Overview
The company upon which this market analysis is based is Estee Lauder Cosmetics INC. The history of Estee Lauder Cosmetics INC. can be traced back to 1946 when the company began operations. The founder of the cosmetics company was Estee Lauder. The premise upon which the company was founded was that there is an inherent beauty in every woman. The company has added more products its product line as a mark of its continued growth over the many decades the company has been in operation (Estee Lauder Cosmetics INC., 2016).
Over the seven decades in which the company has been in operation, it has expanded its reach to over 150 countries around the globe. The flagship company had a product line of four cosmetic products. Since then, the company has expanded its product portfolio to feature over thirty products. This product is also diversified in that it targets a range of customers from the entry-level to the affluent customers who can pay premium prices for their cosmetic products (Estee Lauder Cosmetics INC., 2016).
Out of its diverse product portfolio, the market analysis will focus on Aramis. This is a cosmetics product that was launched in 1964, and has been in circulation since. This was a pioneer product as it targets the male niche and it was the first prestige fragrance specifically for the make cohort that was vended in department stores. Its strong identity has ensure the continued success of the product as it represents sophistication and masculinity. Aramis is vended in over 130 countries globally (Estee Lauder Cosmetics INC., 2016).
Type of market
Aramis, the product manufactured and vended by Estee Lauder Cosmetics INC. operates in the male grooming market. The male groom market is not exclusive for fragrances but rather different cosmetic products for the male population. It is an expansive market from a global perspective. It is responsible for a significant size in revenue as is illustrated in the graph below:
Figure 1 showing the market size in billion U.S. Dollars
Source: (Statista, 2016).
Figure 1 above shows the statics of the market size in terms of revenue since 2012 and the projections through to 2020. The trend line shows an exponential and sustained increase in the total revenue for the male grooming market between 2012 and 2016 (Statista, 2016).The trend line further shows that similar trends are expected to continue between 2016 and 2020 (Statista, 2016).
Competitors and Customers
The product is designed exclusive for the male niche. As highlighted earlier, Estee Lauder Cosmetics INC. has a range of products for both the entry-level customers and the high-end and affluent customers who can afford the premium prices for premium products. Aramis was designed to target the make customers who prefer prestigious products. However, the products was distributed through department stores so that it is also available to those people who are not necessary in the intended niche but still like prestigious products (Estee Lauder Cosmetics INC., 2016).
Comparative Advantage
Aramis has a comparative advantage that gives it an edge over its competitors. There are various aspects that combine to form the said comparative advantage. One of these aspects is the fact that the fragrance was introduced in 1964. In the fifty two years the company has manufactured this brand, it has increased its presence and strength. Aramis also has a strong presence in the market and in the many years, the brand has communicated its character; that of sophistication and personality (Estee Lauder Cosmetics INC., 2016).
Another comparative advantage of the product is that it has an extensive footprint in the market when compared to the other cosmetic products targeting the same customer niche. As highlighted earlier, the product is vended in over 130 countries around the globe. The extensive footprint in the market is an action towards the diversification of the market. This means that even if certain markets experience shocks, the product is still being distributed in other markets (Estee Lauder Cosmetics INC., 2016).
International Trade Opportunities
There are various opportunities for trade in male grooming products in the international market. As highlighted in Figure 1, there is an exponential increase in the revenue from the make grooming products globally. The projections also shows a sustained increase in the revenue from the sale of male grooming products by 2020 (Statista, 2016). These opportunities are located in various countries. The study of trends in the make grooming industry shows that there is an increase in the sales in the United Arab Emirates. Proper grooming for the males in this country and part of the world has a cultural significance. Due to this reason, the sales of male grooming products does not reduce significantly despite changes in the market.
Factors Affecting Demand
The demand for Aramis and other cosmetic products in the industry is affected by several factors both negatively and positively. One of the factors is price. The price of cosmetic product influences the economic accessibility of the product. If the prices are set to be low, the demand of the product will increase if the other factors are held constant. The income levels of the target niche also affects the demand for the cosmetic products. If the income levels are high, the targeted population might have a higher surplus income to purchase the cosmetic products compared to a population with low income levels (Majumdar, 1999).
While the two factors highlighted above are general to the cosmetic products, tastes and preferences of the consumers have an influence on the demand for a certain product. Aramis is a male fragrance with a certain identity; that of sophistication and masculinity. The demand for this product is dependent on among other factors, the number of people whose tastes and preferences are congruent with the identity of the fragrance. The other factor is the competition in the industry. The presence of many competitors in the market means that the consumers have a variety of options from which to choose (Majumdar, 1999).
The demand for a certain cosmetic product depends on the nature of the competition, the quality of their product, the price at which it is sold by the competition and its ability to meet their tastes and preferences. The demand of the cosmetic products is also influenced by the fashion trends at the time. For instance, the metrosexual makes in the current fashion realm have enhanced the focus of the male look, hence the increase sale of skin care products and grooming products in general for the male population.
Factors Affecting Supply
The supply of the cosmetic products is influenced by several factors. One of the factors is the increase in the production capacity of the manufacturer. Estee Lauder Cosmetics INC. has managed to increase the number of products it supplies into the market with every increase in its production capacity. The development of new production facilities will result in an increase in the product produced, and by extension, the supply of the product in the market. Another determinant of supply is the cost of production. This is affected by the cost of labor and raw materials.
A decrease in this the cost of labor and raw materials required in the production of the cosmetic product will allow the production of more of the product if all the factors remain constant. The improvement in production technology also helps increase the supply of the cosmetic product (Orbach & Frichter, 2014). This is more the case especially if the new production technologies result in production efficiencies that reduce the cost of production or increase the production capacity of the manufacturer.
Factors Affecting Price
The price of the cosmetic products is affected by numerous factors. One of the factors is the cost of production. Manufacturers often pass on the costs of production to the consumers by installing a premium on the prices that the product fetches. Products will be sold at a high price to recoup the high costs of production. The price of the cosmetic product is also influenced by the branding. Products that are vended under popular and strong brands tend to fetch higher prices. For instance, male fragrances by Dolce & Gabanna are priced higher compared to similar products by less popular brands.
The product lifecycle is also a determinant of the price that a product fetches. Products are often priced lowly during the introductory phases to enable the penetration of the prices (Ebrahimipour, Shoja & Li, 2016). The price for the same product might increase later on when the product is established in the market (Ebrahimipour, Shoja & Li, 2016). The level of competition in the market also affects the price of the product. In industries where there is a lot of completion, the manufactures will price their products lowly in order to gain a competitive advantage (Ebrahimipour, Shoja & Li, 2016).
Factors Affecting Total Revenue
The total revenue is affected by among other factors, the price elasticity of demand. This is more the case when the price elasticity of demand can be described as perfect. In such a situation, an increase in the price at which the cosmetic product is sold does not affect the demand of the cosmetic product (Cordes, 2005). This means that an increase in the price of the cosmetic product will result in an increase in the revenue because the same number of consumers will purchase the product (Cordes, 2005). The total revenue is also influence by the demand for the products. This is because demand affects the sales volume. The higher the demand, the more the products that are sold. This translates to a higher revenue compared to a scenario where the demand for the product is low and the other factors remain constant.
Factors Affecting Productivity
The productivity is the product of interplay of several factors. One of the factors that influences productivity is the human resource. There are various aspects of this fact that need to be considered. The first aspect is the competence of the human resource (Kaplan, 1990). Other aspects include sufficiency, motivation, and satisfaction. The machines and equipment required for the production of the cosmetic products also affect productivity. This relates to state of repair of the machines and equipment, their production capacity, speed, and the replacement policy of the company (Kaplan, 1990). Finances also affect the productivity of a manufacturing plant. The availability of finances is an important factor in the procurement of raw materials, remuneration of the labor force, and the repair of the machines and equipment among other factors.
Measures of Cost
Cost can be measured in different ways, many of which are relevant in the production process. One of the measures is the fixed cost. This is part of the production costs and describes the costs that remain constant despite the changes in volume of the output of the production process. Some of these costs include the cost of the production equipment. Variable costs describe costs change in response to changes to the volume of the output of the production process. The opportunity cost describes the gain that is forgone by choosing one alternative from the others. It is the revenue that could have been gained by exploring the other alternatives.
Effect of Externalities and Government Policy on Marginal Cost and Revenue
The marginal cost of a production process might increase if the government increases some taxes. For instance, the application of the pollution tax because the manufacturing plants result in significant carbon emissions will increase the marginal cost (Zilberman, 1999). Assuming that all the other factors remain constant, the marginal revenue will increase at a decreasing rate. The application of restriction or quota standards will only reduce the cost because the output of the production process is reduced (Zilberman, 1999). The marginal cost will remain constant assuming an even rate of production and cost accruement throughout the production process. However, the marginal revenue will reduce because the sales volume will reduce (Zilberman, 1999).
Recommendations for Profit maximization and Increased Presence
Aramis has performed exceptionally, partly because it is a quality product, and also because it was buoyed by the brand with which it was associated. However, Estee Lauder Cosmetics INC. can still maximize its profit even more through this product by increasing the efficiency of the production process. This will help reduce the costs of production. This can also be achieved through reducing wastages through fraud (Andergassen, 2016). The company can also increase its presence acquiring several other fragrances like it has done in the past. Estee Lauder Cosmetics INC. has consolidated its position in the industry by acquiring fragrances manufactured and vended by the competition.
References
Andergassen, R. (2016). Managerial compensation, product market competition and fraud. International Review of Economics and Finance. 45: 1-15.
Cordes, J. J. (2005). The encyclopedia of taxation & tax policy. Washington, D.C: Urban Institute Press.
Ebrahimipour, V. Shoja, B. and Li, S. (2016). Supplier selection considering product structure and product life cycle cost, International Journal of Quality & Reliability Management, 33(5): 654 – 675.
Estee Lauder Cosmetics INC. (2016). Our History. Retrieved from http://www.elcompanies.com/Pages/Our-History.aspx
Kaplan, R. S. (1990). Measures for manufacturing excellence. Boston, Mass: Harvard Business School Press.
Majumdar, R. (1999). Product management in India. New Delhi: Prentice Hall of India.
Orbach, Y. and Frichter, G., (2014). Predicting product life cycle patterns. Mart Lett. 25: 37-52.
Statista. (2016). Size of the global male grooming market from 2012 to 2020 (in billion U.S. dollars). Retrieved from http://www.statista.com/statistics/287643/global-male- grooming-market-size/
Zilberman, D. (1999). Externalities, market failure and government policy. Retrieved from http://are.berkeley.edu/~zilber11/EEP101/Detail%20Notes%20PDF/Cha03,%20Externali tites.pdf
