Current market conditions competitive analysis
Estee Lauder Cos.Inc
Estee Lauder Cos. Inc is an American based company that manufactures and markets prestige skincare, fragrance, hair products, and makeup. The company has owned various investments of labels that are internationally distributed to give it a global reach. It establishes departmental stores in various regions. Estee Lauder Cos. Inc has achieved a global leadership in by delighting its consumers with a variety of transformative products, high consumer experiences, and improved capacity to inspire its consumers to express their beauty with its prestigious products. The company is focused solely on its specific beauty products with more than 25 brands that are distributed in over 150 countries (Howerton, 2002). This organization is inspired by its passion to invest in innovation and creativity as a way of achieving some of its growth objectives as well as promoting the growth of its personnel and other stakeholders. Additionally, Estee Lauder is set apart by several values such as key moments, effective leadership, innovation and creativity, global reach, and culture and its core values. It produces and markets its products in more than 25 brands that enhance its competitiveness. Moreover, the company has 46,000 employees who facilitate its activities in various regions (Howerton, 2002).
An analysis of the current market conditions of the Estee Lauder Cos.Inc products
Estee Lauder produces a diverse product brand, which makes it an exceptional global producer and distributor of beauty products. Nevertheless, the company faces various market conditions that have prompted its leadership to engage in some strategic activities such as product diversification and acquisition of new brands.
The type of market in which company’s products compete along with an analysis of competitors and customers
Companies operating in cosmetic manufacturing industry experience dramatic changes in their market conditions. The profitability of these companies has been reported to increase, attracting numerous new entrants that pose high competition (IBISWorld, 1999). Thus, the brands produced by Estee Lauder Cosmetics face a competitive market in which numerous competitors’ brands act as suitable substitutes. The consumption of beauty products has unique features since cosmetic companies target specific customers. Other factors such as culture, attitudes, and perceptions of the world’s consumers of the cosmetic products are among the major factors that influence the market for cosmetic products. Besides the inclination to specific age, the consumption of cosmetics is significantly influenced by gender (Howerton, 2002). Therefore, Estee Lauder Company targets a specific market. The top competitors of Estee Lauder Cos. Inc include the Procter & Gamble, L’Oreal, and Coty Inc (CSIMarket, 2017). These companies produce similar products that are differentiated through brand names, packaging among other product differentiation techniques. Thus, Estee Lauder seems to operate in a market with oligopolistic features.
Firms in cosmetic industry target specific markets which are influenced by various factors such as cultural values, lifestyles, and the attitudes of consumers. The most important factor is the influence of age on the consumption of cosmetic products, which is the main focus of Estee Lauder and its competitors. Beauty products are more consumed by young population (Howerton, 2002). Therefore, the market share of Estee Lauder is significantly influenced by the proportion of youth population in different regions. Thus, the company must engage in marketing activities that focus more on young population.
Analysis of comparative advantage and international trade opportunities
The analysis of comparative advantage entails the understanding of the resource capacity of an organization to undertake production activities more efficiently than other organizations. Companies that operate on a global scale have numerous global opportunities for growth which act as insights to the implementation of various growth strategies (Mankiw, Rashwan M. H & Rashwan, 2012). In comparison to its competitors, Estee Lauder Companies have recorded a consistent growth trend in both its sales and total revenue. For example, in the third quarter of the fiscal year 2016, the company reported a growth in total revenue of about 1.07% and a sales growth of about 0.03% compared to its competitors. Apart from the revenue growth, the company has achieved significant growth in its market share with fragrance market segment increase by 5.16% (CSIMarket, 2017). Business organizations use their profits to engage in the expansion of their portfolios as well as improving the efficiency of their activities. Therefore, high- profit growth coupled with huge improvements in the market share offer the company a great comparative advantage. Moreover, the competitive advantage of the company as indicated by the consistent growth in its market share and high brand loyalty among the consumers of Estee Lauder Company’s prestigious brands provide greater opportunities for international expansion through increased international trade activities.
Factors that will affect demand, supply, and prices of fragrances produced by Estee Lauder Cos. Inc
The market conditions faced by various brands produced by Estee Lauder Cos. Inc are characterized by various factors that affect demand, supply, and prices of its products. One of these factors is the market size which influences the consumption capacity in a particular region. The company operates through the establishment of departmental stores using different marketing strategies such as online and specialty retailers (Mehra, 2015). The market size is measured in terms of the number of consumers located in a specific region. Thus, demand is low in places with low youth population, and therefore, prices tend to be relatively low as the company tries to attract new consumers.
Competition is another factor that significantly affects the market demand and prices of fragrances produced by Estee Lauder Company. The fragrance and other cosmetic products business are characterized by stiff competition in the global market. Brand availability, quality, recognition, and performance influence consumer choices (CSIMarket, 2017). Companies set their prices and improve the characteristics of their products such as quality based on the level of market competition. Estee Lauder Company competes with various companies, some of which have more resources to enable them to influence market prices. As such, it sets competitive prices to attract the demand and enhance product supply in different regions (Mehra, 2015).
The demand, supply, and prices of cosmetics and other products are influenced by the level of company’s investment in innovation and creativity. Estee Lauder Company recognizes the impact of investing in innovation and creativity on its ability to improve its performance through strategic business operations such as product differentiation and diversification (Howerton, 2002). Product differentiation strategy enables the company to diversify its brand which does not only increase its competitiveness but also improve the demand for different brands. High level of creativity in the company promotes the maximization of resource use, resulting in the increased capacity to enjoy comparative advantage through strategic pricing and marketing. Additionally, market research activities enable the company to make line extensions and introduce new brands depending on the market needs (Gupta, Guha, & Krishnaswami, 2013). As a result, the demand and supply significantly increase as consumers build more confidence in the capacity of the company to meet their needs.
The supply of fragrances in various countries will be significantly influenced by trade policies adopted by different countries. Estee Lauder Cos. Inc has established distribution channels in various countries with different trade policies. Some of these policies such as high tariffs and compliance costs tend to impede the capacity of the company to supply its products. Lack of adequate supply reduces the demand as the product is less popular in some foreign markets. Trade policies affect prices in different ways. High tariffs and strict trade regulations result in increased prices that reduce the demand (Mankiw, Rashwan, M. H., & Rashwan, 2012).
Factors that will influence the total revenue
The total revenue function helps to determine and estimate the expected revenue over a given period. Total revenue entails all the revenue collected from various business activities, and it is obtained as a product of average product revenue and the total production of a firm. Various factors are likely to affect the total revenue of Estee Lauder Company. Some of these factors include:
Price elasticity of demand
When various factors are assumed constant, price elasticity of demand is used to measure the degree of responsiveness of the demand to change in the price of the product. When the demand for a product is highly price elastic, a small change in price results in a considerable change in the quantity demanded. A serious decline in the demand results in a drastic reduction of the total revenue of the company (Whelan, Msefer, & Chung, 2001). The market faced by Estee Lauder Cos.Inc is highly competitive given the number of companies producing similar products and the nature of the target market. Therefore, any decision to increase prices may be accompanied by a severe reduction of the total revenue due to reduced demand as consumers shift their purchase to competitors who might not have increased prices.
Factors that influence productivity
The productivity of a firm is influenced by different factors such as operation and managerial efficiency, labor productivity, and technological advancement. Strategic selection of manpower and effective management of human resources promote the growth of the total revenue the through increased labor productivity. The use of appropriate technology and input materials helps to improve the productive capacity of a firm, resulting in reduced cost which increases the total revenue (Gupta, Guha, & Krishnaswami, 2013). Thus, the total revenue of Estee Lauder Company can be increased through effective human resource management and utilization of appropriate technology to minimize the total cost.
Various measures of cost including opportunity cost
The theory of profit maximization postulates that a firm can maximize its total revenue by reducing various costs. The minimization of different cost measures helps to maximize the total revenue through price reduction that promotes sales revenue (Mankiw, Rashwan, M. H., & Rashwan, 2012). However, some costs are fixed, and the company has little control over them. Estee Lauder Company can improve its total revenue by minimizing different variable costs as well as conducting a strategic analysis of opportunity costs associated with various business activities. Effective application of the concept of opportunity cost helps the company to evaluate various alternatives and undertake activities that are likely to improve its total revenue and profitability. Therefore, identification, classification, and minimization of different costs incurred by the company are vital to increasing its total revenue.
Externalities and government public policy and their effect on marginal revenue and marginal cost
Marginal revenue entails the additional revenue that a firm generates by producing and selling an additional unit of output. The marginal cost involves the extra cost incurred when a firm decides to produce an extra unit of a product. Externalities are spillover effects that result from various production activities of an organization. The total revenue can be increased by increasing the marginal revenue while reducing marginal cost and negative externalities of production. Business activities with high negative externalities tend to inhibit the capacity of a firm to increase its revenue (Mankiw, Rashwan, M. H., & Rashwan, 2012). Effective public policies with positive impact on the total revenue of a firm such as increased subsidies, reduced taxation, and the creation of favorable business environment also contribute to significant growth in total revenue of the firm.
Recommendation on how Estee Lauder Cos. Inc can maximize their profit making potential and increase their presence within the market served by the product
Estee Lauder Company can use various strategies to maximize its profit-making potential and increase its presence in the global market. One of the strategies that can significantly help to improve profit -making potential is increased investment in online marketing since technology has become more advanced. By increasing investment in the online business, the company will be able to reach more market conveniently and improve its service delivery to its global customers. The company should also undertake vigorous market research activities to gather information related to the performance of its products in different market segments. The increased market research will enable the company to adjust its business strategies to improve the recognition of its brands in different segments of the global market. Estee Lauder Cos.Inc should also contemplate establishing franchises in more countries to increase its global presence and market for its brands.
References
CSIMarket. (2017). Estee Lauder companies Inc comparisons to its competitors, market share and competitiveness by segment. Retrieved January 10, 2017, from http://csimarket.com/stocks/compet_glance.php?code=EL
Gupta, P. D., Guha, S., & Krishnaswami, S. S. (2013). Firm growth and its determinants. Journal of Innovation and Entrepreneurship, 2(1), 1-12
Howerton, A. B. (2002). The Estee Lauder Companies Background and History. University of Tennessee, KnoxvilleTrace: Tennessee Research and Creative Exchange, 1-18
IBISWorld. (1999). Cosmetic & beauty products manufacturing in the US market research. Retrieved January 9, 2017, from https://www.ibisworld.com/industry/default.aspx?indid=499
Mankiw, G. N., Rashwan, M. H., & Rashwan (2012). Principles of economics. United Kingdom: Cengage Learning EMEA.
Mehra, P. Business overview of Estée Lauder. Retrieved January 10, 2017, from http://marketrealist.com/2015/08/business-overview-estee-lauder/
Whelan, J., Msefer, K., & Chung, C. V. (2001). Economic supply & demand. MIT. MIT System Dynamics in Education Project, 1-34
