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CASE STUDY - ESTEE LAUDER COMPANIES INC

DEPARTMENT OF MANAGEMENT STUDIES

BUSINESS STRATEGY AND POLICY

- MGMT3031
SEMESTER II 2012-2013

ESTEE LAUDER COMPANIES INC

CASE STUDY - ESTEE LAUDER COMPANIES INC

TABLE OF CONTENTS
INTRODUCTION .......................................................................................................................... 2
Background ................................................................................................................................. 2
EXTERNAL ASSESSMENT ......................................................................................................... 3
Opportunities ............................................................................................................................... 4
Threats ......................................................................................................................................... 4
Competitive Profile Matrix (CPM) ............................................................................................. 4
External Factor Evaluation (EFE) Matrix ................................................................................... 4
INTERNAL ASSESSMENT .......................................................................................................... 5
Strengths ...................................................................................................................................... 5
Weaknesses ................................................................................................................................. 7
Internal Factor Evaluation (IFE) Matrix. .................................................................................... 7
STRATEGIES................................................................................................................................. 7
SWOT Matrix (work in progress) ............................................................................................... 7
REFERENCES ............................................................................................................................... 8
APPENDICES ................................................................................................................................ 9

CASE STUDY - ESTEE LAUDER COMPANIES INC

INTRODUCTION
Background
Josephine Mentzer, Estee Lauder, founded Estee Lauder in 1946 along with her husband
Joseph Lauder. Her initial product offering consisted of only four products Creme pack,
cleansing oil, all purpose cream and skin lotion. These products were developed by Mrs.
Lauders uncle John Schotz who was a chemist. The company initially sold skin care products to
beauty salons and hotels in the New York area. From there the company used direct marketing
to its customers before changing its target market to prestige customers.
Changing its target market to high-end customers also meant changing its marketing
strategy. The company started selling its products exclusively through boutiques and department
stores. Estee Lauder entered this new high end market through Saks Fifth Avenue in New York.
In 1960, the company globalised its operations by launching its products in London. The
companys overseas sales now make up over 60 percent of its business. In 1964, Estee Lauder
expanded its product lines and continues to do this today. In 1965, the company opened its first
overseas manufacturing plant in Belgium.
Their product lines are now sold in over 130 countries. They now own some of the most
recognisable cosmetic brands in the market place as well as have licensing agreements with some
of the more popular clothing lines including Tommy Hilfiger, Michael Kors and Sean John. The
Estee Lauder Companies are broken into four divisions - skincare, makeup, fragrance and hair
care.

Through these divisions Estee Lauder offers over 900 diverse products including

shampoos, lip gloss, a mens skincare line and perfumes. Its current brand names include Estee
Lauder, Flirt and Clinique.
products.

The company specialises in mid-level to upper end cosmetic

CASE STUDY - ESTEE LAUDER COMPANIES INC

The company sells its products using various distribution channels including department
stores and pharmacies. In 1998, Este Lauder became one of the first of the prestigious cosmetic
companies to begin offering products for sale by way of online shopping.
The corporations headquarters is located in New York and it has grown from a privately
owned operation to a publicly traded company that now employs over 28,000 employees.
However, members of the Lauder family make up some of the companys top 12 executives.
The company has offices operating in over 43 countries.
Estee Lauders vision is bringing the best to everyone we touch and being the best in
everything we do. However, they do lack a clear mission statement.

EXTERNAL ASSESSMENT
A companys external environment is basically forces outside of the firm that might
affect its ability to achieve its objective. Outside of making a profit Estee Lauders objectives
appears to be the provision of quality products across the globe. The external environment
comprises of two components the task and the general environment. The task environment
includes actual and potential competitors, suppliers, and buyers (customers or distributors);
firms that provide substitute products to those sold in the industry. The task environment is
embedded in the general environment which includes political and legal forces, macroeconomic
forces, demographic forces, sociocultural forces, technological forces, and international forces.
(Hill and McShane, 2008).
So in order for Estee Lauder Companies to be / hold a competitive advantage in the
personal care industry an understanding and audit of its external environment must be conducted.

CASE STUDY - ESTEE LAUDER COMPANIES INC

Opportunities
1. Demand for premium goods and services.
2. Positive outlook for the Asia / Pacific retail environment
3. Control over distribution channels
4. Creating a stronger online presence growth potential
5. Growth potential in the mens personal care market
6. Acquire a quality budget personal care brand to tap into the

Threats
1. Profitable industry thus threat of new entrants
2. Depressed economic climate
3. European policies on international organisations
4. Highly competitive industry with large multinational players
5. Government regulations on natural and organic products

Competitive Profile Matrix (CPM)

To be done

External Factor Evaluation (EFE) Matrix

To be done

CASE STUDY - ESTEE LAUDER COMPANIES INC

INTERNAL ASSESSMENT

According to David (Strategic Management Concepts and Cases, xxxx) all

organizations have strengths and weaknesses in the functional areas of business. No enterprise is
equally strong or weak in all areas. The internal audit requires gathering and assimilating
information

about

the

firms

management,

marketing,

financing/accounting,

production/operations, research and development (R&D), and management information systems

operations. The internal assessment is a helpful tool to evaluate the company's strengths and
weaknesses in all areas of business. Objectives and strategies are established with the intention
of capitalizing upon internal strengths and overcoming weaknesses. The strengths and weakness
for Estee Lauder Companies case are as follow:

Strengths
The Firms Management
1. Great strategic planning from founder - had a vision and started a small family business,
selling skin care products made a family member. Started to sell products in beauty salon
and marketed products directly customers and targeted high-class customers. Estee
Launder established its first department store account with Saks Fifth Avenue in New
York.
Marketing
2. Online sales increase by 23% in fiscal 2010 after Estee Launder launched a large scale
social networking and online campaign. Allowing consumers to chat live with makeup

CASE STUDY - ESTEE LAUDER COMPANIES INC

artist and upload digital photographs. This new marketing strategy attracted over 5,000
reviews from consumers a 4.5 out of 5 ranking , using Twitter research.
3. Estee launder was the first cosmetic company to offer free sample and gift with purchase
plans and continues this strategy and was the first in the industry to introduce consistent
band imagery around the world, using celebrities and models
Financing / Accounting
4. Sales revenue rose by 6.45% in 2010 from 2011 along with the net earnings of 3.16%.
5. Estee Launder has the highest price-earnings ratio in the market at 29.50%.Which makes
them 9.77% over its close competition Colgate-Palmotive. The price-earnings ratio shows
the attractiveness of a firm on equity market. This means that Estee Lauder would be
more preferable to new investors over the competitors.
6. Return on Equity rose from 5.69% in 2009 to 15.33% in 2010. This measures the
corporation profitability by revealing how much profit a company generates with the
money shareholders have invested.
Production / Operation
7. Wide distribution network owns 28 worldwide well known brands of cosmetic products
and distributing it to over 150 countries and territories.
Research and Development
8. Research and development operations in 14 countries. Allowing Estee Launder to directly
responding to consumers wants in each ethic market and developing products.

CASE STUDY - ESTEE LAUDER COMPANIES INC

Weaknesses
1. No Mission Statement
2. Low net income growth at 4.23% for last 5 years average
3. Decline in sales in hair care and fragrance from 2009 to 2010

Internal Factor Evaluation (IFE) Matrix.

To be done

STRATEGIES
SWOT Matrix (work in progress)

OPPORTUNITIES

STRENGTHS

WEAKNESSES

THREATS

CASE STUDY - ESTEE LAUDER COMPANIES INC

REFERENCES

The University of North Carolina at Greensboro. Acquaah, M, 2012. Assessing Strengths

and Weaknesses: Internal Analysis.
<http://www.uncg.edu/bae/people/acquaah/491/lecture5.ppt> [Accessed February 23,
2013].

Vitez, O, 2013. Weaknesses in an Internal Audit Control System.

<http://smallbusiness.chron.com/weaknesses-internal-audit-control-system-3810.html>
[Accessed February 23, 2013].

Morningstar Inc, 2013.Growth, Profitability and Financial Ratios for Estee Lauder Cos
Inc Class A (EL) <http://financials.morningstar.com/ratios/r.html?t=EL> [Accessed
February 23, 2013].

Hill, C.W.L. and McShane, S. L.,2008. Principles of Management. NY:McGrawHill/Irwin

CASE STUDY - ESTEE LAUDER COMPANIES INC

APPENDICES