Since childhood, everyone is taught to think beauty is only skin deep. But beauty is in the eye of the beholder. In fact, beauty is finding a balance of mind, body, and spirit. Most women and even men, find that balance through beauty enhancers. The beauty industry includes the sales of cosmetics, perfume, and products for skin and hair care. Beauty is every product and service dedicated to helping people to achieve a desired look or smell. Most people’s definition of beauty is ever changing, lead to never-ending opportunities for the beauty industry to innovate. Spas and beauty salons are considered the service segment of the beauty industry. Some economists also include health clubs and cosmetic surgery in the beauty industry market.
Justification
Unilever Company is the best beauty company to use for a case study in this course. It has been in existence for a very long time and has managed to expand its market to over 150 many countries around the world. Therefore, it has proven its strength in the world market that can be used for analysis. Furthermore, Unilever is the second producer of beauty products after L’Oreal. A substantial amount of Unilever’s revenue is generated by skin and hair care sector of the company ( Lopes, 2017) . With this, the beauty care segment of the industry is fit to provide adequate information for the beauty company analysis in this course.
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History
According to Avenue Five Institute, beauty products and cosmetics have been traced back to as early as 4,000 BC by historians. Ancient Egyptians would create dramatic eye using kohl. The $425 billion beauty industry has reached worldwide and includes hair and skin care and makeup (A Brief History of The Beauty Industry). This history of the beauty industry is referred to as being very diverse and colorful
In early years beauty and cosmetics were made of natural ingredients which included berries, bugs, charcoal to create an assortment of colors. Beauty treatments were also made from natural resources to create scrubs, pastes, and exfoliates for the skin. The use of natural ingredients is actually an ongoing trend in the beauty industry today.
Beauty became an important and sustainable career path for women in the late 19 th and 20 th century (A Brief History of The Beauty Industry). This was especially true for the African American women who were creating products to change the actual texture of the hair. African Americans tend to have very curly or kinky hair and frequently used the straightening come to relax the curl pattern. Garrett Augustus Morgan’s accidental creation of the liquid or cream hair relaxer quickly became very popular in the African American community during the 20 th century (Williams, 2012). Straight hair quickly became the new standard as well as a thriving source of income in the hair segment of the beauty industry.
Industry/Competition – Five Forces Model of Competition
The Five Forces Model of Competition comprises of five forces that indicate the impact of competition and consumers on the company. The beauty industry competes with other major multinational companies on the consumer goods. By use of Porter’s model of analysis, it is possible to determine what should be prioritized in the bargaining power and competition of the company and the consumers in the industry. The five forces model of competition was developed to analyze internal and external factors which affect the competitiveness of a product or industry. When studying an industry, the five forces are used to examine whether or not the company can operate properly within a given industry. The analysis includes the threat of new entrants, the power of suppliers, the power of buyers, the threat of substitutes, and the intensity of rivalry from competitors. (Michael Hitt 55-56) . These factors will be identified and applied to the beauty industry.
Current rivalry opportunities and threats
Considering an industry’s firms are equally dependent, actions taken by one firm usually initiate actions from competitors. Competition rivalry increases when challenged by competitor’s actions or when a firm takes advantage of the opportunity to improve its market position. Intense rivalries are common in industries with multiple companies. When the market is growing firms, try to expand the customer base. Markets that increase in size have a lower chance of losing customers to competitors. But this also leads to no growth or slow growth for the firm. (Michael Hitt 60-62). For instance, the industry experiences rivalry opportunities and threats. The industry has major opponents in the buyer products trade who range from small vendors to great vendors from other industries. These opponents take advantage of new products that are more appealing to the customers to compete with them. Also, these big companies come up with alternative better services and products with more friendly prices against the beauty industry. Due to competition, the industry’s profit margins go down due to reduced demand for products by their customers. On the other hand, the competitive rivalry helps the beauty industry to become productive to rise above its competitors. As a result, it focuses on new opportunities that available in the market. For instance, Unilever Company came up with Lux brand, which has improved over time and added beauty products in the market to attract a wider number of customers. The low competitive rivalry would otherwise make the industry passive, which might result in major losses in the long-run. Also, the threats created by competition acts as a motivation for the beauty industry to increase its potential above its opponents. Therefore, high competitive rivalry helps the company to become creative by looking for better opportunities.
Potential entrant opportunities and threats
The new opportunities and threats of new entrants are used to describe the new opportunities and threats that are posed by other existing competitors in the market. As a result, an industry with huge profits will attract numerous competitors who intend to achieve the economic growth. On the contrary, the industries with low profits will attract very few competitors and threats. Also, if the entrant barriers of competitors to the market are high, it will be profitable for the company since only a few competitors will be able to enter the market. On the other hand, if the entry barrier is low, the company will experience huge threats since many companies will enter the market thus, increasing the level of competition. New entrants can threaten the market of already existing competitors. The reason for this threat is because of the existence of additional production capacity. This particular factor analyzes how easy it will be for competition to enter the industry. Competitive industries are more likely to attract many firms which will make every effort to capture a market share. Thus, it leads to a reduction of the overall profitability of current firms. (Michael Hitt 56) For firms to be able to enjoy long-term profitability, customer loyalty should be developed within the industry. This will help to ensure that new firms entering the industry will not affect the market share of current firms with faithful customers. Creating innovating new products that meet the needs of a unique market will aid in developing customer loyalty. (Michael Hitt 54) .
For several reasons, there is a low threat of new entrants among the beauty industry. One of the main reasons is due to the large costs of entry. The development of unique beauty products requires a lot of resources both in terms of research and development and the actual manufacturing process. It is very seldom that small and mid-size firms have access to the funds and expertise required to perform effectively. Another reason that discourages entry into the beauty industry is the presence of huge competition. In addition to the huge competitors with a large market share, many other smaller competing firms also have a small market share and who reduce the overall profitability of firms in the industry. (Jones) In addition to multiple competition, the beauty industry has a 77% fail rate (Coghlan) . This alone would make any investor think twice about entering the beauty industry. Although the new entrants are a threat to the beauty industry, it is not very scary since it has been in existence for a very long time, which has allowed it to attract very many customers with its quality products
Bargaining Power of buyer opportunities and threats
Furthermore, the feedback from the consumers of beauty industry products is very important to the growth of the company. Thus, the industry must consider the responses of its customers to establish a strong bargaining force with them and also in looking for new opportunities as well as while facing threats. The external factors are essential in determining the strength of bargain of buyers’ opportunities and threats. The low switching prices of the product make it possible for consumers to shift from beauty industry’s products to other related products from other companies. Hence, the consumers gain strong bargaining power with Unilever as the company tries to establish a good relationship with its consumers. As a result, customers benefit from quality information from the company about the products provided to help them make a sound decision on which provider they will choose. Also, buyers can get information about cost and quality of the beauty industry products. Through this, they can identify both the advantages and the disadvantages of purchasing these products. Therefore, when the consumers get strong bargaining power and information, the company can overcome the external threats of competition from other related industries. Hence, the bargaining power of consumers becomes a very strong aspect of the growth and development of the beauty industry.
Moreover, the bargaining power of buyers analyzes the power which consumers have as it relates to price changes in the industry. This particular factor analyzes how customer influence has a hand in manipulating the prices of products due to shifts in demand. The manufacturers and sellers may not effectively predict future demand by the market when consumers have high bargaining power. This causes unpredictable demand patterns because firms are unable to achieve long-term profitability. (Michael Hitt 60) . The beauty industry has a high bargaining power of customers. This is a result of the increase in competition and availability of beauty products from various manufacturers. Beauty products have high substitutes. This makes it possible for consumers to force manufacturers to reduce the prices of products by purchasing the competitors’ products. This same problem exists for manufacturers of beauty products face across the world. (Jones)
Bargaining power of supplier opportunities and threats
. Suppliers that have a high bargaining power are able to influence price changes by using strategies like market manipulation by hoarding and restraining supply. Some of these strategies are considered illegal in some countries but are normally used to effect price changes. The extent to which the products are distributed to various places is determined by the effort of suppliers of the company. Various factors contribute to the achievement of bargaining power of beauty industry’s suppliers. These factors include the size of suppliers, overall supply and the total population of suppliers. When the industry has a large number of suppliers of its beauty products like other major firms, it boosts the force of consumer goods in the market. Thus, when the number of suppliers is high, other related industries have a lower influence on the consumers. As a result, the beauty industry can sell its products to many consumers thus increasing its profits.
As well, the beauty industry has a low bargaining power of suppliers due to the high number of market players and a large supply of diverse products to the market (Michael Hitt 59) . There are many cosmetic products which are developed by both large and small-scale manufacturers. Due to the huge supply, consumers have the power to influence the market prices as opposed to the suppliers (Jones) . Also; the overall amount of supply determines the limitations of suppliers. For instance, if the number of products is limited, the suppliers will not be able to meet the needs of all their consumers. As well, the availability of raw materials affects the number of products that can be produced by the industry. Hence, the moderation of all these factors influencing supply is very crucial to the beauty industry. With reduced supply, raw materials and suppliers, it is easy for the beauty to overcome competitive threats posed by other related companies.
Substitute products opportunities and threats
The threat of substitutes occurs when there are similar products developed by competitors which satisfy the market needs. Manufacturers and suppliers lose bargaining power when consumers have access to substitute products which can satisfy their market needs. Customers are able to purchase competitor's products when dissatisfaction occurs with product price or quality. Firms have to innovate products which meet the needs of their target market segments in order for suppliers to overcome the challenge of the threat of substitutes. (Michael Hitt 60)
There are many competitors in the beauty industry which creates a high threat of substitute products. If manufacturers sell products at higher prices or produce low-quality products, then consumers are able to purchase substitutes from various competitors who are present in the market environment. This makes it important for firms in the beauty industry to be innovative to help prevent being replaced by a substitute product (Jones) .
Moreover, substitute products may serve as both opportunities and threats to the beauty industry. Substitutes from other firms help the industry to remain active by seeking new opportunities to meet the market changes and demands. Contrariwise, the substitutes lead to low revenues since customers will opt for new products that will alternatively serve their needs. Various external forces contribute to the weakness of substitutes which include: low switching costs, low performance of substitutes and low level of availability of substitutes. The existence of low switching costs of substitutes makes it easy for consumers to prefer the cheaper substitutes to beauty industry products. Thus, the substitutes act as a strong external force against the beauty industry. However, the poor performance of substitutes makes the beauty industry to obtain a remarkable position in the market since the consumers prefer high-quality products that will meet their needs effectively. Thus, from the analysis of the five forces, it is clear that substitutes are not a strong threat to the growth of the beauty industry.
General External Environment
The external environment consists of general and task environment layers. The general environment is composed of the nonspecific elements of the organization's surroundings that might affect its activities. It consists of five dimensions: economic, demographic, socio-cultural, political/legal, and technological opportunities and threats (Michael Hitt 43) . The beauty industry operates in these five dimensions, which helps to determine its market growth or decline, potential, business position and direction for its operations ( Tran, 2017).
Economic opportunities and threats
The economic environment is the nature and direction of the economy at which a firm competes. Typically, firms want to compete in stable economies that have strong growth potential. Nations are solid as a result of the global economy; firms must scan, monitor, forecast, and assess the health of the economies outside it as well as its own. (Michael Hitt 48)
As stated in the article written by Matt Senna, the beauty industry is not affected by economic slumps. The industry was unaffected by the 2008 recession. Although customers tended to be more frugal during those times, the beauty industry was unaffected. Still today the beauty industry continues to thrive. (Sena)
The beauty industry generated $56.2 in the United States (Sena). Hair care is the largest segment of the beauty industry consisting of 86,000 locations (Sena). Skincare almost comes in second and is constantly growing, and expected to have $11 billion revenue by 2018 (Sena). The growth skincare is contributed to healthy skin awareness and the increase in men products. (Sena). When its market becomes highly competitive, the consumers opt to buy substitutes from other companies due to the rise of the price of the beauty products. As a result, the beauty industry faces difficulties economically due to the decline of its cash flow. Therefore, the industry may endure huge losses due to impairment of various intangible assets, which poses a major threat to the growth of the company.
Demographic opportunities and threats
The demographic segment is the population’s size, age structure, geographic distribution, ethnic mix, or income distribution. Generally, demographic segments are analyzed on a global basis due to the potential effects across countries’ borders. This is also due to many firms competing in the global markets. (Michael Hitt 45). Also, demographic opportunities and threats are present in relation to the number of consumers of beauty industry products. When the number of consumers of personal care products is high, the company is able to produce a lot of products hence increasing its revenue. Also, a high number of consumers creates new opportunities for the company to innovate new products depending on the responses they receive from their customers. On the other hand, a low population of consumers leads to low returns. Hence, the company may experience a threat due to few consumers of its products. In respect, the company can expand its market by expanding its markets in more countries across the world
Socio-cultural opportunities and threats
The sociocultural segment is in relation to a society’s attitudes and cultural values. Considering attitudes and values form the foundation of society, they often drive demographic, economic, political or legal, and technological conditions and changes. The individual attitudes and cultural orientations are not stable. What this means is that firms should carefully scan, monitor, forecast, and assess them to be able to see opportunities and threats. (Michael Hitt 50)
Political-legal opportunities and threats
The political-legal segment is the area that organizations and interest groups compete for attention, resources, and a say in managing the laws and regulations that guide interactions between nations in addition to firms and many local governmental agencies. This segment is focuses on how organizations try to influence governments and try to understand the current and projected influences of those governments on their competitive actions and responses. Normally, firms develop a political strategy to determine how the political/legal segment will be studied and approaches will be taken in order to successfully deal with opportunities and threats that arise within this segment at different points of time. (Michael Hitt 49)
Furthermore, there are regional, local and international laws, regulations, and regulations that cover trademarks, patents, copyright, employee safety and health, product claims, and product health that affect the beauty industry. The taxes imposed by the government vary from nation to nation. Hence, the beauty industry may experience difficulties in investing in various nations depending on the regulations and rules laid by the governments of different countries. In nations where the laws are fair, the industry is able to expand its market unlike where there are so many rules put into place including too high taxes. Also, some governments impose heavy duty and taxes on importation of raw materials. As a result, very few companies can import their raw materials, which make it difficult to improve the quality of their products. Therefore, the beauty is highly affected by political and legal threats, which reduces its marketing opportunities.
Technological opportunities and threats
Prevalent and differentiated technological changes affect parts of societies. These effects normally occur when new products, processes, and materials are introduced. This segment includes the institutions and activities involved in producing new knowledge and transforming that knowledge into new outputs, products, processes, and materials. Companies strive to create more value for customers and project future trends by studying internet capabilities. (Michael Hitt 51) Additionally, the industry is faced with technological opportunities as well as threats. It spends a lot of money on IT in attempt to improve its brand and the quality of its products. Production of new and products has enabled the company to gain lots of customers across the globe. As a result, more related companies have come up with substitutes of skin care products which have posed a major threat to the beauty industry.
There are a variety of trends that contribute to the revenue and growth of the beauty industry with the use of new and improved products. Organic hair products have hit the beauty market pretty hard are driving increased growth. Other popular products or services are those created for the aging population. Products and services that are geared towards babies and young children are also popular and are normally organic as well. (Sena)
The growing trend among men is the “beard gang.” Men around the world are growing beards and becoming me conscious of their hair care well. Men also need to feel and look good. According to the article written by Matt Senna, this industry will drive growth in years to come.
For many salons retailing products make 15% (Sena). Retailing the right product on the shelves can make or break a business. Some companies even their offer training programs, or partner with a particular service provider.
With the strong and growing demand of the beauty industry, even during an economic downfall, the beauty industry continues to provide fantastic opportunities. (Sena)
Ethical Issues and Social Responsibility
The social responsibility of the stakeholders contributes to the strength of the brand and quality of beauty industry products ( Wickert, Vaccaro & Cornelissen, 2017) . The stakeholders include employees, shareholders, suppliers, consumers and the communities. The performance of all these stakeholders contributes to the overall growth of the company. The industry exploits its corporate duty by applying strategies to support its existence in the industry as well as its business sustainability. The employees have a direct influence on the organizational performance of the beauty industry. The role of employees is to increase the competitiveness of the industry while building their careers. Thus, the employees receive compensations in terms of salaries while they benefit the company by contributing to the achievement of its goals.
Like any other industry, the beauty industry also faces ethical issue and social responsibility. Ethical issues can cause an employee to lose their job or cause harm to the company. Most of the time ethical issues in the workplace can be avoided before it reaches that point. According to the article written by Don Rafner, the four most common types of ethical issues in the workplace include conducting personal business on company time, taking credit for others work, harassing behavior, and stealing on the job. (Rafner) It is the organization's social responsibility to act in a way that benefits the society at large. The responsibility lies with each individual to act in a way to help to help balance the organization and help it flourish. It is vital to the success of an organization is to create a positive work environment by making its employees feel relevant to the organization.
The importance of a positive working environment is the happiness of the employees. The key to ensuring employee happiness is the employer must help motivate the employees. Employees that are happy tend to be more productive, which is better for business (Hull, 2013). Lots of research has proved the relationship between employee satisfaction and a company’s success is vital. Motivated employees can make all the difference in a successful company. There are a number of incentives an employer can offer its employees to improve employee satisfaction (Hull, 2013).
Employees respond well to financial incentives as a reward for great performance. Perks such as casual days, half days, office parties, and social activities outside of the workplace tend to have good responses (Hull, 2013). Workplace amenities such as a gym, a cafeteria, or daycare centers helps employees stay focused during the working hours. Education is also a good incentive that enhances employee skills and creates loyalty. Employee recognition for a job well done creates positive reinforcement to employees from the employer (Hull, 2013).
The way employees behave at work is important to the success of the company. There are a number of factors that influence organizational behavior. The structure of the company, policies, and procedures, the management effectiveness, and interactions between employees are common motivational factors. (MacDonald) These factors can influence employees to work more productively. It is important for a company to understand how to motivate their employees to the best work out of them. In doing so, the company will be more productive and competitive. (MacDonald)
Those incentives work in the office setting, but the beauty industry can be slightly different when it comes to employee motivation. It is important to cultivate employee motivation in a way to fit the industry. As it relates to the beauty industry, education is always important to be able always to stay ahead of the competition. Therefore, education would be a great incentive. If an organization would offer additional training classes as an incentive, whether it is internally or an outside organization, would benefit the employee as well as the organization. Classes on beauty tips, makeup, skincare, haircare, tips on increasing clientele, or
Employee expectations/values
It is important for individuals in any industry to know what employers are looking for. Relevant skills are the number one requirement, especially in the beauty industry. Employers also seek employees who have personal values, characteristics and personality traits that are required to be successful. (Loretto). Good personal values are what makes the foundation for a good employee. Top 10 values employers look for in employees according to the article retrieved from The Balance: (Loretto)
Strong Work Ethics
Dependability and Responsibility
Possessing a Positive Attitude
Adaptability
Honesty and Integrity
Self-Motivated
Motivated to Grow and Learn
Strong Self Confidence
Professionalism
Loyalty
Overarching social responsibilities
Moreover, other ethical concerns involve employee’s behavior; employee’s working conditions and the supplier/consumer relations. The ethical concerns help the company to maintain a suitable working environment for all stakeholders of the company to help them in achieving the goals of the organization. To begin with, the employees should be provided with the proper working condition to allow them to be productive. They should have the right working equipment to ensure their safety. Also, they should have an insurance cover in the event that they get injured in the line of duty. The employers should consider the number of working hours for each employee to avoid overworking them as it may result in low productivity. Also, employees should be paid for their service to the company. If they are not paid well, they may become unproductive, thus leading to the decline of the organization. Thus, those employers who mishandle their employees should face the law since they create unsafe working conditions for their workers.
Furthermore, the employees and suppliers of the beauty industry must consider the ethical concerns relating to the customer relations. The customers are very important to the company as they help to give the right information to other people and also give feedback concerning the company’s products. Therefore, they should not be provided with the wrong information and products while advertising the company’s products and services. Also, the quality of services and products must not be compromised to ensure their satisfaction. Ethical issues, therefore play a noble role in ensuring the smooth running of activities in a company. The beauty industry has the above overarching social responsibilities that it has to fulfill to its stakeholders, against which the employees can sue the company for defying them.
All in all, the beauty industry is the most suitable industry for this course since it has been able to provide all relevant information. The industry has been in existence for many years which allows it to provide detailed information concerning the various topics in this course. The Five Force Model of Competition has been analyzed in detail to determine the growth or decline of the company. Also, the PESTEL analysis has been used properly to examine the performance of the company. The beauty industry has been found to consider the ethical issues of its stakeholders, which allowed it to stand the various market opportunities and threats over the past many years. In a nutshell, the beauty industry has stood the test of time, due to their high-quality products across the world.
References
Avenue Five Institute. (2014, November 26). A Brief History of The Beauty Industry. Avenue Five Institute. Retrieved from https://www.avenuefive.com/brief-history-beauty-industry/
Coghlan, C. (2017, October 17). How This Crowd-Sourced Startup Is Disrupting The Beauty Industry . Forbes. Retrieved from https://www.forbes.com/sites/clairecoghlan/2017/10/17/how-this-crowd-sourced-startup-is-disrupting-the-beauty-industry/#16a7ae6b7ca1
Hull, P. (2013, May 23). Motivation Mystery: How to Keep Employees Productive . Retrieved from Chron: https://www.forbes.com/sites/patrickhull/2013/05/23/motivation-mystery-how-to-keep-employees-productive/#6b150cab3b20
Jones, G. (2010). Beauty Imagined: A History of the Global Beauty Industry. Oxford: OUP Oxford.
Loretto, P. (2017, October 21). The Top 10 Work Values Employers Look For . The Balance. Retrieved from https://www.thebalance.com/top-work-values-employers-look-for-1986763
MacDonald, L. (2018). Impacts of Organizational Behavior in Business . Chron. Retrieved from http://smallbusiness.chron.com/impacts-organizational-behavior-business-48407.html
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Michael Hitt, D. I. (2017). Strategic Management Competitiveness & Globalization. Boston: Cengage Learning .
Rafner, D. (2018). Common Ethical Workplace Dilemmas . Retrieved from Chron: http://smallbusiness.chron.com/common-ethical-workplace-dilemmas-748.html
Ramsey, D. R. (2012, February 9). History of the Hair Relaxer . Sisters with Beauty. Retrieved from:https://www.sisterswithbeauty.com/history-of-the-relaxer/
Sena, M. (2018). Beauty Industry Analysis 2018 - Cost & Trends . Franchise Help. Retrieved from https://www.franchisehelp.com/industry-reports/beauty-industry-analysis-2018-cost-trends/
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