CASE STUDY.02-19-14

8/12/2019 CASE STUDY.02-19-14

1/26

1

Case Summary

Lipstick, powder, cologne, lotion and hairsprays, these are just few things that a woman cannot live

without. Whatever your status maybe, a student or employee, teenager or adult, as long as you are

concern and conscious about your look, you definitely need these products. Even men cannot escape with

reliance and need of these products. Personal products industry thus is a good business. But a good

choice of business comes with great risk and uncertainty. Just like what happened in the Estee Lauder

Companies, Inc.

Like other big companies, Estee Lauder started as a small company without any established

company structure and plans. As time went by, the company started structuring its core values, mission,

vision, organizational structure, objectives and strategies that it chose to implement for the achievement of

its goals. The company has arrived with decisions that greatly affect its operation.

Cosmetic industry is expected to hit in the succeeding years but many social and environmental

issues are waiting to affect companies operations. Barriers to entry in the industry is also low , thus,

powerful competitors are expected to arrive with more advanced technology and facilities, good

management team, more diversified products and more financial stable compare to Estee Lauder.

Estee Lauder decided to differentiate their products and to focus on high class customers as their

target market hence prestige pricing is implemented that vary from product to product. Advertisements,

good distribution channels and very good marketing efforts were also implemented in all geographic areas

covered. Finances were stable until such time when it diminishes little by little. An Organizational structure

was also developed to manage the company but there were some unclear matters as to the kind of

structure the company was using. Top management was in to brand acquisition and always gives

significance to selling decisions.

8/12/2019 CASE STUDY.02-19-14

2/26

2

What future awaits the Estee Lauder Companies? Can it overcome all the challenges? Moreover,

what will be the best move for the company for achieving its goals and objectives?

Brief Background

Elegance, Luxurious and superior quality beauty products, these factors put Estee Lauder at the

top of beauty industry. They showcased four segments which include: Make Up, Skin Care, Fragrances

and Hair Care. Estee Lauder is known to be the industry leader and a trend setter in beauty and products.

Estee Lauder is a U.S based company specializing in manufacturing beauty products and

fragrances. It was established in year 1946 by Estee Lauder and husband, Joseph Lauder. The small home

business of Lauders started out because of Estees interest on it and her uncle, John Schotz, expertise to

develop beauty products. They began selling their products directly to their customers. As they failed to

bring it at Madisons Avenue, They decided to market through outside boutiques and department stores

before they finally acquire their own in year 1948. For the next 15 years, the company continued to

distribute its product on selected U.S stores and by year 1960 it globalized its operation bringing Estee

Lauders products in Harrods, London and a year after to Hong Kong Market. Introductory products of the

company include super rich all-purpose cream, cream pack, cleansing oil and skin lotion. In 1964, Estee

launched itsAramis,fragrance and grooming products for men and by year 1968, Clinique, dermatological

tested cosmetic product, is introduced in the market. In 1967, as the company gain observable progress,

the company decided to expand its business by opening Clinique Lab. Inc. and acquiring more brands like

MAC, Tommy Hilfiger, Bobbi Brown, Donna Karan and the like. In 1983, Estee products were introduced in

the Soviet Union. In 1995, Estee Lauder Company became popular in the public because of their beauty

products and fragrances.

8/12/2019 CASE STUDY.02-19-14

3/26

3

In 1998, Estee Lauder Company was the first major cosmetic firm to sell its product via internet and

the acquisition of more brands was made including Jo Malone, Gloss.com, Bumble & Bumble LLC and Stila

cosmetics which, later on, was sold. In 2003, Darphin, Rodan +Fields, and License from Michael Kors

brand. In 2004, the company launched its Beauty, Flirt and Good skin through its beauty bank division. In

2005, it presented Grassroots and Daisy Fuentes, Sean John, Missoni, Donald Trump in 2006. Estee

Lauder Company has 26 brands, sells products in more than 130 countries and employs over 22,000

people across the world. Although Mrs Lauder passed away in April 2004, she witnessed the growth of their

business earning $5 billion annually.

The Lauder legacy continues to stand as their successors handle it effectively. Bringing the best in

everyone we touch, this is the vision that lead them to be an industry leader and trend setter.

Mission Statement

The employees of the Este Lauder Companies are committed to working together with

uncompromising ethics and integrity. They strive to always:

Being responsible citizens in every community we serve Understanding that we are part of a larger whole and that our actions have consequences Striving to continuously look for new and better ways to do things to constantly raise our standards Providing consumers with innovative cosmetic products of the highest quality and safety standards Delivering outstanding service by treating each individual as we ourselves would like to be treated Building partnerships with our stakeholders based on fairness and trust Pursuing profit-but never at the expense of quality, service or reputation Eliminate waste and reduce inefficiencies in order to provide maximum value to our customer Enhance our reputation of image, style and prestige

8/12/2019 CASE STUDY.02-19-14

4/26

4

Create an environment that fosters personal growth and well being Most of all, staying committed to working safely together with uncompromising ethics and integrity

Proposed Mission Statement:

Estee Lauder Company aims to cater beauty and fragrance needs of high profile individuals,

bringing in them the companys passion of making eminent branded products.

Vision Statement

Bringing the best in everyone we touch

By "The best", Este Lauder means the best products, the best people and the best ideas. These

three pillars have been the hallmarks of the Companies since it was founded by Mrs. Estee Lauder in 1946.

Proposed Vision Statement:

In year 2017, The Estee Lauder Companies Inc., envisions itself to become the leading cosmetics and

fragrance company worldwide, known for its prestige brand collections and highly competitive prices.

I. Time ContextJuly 1, 2007 (Fiscal Year)

II. ViewpointThe whole case analysis would be on the viewpoint of the Executive chairman of the Board Mr.

Leonard Lauder.

III. Statement of the problem

8/12/2019 CASE STUDY.02-19-14

5/26

5

Estee Lauder Company Inc. suffers a declining return on sales of fragrance products caused by

difficult retail environment and distribution methods.

IV. Statement of Objectivesa. Long-term objectives

To make Estee Lauder achieve a better competitive position in industry.b. Short-term Objectives

To achieve a 10% increase on the return on sales of fragrance products. To select appropriate distribution channels especially for fragrance products. To restate the organizational structure that guides them in one direction and can

be clearly recognized by everyone.

V. Areas of Consideration

8/12/2019 CASE STUDY.02-19-14

6/26

6

a. SWOT Analysis

1Industry Recognition Conformance to ISO

14001 (globally recognized)1 Lack of diversification

2Wide scope of the high-end cosmetic

industry2

Family members are the largest

shareholders which can affect the decision

making processes

3 Implementat ion of Gift With Purchase 3 The company lacks clear v ision

4One of the first cosmetic companies to

offer products online.4

The company has confusing organizational

structure whether traditional, functional or

divisional

5 Globalized Organization 5Decreasing ratio of operating income for

fragrances products

6Makes a lot of promotions including TV

commercials6

Decrease in the no. of departments that

sold Estee Lauder products from 75 of 1990

to 17 department stores7 Brand name is of high value

8Industry leaders in innovation and

customer service

9

Wholly owned and operating at 43

countries with products that are sold at 130

countries.

1040% increase of revenue within 2003 to 2007

from 5million to 7 million

11

Continuing purchase of new start up

businesses like Bumble and bumble

products in 2007 by the company

STRENGTHS WEAKNESSES

8/12/2019 CASE STUDY.02-19-14

7/26

7

b. SWOT Matrix

1Internet provides a huge market place for

sales1

FDA and other organizations worldwide

are increasing regulations and policies

2QVC is a huge channel in which some ELC

brands have been featured on2 Difficult Retail Environment

3Modernization in the work place may

increase capacity 3 Many customers tend to be brand loyal

4 New markets - Globally 4

Diversification of many products and

brand names in the cosmetics industry by

top competitors

5Increasing no of men who are becoming

concerned with their looks5

Creation of newly started companies that

produces specialty products

6

Increasing no of customers who are

becoming more interested in herbal

products derived from natural resources

6

Sections of populat ion that desire a more

natural look and reduces use of cosmetic

products

7Developing skin care products to open

market for Aging population.

8Convenience and Cost savings are thereasons why more people are buying

products through online.

OPPORTUNITIES THREATS

1

Expansion of Estee Lauder's

product offerings to other

foreign countries (S5, S9, O4)

1

Continually expand product

promotions especially in

fragrance advertisements (W5,

W6, O2)

2

Developing products, intended

for men, women and aging

people, made up of herbal

products from natural resources

(S8, O4, O6)

2

Development of new fragrance

products for men and women

(W5, O5)

1

Offer more promotions and

discounts to customers to

encourage further sales (S10, T4)

1

Developing a clearer Vision

statement in order for the firm to

be competitive in dealing with

its competitors (W3, W4, T4, T5)

2

Development of soaps and

other natural products that

promote natural looks (S8, T6)

2

Diversify and implement forward

integration by means of having

more retailers to attract more

customers in order to overcome

decreasing sales in fragrances

(W5, T2, T4)

STRENGTHS WEAKNESSES

THREATS

OPPORTUNITIES

8/12/2019 CASE STUDY.02-19-14

8/26

8

c. Posters Five Forces Analysis

Threat of the New Entrant

LowThe threat of new entrant in the industry is low because Estee Lauder Company already

created a strong brand loyalty that builds Estee Lauders confident and maintains trust of its

patroniser. Estee Lauder Company will not also be threatened of new beauty product launches in

the market because its brand is widely known for quality and prestige.

Threat of Substitutes

LowEstee Lauder have established loyalty from their customer and when someone starts

using the products and see good improvement, trying another product is almost set aside unless

there is a promising technology available that promises permanent improvement.

Bargaining power of suppliers

LowThe suppliers of Estee Lauder has little bargaining power in the market because the

company has its own in- house developed ingredients used in manufacturing their beauty products

and fragrances. What is being outsourced in the market represents only a little component of the

whole product like basic and non-value chemicals and packaging.

8/12/2019 CASE STUDY.02-19-14

9/26

9

Bargaining power of buyers

LowThe buying power of the customers of Estee Lauder is weak. Their buyer belongs to the

high end market or those who are price insensitive meaning even Estee Lauder chooses to raise

their prices for same products its customers will just overlook it or it cannot pressure the seller,

Estee Lauder, the same way it wants to happen. In this kind of market the main competition is on

product quality, brand recognition and product differentiation.

Intensity Rivalry among Competitors

HighEstee Lauders major competitors are Avon, LOreal, P&G, Max Factor, Revlon, etc. ELC

therefore needs to have continuous growth and innovation for its products for them to stay ahead

of competition. There are various brands under the company so it is important that the range of

price is good and they can differentiate their products well without customers facing high switching

costs. In 1976, Estee Lauder created the line designed for men. It was called skin supplies for

men (Estee Lauder 2003a). Avon, Max Factor and Revlon did not have men lines.

8/12/2019 CASE STUDY.02-19-14

10/26

10

PESTEL ANALYSIS

Political factors

The political environment within which an organization exists has far reaching consequences. The

political environment most obviously operates at National level, but may also be significant at local and

international levels. Estee Lauder gives direction to countries through the way they exert control over the

economy. Estee Lauder should not only be aware with the politics of a country, but also with the media,

industry and labour leaders. In addition, Estee Lauder should also consider policies in different countries

that promote social welfare. The following political factors can affect the business environment:

Level of government involvement in business Stability Taxation

Economic factors

Estee Lauder looks at the interplay of market forces that dictate the state of the economy and

implications on both commercial and non-commercial organizations. Prices vary from brand to brand and

product to product, but these are usually in the higher ranges of an industry. Moreover, there is unstable

economic condition that causes the rise of unemployment rates, lessening the consumers spending power.

The factors include:

Exchange rates Interest rates Spending power Inflation and employment

8/12/2019 CASE STUDY.02-19-14

11/26

11

Socio, Cultural Factors

The socio cultural influences on businesses vary internationally. These affect a societys basic

values, perceptions, preferences and behaviours. It is vital that such factors are considered if an

organization wants to achieve its proposed objectives. Its population demographics include various age

groups ranging from teenagers to veterans. Factorsinclude:

Education and belief Why do customers buy When do customers have timefor shopping The roles of men and women within society and depending upon that the products should be

launched

Estee Lauder has received customer complaints regarding the fact that new products are beingtested on animals first. They have to look into this matter as it can pose serious issues with the

customers.

They also launched Breast Cancer Awareness (BCA)Technological factors

More and more businesses are affected by technology. Technological factors affect the operations

of the firm since technological advancements serve to avoid obsolescence and to promote innovation of

relevant techniques in the industry. Estee Lauder has rapid technological changes in its products, and

these products can be accessed online via the internet. Some technological factors are:

Information Technology (IT) rapid growth Innovation Government spending on research

8/12/2019 CASE STUDY.02-19-14

12/26

12

New discoveries and developments Product life cycle

Environmental Factors

These factors are also known as the Natural factors. These factors help Estee Lauder in showing

strategic doubts and their worth in the predicting and planning processes using environmental aspects.

There have been emissions of harmful gases and fluorocarbons, which Estee Lauder must take care of as

it is an environmental threat. It increases the significance of the following factors:

Shortage of raw material opportunity Increased pollution Increased governmental intervention

Legal Factors

Estee Lauder functions within a structure of Government regulations and legislations. These laws

and regulations should be considered when running businesses:

Labour laws and industrial relations Policies and Regulations Municipal licenses Formation Taxation Competition Copyright and patent laws Minimum wages laws and Employment law

8/12/2019 CASE STUDY.02-19-14

13/26

13

CPMCompetitive Profile Matrix

The CPM above proves that ELC Companies Inc., is still one of the leading companies in the

cosmetics industry. Using product quality as the base, we can say that ELC and LOreal lead the

competition. From the computations in the matrix, it is shown that LOreal dominated the other three

companies with an overall score of 3.40.

Financial Analysis

As we can see in the above table, Current Ratio shows that the capacity of Estee Lauder to pay its

short term obligations decreased .02 from year 2006 to 2007. However, this doesnt mean that the

organization is already at a losing state because a ratio that is greater than 1 means that there is more than

enough liquid assets to pay off the maturing debts.

CRITICAL SUCCESS

FACTORSWEIGHT RATING

WEIGHTED

SCORERATING

WEIGHTED

SCORERATING

WEIGHTED

SCORERATING

WEIGHTED

SCORE

MARKET SHARE 0.05 3 0.15 4 0.20 3 0.15 2 0.10

PRICE 0.15 3 0.45 3 0.45 4 0.60 2 0.30

PRODUCT QUALITY 0.20 4 0.80 4 0.80 3 0.60 3 0.60

PRODUCT LINES 0.15 2 0.30 3 0.45 2 0.30 4 0.60

FINANCIAL POSITION 0.10 3 0.30 4 0.40 4 0.40 3 0.30

EMPLOYEES 0.10 3 0.30 2 0.20 2 0.20 4 0.40

CUSTOMER LOYALTY 0.10 2 0.20 3 0.30 4 0.40 3 0.30

INNOVATIVE CULTURE 0.15 3 0.45 4 0.60 3 0.45 2 0.30

TOTAL 1.00 2.95 3.40 3.10 2.90

ESTEE LAUDER LOREAL P&G AVON

Ratio Formula Year 2007 Year 2006

Current Assets

Current Liabilities

Currrent Ass. - Inv.

Current Liabilities

Liquidity Ratios

Current Ratio 1.49 1.51

Quick Ratio 0.92 0.98

8/12/2019 CASE STUDY.02-19-14

14/26

14

The companys ability to meet its short-term obligations using its most liquid assets decreased from

0.98 to 0.92. A quick ratio lower than 1 means that the companys assets that are ready sources of

immediate cash are not enough to cover their maturing debts.

From year 2006, Estee Lauder Companies, Inc. has become more levered there becoming more

dependent on borrowings for its financing operations. The increase of 1.11 on the Debt-to-Equity Ratio

means that the funds that were used to finance operations from borrowings increased. We can see from

the ratios how the company increased its borrowings from outside creditors as source of financing.

Estee Lauder Companies, Inc. has high inventory turnover for the 2007 and 2006 periods. This

implies that they were having strong sales that time even though the ratio decreased. The other ratio shows

that efficiency of the company in converting its assets to generate revenues remains constant.


Total Debt

Total Assets

Total Debt

Total Stockholder's Equity

Long term Debt


Long term Debt-to-

Equity Ratio0.86 0.27

Leverage Ratios

Debt-to-Total

Assets Ratio0.71 0.57

Debt-to-Equity

Ratio2.44 1.33


Sales

Inventories

Sales

Total Assets

Total Assets

Turnover1.71 1.71

Activity Ratios

Inventory Turnover 8.22 8.44

8/12/2019 CASE STUDY.02-19-14

15/26

15

The percentage increase of the Net Profit Margin shows that Sales, which is converted to Income

after considering the costs, has increased. This also means that the company has better control on the

cost. The increase in ROA and ROE shows that the management is efficient at using its investments to

generate profit. Moreover, the increase in ROE reveals that the company generates more profit using the

investments of the shareholders.

Having this trend of increasing sales is favorable for the company. As we can see in the table, even

though the increase in 2006 fiscal year dropped from 9.38 to 2.93, still, the company was able to cope up

and was able to lift the increase to 8.88. The downfall of percentage change in year 2006 was caused,

maybe, by the decreased sales on fragrances products and other factors like difficult retail environment.


Net Income

Sales

Net IncomeTotal Assets

Net Income


Net Income

No. of Common Shares

Outstanding

37.46 15.05

Earnings per Share - 1.14

Net Profit Margin 6.38 3.78

Return on Assets 10.89 6.45

Return on Equity

Profitability Ratios (in percentage%)

Year Sales % Percentage Change in Net Sales2007 7,037.50 8.88

2006 6,463.80 2.93

2005 6,280.00 9.38

2004 5,741.50 -

Net Sales Growth (in millions)

8/12/2019 CASE STUDY.02-19-14

16/26

16

As evidenced by the Sales Growth Ratios, theres a decrease in sales specifically in the year 2006

and that is one reason for the negative change in net sales for the 2006 period. Another factor is the value

of discontinued operation, net of tax, in that period that amounts to $80,300,000. Despite all of that, the

company is showing great efforts of overcoming the problems. Estee Lauders 2007 percentage change in

net income displays a remarkable performance. The companys focus and efficiency should be consistent

to have a favorable impact on the financial success for the succeeding years to come.

Industry Analysis

1. What is/are the product/s or service/s?

The cosmetics industry offers different products under four major product lines.

A. Skin Care

1. Moisturizer2. Cream3. Lotion4. Cleansers5. Sunscreens6. Self-tanning products

B. Make Up

Year Sales % Percentage Change in Net Sales

2007 449.20 31.31

2006 244.20 (28.62)

2005 406.10 18.712004 342.10 -

Net Income Growth (in millions)

8/12/2019 CASE STUDY.02-19-14

17/26

17

1. Lipstick2. Lip gloss3. Mascaras4. Foundations5. Eye shadows6. Nail polishes7. Powders8. Compacts9.

Brushes

C. Fragrances

1. Perfume sprays2. Colognes3. Lotions4. Powders5. Creams6. Soaps

D. Hair Care

1. Hair Color2. Shampoos3. Conditioner4. Finishing Spray

A. What function does it serve?

8/12/2019 CASE STUDY.02-19-14

18/26

18

These products, basically, help consumers to attain a level of confidence by satisfying their needs

to look good and feel good.

B. What are the channels of distribution?The players in the industry sell their products principally through limited channels to complement

the images associated with their branches. These channels reach across the globe through upscale

department store, specialty retailers, upscale perfumeries and pharmacies and prestige stores and spas.

Their products may also be sold in free standing company owned stores and spas; also, in their own

authorized retailers website. Cosmetic products seem to get everywhere for you can also find their product

at cruise shops, on television marketing channels and in flight duty-free products. It has also expanded its

channels over the internet that reached its customer worldwide.

2. What is the industry size in units or in dollars?

The industry size in dollars is $156,162.1 (in millions).

A. How fast is it growing?

Due to modernization and fast technological advancements, the industry is continuously moving

forward through vast research and improvements.

B. Are products differentiated?

The products are differentiated because each product component varies, comes under different

categories and brand names and distinguishable among others.

C. Are there high exit barriers?

8/12/2019 CASE STUDY.02-19-14

19/26

19

Yes, there are high exit barriers for the companies have invested specialized equipment that is

used in producing beauty products and fragrances that needs to be sold. Also, they spent large amount of

money for fixed cost such as research and development, selling and general administrative expense not

easy to let go and put into nothing. The liquidation of their companies also takes a span of time settling all

things.

D. Are there high fixed costs?

Yes, the Industry spent so much on fixed costs such as Research and Development costs, and

Selling, general and Administrative costs.

3. Who are the major competitors?

Estee Lauder major competitors are LOreal, Proctor & Gamble, Unilever, Colgate Palmolive,

Avon, Alberto Culver, Revlon and many other competitors that are competing worldwide.

A. What are their market shares?

The table above shows the companies respective market shares based on revenues in the

cosmetics industry. These values are stated in millions.

B. Is the industry consolidated or fragmented?

Company Revenues

Alberto-Culver 3,772.00 2.42 7

Avon Products 8,763.90 5.61 5

Colgate-Palmolive 12,237.70 7.84 4

Estee Lauder 6,463.80 4.14 6

L'Oreal (Euros) 15,729.30 10.07 3

Procter & Gamble 68,222.00 43.69 1

Revlon 1,331.40 0.85 8

Unilever (Euros) 39,642.00 25.39 2

TOTAL 156,162.10

Market Share based

on Revenues

8/12/2019 CASE STUDY.02-19-14

20/26

20

It is a consolidated industry; an industry wherein few large firms dominate the market and in

position to set prices for its products.

4. Who are the major customers of the industry?

The main target consumers of the industry are men and women, who are in middle to high level of

the society aging around 20-30 years of age around the world.

A. Are they powerful?

No, because they dont have control over the pricing of the companies who belong in the industry.

B. What gives them power?

5. Who are the major suppliers of the industry?

The industry has no major supplier because the companies themselves own most of the ingredient

and material used in making the product. Only those who are non-value adding chemicals and some

packaging are purchase outside.

A. Are they powerful?

No, suppliers do not have any power in the industry because they do not provide the majority of

supplies needed.

B. What gives them power?

6. Do significant entry barriers exist?

Yes, significant entry barriers exist in this industry.

A. What are they?

8/12/2019 CASE STUDY.02-19-14

21/26

21

Different governmental and non-government organizations and agencies, together with other law

making body that regulates businesses, imposes policies and regulations to be strictly followed by the well

established companies in the industry. Moreover, having high capitalization is a major requirement.

B. Are they effective in protecting existing competitors, thus enhancing profits?

Yes, they are effective in protecting existing competitors like the government its agencies, policies

and standards. Those regulate the illegal and unregistered business practices and as well as using other

products secured with intellectual property rights, patent and the like.

7. Are there any close substitutes for the industry products or services?

No substitutes are available for the industry products and services.

A. Do they provide pressure on price change in the industry?

8. What are the basic strategies of competitors?

Competitors in the same industry are diversified with many brand names and wide range of

products. Massive marketing efforts such as direct selling, advertisement through internet, and sending

sales representatives to different geographic areas are employed. In addition, competitors are also

implementing market development and brand innovation strategies.

B. How successful are they?

They are successful in implementing their marketing strategies and the company was able to

successively increase its net sales and its geographic revenue analysis.

9. To what extent is the industry global?

8/12/2019 CASE STUDY.02-19-14

22/26

22

They are competing globally to an extent that they are promoting and selling their product

worldwide; and are able to maintain their position in the industry. Moreover, they have acquired a different

brand name which has a capacity to compete in the continuously growing industry.

A. Are there any apparent advantages to being involved in more than one country?

Yes, because it will be well known to all customers for users and not users of cosmetics products.

It also helps to increase their market share and promote the brand.

10. Is the industry regulated?

Yes, it is regulated by Foods and Drugs Administration (FDA).

A. What influence do regulations have on industry competitiveness?

The regulations set by the Food and Drugs Administration ensures that products being offered in

the market are not harmful. It influences the industry competitiveness by ensuring the quality and safety of

the consumers.

VI. Alternative Courses of Actiona. Advantages and DisadvantagesACA 1: Diversify product lines and increase means of distribution, especially for

fragrance products.

Advantages

The company will be exposed to new markets and will reach a wide range of potentialcustomers that will supply more revenue and therefore produce greater profit.

Consumers will have more choices on products that suite with their preferences.

8/12/2019 CASE STUDY.02-19-14

23/26

8/12/2019 CASE STUDY.02-19-14

24/26

24

There is risk regarding the investments and costs employed, and also uncertainty asto effects and impacts on customers perception on the products.

ACA 3: Development of new fragrance products for men and women

Advantages

Consumers will have more choices on products that suite with their preferences. This strategy may result to development of new product that may be a potential

solution to solve the declining sales of fragrances.

Disadvantages

Another set of expenses will be incurred by the company specifically in research anddevelopment costs of new fragrance product.

There is a possibility that consumerspreferences on fragrance will not be achieved bythe company.

b. Decision Matrix

8/12/2019 CASE STUDY.02-19-14

25/26

25

*note: 1=not favourable, 2=reasonably favourable, 3=highly favourable

VII. RecommendationThe Three Alternative Courses of Action indicated market penetration, market development,

product development, diversification, or combination strategies are the most appropriate strategies for the

company, thus the ACA1 are convincingly suitable strategy for the company. Diversify product lines and

increase means of distribution, especially for fragrance products may direct them to become the leading

manufacturing company as they will be exposed to more markets that will eventually have positive impacts

like having improved revenues.

VIII. Detailed Action Plan

WEIGHT RATING* SCORE RATING* SCORE RATING* SCORE

1 Ease of Implementation 0.15 2 0.30 2 0.30 1 0.15

2 Cost-Benefit Criterion 0.20 2 0.40 3 0.60 2 0.40

3 Short-term Affectivity 0.10 2 0.20 3 0.30 1 0.10

4 Long-term Affectivity 0.10 3 0.30 1 0.10 3 0.30

5 Bui lding Compet it ive Advantage 0.15 3 0.45 2 0.30 3 0.45

6Impact on company's

performance0.15 2 0.30 2 0.30 3 0.45

7 Potential impact on Customers 0.15 3 0.45 3 0.45 2 0.30

1.00 2.40 2.35 2.15

CRITERIA

TOTAL

DECISION MATRIX

STRATEGIC ALTERNATIVES

Diversify product

lines and increase

means of

distribution,

especially for

fragrance

products

Continually

expand product

promotions

especially in

fragranceadvertisements

Development of

new fragrance

products for men

and women

8/12/2019 CASE STUDY.02-19-14

26/26

ActivityDepartment/Person

ResponsibleTimetable Expected Results

Implementing various

promotions and

advertisements

Jul-Sept

Increase in

Revenues and

Customer Loyalty

Do a market research Jul-AugKnow customer

preferences

Product DevelopmentResearch and

DevelopmentAug-Sept

Ensuring the quality

and design of the

new product

Create a prototype of the

product developed

Production and

OperationsOct -

Market testing for the new

product Sales Department Nov-Dec Product Evaluation

Intensify Marketing Efforts

for Christmas Season

Marketing

DepartmentDec

Increase in

Revenues

Cost AnalysisFinance and

AccountingDec

Determination of a

sound investment

and financing

decisions.

Marketing

Department

Documents

CASE STUDY.02-19-14