Cosmetics and Revlon

Introduction of the Company Revlon Inc. is a leading cosmetics company offering cosmetic, skin care, fragrance, and personal-care products. Revlon was formed in 1932, and started out with selling only nail enamels. Over the course of the past 75 years, Revlon has become a leading brand in the cosmetic market, recognized both in the United States and worldwide. Revlon owns popular brands such as Revlon, Charle, Mitchum, and Almay. Revlon has recently been struggling with debt, posting losses for the past eight years. Mission Statement AnalysisRevlon’s vision is to glamour, excitement, and innovation through quality products at affordable prices. The key objective of Revlon is to offer high quality beauty products while keeping the costs down for the consumers. I believe Revlon has been holding true to that vision; however they could be following it too closely. Revlon’s recent losses and issues with debt could be attributed to their vision. While the answer to solve thei r issues is uncertain it is clear a new strategy is needed to help Revlon recover. External Analysis External| | | | Opportunities| Weight| Rating| Score| 1. Men are using cosmetics more| 0. 6| 1| 0. 06| 2. Weakening of the US dollar making foreign markets more appealing| 0. 15| 2| 0. 3| 3. Growing trend of using personal care products| 0. 1| 3| 0. 3| 4. The increase in the mini-baby boomers (young teens)| 0. 1| 2| 0. 2| 5. Baby boomer females entering retirement| 0. 12| 3| 0. 36| | | | | Threats| | | | 6. Concern for product safety growing| 0. 05| 2| 0. 1| 7. Concerns about environment and animal testing growing| 0. 07| 2| 0. 14| 8. Increased gas prices greatly reduce disposable income| 0. 15| 1| 0. 15| 9. Natural fashion trends| 0. 05| 2| 0. 1| 10. Intense competition| 0. 15| 2| 0. 3| 1| | 2. 01| 1. There is a growing trend of men using cosmetic products. Product lines marketed specifically for men will be necessary to profit in this market segment. Men will be reluctant to use pr oducts made for women, so separate product lines are necessary. 2. Weakening of the US dollar makes any US based product more appealing in the foreign markets. Not only will people with other currencies favor the currency advantage of buying Revlon, are huge emerging markets growing in Latin America, Asia, and India. 3. There has been an overall growth in the use of cosmetic and personal care products worldwide.As countries become more developed, more people are earning income to spend on these products. Especially in the United States, appearance is strongly valued and cosmetics play a large part. 4. As with the increasing trend in cosmetics, there has been a significant increase in the mini-baby boomer market. Young teens are using cosmetic, personal care products more, and more. This market of teenage women is huge, especially in the United States. 5. The original group of baby boomers are beginning to reach the age of retirement. Most have reached their peak earning potential an d now have large amounts of disposable income.With old age comes the need for cosmetics to help people maintain a youthful look. Retired women of the baby boom era are a significant market segment for Revlon. 6. There have been growing concerns for product safety. Most cosmetics are applied to the face, and some if not properly tested can have adverse side effects. The population is becoming more health aware, and is always looking at the health effects of everyday products. Most companies now advertise the use of natural ingredients to market to health conscious consumers. 7. There is also growing concern for the environment and the use of animal testing.Animal testing had always been an issue for the cosmetic industry; however it is becoming more prominent in recent times. Even more is the growing concern for the environment. Consumers are looking for products that are not harmful to the environment and are eco friendly from the manufacturing process all the way to packaging and d isposal. 8. Increase in gas prices has hurt many industries across the board. Gas is something that the majority of consumers have to buy, and they are forced to pay whatever price is asked. The more consumers have to spend on gas the less to have to spend on items that are not considered a necessity.Costly cosmetics are probably one of the first things to be forgotten when spending needs to be cut back. 9. There is a trend of using natural products from food to cosmetics. There is a trend of going for a completely natural look altogether, meaning no cosmetics whatsoever. Even natural cosmetics discourage the use of other similar or supplementary products that would normally be used. 10. Competition is fierce in this industry. Marketing, price wars, and product differentiation among the cosmetic industry make it an extremely competitive industry. Each company has numerous brands that are recognized globally.Breaking consumer brand loyalty can be a hard task to accomplish. Revlon has a score of 2. 01 which is average. Revlon has been lacking in taking advantages of the different opportunities that it has. Failure to seize these opportunities will allow competitors to move in and gain the upper hand. Revlon should definitely take advantage of the growing foreign markets, especially in light of the weakening US dollar. In terms of threats, Revlon has been passive in responding to are preparing against them. Revlon has to make sure it markets its products in a way that is fitting for the changing view of the consumer.Product quality is becoming less important, as image is becoming everything. Completive Analysis Competitive Analysis: Porter’s Five-Forces Model | | Potential development of substitute products| | | | | I| | | Bargaining Power of Suppliers| -| Rivalry Among Competing Firms| -| Bargaining power of consumers| | | I| | | | | Potential Entry of new competitors| | | Rivalry Among Competing Firms Rivalry is high in the cosmetic industry. A few huge cosmetic makers dominate the market. They all have to deal with the decline in disposable income due to rising gas prices.Companies fight with marketing and cost reduction. Consumers have many ways to purchase these products. While a large amount of cosmetics are sold in drugstores and large retailers such as Wal-Mart there is still a significant sales done door to door. Competition is getting so strong that there has been a move to increase door-to-door sales to help steal market share from competitors. Potential of New Entrants The cosmetic industry is a 200 billion dollar industry. Competition is already high, and the industry as a whole has been faced with difficulties in these economic times.So the threat of new entrants is unlikely. However, new entrants to the industry could be successful if they can make a quality product at affordable prices. While there is a significant amount of brand loyalty, a consumer would easily switch to a more affordable quality product. Potential Development of Substitute Products As mentioned before rivalry is intense in this market. While brand loyalty does exist, price is becoming a very important factor. As a whole the market for cosmetics is very dynamic. While price is important, quality is just as significant if not more significant for some consumers. Companies re faced with the difficult task of balancing the two. Consumers will likely switch to a cheaper product with quality even though they might have loyalties to a particular brand. Bargaining Power of Suppliers Bargaining power of suppliers is low to moderate. Rising commodity prices affect all industries. The raw materials used in cosmetics are used mainly by cosmetic and personal care companies. The cosmetic companies do have some leverage, and these companies are able to keep costs down to offer lower prices to consumers. Bargaining Power of Consumers The bargaining power of consumers in this market is relatively high.Products are easily substitutable and pri ce is probably the most significant factor. Customers have all of the buying power, and often lean towards the cheaper products in these hard economic times. Since consumer bargaining power is high, companies in the cosmetic industry are forced to drive their prices down to stay competitive. While there are segments of the market that will pay a premium for a quality product, are majority of consumers will chose with their wallets. Generic Forces | Approach| Focus| Cost Minimization| Product Differentiation| Broad| X| | Narrow| | |Revlon offers various product lines focused at different segments of the market. The company was founded on the idea of providing affordable cosmetics. While many cosmetic companies attempt to differentiate their products from competitors it is almost an impossible task. Cosmetic products are easily substitutable so cost becomes the more significant factor. A broad focus cost minimization strategy is the one I would recommend for Revlon, there are some pot ential risks. As for any company, introducing new product lines can be a hit or miss. Revlon had recently introduced a product line called Vital Radiance that was aimed towards older women.The new line was not successful and was eventually discontinued, but not without taking losses. I believe Revlon should continue to use the same approach, they just need to make sure enough research is done before introducing new products to minimize the chances of failure. Competitive Profile Matrix Revlon Estee Lauder Avon Critical Success Factors| weight| Rating| Score| Rating| Score| Rating| Score| 1. Financial Position| 0. 3| 2| 0. 6| 3| 0. 9| 4| 1. 2| 2. Brand Recognition| 0. 1| 4| 0. 4| 3| 0. 3| 3| 0. 3| 3. Market Share| 0. 35| 3| 1. 05| 4| 1. 4| 4| 1. 4| 4. Global Expansion| 0. 15| 3| 0. 45| 3| 0. 5| 4| 0. 6| 5. Marketing| 0. 1| 4| 0. 4| 3| 0. 3| 3| 0. 3| Total| 1| | 2. 9| | 3. 35| | 3. 8| Out of the three companies, Revlon is in the worst position. While Revlon does excel in marketing, th e amount spent on advertising is piled on to the already massive amount of debt. The most important factors here in this situation are market share and financial position. In both areas, the competition is clearly ahead of Revlon. Another significant area is global expansion, and Avon is the leader in expansion. The global market is the key to success in the cosmetics industry and Avon's overall score proves that.If Revlon can fix its financial position, then they can begin to look at competing toe-toe with Avon. However, the longer they wait to straighten out the longer they will continue to fall behind. Internal Assessment Internal| | | | Strengths| Weight| Rating| Score| 1. Strong marketing efforts| 0. 15| 1| 0. 15| 2. Large distribution network| 0. 1| 3| 0. 3| 3. Produces Quality Product| 0. 05| 2| 0. 1| 4. Tailors product lines to different segments| 0. 05| 2| 0. 1| 5. Strong Brand Recognition| 0. 1| 2| 0. 2| | | | | Weaknesses| | | | 6. Limited Locations| 0. 15| 2| 0. 3| 7. In crease in long-term Debt| 0. 1| 1| 0. | 8. Weak overall financial position| 0. 15| 1| 0. 15| 9. Risk of Investing in a Project with No Return| 0. 1| 2| 0. 2| 10. Relatively high prices| 0. 05| 2| 0. 1| | 1| | 1. 7| 1. Marketing plays a large part in the cosmetic industry. Most companies compete on price. So ultimately the consumers’ choice is based on the perception of the product. Certain cosmetic lines are marketed towards different groups of people. The success of certain products is directly related to the effectiveness of the marketing campaigns. 2. The channels of distribution also play a large part in the success of any cosmetic company.Today most companies sell their products in a variety of different stores. Having their products available at many different locations helps to keep he competitiveness. Cosmetics are sold at drugstores, grocery stores, and large retailers such as Wal-Mart. Some companies even use door-to-door sales such as Avon. Revlon is beginning to u se that approach in certain regions such as China. 3. While price is the most important factor for most consumers, quality plays a large part with cosmetics. Furthermore actual quality is probably less important than perceived quality. 4.Ultimately people are willing to pay a premium for a higher quality product. In the case of cosmetics, quality is less about the product itself and more about the result to the consumer. 5. In order to make market campaigns successful the products themselves need to be designed differently for different market segments. For example, cosmetics aimed for the older population usually focuses on wrinkle education and skin firming ingredients, whereas cosmetics aimed for young women might offer a lot of color variety and other flashy designs. There clearly exists a different fashion trend among different age groups and different cultural groups.Having product lines tailored specifically for each group can help drive sales for each product line. 6. While Revlon does sell its products globally there are large markets outside of the United States that are yet to be entered. Because of the weakening of the US dollar US products are more favorable to foreigners. This event, along with the recent growth and development of these foreign countries form a large untapped market for cosmetic companies. India, China, and South America are becoming huge unsaturated markets waiting to be taken over. The first company to enter and successfully market to regions will become profitable.If Revlon continues to stay in its concentrated markets it will continue to fall behind the pack. 7. One of Revlon’s largest pitfalls is its failure to reduce its long-term debt. This is due largely to a few failed product lines that Revlon has launched in recent years, with Vital Radiance being the latest disaster. A lot of resources are required to launch new products. Not only are there the costs of production, but also the research and developments before the products are actually made. If the new lines do not yield the expected results the company is left in a net loss.In Revlon’s case, they never get a chance to pay off their debt, and are constantly playing catch-up. 8. Having a large amount of long-term debt is one thing, but for Revlon their overall financial performance is in need of repair. If Revlon able to generate enough income to balance out of their debt they would be much better off. Unfortunately, that is not the case. The amount of income and addition of new assets is not enough to keep out with the increase in liabilities. Because of this their overall financial position is very weak. Something needs to be done in order to set the company on the right path. . The main risk involved in launching new product lines is the potential for complete failure. So much research, time, and capital are spent to launch new product line. If the product does not sell as expected then none of those costs are recovered. Even wit h proper research of both the product and market, there is always a risk of failure. Already having such a large amount of debt, Revlon needs to take its time and do all the necessary research involved to increase its chance of launching a successful new line. 10. Price is the most important factor involved in the consumers’ purchasing decision.Cosmetic companies must find a balance between price and quality. Cost reduction is key to the success of any company in the cosmetic industry. If consumers decide to ignore quality, then price becomes the deciding factor. Though some cosmetic companies might sacrifice quality to keep prices low, they tend sell better when consumers have less money to spend. Revlon obtained a score of 1. 7 which is below average. Revlon’s biggest struggles are faced internally. The inability to pay off their long-term debt and their willingness to acquire new debt leave them in an extremely unstable financial position.Revlon needs to focus on it s marketing and product strategies. In these hard economic times Revlon should focus on price minimization. Consumers are more concerned about price these days with all of their purchases because money is tight. Revlon needs to focus on fixing its internal problems before they can begin to adjust to external factors. Financial Analysis Revlon’s main area of focus should be reducing its debt. Revlon posted net losses from 2004 to 2006. Sales had been leveling off during the same period. Net loss per share went from (. 47) to (. 2) from 2004 to 2006. Overall Revlon had been performing poorly, and failed new product launches helped contributed to the losses. By the end of 2006 Revlon’s long term debt amounted to 2. 3 billion dollars. Because of their ongoing issues with debt, Revlon has been undergoing debt restructuring. Moving forward Revlon must change its strategy to help increase sale, while minimizing the addition of new debt. In 2006 Revlon had a current ratio or l iquidity ratio of 1. 29 which improved slightly from 1. 25 in 2005. However, Revlon’s long-term debt still outweighs their assets.Revlon needs to look at its current product lines, and consider liquidating lines that are not generating expected returns. They are better off canceling unsuccessful product lines, then continuing to take on losses. While it may cost more in the short term, reevaluating existing product lines, and doing the research and development to launch new product lines will be more profitable in the long run. SWOT Matrix | Strengths – S 1. Strong marketing efforts| 2. Large distribution network| 3. Produces Quality Product| 4. Tailors product lines to different segments| 5. Strong Brand Recognition| | | | | | | Weaknesses – W 6. Limited Locations| . Increase in long-term Debt| 8. Weak overall financial position| 9. Risk of Investing in a Project with No Return| 10. Relatively high prices| | Opportunities – O 1. Men are using cosmetics m ore| 2. Weakening of the US dollar making foreign markets more appealing| 3. Growing trend of using personal care products| 4. The increase in the mini-baby boomers (young teens)| 5. Baby boomer females entering retirement| | SO Strategies1. Create product lines for new markets. (O1,2,5+S1,S4)2. The company should expand in to global markets. (O2+S1,S5)3. Focus existing product lines to their targeted demographics. (O1,3,4,5+S4)| WO Strategies1.Open new locations worldwide. (O2,O3+W6,W9)2. Reduce costs. (O4+W10)3. Conduct research before starting new product line. (O1,3,4,5+ W7,W9)| Threats – T 6. Concern for product safety growing| 7. Concerns about environment and animal testing growing| 8. Increased gas prices greatly reduce disposable income| 9. Natural fashion trends| 10. Intense competition| | ST Strategies1. Expand into global markets. (T10+S1+S5) 2. Reduce costs. (T8+S3)| WT Strategies1. Open New Locations. 2. Carefully plan new projects to maximize their profitabilit y. 3. Research safer ways of product testing and formulate safer and environmentally friendly cosmetics. T6,7,9+W9)| Space Matrix ————————————————- Financial StrengthRatings Decrease in Debt1. 0 Increase in Assets 2. 0 Net Income Per Share1. 0 4. 0 ————————————————- Industry Strength Growth Potential2. 0 Profit Potential 2. 0 4. 0 ————————————————- Environmental Stability Competitive Pressure-3. 0 Going Green Trend-3. 0 Economy Dependent-4. 0 ————————————————- -10. 0 —————————†”——————- Competitive Advantage Market Share-5. Brand Loyalty -4. 0 -9. 0 Conclusion ES Average is -3. 33, IS Average is 4. 0 CA Average is -6. 0, FS Average is 1. 33 Directional Vector Coordinate:x-axis: -4. 5+(+2. 0) = -2. 5 y-axis:-3. 33+(+1. 33) = -2. 0 Insert Space matrix The SPACE Matrix shows that Revlon has a defensive profile. They are financially unstable, which is why the point falls in the negative quadrants. BCG Matrix High| Medium| Low| Medium| StarsRevlon Brand| ? ’sAntiperspirants/Deodorants| Low| Cash CowRevlon Beauty Tools| DogsVital Radiance Brand| Revlon’s star product is their Revlon brand.The cosmetic market is still showing considerable growth, and Revlon has a total market share of 13%. Globally the market for cosmetics is expected to grow with the help of the weakening U. S. dollar. Revlon Beauty tools are the cash cow for the company. The overall market share for that product line is almost 25% which makes Revlon a dominant player. Growth in that market is expected, but not nearly as much as the cosmetics segments. Market share of Antiperspirants and Deodorants has dropped within the past year. While growth in that segment is expected, Revlon maintains a small share of the market.However, with the right strategy that segment could become another star for Revlon. Lastly, Revlon’s Vital Radiance line dropped to less than 1% in market share in the most recent year. That segment showed negative growth along with minimal market share. It was a wise decision on Revlon’s part to discontinue that line as it was generating any net profits for the company. Strategy Recommendation Revlon should follow to strategies to help turn things around. The first recommendation I have is for Revlon to expand its business in foreign markets. Currently the US dollar is weak, which makes US products more favorable in foreign countries.There are huge emerging markets in India and China. As these countries become more developed women have more income to spend on cosmetic products. In these countries Revlon might have a better chance at success if they try more direct forms of marketing such as door-to-door sales. There are rumors that Revlon is considering that strategy for China. While I believe times have changed, and marketing has changed especially with the age of the internet, I believe direct marketing works well for cosmetics. The typical users of cosmetics are more likely to buy a product if they get to see it in person, or get to try it themselves.I think door-to-door sales would be successful and could be used in the United States and in other countries. I also believe free samples would be another good form of marketing. I’ve noticed that a lot off cosmetic products are sold on the home shopping network in the United States. I think consumers feel more comfortable buying a cosmetic product when they can see how it is used and what results they generat e. There are cultural differences between the United States and foreign countries. Revlon should create new product lines tailored to each culture.I believe they are better off making fewer product lines focused on broader groups of people, rather than making too many product lines. They need to test the waters of each region, and determine the most effective ways to gain market share. The second recommendation that I have for Revlon is an internal one. Revlon has serious issues with debt. Part of the reason they are in this situation is because of the launch of unsuccessful product lines such as their most recent Vital Radiance. It takes a lot of time and resources to launch a new product line or to acquire new manufacturing locations.Any new product launch poses a great risk for any company. Revlon is not in any financial position to be taking these risks. I believe they need to do two things. First Revlon needs to look at its existing product lines and reevaluate their effectiven ess. Lines that are not meeting sales expectations need to be modified or discontinued altogether. It is better for Revlon to accept its losses and start fresh. The second thing Revlon needs to do is to spend all the time and resources necessary to make a successful new product launch. This was obviously not what happened with the Vital Radiance brand.While it may cost more time and money initially, a successful product line will easily be able to recover those expenses. As they make the decision to launch new brands or re-launch existing brands, Revlon needs to make sure all of its advertising spending is put to good use. Revlon is already deep in debt, and they need to make sure than any additional expenses will generate concrete returns. Revlon needs to refocus some of their brands, and launching new ad campaigns can help them do so. Revlon needs to find out which of its products are successfully marketed, and follow those same strategies to market their less successful product l ines.Focus is necessary in getting Revlon back on track. Effective marketing can help to increase sales both in the United States and abroad. Pro Forma The US market accounts for over half of Revlon’s sales. There is great potential for Revlon to expand its global markets. Realistically their sales in the foreign markets should be more than half of their overall sales. Revlon’s international sales have increased over the past three years, but the growth could be far more rapid. With the reorganization of Revlon’s current brands they could possibly cut some advertising costs by not having to market every product line to the same extent.Refocusing their brands with successful marketing, they might experience a slight increase in sales. I can estimate maybe a 5% increase in sales, and hopefully expenses can remain the same. Whatever extra cash is earned should be used to begin to pay off their debt. However, if neither of the strategies help turn things round, Revl on might consider be bought out by another company. Epilogue Section Revlon had made little improvement since 2007. The company maintains a debt in excess of over 1. 3 billion dollars. Although the company stock price has increased from 13 dollar per share to around 16 dollars. Google Finance) In general Revlon is still in the same boat it was in four years ago. Over half of Revlon’s sales are still from the United States. There has been little progress made in foreign markets. However, things are starting to turn around for the company. Revlon has been facing declines in sales since 2007. Now, in the first quarter of 2011 they managed to increase sales. (WikiInvest) They are estimated to increase overall sales by 2% this year. These sales are attributed to an increase in spending of advertising. Apparently the marketing efforts are beginning to pay off.This additional spending has helped to strengthen some of the Revlon brands. While things are beginning to look positive, th ey are going to need a much greater increase in sales to help pay off the debt. If they continued to lose sales in today’s times I would say it would be smart to consider selling out to another company. The recent albeit small turn around might give Revlon one last chance pay off its debt and become a big player in the industry. Resources: http://www. wikinvest. com/stock/Revlon_(REV)/News/2566033/Revlon_Reports_First_Quarter_2011_Results http://www. google. com/finance? q=NYSE:REV