market we would say that suppliers do not have a lot of power. Usually it is
impossible for companies to perform this service by themselves; so, they tend to buy
directly from suppliers to avoid intermediaries and incur in an unnecessary cost.
Despite this market situation, suppliers for LUSH do have bargaining power due to the
thorough specifications of the company when contracting with third parties. So, LUSH
looks for very specific suppliers all over the world that has to be within a radius of its
factories. Some of these suppliers are found in very rare places with very rare products.
In this way, if any of them decide to change prices or bargain certain things, these
decisions impact the company a lot. Thus, in this case, suppliers are price sensitive and
do have high bargaining power.

C. Current competitors
The cosmetic industry is a very concentrated competitive market. However, the natural
cosmetic industry does not have as much competition. Some beauty cosmetics company
include: Johnson & Johnson, The Body Shop, Bath and Body works, Boots, Basi and
Elegant Rose Boutique8. The firms belonging to the organic sector are very diverse in
terms of target customer and target market. So, there is a high product differentiation
and as such, there is low competition price wise. The Body Shop is considered the most
direct competitor of LUSH.
The natural sector is now becoming the driver for growth in mature markets as it is
highly competitive but not many companies belong to it9.

D. Barriers of entry
In the natural cosmetic sector, there are less barriers of entry due to a possible retaliation
by existing companies like LUSH and The Body Shop. This is due to the fact that the
access to distribution channels is available.

8 Etsy, (2014). ElegantRoseBoutique. [online] Available at:

https://www.etsy.com/es/shop/ElegantRoseBoutique [Accessed 10 Nov. 2014].
9 Sims, D. (2014). Natural ingredients drive growth in cosmetics and toiletries. [online]
Marketresearchworld.net. Available at: http://www.marketresearchworld.net/content/view/348/77/
[Accessed 10 Nov. 2014].
7

On the other hand, it is a very defined segment where companies are quite big and have
established relationship with charities and anti-cruelty organizations. This gives them
some competitive advantage over newcomers as customers of this market are very
aware and focus on these issues. Moreover, there is a tendency towards natural, organic
and vegan products due to an increasing health concern. In this way, customers tend to
create a strong relationship with products and be true to them. Moreover, in order to
enter in this market it is required that companies have a huge capital investment due to
the size of companies already operating in it. This is also influenced by the help time
has given them to establish themselves in the market.

E. Substitutes
There are different possible substitutes. One can be cosmetics that are not organic or
natural as they are indirectly competing with LUSH as they belong to a different
sector. Also customers can find in this sector companies with cheaper products which
may not take into account animal rights and eco-friendliness. There are also some
products that are more common and less innovative that are easier-to-use like those
offered by famous makeup brands. Additionally, there are some small manufacturers
that sell products through the Internet that are 100% natural; per contra, people tend
not to trust them as neither their costs nor products are normally certified. We believe
that this last group does not entail a risk to LUSH, at least, in the short-term.
Nonetheless, there are some competitors that offer home-made products too. An
example of this would be a small company named Basin10.
However, not many brands have such a strong association like LUSH has with its own
product design and organic contents. This has made its customers loyal to LUSH brand
with less propensity to substitute and switch to another brand.

10 Muse, T. (2007). Basin: A Cheap Alternative to Lush. [online] Musings of a Muse. Available at:
http://www.musingsofamuse.com/2007/09/basin-cheap-alternative-to-lush.html [Accessed 10 Nov.
2014].
8

INTERNAL ANALYSIS
1. Current trends of the company

There is no hard annual data available to the public about the actual growth rate of
LUSH company. However, there are certain articles that talk about double figured
growth sales for some periods. It was announced by LUSH that sales for Christmas
2013 were up by +13,4% (...) with like-for-like growth of 12,2% (...) and annual growth
by June 30th 2013 +11,3% up on the previous year11. It is also very relevant to mention
that they are opening new stores every year in many different countries. The has been a
growth of +25,37% of stores between 2010 and 2013 and they were present in 51
countries by 201312. There has been an increase of +26,97% in the number of employees
between 2010-201313, and +9,6% between 2010-2011 despite the fact that there was a
decrease in the market that year due to Japan and the devastating natural forces that
destroyed part of the country. Moreover, even though LUSH believes in short term
product life cycles (they enforce this outcome in order to maintain innovation and onseason products), the company had a 3,9% of like-to-like growth according to Kaleigh
Wattersons article (10 April 2012). So, after this analysis, we believe the company
LUSH is currently in the growth stage.

2. Resources and capabilities

LUSH has to leverage its tangible and intangible resources and its capabilities to
implement a strategy to compete in the natural cosmetic industry which are explained
below and summarized in Appendix 2.

The main tangible resources LUSH has are its differentiated products. In turn this
involves other tangible resources such as the ingredients they use, in other words the
11 Rigby, C. (2014). Multichanel helps fuel growth at Dunelm and Lush. [online] (January 7th).
Available at: http://internetretailing.net [Accessed 8 Nov. 2014].
12 Lush Cosmetics - Lush. (2013). 1st ed. [prezi Available at: http://www.lush.com [Accessed 1st
Nov. 2014].
13 Watterson, K. (2012). Encouraging year for cosmetics retailer Lush. South West News. [online]
Available at: http://www.insidermedia.com [Accessed 2 Nov. 2014].
9

companys suppliers. Another crucial tangible source is their vertically integrated chain,
specifically production laboratories and the handmade manufacturing processes, and
research; and its stores, which are quintessential for the purchasing experience.
In terms of intangible resources LUSH had a relevant knowledge of the sector, as its
founders were first customers, and then turned into suppliers, and finally retailers of
their own products. The greatness of its products also helped them to develop their
incredible customer loyalty, which is one of the companys main intangible resources.
This also helped to build up the LUSH brand, an intangible asset that helps customer to
recognize the company and what it stands for.
In terms of human resources the sales force and the innovation team are both core for
the company, as LUSH is known for the continuous addition of new products or
seasonal lines, and about the purchase experienced.

The vertically integrated chain allows them to develop better research and innovation
capabilities as they have greater control over their products and the manufacturing
process and know what is wrong and what could be improved. This paired with the
global reach and number of stores opened also helps to boost the companys efficiency
in volume at manufacturing capability, as it is its own supplier. As well, this vertical
integration helps the company to get direct feedback from stores about products, what
customer likes and dislikes and trends and hence help them to develop its design
capability.
It is also remarkable the excellent customer service provided by the sales force and
workers of the company as mentioned before, as they even implemented an online
channel where customers can chat with an employee about anything related to the brand

In order to compete in this industry a company needs to offer natural, hand-made

products that work, be transparent with customers in relation to its suppliers, provide
products for both women and men and having a proper sales force. As it was mentioned
before LUSH complies with every of these requirement and even exceeds them.
LUSH cosmetics not only offers what was previously mentioned to its customers, but
also they add to its business offering its ethical paradigm, as they not only want its
customers to use safe products, but also they want their products to be made and
consumed ethically, not being pre-tested by animals and by not being packaged in
plastic cans (or if so is necessary make you return them back to LUSH stores so they
can reutilized them). Hence they are not only selling the products but they are also
selling a concept, a way of life. They want people who live for vegan and organic
products. That means they have a very specific, loyal fan base of fanatics apart from
10

normal customers who buy regularly but because they like that it is natural and
handmade not that it is a way of life.

Hence it could be concluded that in terms of appropriation of profits LUSH holds a

strong position, as the company is its own manufacturer and retailer, hence the company
control the supplier margins and set the retail prices accordingly. As previously stated,
the price is higher than in other cosmetics stores but equal or lower in relation to other
organic cosmetics businesses. As it was shown in the Porter 5 forces analysis, the
consumers do have knowledge about the industry and hence require high quality
products, but apart from that the consumer has no power to alter the prices. Indeed that
power is so low, that the company does not even offer discounts in sales period. Thus it
could be said that the company is actually the one that appropriates of the profits due to
the low negotiation power of customer and its vertically integrated production chain.

COMPETITIVE STRATEGIES
A company can either follow one of the following strategies: cost or differentiation
strategy. With the former, what the company wants to achieve is the greatest possible
profit margin for the company by decreasing the cost of producing the good. On the
other hand, with the latter, the company wants to make a product that is considered
unique by customers and so they would be willing to pay a premium price for it.
LUSH cosmetics clearly follow a differentiation strategy as most of the companies in
the sector do, as quality or the appearance of high quality is quintessential to compete in
the industry. As previously mentioned LUSH complied with every must-have the market
required to compete in the market and exceeds such compliances. The company offers
its customers (both genders) a unique product with striking design and elegant packing
paired with an excellent customer service at a premium price in stores located in prime
areas. The company also enjoys advantage relative to their competitors in terms of
producing as it produces its own products and had worked as a supplier of one of the
fiercest competitors, The Body Shop, before setting up the current retail business14.
The most relevant aspect of their differentiation strategy is the uniqueness of its
products, as each of them is 100% handmade, an unusual practice in the cosmetic
14 Lushusa.com, (2014). Our History. [online] Available at:
http://www.lushusa.com/Our-History/about-history,en_US,pg.html [Accessed 10
Nov. 2014].
11

industry, even in the natural sector, and 70% had no preservatives 15, which also
differentiates its offer from the non-natural cosmetic sector. Indeed in their products
they add a sticker to every product with a picture of the producer, its name and its
expiry date, to remind customers how close the company is to them, how fresh are its
products and how transparent it is in its production process.
They also have products that are not usually offered in the industry such as solid
shampoos, deodorants, conditioners and sun creams and body butters and shower
creams, and have seasonal limited lines of products, one for spring, for Valentines Day,
for Christmas, for summer, etc.
The design of the packing also plays a relevant role. Some products are sold naked (nopackaged), such as the solid line, as they believe packaging is not needed and they
would like to be consistent with their environmental and ethical business paradigm.
However other products require packaging. The design of such packs is inspired on
elegant MACs products, a cult cosmetics brand only dedicated to makeup, to remind
the customer that the brand is not only good for you but it is also trendy and elegant.
Also they want to be as consistent as possible so they encourage their customer to give
them back their used packs, for a free face mask 16, so the company could clean them
properly and reuse them again.
The company also trained its employees so that they could better help customers, not
only by encourage them to offer clients the products they look for but also by teaching
them what is good for them, what they need regarding their skin type, their hair, etc.
They also let you try any product in the store and they even arranged free workshops to
teach customer to build their own products.
So it could be said that LUSH does not only offer natural cosmetics products but a
experience to its customers, as buying a soap in LUSH is not the same as buying a soap
in a competitors store. The store is specifically designed to make you feel comfortable;
it is made of wood, products are displayed in a strategic way and the sales people would
approach you to help you and let you try your soap before buying it and give you a
sample for free of any product you would like. That is the rationale behind their
premium prices. The price set is less than the products of companies such as the Body
Shop, but more than the offerings of local competitors and supermarkets as they are
organic and stand for something else than a natural product: they are LUSH products;
products that are not tested on animals and attempt to be as environmentally friendly as
they could be. They are products that you enjoy using and buying.
Regarding the marketing efforts of the company, LUSH does not invest a lot on
marketing as only 15% of their annual profit is devoted to marketing, which a low
15 Icmrindia.org, (2014). Innovative Marketing Strategies of Lush Fresh Handmade Cosmetics |
Marketing Case Study|Case Studies. [online] Available at:
http://www.icmrindia.org/casestudies/catalogue/Marketing/Innovative%20Marketing%20StrategiesLush%20Fresh%20Handmade%20Cosmetics-Case%20Studies.htm [Accessed 7 Nov. 2014].
16 Lush.es, (2014). Mascarillas Frescas. [online] Available at:
https://www.lush.es/shop/product/category/path/154_213/mascarillas-frescas [Accessed 9 Nov.
2014].
12

percentage in comparison with the industry17. This is because they rely 100% on wordof-mouth, as their customers are usually pretty enthusiastic about the brand, they even
create blogs and YouTube channels18, and their store location would let them reach their
target segment.
It is remarkable that they also have a strong control over the production chain, as they
produce every item they sell, which assures the quality of its offering. Also this vertical
integration lets them innovate and offer their customer seasonal lines and the latest
trends at the highest speed.
In Appendix 3 those strengths that makes LUSH a differentiated firm within the
cosmetics market are summarized.

CORPORATE STRATEGIES

We would like to analyze the different corporate strategies that LUSH does. They all are
related to the to the differentiation strategy this company is implementing. As
previously mentioned, it is related to the fact that they offer hand-made natural and
organic products. So, this source of differentiation is given by the ingredients the
company uses and its production process. In order to enhance the image of the company
to third parties against animal testing, they carried out some campaigns and protests.
This strategy is also used to promote its 100% vegan, natural and organic products.

17 Lush Marketing Plan. (2014). [online] pp.3-14. Available at:

http://jennyku.weebly.com/uploads/1/5/4/4/15443052/lush_marketing_plan_final.
pdf [Accessed 10 Nov. 2014].
18 Lushies.dreamwidth.org, (2010). lushies | Recent Entries. [online] Available at:
http://lushies.dreamwidth.org/ [Accessed 15 Nov. 2014].
13

1. Vertical integration

This company has integrated vertically; most specifically, forward. The story of this
company has its origins many years ago when it was the supplier of the company The
Body Shop. During the 1970s, they made the natural products. The company then
realized that it had an opportunity and created a mail order company. It then went on to
create LUSH and decided to carry on making the products themselves as they had
before, but now they were going to sell them in their own retail store.
They were now involved in production, marketing, finance, research and development,
distribution, customer care and selling. This company is a single integrated company.
The scope of integration is vertical as well as being widely scoped in terms of products.
The number of products this company has is big, but also the different products it has is
big. Its product catalogue includes a variety of products such as: bath bombs, bubble
bars, gels, shampoos, make up, dyeing products and soap bars. The company has tried
to obtain a really wide scope of products. LUSH is present in many countries around the
world and, as it is an integrated company, each product, unit and country it operates in is
not independent but linked to one another. With this integration, there are some benefits
that LUSH accomplishes:

1. LUSH avoids certain transaction costs as it does not depend on other companies
to provide something for it. Moreover, it does not have to deal with the limited
information they give them or that is available.
2. Coordination among the processes is bigger because they have everything under
their control and can fix a problem when it appears.
3. The quality of the products is assured and certified by the company. This
integration increases the perception of quality given through differentiation.

The reason why they chose to integrate forward was the control of selling. They did not
want other companies to present their products as something they were not. We have to
take into account that this company is very concerned with transmitting natural values.
They created the stores so they could show the world that it was possible to create these
kinds of products with strong beliefs and live by them in every aspect of the
organization.

14

2. Diversification
Ansoff defines diversification as a strategy that consists on market new products into
new geographical markets or to new customer segments19.

LUSH diversified into new products inside the market for natural products. They do not
have any other company or brand associated to them, giving strength to its brand
through all its products. Therefore, we have established that the kind of diversification it
has is in the products it offers. As all of them are related into the same sector, the
company transfers know-how, innovation and other certain capabilities. In this way we
can say that LUSH wants to achieve economies of scope through related diversification.
They started by offering soaps and bars and they now have a very wide, diversified
product range. They share the operations in the production of some products but, as they
change the kind of product they have produced (like from soaps to make up), there have
been changes. The reason for the diversification of products has to do with the fact that
the company started getting more demand. LUSH saw that it had a big and varied
customer base with high potential; so, it had an opportunity to expand its product ranges
and start introducing itself in new scenarios. When they decided to try out a makeup
line; people were a bit wary about this because of the big change in product. Makeup
implies that certain chemical processes have to be performed to create a makeup
product which means than by doing so they could not certify its organic or natural
status20. There were also some packaging issues of the cosmetic products as now
products could not be naked like the soap bars and their other offerings21.

Despite this, LUSH is not a very well diversified company in terms of products as it
only focus in cosmetics (beauty care and make up), however it did diversified its
product offering once in a wider range. As it is quintessential to offer products for both
genders in the cosmetics industry, LUSH developed a mans line to attract this new
market segment. This line contains products LUSH did never produce before as shaving
19 Yourarticlelibrary.com, (2014). Business Strategies: Internal Growth and External Growth
Strategies. [online] Available at: http://www.yourarticlelibrary.com/business/business-strategiesinternal-growth-and-external-growth-strategies/7518/ [Accessed 1 Dec. 2014].
20 Chua, J. (2014). LUSH Launches Vegan-Friendly Emotional Brilliance Makeup Line. [online]
Ecouterre.com. Available at: http://www.ecouterre.com/lush-launches-vegan-friendly-emotionalbrilliance-makeup-line/ [Accessed 21 Nov. 2014].
21 Muse, T. (2012). Lush Emotional Brilliance. [online] Musings of a Muse. Available at:
http://www.musingsofamuse.com/2012/06/lush-emotional-brilliance.html [Accessed 26 Nov. 2014].
15

cream22 .This line has been further developed and now shares a relevant amount of
products with the female line.

This strategy provides the company with resilience against low sales from other
segments, as it diversifies the revenue base of the company. Nevertheless the share of
mens line is quite low compared with the female line.

3. Internationalization

LUSH is currently present in over 50 different countries with more than 900 stores
worldwide23 in places like US, Taiwan, New Zealand and Norway. It believes in its
international growth potential and expects to further increase its global presence. For
example, LUSH is finishing a factory in Brazil to expand its business in South America.

When expanding, LUSH wants to create a long-term partnership with the selected
people for that first store in a chosen region. As they desire a successful business, they
give that first partner exclusivity of LUSH products in the country. So, in LUSHS own
words: this helps our business partners to be confident that they can invest in the
business without the fear of competition from another LUSH store opening nearby 24. In
this way, when they want to increase their presence in one country they asked
permission to those partners to establish franchises in those countries. This creates an
important relationship between LUSH and its stores as they jointly decide how to reach
a specific area since they both jointly share the management and profits of each store.

22 Lush.es, (2014). Hombres. [online] Available at:

https://www.lush.es/shop/product/category/path/216_1044/hombres [Accessed 8 Dec. 2014].
23 Lushcountries.com, (2014). Lush International Partnerships, Franchises and Job Opportunities.
[online] Available at: http://www.lushcountries.com [Accessed 9 Nov. 2014].
24 Lush Marketing Plan. (2014). [online] pp.3-14. Available at:
http://jennyku.weebly.com/uploads/1/5/4/4/15443052/lush_marketing_plan_final.pdf [Accessed 10
Nov. 2014].
16

LUSH encourages people that share its ideas and are excited about LUSH products to
get in contact with them letting them know their home country. In this way, when
opening a store they have enthusiastic people in charge of the new business. Once that
LUSH believes it is in a position to open that country as a market (they want to expand
to that area), it contacts those candidates that meet certain requirements in order to select
who is going to be its new partner. So its international expansion follows markets LUSH
sees as a potential while at the same time follows demand of people who want to own a
LUSH store.

LUSH follows a multidomestic growth strategy when locating its production

laboratories. It builds factories with some location advantages, such as, relatively near
suppliers of raw material as their cooperation is essential for manufacture. In this way
LUSH is able to maintain fresh products as well as on season ingredients. Each one
supplies some surrounding countries; for example, the laboratory in Canada supplies the
North American markets. They adapt their products according to the available raw
material in the area, as they buy locally. This is why you can find different LUSH
products according to the country you are in, as well as varied shapes as it is up to
manufacturer.. Although recipes are shared among them, not always they can find same
products at the same time. So, they do not only have production but also research and
development can be found in each production laboratory. In this way, they can
experiment and find new LUSH products through the raw materials acquired. However,
LUSH owner, Mark Constantine, is personally involved in every product and so he is
the one making the final decision.

4. Justification of strategies
After analyzing all of LUSHs corporate strategies, we have come to the conclusion that
all of them create a value for the company. They make the company available and
present in as many places as they see fit. By this higher exposure, awareness of natural
cosmetics increases, increasing demand for these products. So, more sales in every store,
means more revenue for the company.
They are able to widen its customer base as they have a product for every type of
woman which is translated into higher sales. Moreover, more satisfied customer
increases the word-of-mouth promotion which is how they like to be known for. This
also means more loyal customers to the brand.
Thanks to vertical integration, the company has more market power. This can give rise
to less direct competition and a future barrier to entry.
These strategies have worked very well for the company given the fact that LUSH is
still going strong into the market with an impressive growth. Another data that
17

encourages this idea is the gain in customers who are attracted to their wide offers,
unique products and strong beliefs.

INTERNAL GROWTH METHODS

Following the Ansoff Products/Market Matrix LUSH internal growth strategies could be
summarized as follows:

1. Market penetration

18

Market penetration consists on gaining market share by just offering the same products
to the same markets, in other words make usual clients consume more of their current
product offering or making clients buy more often those products 25. The seasonal lines
(summer, Valentines Day, Christmas, Halloween) are formed by products that have the
same formulas as existing ones but they change either the smell, the colour or sell some
of the current products cheaper as a pack. This might be a clear example of LUSH
market penetration strategies.

However there is no actual data about if LUSH is attempting to engage in such

behaviours, but the companys sales force is being promoted to do so. The sales force is
trained to and would always recommend you the best conditioner for the shampoo you
are buying or the best facial cream for the cleanser the client is buying.

Hence the company might not set as an objective to its partner to implement a market
penetration strategy per se, but since it is profitable for both the store owners are
actually promoting such behaviours in their sales force and keeps offering clients the
seasonal lines to motivate them to buy more. The only drawback that sales behaviour
could draw is consumer feeling pressured by sales force to buy more or consumers
perceiving that intense help as marketing, and perhaps feeling disappointed with the
brand, as LUSH is not the typical brand that promotes consumerism for itself, and hence
diluting the brands equity.

2. Product development

A product development strategy consists on offering new products to the same

markets the company used to operate in26.

LUSH does engage in this behaviour pretty often as it is an innovative firm with a
relative high speed to market that wants to stay ahead regarding new trends in the
25 Yourarticlelibrary.com, (2014). Business Strategies: Internal Growth and External Growth
Strategies. [online] Available at: http://www.yourarticlelibrary.com/business/business-strategiesinternal-growth-and-external-growth-strategies/7518/ [Accessed 1 Dec. 2014].
26 Yourarticlelibrary.com, (2014). Business Strategies: Internal Growth and External Growth
Strategies. [online] Available at: http://www.yourarticlelibrary.com/business/business-strategiesinternal-growth-and-external-growth-strategies/7518/ [Accessed 1 Dec. 2014].
19

market. It is well known for releasing new disruptive products to its loyal customer
base. Last year it presented its new thooty tab line 27, this summer LUSH started to sell
its new sun care28 solid line and last month it added 6 new solid shampoos to its solid
line collection29. It is also remarkable that now LUSH is attempting to deeply cover their
customer needs by not only providing them with products but also offering SPA
treatments. LUSHS new service to its actual customer base. Last year LUSH opened
one at New York30 and last month it opened one in Madrid31.

LUSH pretends to be part of every step in its clients beauty care routines, and that is the
rationale behind offering their products through a SPA service. However LUSH might
be sure that their partner are prepared to provide this service and to do so at the LUSH
quality level, with the best workforce and using their products, since it is again the
brand that might be damaged if this new add-on does not comply with LUSH high
standards.

3. Market development

Market development strategies consist on offering existing products to new markets,

being those new geographical areas or new segments in the market.

27 Lush.es, (2014). Dentfricos. [online] Available at:

https://www.lush.es/shop/product/category/path/154_225/dentfricos [Accessed 1
Dec. 2014].
28 Lush.es, (2014). Cuidado Solar. [online] Available at:
https://www.lush.es/shop/product/category/path/154_1107/cuidado-solar [Accessed 8 Dec. 2014].
29 Lush.es, (2014). Champs Slidos. [online] Available at:
https://www.lush.es/shop/product/category/path/147_148/champs-slidos [Accessed 1 Dec. 2014].
30 Lushusa.com, (2014). Lush Spa. [online] Available at:
http://www.lushusa.com/on/demandware.store/Sites-Lush-Site/en_US/Page-View?cid=lush-spa
[Accessed 8 Dec. 2014].
31 El mundo, (2014). Un spa para los cinco sentidos en pleno Madrid. [online] Available at:
http://www.elmundo.es/yodona/2014/11/15/54673bb8ca474189378b456e.html [Accessed 1 Dec.
2014].
20

Regarding geographical markets, LUSH is currently engaging in an internationalization

strategy, as previously mention, so it is clearly implementing a market development
strategy in this sense. Regarding a new market segment, LUSH does not seem to have
changed its brand image or product offering to attract new customer segment within the
market.

This strategy allows LUSH to grow at a rapid phase and gain global market share,
increase their revenue and reduce its risks in terms of revenue. Even though LUSH does
assure that the essence of the brand is imported in eer new store, no matter where it is,
LUSH expansion strategy is risky in the sense that the degree of control the company
has over its overseas operations is quite low, as stores are operated by partners.

EXTERNAL GROWTH STRATEGIES

In terms of external growth strategies LUSH does not consider Mergers and acquisitions
and Joint Ventures as a way of expanding its activity. LUSH usually enters into
cooperation agreements to do so.

1. Mergers & Acquisitions

LUSH Cosmetics does not expand its activity through mergers and acquisitions. As it
was mentioned previously, LUSH external growth is mainly driven by partnership
agreements with one or several people in the countries it is currently or would operate
in. The rationale behind this decision is pretty straight forward, LUSH cosmetics wants
to preserve its image around the globe (even though it might vary a little among
countries). By implementing those partnerships the brand would have the necessary
local knowledge in order to successfully adapt to the new country, from the partner that
is operating the store. Hence, there is no need to merge with other competitor in a
foreign market to gain local insight, as the partner would provide such. As well, LUSH
does not need extra resources that could be provided by an external party, as the
company is vertically integrated and sells itself its products through the partner.

21

Hence, a M&A strategy seems not to be the adequate choice for LUSH to expand its
activity overseas, as it reduces the company control and at the same time require the
company to incur in costs and take risks that the company might not be willing to. This
higher degree of control gives LUSH the opportunity of presenting its products with its
values.

2. Cooperation agreements (Partners and franchises)

The external growth of LUSH cosmetics is mainly driven by cooperation agreements
called partnership agreements and sometimes by franchisees 32. As previously
explained, LUSH would enter a new country if there is a partner that is willing to import
the LUSH brand in the country. Such partner would be the one allowed to open a store
in that area and would be in charge of the brand in that area. If the partner wants to open
a new one it would have to ask for LUSH permission previously. LUSH might also
enter into a franchisee agreement with independent parties in a country where a partner
is already in business, if such partner agrees.

The rationale behind this growth method might be the following: These methods let the
company enter the market better as it has local insight to adapt its strategy to the
country, LUSH does not incur in the costs and risks and costs of opening a new store in
a foreign country they do not know and it let LUSH to expand quickly as such
expansion is implemented by others. However, this strategy reduces the control the
company has over its brand overseas and the profits, as they have to be shared with the
partners.
Hence it could be concluded that this methods aligns with the company corporate
culture, as it implies cooperation between partners to better perform a business. The
company acknowledges that it does not have the local knowledge or does not want to
take the risk to expand its activity in a foreign country with different culture and
different consumption habits. This is why it contacts with someone is willing to take the
risk and embody LUSH spirit in a new country. This strategy creates value for both the
company and the prospective partner, as it expands LUSH activity around the world,
diversifies its revenue base, increases its global market share, and offers their customer
a global network of stores. As well, this benefits the partner that learns from LUSH their
techniques, adapt them to their local customs and have the power to expand the store
network in that country and even concede franchises to other in the area.

In terms of cooperation agreements is also remarkable that LUSH has different

agreements with local farmers to buy their raw materials from them and that participates
with several NGOs to promote their activity by advertising them in their webpage or
32 Lush Fresh Handmade Cosmetics. (2014). 1st ed. [ebook] Available at:
http://www.lush.com/lush/Intl_Partner.pdf [Accessed 29 Nov. 2014].
22

even developing some products for the cause (as it is charity pot, a fair trade body
lotion33)

33 Lush Fresh Handmade Cosmetics. (2014). 1st ed. [ebook] Available at:
http://www.lush.com/lush/Intl_Partner.pdf [Accessed 29 Nov. 2014].
23

CONCLUSIONS
The natural cosmetics sector is a market with expected growth potential due to an
increasing awareness of healthier ingredients on our skin. Due to its experience LUSH
is an important player in this industry. Hence, it is experiencing an extraordinary growth
too.
A higher customer base in this segment does not translate into a universal customer
base; and so, it is still a niche market. Despite this fact, LUSH has been able to obtain
loyal clients that interact with the firm in a positive way. They are enthusiastic about its
products and this is the reason why the positioning of this company is so unique.
Customers are fanatic about LUSH ideals and products and they are the ones that
carried out most of the marketing through word-of-mouth.
LUSH is characterized by its naked, hand-made, organic, colourful and short-lived
products. It emphasizes its product differentiation through various causes that remark
what the company stands for. These public demonstrations can give rise to controversial
opinions as LUSH devotes a lot of time and effort to them. LUSH also uses them as a
promotional method.

In order to easily manage and coordinate every activity in the value chain of LUSH, it is
highly vertically integrated. LUSH buys the raw material and then does in-house every
other step of the process. This integration gives LUSH the opportunity of better
matching its values with its products as everyone in the process is highly committed to
them.

Overall, LUSHs strategies work for the firm because they are closely linked to their
stated beliefs and because the company leverages every resource and capability it has to
this vision. Every decision and way of acting of the firm is related to its mission
statement which communicates its values. LUSH creates a particular behaviour that
customers replicate and are willing to live for. LUSH does not only sells products but a
way of life, and its strategies and the implementation of such show this idea.

24

RECOMMENDATIONS

LUSHs major points for improvement are the following:

First of all, it is the lack of a proper marketing department. The company does not use
an actual marketing campaign because it has relied on the word-of mouth of many of its
clients. It has a very loyal clientele and they were in charge of promotion, but that
cannot be sufficient now for a company as big as this one. It needs to invest a lot in
marketing given the size of the company. LUSH has also relied on the publicity the
media gave the company any time that LUSH decided to participate in an anti-animal
testing campaign, a green peace intervention or something along those lines. People
would hear and know about the company, even if the image they transmitted was not all
that favourable.

25

This leads us to the second aspect to consider: the radical image and publicity of the
company previously mentioned. LUSH is a professional and serious company that has
had to work hard to get where it currently is (both in size and presence over the world),
but the constant media attention and controversial acts and campaigns, gave the
company a negative and rebellious image. People knew LUSH because of the protests
and critics. LUSH has to consider that, although their intentions are good, not everyone
follows their cause and may not understand or agree with what they are trying to
convey. LUSH has to show people the more vibrant, fresh and young side of it: sparkly
colours and funky products that they will not find anywhere else, delicious smells,
uniqueness and a whole spa experience. The mass population is not very aware of who
LUSH really is and what they have to offer, and we believe that should change.

Finally, another aspect they should consider reviewing is the size and scope of its
customers. The company has to put effort and money into marketing towards new
customer types, not only specialised ones, because there are many potential clients out
there that could easily be interested in the products LUSH offers because the products
are top quality, smell good and are very good for the skin. Maybe these customers are
not as interested or bothered about the fact that they are natural or organic. They may
like it because they are pretty and funny. These customers should also be taken into
account and targeted. It is true that LUSH has a lot of customers who are not that
worried about animal cruelty or gender equality issues, but we do believe that LUSH
should do more to get in touch with these more normal clients who are buying there
because it is the latest fad or because a very popular you tuber recommended it. Most
teenage girls are inside this category given they are the ones mostly into beauty and skin
care.

26

APPENDICES
Appendix 1: Lush Mission Statement

27

Appendix 2: Resources and Capabilities 1 that enable Lush to implement a

differentiation strategy

28

Appendix 3: Resources and Capabilities 2 of LUSH

Tangible Resources
Differentiated products (solid shampoo, perfumes, sun cream, etc.)
Supplier base (high quality ingredients they use and the relationship with its
providers)
Production laboratories and the handmade manufacturing processes
Research facilities
Stores (The store concept and the real state, premium location)

Intangible Resources

Knowledge and experience in the industry (as it started as a supplier)

Customer Loyalty
LUSH brand

Human Resources: sales force and research team

Capabilities

Research and innovation capabilities

Efficiency in volume at manufacturing capability (as the company has a extensive
global reach and it is vertically integrated)
High speed to market as it its own supplier
Excellent customer service

29

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