The company manufactures and distributes cosmetic products in the skin care, make up, fragrances and hair products. Estee Lauder has about 29 brands with presence in over countries. Estee Lauder has acquired some other businesses such as Smashbox Beauty Cosmetics and created partnerships with Aramis and designer fragrances and Tory Burch fragrances. This mission statement is broad and does not get to the detail of what the business is about.
Different industries face different influences of these forces depending on the degree of the forces.
However, this is not always easy, due to high entry barriers in some industries, and a variety of obstacles for potential newcomers. Existing companies approach this issue by taking preventive actions. The following factors, are the main factors that affect entry barriers: Supply-side economies of scale: This phenomena is called supply side economies.
New entrants usually find it difficult to achieve sustainable large production volumes.
For example, the insurance industry is a very profitable industry, with over a trillion dollars of written premiums a year, but getting into the insurance industry is not easy. Demand side benefit of scale: Demand side benefit of scale is present when many customers prefer the product of a single company, and this consequently attracts many more customers.
Think of Facebook FB with more than one billion active users worldwide. People who join Facebook prefer this social media site because there is a high probability that the people who they want to connect with are users of Facebook, rather than other social media sites.
This gives Facebook a strong demand side benefit of scale. High switching costs also create a barrier for new entrants. When it costs customers a lot to switch from one vendor to another, they're usually deterred from changing services.
For example, firms tend to face enormous costs for changing from one ERP system to a new one, due to high costs of implementation and time consumption.
High switching costs discourage customers from shifting to another vendor, which creates an obstacle for newcomers. Some industries require large capital to start a business, which tends to keep away competitors not able to achieve economies of scale quickly and efficiently.
Compare aircraft production to running a restaurant business.
In the first one, a large amount of capital is needed to finance fixed assets and working capital, thus even if investors see a high profitability in that business, many investors can't afford the vast amount of capital required to start the company.
In contrast, a restaurant business requires relatively small amounts of money to start and operate. Incumbency advantages, independent of size: Existing companies may have various advantages such as cheap or high-quality raw material or established brand identity, etc. It would be a tough task for a new business to enter the rating agency industry given other competitors dominate the whole market thanks to their prestige and strong brand identities.
Unequal access to distribution channels: New entrants may find themselves in a disadvantageous position in getting access to distribution channels compared to incumbents, which restricts their entry ability.
Pretend you want to start a cosmetics business. You would agree that it would be difficult for your new firm to display its new products on the shelves of a retail store compared to other well-known brands, wouldn't you?
|BUS Five Forces in the Beauty Products Industry by Jeanette Gomez on Prezi||Request Advisory Commonly known as perfume, fragrance is a mixture of essential oils or aroma compounds, fixatives and solvents commonly used to provide pleasant scent to the human body, animals, food, objects and any living space.|
In some countries, governments can impose high customs fees for imported products to protect domestic production. In this case, imported goods and services become unattractive compared to domestic products. The power of suppliers: In some industries, suppliers have dominant positions against their partners.
Such suppliers are said to have bargaining power in bidding prices up. Concentration of suppliers is a situation where market participants are dependent on a single or a small number of suppliers.Market Analysis Porter Five Forces Analysis Threats of new entrants The treats of new entrance are high as new stores are selling the substitute of fragrance products and it consequences the weak sales.
New entrants would have survey the market trends and understand consumer needs and lifestyle, therefore fragrance need to keep improvise their products according to the market needs in order to %(2).
The billion INR beauty care market has grown at a rate 15 to 20% in Consumer spend on beauty care continues to be resilient, with a marginal slowdown in value growth.
Within the cosmetic products segment, the hair and skin care sub-segment continues to dominate the market. one. Porters Five forces analysis Low switching cost increases the bargaining power of the buyer Undifferentiated products reduce the bargaining power of .
1b To analyze the competition within the fine fragrance distribution industry by using the porters five forces with the use of the same diagram above The following are the posed problems from the five element i.e. Rivalry The major rivalry in the retailing store is in the standard with which each store is portraying the fine fragrance with.
Porter’s Five Forces Model and SWOT analysis of the industry illustrate the potency of the buyers and suppliers. Value chain analysis provides a clear understanding on the roles of the stakeholders involved.
The Michael Porter’s Five forces analysis framework is used to analyse an industry and more specifically, the external business environment of the industry. This five forces framework tells us whether or not we should enter an industry, and also if we enter it, then what can be the challenges faced by us.