Revlon Case Analyis
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Revlon: Case Study analysis|
BUS 490 Comprehensive Examination: Strategic Management ::
Online|
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3/16/2012|
Table of Contents
Introduction3
Mission Statement3
Vision of the Company4
External Assessment4
Technological trends4
Demographic trends4
Economic Trends5
Political and legal constraints5
Sociological factors7
Global trends8
Industry Analysis8
Competitor analysis9
External Factor Evaluation (EFE) Matrix10
Internal Assessment11
Company organizational structure12
Personal policies and management12
Operational production capacities and policies13
Financial stability (common ratios and measures)14
Ratio Analysis15
Leadership and organizational behavior, corporate culture,
etc20
Marketing21
Ethical/ legal issues22
Management information systems and research and
development22
Patents, Trademarks and Proprietary Technology22
The Internal Factor Evaluation (IFE) Matrix23
Strategy Formulation24
Strategic solutions30
Timeline for Implementation32
Consequences33
References:34
REVLON: CASE STUDY ANALYSIS INTRODUCTION
Introduction
Revlon is a global color cosmetics, hair color, beauty tools,
fragrances, skincare, anti-persiparant/deodorants, and beauty care
products company.
Revlon case is a comprehensive strategic management case that
includes 2006 and 2007 financial statements, competitor
information, internal factors, future outlook and more of Revlon
Company. It has posted losses for eight consecutive years and has
struggled with debt since Ron Perelman purchased a majority stake
in the company in 1985. And Revlon is a company in trouble. Net
sales for 2006 decreased by $1 million to $1331 billion and net
losses in 2006 were $251 million following a loss of $84 million in
2005.In recent years Revlon launched a new product for older women
with 100 products, and it was the largest launch of the company
since ColorStay product in 1994. Unfortunately, this product was
not received very well by the market because other competitors were
providing products and the prices of the Revlon product was too
high as comparing with competitors.
Revlon planned to launch a new prestige fragrance called Flair
in 2006, but delayed the launch until debt could be restructured.
The company issued $185 million in stock in 2006 to raise money to
reduce debt. MacAndrews and Forbes Holdings agreed to purchase a
portion of the stock and to purchase any stock not purchased by
current stockholders. MacAndrews also extend a line of credit of
$87 million to Revlon which can help the Revlon in the recovery of
losses.
Revlon produces and markets skin care, cosmetics, and personal
care, fragrance and professional products. Revlon produces in more
than 100 countries around the world in different countries under
brand names such as Revlon, Ultima II, ColorStay, Almay, Charlie,
Flex, Mitchum, Jean Nate, and ColorSilk. Revlon Company continues
to introduce new products. Alma Intense Eye Color (package that
combines liner, mascara, and eye shadow) was successfully
introduced in 2005 and Almay Smart Shade (colorless foundation that
changes to correct color when applied) and ColorStay Smooth Lip
Color were introduced in 2006. (Austin, 2007)
Mission Statement
The long-term mission of Revlon Company is to emerge as the
dominant cosmetics and personal care firm in the twenty-first
century by appealing to young/trendy women (1), health-conscious
women (skin care), and older women with its variety of brands
offered all around the world (2). Also, continuing growing product
line with new products (3), which are safe and effective, and that
is responsibility of very experienced chemists (4). Revlon and its
employees are active in supporting women health programs and other
community efforts (5).
1. Customers
2. Markets
3. Products or services
4. Concern for employees
5. Concern for public image
Vision of the Company
Vision of Revlon Company is to provide glamour, excitement and
innovation through quality products at affordable prices.
External Assessment
Revlon, Inc. is one of the major leaders in the global
cosmetics, skin care, fragrance, and personal care industry. Revlon
is a leading mass-market cosmetics brand as well. This company
provides a variety of products to its customers who are health and
beauty conscious. Since Revlon is operating worldwide, it is it is
necessary to consider some technological, demographic, economic,
political and legal, sociological and global trends in order to get
a broader understanding of major issues that might arise for this
company.
Technological trends
Technological research and development is essential for
companies to gain a higher market share and recognition among other
brands in this competitive industry. Whereas some products have the
purpose to beautify, others to heal, and other products have the
specific purpose to stop aging, companies have to spend large
amounts of money into research. While cosmetics, skin care,
fragrance and personal care products consist of a variety of
ingredients, manufacturers have gained the advantage to combine all
the achievements in both pharmaceuticals and biotechnology to use
new substances as the ingredients in their production. Awareness
about ingredients among the consumers has increased. Aware
consumers demand for safe products. Until the recent year
manufacturers have relied mainly on extracts from plants or
synthetic substances as the ingredients used to effectively absorb
the products to the skin. Now researchers are paying more attention
to implementing nanotechnology and to replace plant extracts by
mineral extracts and other more natural ingredients to increase the
effectiveness of absorption and the other effects, and finally to
meet the needs of the customers. Increasing the effectiveness and
creating long-lasting effects is a key technological challenge for
cosmetics manufacturers. The main purpose of technological
advancements now is to make cosmetics more natural, skin-friendly,
long lasting and more effective.
Demographic trends
Demographic factor impacts heavily the industry of cosmetics and
personal care products. World population is reported to continually
grow: by 0.3% in more developed countries from 2000 to 2010, by
1.3% in less developed countries, and by 2.7% in least developed
countries. The worlds population more than doubled between 1960 and
2010. The increase in global population between 1960 and 2010 can
be largely attributed to growth in Asia, Africa and Latin America.
However, European and U.S. countries now are facing much slower
population growth. Europe and Japan is at the danger of ageing.
Ageing could reduce economic power of Japan. Without rapid growth
in productivity, greater participation rates in the labor force, or
other aggressive corrective actions, labor force contraction in
many of the worlds leading economies could depress economic output,
boost inflation and curb investment. This could lead to
overcapacity and falling returns on investment in key sectors of
some industrialized economies.The United States higher fertility
rate and its ability to absorb and assimilate newcomers in ways
that others culturally reject support the notion that demographic
trends will only enhance the United States ability to maintain its
position as superpower on the world stage. With continued
superpower status will remain continued pressure for leadership and
increased challenges. As the CIA reports, by 2050, nearly 1.5
billion people or 16.3 percent of the worlds population will be
aged 65 or older compared to about 420 million or 6.9 percent in
2000.
Economic Trends
The last few years of recession have had impact on the sales of
perfumes, cosmetics and personal care items. Several new patterns
have become noticeable in this industry. First, during the
recession people had lower income; therefore they turned their
heads to lower-priced production. Second, consumers have found that
buying items through dedicated Internet channels is a cheaper way
to get the desired products at a lower price. However, since the
value of the dollar is considered weak, production and export from
U.S. creates a benefit against rivals who manufacture in European
countries where Euro is stronger than dollar and the production
costs more. Production in Europe is considered expensive due to the
appreciation of the Euro, exports are declining. Developing
countries, such as India and China, with low cost labor force has
become the main threat to U.S. and European manufacturers. The
United States experiences slow growth and high unemployment,
without much policy action until after the presidential election,
leaving the fiscal stabilization, growth, and employment largely
unattended, and structural adjustment in the hands of the private
sector without much public sector investment or support. Emerging
economies settle down to near pre-crisis growth patterns and remain
the incomplete growth engine of the global economy. Eurozone has
financial problems with several of its members, who have become a
threat to the whole Eurozone countries. In case those financially
unstable countries defaulted all the members would be facing
serious consequences and the European economy as well.
Political and legal constraints
U.S.
The United States where the headquarters and one of the
manufacturing plants of the Revlon company is located has had
significantly stable government since the end of the Civil war. In
contrast many other nations have not enjoyed such longevity of
stability in governance. For example, such countries as Germany,
Italy or Russia have had internal conflicts and political
instability. Due to political stability U.S. is considered a safe
place to operate for the Revlon, Inc.
Tax rates:
* Federal taxes and State taxes exist
* Progressive federal tax rates vary from 15% to 35%
* State tax rates vary from state to state and are also
progressive
Mexico
Revlon has a manufacturing plant in Mexico. Mexico is Federal
presidential constitutional republic. This country has global
attention as the center of drug production and trafficking.
However, Mexico is in the middle of a political transition towards
democracy, complete with fair elections, public accountability and
the rule of law. One of the main threats today is Mexicos financial
stability due to political turbulence. Foreign investors may freely
establish a company in Mexico or buy stock of already established
companies (Foeth, 2007).
Tax rates:
* Income tax rate 30%
* Corporate tax rate 30%
* Sales tax/VAT 16%
Venezuela
Venezuela is causing concerns to the U.S. because of violation
of human rights, and dysfunctional government provides a welcome
heaven for criminals and terrorists.
Tax rates:
* Income tax rate 34%
* Corporate tax rate 34%
* Sales tax/VAT 12%
South Africa
S. Africa is maintaining high reputation in world rankings, with
a number of recent international reports supporting the countrys
strengths as an investment destination. Despite some skepticism
which emerged after elections in 2009, business analysts are still
optimistic about S. Africa and they are naming it as less risky and
more rewarding for investment than other African countries.
According to Janes Country Risk Ratings reports, South Africa was
placed in 115th position out of 235 countries. This ranking shows
that S. Africa is rated alongside such developed economies as
Ukraine or Vietnam and was ranked 2ndthe most stable country in
Sub-Saharan Africa (Janes Information Group, 2008).
According to Business Times, South Africas ratings are:
* 62 out of 100 for economic stability
* 69 of 100 for military steadfastness
* 42 of 100 for social stability (indicators of health, social
cohesion and crime)
* 78 of 100 for external factors (S. Africas relationship with
neighboring countries)
* 78 of 100 for political stability
Tax rates in S. Africa:
* Income tax rate 40%
* Corporate tax rate 28%
* Sales tax/VAT 14%
China
According to Eichengreen, investors should be worried about
Chinas political stability. Risk consultancy agency called
Maplecroft recently analyzed China and the country was categorized
as the extreme risk across several areas. According to Maplecroft
those areas would be civil and political rights, judicial
independence, democratic governance, labor rights and human rights
violations. Due to these factors entrepreneurs that want to
establish companies in China may suffer from reputational damage.
China is a communist party-led state.
Tax rates:
* Income tax rate 45%
* Corporate tax rate 25%
* Sales tax/VAT 17%
France
Type of government in France is republic. The upcoming
presidential election will take place in April. France was scored
0.58 by the political stability and absence of violence Index in
the range from -2.5 to 2.5, the higher index score the better
governance the country has (Kaufmann, Kraay, and Mastruzzi, 2009).
This index is the measure of perceptions of the likelihoods that
government will be stabilized or overthrown by possibly
unconstitutional or aggressive means. Low scores indicate distrust
of the citizens towards continuity of the government policy
(Kaufmann, et al., 2009).
Tax rates:
* Income tax rate 40%
* Corporate tax rate 33.33%
* Sales tax/VAT 19.60%
Sociological factors
Celebrities have an enormous contribution in advertising and
making beauty and health products popular among casual people. The
new trend is that males are now more concerned about their
appearance, so no longer only females are to be targeted as
possible consumers. Market expansion for male products is the
opportunity to increase sales for personal care, fragrance and
cosmetics manufacturers. One more target of interest for beauty
products manufacturers is the U.S. teenage market since females in
this age group has exceeded almost 20 million by 2010. The Hispanic
American segment is the fastest growing and is projected to be the
largest minority sector in the U.S. Non-Hispanic whites population
has been expected to decline to 68% by 2010. More and more
consumers are concerned about products safety and animal-testing.
Since the competition in the labor sector is drastically
increasing, due to the globalization and the workforce migration
within and outside countries and the overall population growth in
the world, people are very concerned about their appearance,
increased consumption of beauty and health products is the result.
However, older people are spending less on cosmetics due to rapid
decrease in disposable income which is caused by higher prices of
scarce resources.
Global trends
Asian, Asian-Pacific and South Latin countries are becoming an
increasing market for consumption of beauty products. A new trend
is that cosmetics consumers now prefer natural-look beauty products
that make them look natural, like wearing no make-up. Male
consumers are now more concerned about their appearance, no longer
only females are the consumers of these personal care and cosmetic
items. Consumers are also concerned about ethical production
conditions and animal testing. The increased awarenessamong
consumers about ingredients has created the trend that buyers of
cosmetics and beauty production now require manufacturers to use
safe substances.
Industry Analysis
Supplier power
The bargaining power of suppliers is favorable. There are many,
so they do not have lots of power, therefore players in the
industry can keep switching them at almost no cost. This makes the
industry highly attractive. In addition, huge manufacturers are
able to produce ingredients used for cosmetics, personal care items
and perfumes on their own.
Buyer power
Power of buyers is unfavorable in this industry.Buyers in the
cosmetics, fragrance and personal care products industry are not
fairly loyal to a particular company and they have the ability to
switch to other brands at very low or no cost. Moreover, consumers
often do not stick to one particular brand. This means that buyer
power is high. The majority of buyers own a variety of different
brands of makeup, perfume or personal care products. This also
allows customers to shop for favorable prices and products.
Threat of new entrants
Threat of new entrants is unfavorable for this industry. This
industry is considered not to have high barriers of entry, it is
not seen difficult for a new firm to step into the industry. It
makes the threat of new entrants high. New small and large makeup
and fragrance companies are entering this industry constantly.
Since makeup and fragrances are usually produced in large volumes,
due to economies of scale effect, there is low relative production
cost per unit. Also, it is pretty tough for new companies to
compete with older companies whose brands are already recognized by
consumers.However, decreased competition is causedby much relative
capital needed to become a player in the industry, as capital is
needed to acquire plant, equipment and supplies for production, and
it makes it more difficult for new firms to enter.
Threat of substitutes
The level of threat of substitutes for cosmetics, personal care,
and fragrances is low. These are the products that have very low
number of substitutes offered by other industries. One and main of
the substitutes would be cosmetic surgery, more specifically
injections of substances to the body. However, surgery is very
expensive and still considered risky, therefore this substitute is
not yet very popular. Another factor that some consumers may find
attractive or unattractive, depending on the preferences, is that
surgery creates permanent results on ones body and appearance. As
there are no other alternatives for cosmetics, fragrance and
personal care products, demand elasticity is constrained.
Degree of rivalry
The degree of rivalry in this industry is high due to large
number of firms competing for the same resources and customers.
Slow industry growth also intensifies rivalry as companies fight
for market share. In addition high fixed costs resulting in the
economy of scale effect increase the degree of rivalry. Rivalry is
decreased by the nature of products as they are not
highly-perishable and can be stored for a longer time before being
sold. Costs for customers to switch from one product to another are
low, therefore rivalry is intensified. Brand identification, which
is attributable in this industry, reduces rivalry.
Competitor analysis
Procter and Gamble
Procter & Gamble is a multinational company offering which
is offering wide range of products in many categories, such as:
personal care, cosmetics, fragrances, hair care and skin care.
P&G Company is differentiated. P&G offers products outside
cosmetics/skin care industry include diapers, baking mixes, bleach,
dish care products, juice, laundry products and etc. The company
operates in more than 70 countries worldwide (Austin, 2007).
P&G offers hair care products through its well-known brands
which are Pantene, Head & Shoulders and Herbal Essences.
P&G has acquired Gillette for $57 billion in 2005. Beauty care
products have contributed to P&G sales with &21.1 billion
and $3.2 billion in profit. P&G offers a line of products
called Cover Girl Advanced Radiance for baby boomers generation
(Austin, 2007).
LOreal
LOreal is the world largest firm in the cosmetics industry.
LOreal has acquired Maybelline which was one of the leading
competitors in cosmetics industry. In 1996 it was bought for $758
million. This was the attempt to increase its market share in the
U.S. this attempt was successful; since LOreal became 2nd largest
cosmetics firm (Austin, 2007).
Unilever
Unilever is the Anglo-Dutch firm which was known for
manufacturing soap/detergent and food products. Recently the
company started to manufacture personal care and cosmetics
products, which contributes to the company with 26% of their
business sales. Some of the most known Unilever product brands are:
Dove, Ponds, Vaseline and Sunsilk. In 2005 Unilever sold its
fragrance brand called Calvin Klein to Coty for $800 million. The
firm is for using noncelebrities models to promote their products
and launching controversial marketing campaigns. Skin care products
of Unilever Company are leading in North America, Africa and Latin
America regions (Austin, 2007).
Avon Products, Inc.
Avon is the leading firm in direct selling of cosmetics and
beauty care products. Companies direct sales reaches 5 million
people in 114 countries. Most known Avon brands are: Avon color,
Avon Skin Care Solutions, Anew and Mark. Besides beauty care
products and fragrances Avon sells vitamins and nutritional
supplements, as well as jewelry, gift items and lingerie. 98% of
sales are contributed by the sales representatives, to maintain a
smaller percentage Avon have lunched its website. Avon has made a
few cost-cutting decisions in 2006. The decisions involved the
simplification of brands and Avon has reduced the of management
levels (Austin, 2007).
Estee Louder
The Estee Louder Companies, Inc. manufactures and markets
cosmetics, fragrances, skin care products and hair care products
for sale in 103 countries and territories. Some of best known
brands of Estee Louder are Estee Louder and Clinique. Estee Louder
holds license to sell products by the name of Tommy Hilfiger and
Donna Karan. In 2006 net sales have reached $6,464 million (Austin
2007).
External Factor Evaluation (EFE) Matrix
|
Key External Factors| Weight| Rating| Weighted Score|
Opportunities| | | |
1. Implementation of the relatively new nanotechnology| 0.1| 3|
0.3|
2. Constant growth of world population (by 2050, nearly 1.5
billion people or 16.3 percent of the worlds population will be
aged 65 or older)| 0.01| 2| 0.2|
3. Devaluation of dollar against Euro| 0.04| 4| 0.16|
4. Increasing sales over the Internet| 0.08| 2| 0.16|
5. Emerging new markets (Asian, South Latin, Asian-Pacific
countries)| 0.2| 4| 0.8|
6. Stability of political governance in countries of operation|
0.05| 2| 0.10|
8. Increasing number of male consumers| 0.08| 2| 0.16|
| | | |
Threats| | | |
1. Continual ageing of world population | 0.08| 2| 0.16|
2. Increased awareness and demands of safety from customers|
0.06| 2| 0.12|
3. Financial problems in the Eurozone| 0.07| 1| 0.07|
4. Decrease of free disposable income of older consumers| 0.07|
2| 0.14|
5. Future regulations of industry production| 0.05| 3| 0.15|
6. Acquisitions of competing companies like LOreal and Maybeline
that have larger share in the market| 0.06| 3| 0.18|
7. Competitor companies like Proctor & Gamble that are
differentiated| 0.05| 3| 0.15|
| | |
Total:| 1.00| | 3.39|
Internal Assessment
Company organizational structure
Organizational Chart Revlon, 2007
The company is characterized by a large degree of formalization
where each function relies on standardized ways of operating. The
decision-making power is often centralized at the top of the
hierarchy.The simple scheme of hierarchy can be like this Plant
Manager>>Manager Engineering > Manager Accounting >
Manager Information Systems > Manager Human Resources>
Managers Purchasing. The company has a clearly functional
organizational structure. The size of the company with its low
rates of change and dynamism promoted the establishment of this
type of structure.(Rao, 2010)
Personal policies and management
Planning
Employees in the company are differentiated and perform narrow
span or specialized tasks. Those tasks are organized around the
functions of operations, finance, human resources, and product
research and development. Putting like specialties together results
in economies of scale, minimizes duplication of personnel and
equipment and makes employees comfortable and satisfied because it
gives them the opportunity to talk the same language as their
peers. However, this efficiency might have a potential problem
which is based on the communication gaps and complexes with
management. (Functional Organization Structure, 2012)
Motivation
The company created new incentive rewards programs, including
restricted stock grants fora broad group of key contributors who
will be important in executing our strategies andin contributing to
the achievement of our goal of achieving long-term, profitable
growth. The high standards and tough policies in the company are
being rewarded highly and generously as well. One of the prominent
acts towards employee appreciation was undertaken by creating and
launching a Revlon learning center where employees are offered a
better training. Besides, since 2004 there was an even more
exciting encouragement policy introduced which was Charlie Awards.
(Revlon Annual Report 2007)
Staffing
By December 31, 2007, the Company employed approximately 5,600
people. As ofDecember 31, 2007, approximately 20 of such employees
in the U.S. were covered by collective bargainingagreements. The
Company believes that its employee relations are satisfactory.
Although the Companyhas experienced minor work stoppages of limited
duration in the past in the ordinary course of business,such work
stoppages have not had a material effect on the Companys results of
operations or financialcondition.(Revlon Annual Report 2007)
Controlling
The scientists at the Edison facility are responsible for all of
the Companys new productresearch worldwide, performing research for
new products, ideas, concepts and packaging. The researchand
development group at the Edison facility also performs extensive
safety and quality testing on theCompanys products, including
toxicology, microbiology and package testing. Additionally, quality
controltesting is performed at each of the Companys manufacturing
facilities.( Revlon Annual Report, 2007)
Personnel policies and management
Policies reflect a companys value system. The tone and language
of policy statements will be taken as reflections of management
attitudes toward employees. Revlon has a strong team of experienced
managers. With the coming of the new CEO the company sticks to very
high standards. For example, one of the policy requires a 99%
inventory and order accuracy in accounting procedures. Some of the
plants where cosmetics are being elaborated are issued ISO 9000
certificate which signifies a very high manufacturing level. (
Revlon Annual Report, 2007)
Operational production capacities and policies
Capacity
Management considers theCompanys facilities to be
well-maintained and satisfactory for the Companys operations, and
believesthat the Companys facilities and third party contractual
supplier arrangements provide sufficient capacityfor its current
and expected production requirements.( Revlon Annual Report,
2007)
Process/Facilities
The Company continually reviews its manufacturing needs against
its manufacturing capacities toidentify opportunities to reduce
costs and operate more efficiently. The Company purchases raw
materialsand components throughout the world, and continuously
pursues reductions in cost of goods through theglobal sourcing of
raw materials and components from qualified vendors, utilizing its
purchasing capacitydesigned to maximize cost savings. The Companys
global sourcing strategy for materials and componentsfrom
accredited vendors is also designed to ensure the quality of the
raw materials and components andassists in protecting the Company
against shortages of, or difficulties in obtaining, such materials.
TheCompany believes that alternate sources of raw materials and
components exist and does not anticipateany significant shortages
of, or difficulty in obtaining, such materials.( Revlon Annual
Report, 2007)
Financial stability (common ratios and measures)
Financial Overview
Revenue
NASDAQ, 2007
Revlon Avon Estee Lauder
$1.4B9.947.04
Income
NASDAQ, 2007
Revlon Avon Estee Lauder
-16.1M$530.7M$449.2M$
Analysis: The negative income is a very serious index revealing
a substantial problem in the company.
Ratio Analysis
Liquidity ratio
Current ratio = Current Assets/ Current Liabilities
NASDAQ, 2007
2007 Avon Estee Lauder
1.351.421.86
Analysis: Current ratio is above 1 that means for every 1$ of
current liabilities there is a 1.35$ current assets. The short term
obligations are being managed well. This index might be fine for
the creditor but unlikely to be satisfactory for the investor.
Quick Ratio= Current Assets - Inventory/ Current liabilities
NASDAQ, 2007
2007 Avon Estee Lauder
0.871.021.41
Analysis: Quick ratio shows to which extent the company can deal
with its short term obligations without relying on the sales of its
inventory. Since the ratio is lover than 1 it implies that the
company heavily relies on its own inventory to meet the short term
obligations. Being slightly below zero means that there is some
small problems in the company though these hardships are not
disastrous.
Leverage Ratios
Debt to Equity ratio
NASDAQ, 2007
2007 Avon Estee Lauder
-1.823.931.4
Analysis: The negative index points to conclusion that the share
of owners equity comparing with the creditors in lending money is
bigger. Equity is of prime dependency for the company.
Profitability ratios
Gross profit margin= Sales Cost of Goods Sold/Sales
NASDAQ, 2007
2007 Avon Estee Lauder
69.61%63.3175.87
Analysis: This margin can cover the companys 69.61 % of
operating expense and still generate a profit. Not a bad indicator
in comparison to the competitors.
Operating Profit Margin = Earnings Before Income Tax/ Sales
NASDAQ, 2007
2007 Avon Estee Lauder
8.54%0.5322.41
Analysis: The residual 11.5 % profit prior to paying off tax and
interest. Not bad in comparison with some competitors while in
contrast to others the index is small.
Return on Assets= Net Income/ Average Assets
NASDAQ, 2007
2007 Avon Estee Lauder
13.2%11.75%11.55%
Analysis: For each dollar of assets the firm generates a profit
of 0.13$. It is not a very high indicator because the profit might
not be big after paying off taxes and interest.
Return on Equity= Net Income/ Total Stockholders Equity
NASDAQ, 2007
2007 Avon Estee Lauder
1.39%70.67%31.84%
Analysis: For every stockholders equity the profit per dollar is
0.0139$. This is a seriously low indicator which significantly
warns the potential investors.
Price to Earnings Ratio= Price/ Earnings per Share
NASDAQ, 2007
2007 Avon Estee Lauder
-39.6130.2519.5
Analysis: This indicator measures the attractiveness of the
company in the equity market and shows how much investor is willing
to pay to owe one share of the company. -39.61 is a very low figure
which shows that investors are not expecting to receive much in
returns from the company.
Leadership and organizational behavior, corporate culture,
etc
Corporate or organizational culture often times is based on
stories and legends which are communicating the values and norm of
the company. People are sharing these stories as a result they
create unspoken corporate atmosphere. Inside people are aware of
answer for such questions How does the boss react to mistakes? What
eventsare so important that people get fired? Who, if anyone, can
break the rules? A founder and CEO of Revlon Charles Revson and he
was prominent for demanding every worker to be in time whereas
himself was arriving for work after noon. Other cases with his
involvement are notorious as well.
The contemporary corporate culture is based on behaviors of
accountability, collaboration, communication, execution, value of
integrity, respect and trust (Revlon, 2012).
The Code of business Conduct states:
* Everything each of us does in our business must reflect the
highest ethical standards as well as our commitment to
integrity.
* It is essential for our success that we protect and preserve
Revlon's assets to enable us to grow our business and its value for
our stakeholders.
* We must always collect and report accurate information about
our results so that we base our business strategies and decisions
on accurate data and properly fulfill our public reporting
obligations; and
* Finally, Revlon is fully committed to fully complying with all
applicable laws and each of us must reflect this commitment in our
day-to-day behavior.
Marketing
Promotion
The company reinforces clear, consistent brand positioning
through effective,innovative advertising and promotion. It also
uses cooperative advertising programs, supported by Company-paid or
Company subsidized demonstrators, and coordinated in-store
promotions and displays. The Company also has various arrangements
with customers pursuant to its trade termsto reimburse them for a
portion of their advertising or promotional costs, which provide
advertising andpromotional benefits to the Company. (Revlon Annual
Report 2007)
Celebrities advertising
The company is intended to continue a strategy of supporting
newproducts with advertising and promotions at spending levels that
are intended to be competitive, using talented, well known,
celebrity brand ambassadors.( Revlon Annual Report, 2007)
Price
The Company markets extensive consumer product lines principally
priced in the upper range of themass retail channel and certain
other channels outside of the U.S.( Revlon Annual Report, 2007)
Distribution
The Companys products are sold in more than 100 countries across
six continents. The companysworldwide sales forces had
approximately 340 people as of December 31, 2007. In addition, the
Companyutilizes sales representatives and independent distributors
to serve certain markets and related distributionchannels. Net
sales in the U.S. accounted for approximately 57% of the Companys
2007 netsales, a majority of which were made in the mass retail
channel. Net sales outside the U.S. accounted for approximately 43%
of the Companys 2007net sales. The five largest countries in terms
of these sales were South Africa, Australia, Canada, U.K andBrazil,
which together accounted for approximately 23% of the Companys 2007
net sales.( Revlon Annual Report, 2007)
Customers
The Companys principal customers include large mass volume
retailers and chain drug stores,including such well-known retailers
as Wal-Mart, Target, Kmart, Walgreens, Rite Aid, CVS and Longs
inthe U.S., Shoppers DrugMart in Canada, A.S.Watson & Co.
retail chains in Asia Pacific and Europe, andBoots in the United
Kingdom.( Revlon Annual Report, 2007)
Ethical/ legal issues
The Company is subject to regulation by the Federal Trade
Commission (the FTC) and the Foodand Drug Administration (the FDA)
in the U.S., as well as various other federal, state, local and
foreignregulatory authorities, including the European Commission in
the European Union (EU). TheCompanys Oxford, North Carolina
manufacturing facility is registered with the FDA as a
drugmanufacturing establishment, permitting the manufacture of
cosmetics that contain over-the-counter drugingredients, such as
sunscreens and anti-perspirants. Compliance with federal, state,
local and foreign lawsand regulations pertaining to discharge of
materials into the environment, or otherwise relating to
theprotection of the environment, has not had, and is not
anticipated to have, a material effect on theCompanys capital
expenditures, earnings or competitive position. State and local
regulations in the U.S.and regulations in the EU that are designed
to protect consumers or the environment have an increasinginfluence
on the Companys product claims, ingredients and packaging.(Revlon
Annual Report, 2007)
Management information systems and research and development
The Company believes that it is an industry leader in the
development of innovative andtechnologically-advanced cosmetics and
beauty products. The Company has across-functional product
development process, including a rigorous process for the
continuous developmentand evaluation of new product concepts. As of
December 31, 2007, the Company employed approximately 160 people in
its research and development activities, including specialists in
pharmacology, toxicology, chemistry, microbiology,engineering,
biology, dermatology and quality control. In 2007, 2006 and 2005,
the Company spent$24.4 million, $24.4 million and $26.1 million,
respectively, on research and development Activities. (Revlon
Annual Report, 2007)
Patents, Trademarks and Proprietary Technology
The Companys major trademarks are registered in the U.S. and in
well over 100 other countries, andthe Company considers trademark
protection to be very important to its business. Significant
trademarksinclude Revlon, ColorStay, Revlon Age Defying makeup with
Botafirm, Super Lustrous, Almay, SmartShade, Mitchum, Charlie, Jean
Nat, Revlon Colorsilk, Eterna 27 and, outside the U.S., Bozzano,
Cutex,Gatineau and Ultima II. The Company regularly renews its
trademark registrations in the ordinary courseof business.(Revlon
Annual Report, 2007).
The Internal Factor Evaluation (IFE) Matrix
Key Internal FactorsWeightRatingWeighted Score |
|
Strengths|
|
1.Expenditure of 24.4 million $ on R&D 0.0630.18|
|
2.ISO- 900 certification 0.0440.16|
|
3.Attempt to introduce new products0.0430.12|
|
4.CSR program 25$ million expenditure0.0530.15|
|
5.Brand recognition0.0620.12|
|
6.Social Responsibility programs0.0530.15|
|
7.120$ worth aggressive advertising0.0940.36|
|
8. New product development continuation0.0340.12|
|
9.High operating efficiency0.0540.2|
|
10.Production for all type of women0.0430.12|
|
|
Weaknesses|
|
1.1 million $ sales decrease 0.0410.04|
|
2.Mac Andrew 87 million debt extension0.0310.03|
|
3.Financial resources deficit0.0610.06|
|
4. Prices higher than competitors0.0910.09|
|
5.Less diversified products then 0.0510.05|
competitors have|
6. 2.3 billion as a long term debt0.0720.14|
|
7.High net losses from discontinuation 0.0420.08|
of Vital radiance production|
|
8. Often organizational restructuring0.0430.12|
|
9.High advertising expenses0.0220.04|
|
10. The negative impact of customer|
non responsiveness to Vital radiance0.0520.1|
production, the loss of 110$ million|Dampak negatif dari
pelanggan non tanggap terhadap produksi cahaya Vital, hilangnya 110
juta $|
|
Total12.43|
Strategy Formulation
SWOT Matrix
Strengths | Weaknesses|
1. Loyal customer base| 1. Large debt|
2. Health awareness programs| 2. Short product life cycle|
3. Well known brand name| 3. Lack of innovative, new
products|
4. Product sold all around the world| 4. Constant employee
cuts|
5. Strong manufacturing/distribution centers| 5. Weak
management|
6. Well-known advertising representatives| 6. Decreasing market
share|
7. Strong research and development| 7. Narrow target market|
8. High quality products| 8. Lack of diversification in
products|
| 9. Very slow growth |
| 10. Capital allocation|
Opportunities| Threats|
1. Possible acquisitions| 1. Very strong competition|
2. Issuance of more stock| 2. Unstable financially |
3. Different approach to sales| 3. Lower cost products|
4. Developing countries markets| 4. Highly dependent on
baby-boomer generation|
5. Younger generation customers| 5. Economic slowdown|
6. Products for male market| 6. Counterfeiting|
SPACE Matrix
FP
ConservativeAggressive
+2
+6
CPIP
Defensive-2Competitive
-2
SP
Revlons financial position is very poor, with increasing debt,
which in 2006 was $3,329 million. It also means increasing interest
expenses over the coming years. Financial position was also
weakened by restructuring costs and unsuccessful product launches.
It leaves Revlon with +2 rating.
The company is very stable in competitive cosmetics industry,
since it has strong customer base and has been a recognizable brand
for many years. On the other hand, there is strong competition,
more products are cheaper. It means 2 rating.
Competitive position is threatened by market share mainly,
because it has been steadily decreasing, but in 2010, it was still
20% in the US (NASDAQ). Product qualities, R&D, suppliers
(mainly Wal-Mart and K-Mart) are also strong, which means Revlon
has -2 rating.
Industry position is strong; exploring Asian, African markets is
bringing more value to Revlon. It means +6 rating.
Conclusion is, that Revlon is a financially troubled, although
strong competitively company, in a large, competitive and growing
industry of cosmetics.
BCG Matrix
Relative Market Share Position
High MediumLow0.100.050.030.00
| 3%|
| |
High10%
4.8%
Medium0%
Low-10%
Global makeup market has been growing at the average rate of
4.8% since 2001. Revlons global market share has decreased to 3% in
2006 (Datamonitor). This puts Revlon at the position of question
marks in the BCG Matrix. Company that is one of the oldest in the
industry being in this position can be explained that it is just
going through normal cycle and the next stage will probably be that
of star. The disadvantage of this matrix is, that it does not show
Revlons advantages over other companies in the industry, also other
large cosmetics companies would also be in the similar position in
the BCG Matrix.
Internal-External (IE) Matrix
| Strong3.0 to 4.0| Average2.0 to 2.99| Weak1.0 to 1.99|
High3.0 to 4.0| | | |
Medium2.0 to 2.99| | | |
Low1.0 to 1.99| | | |
The IFE Matrix provides result of 2.43 of strengths and
weaknesses. EFE Matrix provides result of 3.39. It means that IE
Matrix provides a solution of grow and build, which is exactly what
strategic plan suggests that company should do.
Grand Strategy Matrix
Rapid Market Growth
Weak Strong
Competitive PositionCompetitive Position
Slow Market Growth
In the Grand Strategy Matrix, Revlon is in the Quadrant II,
because considering all the previous information about the company,
it is in a relatively weaker competitive position than other
cosmetics companies. The whole market is growing every year
rapidly, with huge possibilities to strengthen market share
overseas. Revlon is already taking means to become more aggressive
and competitive by improving R&D. On the other hand, it is not
nearly enough, so Revlon must consider stronger market penetration
and diversification. The strength of Grand Strategy Matrix is that
it sums up what has already been seen as a problem weak Revlons
competitive position. On the other hand, it does not show what
other strengths of the company are.
Overall, every matrix showed that Revlons main problem is
staying competitive among other large cosmetics companies. The
problem is that Revlon is not diversified and their main target
market is women, who are baby-boomer generation, which means that
the company is not taking steps to further increase their market
share by targeting women of other age groups and even possibly
men.
Quantitative Strategic Planning Matrix (QSPM)
Strategic Alternatives:
Outsourcing to Asia and Diversifying in products
Africa, while also targeting ethnic
expanding to their minorities, males and
markets. women of more diverse
age groups
KEY EXTERNAL FACTORSOPPORTUNITIES 1. Possible acquisitions|
2. Issuance of more stock|
3. Different approach to sales|
4. Developing countries markets|
5. Younger generation customers|
6. Products for male market|
THREATS 1. Very strong competition|
2. Unstable financially |
3. Lower cost products|
4. Highly dependent on baby-boomer generation|
5. Economic slowdown|
6. Counterfeiting|
TOTALKEY INTERNAL FACTORSSTRENGHTS 1. Loyal customer base|
2. Health awareness programs|
3. Well known brand name|
4. Product sold all around the world|
5. Strong manufacturing/distribution centers|
6. Well-known advertising representatives|
7. Strong research and development|
8. High quality products|
WEAKNESSES 1. Large debt|
2. Short product life cycle|
3. Lack of innovative, new products|
4. Constant employee cuts|
5. Weak management|
6. Decreasing market share|
7. Narrow target market|
8. Lack of diversification in products|
9. Very slow growth |
10. Capital allocation|
TOTAL|
WEIGHT0.10.080.050.120.110.10.120.080.060.050.090.041.000.10.020.120.060.050.080.040.10.030.030.050.020.050.040.060.070.050.031.00
| AS13412224231212|
TAS0.10.360.440.10.240.20.040.480.120.30.30.10.050.142.97|
AS21143141313424|
TAS0.20.120.110.40.360.10.080.120.180.10.90.20.10.283.25|
Strategic solutions
After the development of SWOT, SPACE, BCG, IE, Grand Strategy
and QSPM matrixes best strategic alternatives would be to adopt
competitive strategy. Competitive strategy would be to try adopting
forward and horizontal integration as well as market development
and product development and unrelated diversification strategy
models. These strategies will help the Revlon Inc. to turn its
weaknesses into strengths and threats into opportunities.
To maintain reasonable and efficient implementations and
strategies in general the following criterias has to be met.
Strategies should not create inconsistent goals and policies within
organization. Strategy should be representing adaptive response to
the external environment and to the critical changes occurring
within it. The final broad test of strategies is its feasibilities.
Strategies must neither overtax available resources nor create
unsolvable problems. The last not the least metric to follow is the
advantage. Strategies must provide for creation and maintenance of
competitive advantage in a selected area or activity (David, 2011).
To evaluate strategic solutions evaluation metrics has to be
followed.
Adopting forward integration will result in gaining ownership or
increased control over distributors or retailers. Since Revlon is
not using direct sales assistants to obtain net sales, the
ownership of distributors or retailers will help the company to
shrink distribution channel. In this case the profit margin will be
higher. Horizontal integration will result in increase in ownership
and control of firms competitors. The acquisition of well known
brand will eliminate the weakness of narrow target market since new
brands will offer new products for new customers. Market
development strategy is the key to higher profits. According to
Davis hugest percentage of Revlon products are consumed by the Baby
Boomer generation. Without researching new products the same
product lines might be introduced in the countries where birth
rates are declining and there are more elder people. Attractive
markets would be Japan, Hong Kong and etc. This strategy will
eliminate the threat of big dependability on Baby Boomer
generation.
According to SWOT matrix weaknesses of Revlon Corporation are
lack of lack of diversification in products, narrow target market
and lack of innovative/new products. Product development strategy
is strongly recommended for Revlon Corporation. Present product
improvement or development of new products services or are
inevitable in the competitive cosmetics industry since competitors
such as P&G, Avon, LOreal are offering more products for bigger
variety of target markets. Besides strong competition the narrow
target market is the reason of market share decrease for Revlon 3
percent yearly even when global trend for cosmetics industry is
measured 4 percent yearly in sales. Revlon should strongly consider
unrelated diversification strategy. Since the competition is very
intense in this industry and the target market of Revlon is very
narrow. Adding new unrelated products would change the consumer
view on the company. The company would be seen as more innovative
which will attract teenage consumers. According to David teenage
market will reach 20 million by 2010.
Due to economic, political and demographic trends Revlon should
be seeking and establishing business in Asia-Pacific, Africa and
Latin America regions. These regions are adapting vast
technological advances and integration of new technologies which
gives benefits for people living in these regions and increases the
productivity of countries which are in these regions. Due to fast
growth of developing countries more disposable income are generated
by households which provides sufficient funds to buy cosmetics,
skin and body care products.
In the case study of Revlon David was describing the growth of
world-wide market and even market growth in U.S. Since the inflow
of human capital is increasing year by year. While the competitive
position of Revlon is weak since the competitors like Proctor &
Gamble, Unilever, Avon Products, Inc has stronger positions due to
well known brand names and diversified products, which are adapted
to diverse population of U.S. Therefore white non-Hispanic
population of citizens in U.S. will decrease till 68% by 2010
(David, 2007). This means that almost every third citizen in U.S.
will belong to ethnical minorities. According to Grand Strategy
Matrix Revlon Company lies in 2ndquadrant, this means that the
company needs to adapt strategies like market development, product
development, and horizontal integration. Grand Strategy Matrix
proves that the strategy alternatives suggested for Revlon are the
ones that have to be implemented in order to turn weaknesses into
strengths and threats into opportunities. The best alternative for
the Revlon would be a mixture of market development, product
development, and horizontal integration strategies.
The actions items required to achieve implementation would first
of all have to start with raising capital and decreasing Revlons
debt. If the company wants to implement forward integration by
acquiring other companies products, it has to have resources to do
that. Revlons sales have not been competitive enough, so
implementing a strategy of direct sales would possibly increase
their profits, as well as decrease debt. More emphasis on other
customer groups can be achieved by direct marketing of products,
which is cheaper than advertising campaigns Revlon currently has to
pursue their customers. All of that means that the company would
have to employ more people to achieve their long term goals, which
still would be less expensive than going further into debt.
To achieve more diversification, Revlon has to produce new
products and introduce them to the mass market, not a specific
group of consumers. That can be done by creating supplementary
products, substitutes. Also, in the past it proved to be costly to
create strong brand products that were introduced to the market, so
Revlon should focus more on cheaper, generic goods for mass
market.
Gaining a competitive market share in other regions such as Asia
and Africa can be achieved by building new production plants in
those countries. It would be very expensive, but it is a strategy
that has proved to be successful for Revlon in the past. Developing
relationships and signing contracts with Asian stores would be the
main step needed to achieve results. Also finding suppliers and
creating a logistics system in those markets would decrease costs
by a lot. Outsourcing would also decrease costs.
Targeting changing US population of Hispanics would also need
changing of Revlons strategy in marketing and new products. New
advertising campaigns would have to include more diverse faces,
which would show that Revlon is targeting bigger market. Right now,
companys adverts are including white females, which leave males and
minorities out of the context. Another step to gain share in fast
growing market of ethnic minorities would be introduction of
cheaper products. This market segment does not have a lot of
disposable income, so prices of the products would have to be
competitive, on the other hand quality might suffer, but that can
be improved later, when a loyal customer base is achieved.
Timeline for Implementation
2012
* Creation of new distribution channels in Asia, Africa
* Research of possible marketing segments with the US
* Research and development of new, cheaper generic Revlon
products
* Start of employing new direct sales workforce in the US
2013
* Implementation of strategies of direct sales and marketing
* Start of new marketing campaign targeting ethnic minorities in
the US
* Introduction of new, cheaper generic Revlon products
* Expanding direct sales into foreign markets mostly Europe
* 2014
Opening of new distribution centres in Asia and Africa
* Expansion of direct sales into Asia and Africa
* Restructuring employment of more workforce in marketing and
sales
* Start of advertising campaign in Asia and Africa
* 2015
Possible acquisitions of other brands and products
* Establishment of Revlon as a diversified company targeting
more market segments
2018
* Decrease in debt
* Repurchase of shares of stock
The measurements whether implementation is complete would be
those of percentage of market share, sales, and finally debt.
Steady increase of at least 3% of market share in the US each year
and at least 7% increase in market share in Asia and Africa each
would mean that the implementation of new strategies is successful.
By the year 2018, there is goal to have at least 50% of the Asian
and African supermarket chains as partners where Revlons products
would be sold.
Consequences
Strategies should not create inconsistent goals and policies
within the organization, also it should not create unsolvable
problems. Any strategies what are offered can help Revlon company
to improve in positive way and to increase its sales. What
consequences would be if applying any of those strategies is not
hard to predict.
Firstly, to gain ownership and increase control on distributors
is the way what is going to happen if adopting forward integration.
Higher profits would be achieved if using Market development
strategy. The strategy of adding new unrelated products to the
product line would lead to change of consumers view. This would
give really positive consequences because teenage marked for the
company would expand. Also, it is necessary to make protections for
future. Revlon is dependent on Baby boomer generation, so creating
markets in Japan, Hong Kong and etc. would help to reduce
dependency on it. That is because in those regions live more elder
people and attracting them would let to involve more people to the
market.
As it was mentioned earlier, the best alternative for the Revlon
Company would be a mixture of market development, product
development, and horizontal integration strategies. Using those
strategies company could solve its problems and improve.
On the other hand not everything can look so positive. What
would change if Revlon Company would choose the strategy of not
changing anything, it is hard to know. Main thing is that changing
nothing and not applying any of those strategies lead company to
troubles. The consequences of not applying any strategy would
really hurt the company. Knowing the fact that Revlon are
struggling in some cases it is necessary to improve the situation.
And as it was said the best thing is to choose the best strategy to
avoid biggest possible problems and bankruptcy.
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