Corporate management in action

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Introduction

When Estee Lauder was founded in 1946, the company started with four products: the Super Rich All Purpose Creme, the Creme Pack, Cleansing oil, and skin Lotion. Today, Estee Lauder boasts thousands of products under 30 different brand names. These brands include: Estee Lauder, Aramis, Clinique, Lab Series Skincare for Men, Origins, Prespectives, Tommy Hilfiger, M-A-C, Kiton, Good skin, Grassroots, Sean John, Mustang, Coach, Ojon, Eyes by Design, La Mer, Bobbi Brown, Donna Karan, Aveda, Jo Malone, bumble and bumble, Michael Kors, Darphin, American beauty, Flirt!, Missoni, Daisy Fuentes, and Tom Ford.

There are four basic lines for products. The skin care line includes moisturizers, creams, lotions, cleansers, sun screens, and self-tanning products. The makeup line includes lipstick and lip gloss, mascara, foundation, blush powder, eye shadow, nail polish, and makeup tools. The fragrance line includes eau de parfum sprays, colognes, lotions, powders, creams, and soaps, all of which are based on particular fragrances. The fragrance line also includes aromatherapy and bath products. Lastly, the hair care line includes shampoos, conditioners, styling gels and cremes, hair coloring products, and hairsprays.

Estee Lauder was founded on the belief that every woman can be beautiful and has diligently worked to promote a positive self-image in women for 64 years. In 1962, the company began using the “face” of Estee Lauder as marketing tool. The “faces” of Estee Lauder have been celebrities, mainly models or actresses.

The company uses very selective distribution, selling its products mainly in high-end department stores that compliment the image of the Estee Lauder brand. Estee Lauder also sells their products in: specialty retail stores, upscale perfumeries and pharmacies, professional hair salons, free standing company, stores, spas, direct response television shows, stores on cruise ships, on airplanes and in duty-free shops, in airports, and of course, on-line. Up until the 1960s, Estee Lauder remained a domestic brand, but in 1960, Estee Lauder went global by entering London. In 1961, they entered Central America and in 1963, they entered Australia. Now, Estee Lauder products are sold in over 135 countries. Estee Lauder also has 14 factories in six countries, business offices in 43 countries, and eight R&D Labs with a staff of over 450 scientists.

Organization Structure: Mission, Vision and Goal

Estee Lauder was formed in 1946 by Mrs. Estee lauder. Since then, she has retired, but her family still has majority control of the company. Fabirizo Freda, the current President and CEO, is the first non- family member to serve as CEO or President. Six Lauder family members currently hold high-ranking positions within the company, including three Vice Presidents and three Chairmen. The company went public in November 1995, but the majority of the stock is held by Lauder family members, with Leonard Lauder being the #1 stockholder in the company. Estee Lauder employs over 32,000 full-time employees worldwide.

VISION, MISSION AND GOALS

Estee Lauders mission statement is “Bringing the Best to Everyone We Touch.” By the best, “we mean the best products, the best people, and the best ideas. These three pillars have been the hallmark of our Company since it was founded.” Estee Lauder also strives to continue expanding by continually moving brands into new geographical territories, occupying the best retail locations, and offering customers the latest must-have products. Another statement regularly quoted by Estee Lauder employees is, “Imagine. Integrate. Innovate.” This encompasses the importance of continual growth and development within the company.

External Analysis

By exploring Porter's Five Forces Model, Environmental issues we can determine where Estee Lauder stands in comparison to their competitors, as well as where they are going as a company.

Porter's Five Forces Model

Power of Suppliers

The power of suppliers relative to Estee Lauder is almost completely obsolete. They have very little bargaining power with the company mainly because of the enormous size of the company and the brand image and brand awareness that they have. Since Estee Lauder develops almost all their products in-house through intensive research and development, they only rely on outside suppliers for packaging and basic chemicals found in all makeup. This severely limits any bargaining power that suppliers may have.

Power of Buyers

The power of buyers is also minimal relative to Estee Lauder as a company. Since Estee Lauder has gained such a huge share of market in the makeup industry, they are able to charge higher than average prices. Customers are typically willing to pay these higher prices, due to the fact that they know they are receiving good quality products for a slightly higher price.

Threat of New Entrants

When Estee Lauder opened their doors in 1946, there were very few new entrants into the market. Since then, this has drastically changed. There are constantly new companies entering the market. However these companies are very small and therefore pose minimal threat to Estee Lauder. The highest competition from new entrants comes from foreign competitors entering the American market.

Threat of Substitute Products

There are innumerable amounts of products that can be substitutes for the products that Estee Lauder offers. Makeup, skincare, hair care, and fragrance comes in thousands of brands and customers usually find a lot of these products in the same stores that Estee Lauder uses to sell their products. However, the age of the company has seriously helped them. Once a person finds a beauty product that they like, it is almost impossible to get them to switch to another brand. This brand loyalty helps Estee Lauder in retaining customers.

Rivalry among Existing Firms

The skin care market is currently a $24 billion industry with an annual growth rate of 7%. The rivalry among existing firms is extremely fierce. Everyday each company tries to find a new product that will put them on top. However, Estee Lauder does not have to worry too much about the threat of being overcome by another company because they are industry leader in the high-end makeup market. Other companies in the high-end market include Mary Kay, Sephora, and Arbonne. There is also a large low-end market for the makeup products that include companies like L'Oreal and Proctor & Gamble. These companies pose little or no threat to Estee Lauder. Even though they are both in the makeup industry, they target completely different consumers and therefore do not compete directly against one another.

Environmental Issues

SOCIAL CHANGES

Many social changes are currently transforming the skin care industry. Women no longer want a “one creme does everything” type product. They want something that is specifically designed to fit their skin type and fix the exact problem. A 20 year-old woman is going to have completely different skin than a 40 year-old woman and therefore requires completely different products. Obviously, 20 year-old women have very little concern about wrinkles, while 40 year-old women have very little concern for acne. Another social change affecting Estee Lauder's profitability is the emergence and growth in popularity of makeup sold in chain drug stores and mass retail stores, like Walgreens and Wal-Mart. Brands such as Olay and Neutrogena have marketed their products with new technology to show women that cheaper products can produce the same results as high-end products like Estee Lauder.

POLITICAL AND LEGAL CHANGES

Since Estee Lauder has never done testing on animals, they were not affected by the changing laws surrounding animal testing. Estee Lauder has always used human volunteers to test their makeup on. They also practice fair trade with product launches. This includes reducing waste, making the most efficient packaging, and implementing sustainability.

ECONOMIC CHANGES

The world is in recession. Every company is being affected by this, no matter how large or small they are or products or services they sell. Because of the recession, women are buying a cheaper makeup product which is bad news for Estee Lauder. They can remain dominant player in the makeup industry by creating value for people in order to make them realize that the extra money they are spending is worth it.

MARKET CHANGES

The main change in the market is the addition of more competitors for Estee Lauder to contend with. Companies, like Estee Lauder, are expanding globally and targeting new groups of people. This shifts some customers towards Estee Lauder and others away from the company. It is imperative for Estee Lauder to increase customer retention in order to combat this problem and keep loyal customers happy.

TECHNOLOGY CHANGES

The largest technology within the past 20 years is the addition of advancement of the internet as a marketing medium. This has increased and made easier research and development as well as made it easier for customers to learn about products. Estee Lauder has utilized this advancement by creating and maintaining a detailed website where customers can research and order products or receives a Virtual makeover. This aids in creating customer satisfaction and loyalty.

Internal Analysis

CORPORATE LEVEL STRATEGY

Estee Lauder has announced what I believe is a fairly radical brand strategy change for most of their higher end cosmetic brands which includes the Estee Lauder brand, Clinique, Bobbie Brown, Mac among others. Lauder will now post prices for cosmetics sold in department stores and actively have its personnel push a ”value” story. The veil of price intimidation is being dropped by Lauder in an effort to stem the tide of double digit sales and profit declines. The thinking is if you do NOT have to ask the price…..it's right there for you to evaluate…you might more likely buy a higher brand thinking, well it isn't as expensive as I thought….and “I'm worth it” to quote L'Oreal.

I think this is an important shift and one that would benefit many higher end brands. Without discounting or reducing the prices periodically to attract buyers, taking away the price intimidation factor and have pricing information as readily available for a $200 product as a $3.99 product takes some of the pricing sting out of the equation. Does eliminating snobbery reduce luxury goods appeal? In the past this would be true, but I believe this cultural behavior is changing for good. It forces high end brands to put forth a meaningful story to merit high pricing…..it puts greater emphasis on the brand's reason for being and deliverables than just being expensive. Consumers in the end might find more product information from the shift in emphasis away from performance and life changing impact than luxo-fluff.

It might also mean the end for some brands that cannot defend their high price positioning posture. I also do not think that this is a bad thing either.

ONLINE STRATEGY: With the state of the economy, many premium brands have attempted to enter the digital world. In addition, as more products launch at a faster rate, the huge investment and required sustainability of big traditional media advertising campaigns have become a tough economic pill to take. With women ages 50 to 65 the fastest growing cohort of Facebook users, Estee Lauder not only reaches its younger, social media savvy target, but also wealthier female audience. Combining an in-store effort with an online presence gives more contexts to advertising in social media.

Corporate Social Responsibility

Estee Lauder Companies Support a variety of initiatives. These include the Breast Health Foundation, Look Good Feel Better and Noah Arks. However also support a number of smaller initiatives with product donations throughout the year.

LOOK GOOD….FEEL BETTER

Estee Lauder Companies is a proud supporter of Look Good…Feel Better. It's a free community service program dedicated to helping women undergoing treatment for cancer. The purpose of the program is to help women manage the appearance and self image. The Industry, supports the program with products, financial donations and volunteers. The workshops are available to any woman undergoing or about to undergo treatment for cancer.

GLOBAL IIIUMINATION

In 2000, The Estee Lauder Companies ‘Breast Cancer Awareness Campaign expanded its effort and launched the Global Landmarks Illumination Initiative to spread the life saving message in a new, exciting and dramatic way. In October 2010, The BCA Campaign's Global Landmarks Illumination celebrated its 11th Anniversary with more than 200 famous buildings, monuments and landmarks joining in this effort by illuminating in glowing pink lights to stand as international symbols of hope to empower and enlighten millions of women everywhere.

THE ESTEE LAUDER COMPANIES BREAST CANCER AWARENESS CAMPAIGN

In 1992, Evelyn Lauder co-created the Pink Ribbon to raise awareness about the importance of breast health. Since then, nearly 110 million pink ribbons have been distributed at Estee Lauder Companies retail counters worldwide. The Pink Ribbon message is simple: Early detection and treatment of breast cancer saves lives.

FOUNDATION FOT THE NATION

At Estee Lauder they believe that foundation for a better future for South Africa lies in education and job creation. Estee Lauder has assisted this initiative by funding education of select women that would previously not have had the opportunity to study by donating R10 of each foundation sold during the months of July, October 2010 and February 2011. The chosen beneficiary for the funds will be Make a Difference Foundation. They also provide one on one mentorship during the full period of study.

D0-IT-DAY

Do It Day is an annual volunteering day when thousands of South Africans share their time, skills and energy with good causes across the country. Estee Lauder Companies once again took part in this exciting initiative.

Globalization: International Business

A CORPORATE FOCUS ON GLOBAL EXPANSION

Undoubtedly, the force and vision of Estee Lauder's leadership have also been important factors of the company's global success. According to Leonard Lauder, the chairman of the board, “It takes an organization with the experience, the systems, the products and the leadership to see opportunity accurately and move on it quickly.” It is this corporate vision that has motivated the company to expand into new markets across the globe.

Estee Lauders international operations officially commenced in 1960, with the company's first contract with Harrod's in the United Kingdom. Harrod's was selected because it is one of the most prestigious and well-known department stores in the world. Because of it's visibility in Europe, it served as a springboard to other European markets. Shortly thereafter, the company made its foray with the Estee Lauder brand into new markets in the Americas, Europe and Asia. The firm opened some of its free-standing stores overseas because it could not find the right distribution to maintain the brands standards. “You have to be perfect when you are establishing a brand,” says Ms. Wagner. This had the added effect of contributing to the modernization of some retail sectors, as competitors sought to emulate the elegance of the new Estee Lauder stores. The company will continue to look to Latin America for expansion, but with the caution, due to economic circumstances and political instability.

ACCOMODATING DIVERSE GLOBAL MARKETS

Estée Lauder has built strong brand equity all over the world with each brand having a single, global image. The company's philosophy to never compromise brand equity has guided it in its selection of the appropriate channels of distribution overseas. In the United States and overseas, products are sold through limited distribution channels to uphold the particular images of each brand. Before the company establishes or acquires a new brand, it is evaluated in terms of long-term global growth potential and its ability to complement the existing portfolio.

At the same time, Estée Lauder has been successful in responding to the needs of different markets. In Asia, for example, a system of products was developed to whiten the skin. This ability to adapt and create products to specific market needs has contributed greatly to the company's ability to enter new markets.

Estée Lauder's global strategies have paid off. In 2001, 61 percent of net sales came from the Americas, 26 percent from Europe, the Middle East, and Africa and 13 percent were from Asia/Pacific countries. For the past five years, international sales have increased 9.8 percent annually. Estée Lauder has manufacturing facilities in the United States, Canada, Belgium, Switzerland, and the United Kingdom, and research and development laboratories in the United States, Canada, Belgium, and Japan.

Estée Lauder's advantages lie in the strength and diversity of its brands and its outlets for reaching consumers. Nonetheless, in today's ever-changing world, challenges lie ahead. Increased communications, competition, and consumer awareness all demand that Estée Lauder stay on the cutting edge of its market niche. As for trade barriers, “we have encountered all of them in every country,” says Ms. Wagner. The best way to deal with them is “to do your homework and build relationships.”

Corporate Governance: Best Practice

Estee Lauder companies are committed to working together with uncompromising ethics and integrity. Adherence to the highest standard of ethics in the business practices is a condition of employment for all employees globally and board of directors.

Corporate Environmental Affairs & Safety Committee acts as the unifying force and focal point for programs, initiatives, and communications relating to environmental performance, workplace safety, corporate social responsibility, and associated issues.

Since Estee Lauder became a public company, the Board has developed corporate governance practices to help it fulfill its responsibility to stockholders to provide general direction and oversight of the management of the company's business affairs. The practices memorialized assure that the Board has the necessary authority to fulfill its responsibilities.

FINANCIAL HIGHLIGHTS

Append below are the Estée Lauder Companies' sales according to the three (3) and regional sales contribution (as per FY 2009-10):

Conclusion

Although the Companies has been established for more than 60 years, penetrated 140 counties, sales reached an all-time record of nearly USD$8 billion (companystatementsslogans.info, 2011) and earned the world recognize on the brands, products, management and many other areas, but the Companies never seen to be satisfied. Estée Lauder Companies still aggressive expand and explore new market and opportunities either in local or internationally. The brands portfolio will continue to expand via own R&D results or via acquisition of other brands and products. Although the Companies is principally managed and owned by the Lauder's family, but the Companies has never taking out any prevention or restriction for talented people to join and contribute, however, their talents and contributions been appreciate and acknowledged, thus better opportunities and challenge awaiting for them. Besides, making better return to the shareholders, the Companies also taking care for its stakeholders and social concerned by providing best working opportunities and working place for staffs, provide better shopping experience and environment to the customers and actively participate in public welfare and concern activities. In amidst of the world uncertainty economic climate, the Companies has to apply the precaution steps in order to further sustain and enhance the company's position and competitive advantages.

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