Exam sample - good summary PDF

Preview

Summary

good summary...

Description

464

PA R T 6 C A S E S T U D I E S

Case Study 5 C O S M E T I C S F R O M P O L A N D1 Dr Irena Eris is an enigmatic entrepreneur and a symbol of business success in Poland. In 1999 the Business Centre Club honoured her with the title Business Woman of the Decade. In 2003 she was recognized for the creation of an internationally competitive Polish brand and in 2004 was placed on the list of the most influential women in Polish history who had turned the course of events, overcome stereotypes and initiated new thinking. In 2005 she received the Economic Award of the President of Poland. Dr Eris was also named the European of 2007, an award given to people who have had outstanding achievements in the field of integration and co-operation of the European nations and states. It all started in 1982 when Dr Eris, a PhD from the Faculty of Pharmacology at Berlin’s Humboldt University, inherited some cash that was the equivalent of six small Fiat cars. With this inheritance she and her husband opened a cottage workshop producing nourishing facial cream in 1983. The first cosmetic products were mixed in a makeshift machine made by a local locksmith friend.

The Polish Cosmetics Market Poland has long established traditions in the produc´ dz, Poland tion of cosmetics. Max Faktor born in ”o during the 1870s, became the founder of modern make-up creating the global Max Factor brand. Helena Rubinstein, a Polish immigrant, is one of the biggest names in facial care. In the Communist Era, Poland was by far the largest cosmetics producer in the former Council for Mutual Economic Assistance (CMEA). The cosmetics of Pollena and Nivea were cherished by women and men of all ages. Poland was also the largest market for cosmetics. About 90 % of the cosmetics products had affordable prices to all consumers. Only 5 % of the cosmetics represented luxury products, most of them imported. The market was dominated by perfumes (66 %), followed by skin care products (25 %) and make-up.

At present, the cosmetics industry in Poland employs approximately 19 000 people. It has remained one of the key employers in the volatile labour market. The transition process to a market-led system caused enormous job losses for the Polish workforce. The ‘shock therapy’ approach to the privatization of state-owned enterprises led to the mushrooming of small cosmetics companies. By the end of 2005, they were more than 470. Less than 15 % of them employed more than 50 people. In the last 10 years the production of cosmetics in Poland has experienced steady annual growth (see Figure 5.1). In 2002 the market was valued at 1.85 billion Polish Zloty (PLN). At the end of 2005, it grew to PLN8.7 billion expanding by 3.1 % on its 2004 value. Its growth was primarily fuelled by the country’s better economic climate and the Poles’ rising buying power. Market size is another factor that attracts cosmetics manufacturers to focus on Poland. With its population of almost 40 million, Poland is the largest market in Central Europe and the eighth largest in the European Union. Its population makes Poland a market larger than the combined markets of all the other nine accession countries that entered the EU together with Poland in May 2004. The value of Polish cosmetics exports in 2002 was US$291 million, representing almost 10 % growth compared with 2001. More than two-thirds of all exports went to former CMEA markets and about 30 % to the European Union member countries. The major importers of Polish cosmetics were Russia (18 % of the total value of Polish exports), Hungary (14 %), Lithuania (12 %), Ukraine (11 %), Germany (8 %) and the United Kingdom (7 %). Avon Cosmetics, Miraculum, Cussons Group, Kolastyna, Ziaja, Dr Irena Eris, Polena Ewa and L’Oreal are the biggest exporters. The main importing countries by 2007 were Germany with about 23 % of total import, France (21 %), the United Kingdom (17 %), and Italy and Spain with 6 % each. French, German and Italian

CASE ST UDY 5 COSMET ICS FROM P OLAND

465

600 500 400 300 200 100 0

2000

2001

2002

Domestic p ro duc tion

2003 Imp ort

2004 Exp ort

Figure 5.1: Market size, US$ million.

cosmetics charge a price premium and enjoy high brand recognition. Cosmetics manufacturers in Poland can be divided into four groups: Producers owned by the Pollena conglomerate, purchased by foreign investors (Beiersdorf, Cussons Group and Unilever). They develop and introduce new products in the Polish market and upgrade inherited cosmetics products from the acquired entities.  Formerly state-owned cosmetics manufacturers, privatized and functioning independently (Pollena Ewa and Miraculum).  A large group of Polish private cosmetics firms established in the 1980s and 1990s (InterFragrances, Dr Irena Eris Cosmetics Laboratories, Kolastyna, Soraya, Dax Cosmetics, Dermika and Ziaja).  New factories built by global foreign cosmetics companies (Johnson&Johnson, L’Ore´al, Avon and Oriflame). 

The strong domestic producers have established positions in the skin and body care product market segment. They control about two-thirds of this market. The market leader in the body care cosmetics is Beiersdorf-Lechia with almost 30 % share, followed by Johnson&Johnson with 8 %, Unilever (7 %), Kolastyna (6.5 %) and Dr Irena Eris (5 %). The facial care cosmetics market segment is dominated by

Dr Irena Eris with 16 %, followed by Ziaja (10 %), Oceanic (9 %) and Cussons (8 %). All foreign facial care brands have positioned themselves in the middle or premium sector of the market. For example, the US Johnson&Johnson dominates the middle sector with 45 % market share, while the French Garnier with its brand L’Ore´al leads in the premium sector with more than 50 % market share. The market pressure coming from foreign brands has pushed most of the polish facial care brands into the low price mass markets. The self-tanning cosmetics segment is dominated by L’Ore´al with 27.5 %, Beiersdorf with 25.3 % and Dr Irena Eris with 12.2 %. In 2002, the companies with highest sales revenues were Procter & Gamble, Unilever Połska, Henkel Połska, Avon Cosmetics Połska, Cussons Połska, L’Ore´al Połska, Beiersdorf-Lechia, Oriflame, Pollena Ewa, Dr Irena Eris, Kolastyna, Forte Sweden and Miraculum. With its population of 40 million people Poland is the eighth largest country in Europe. The cosmetics market is still growing and is highly competitive. Per capita consumption is about five times lower than the average of the pre-2004 EU member countries. The key competitive factors are price, quality and brand recognition. Packaging and advertising have become increasingly important. Poles tend to be risk averse when choosing everyday cosmetics. They prefer to buy a known traditional brand from a known store. Purchasing decisions are determined by company reputation and brand recognition.

466

PA R T 6 C A S E S T U D I E S

Premium cosmetics brands are sold via specialized networks of stores such as Empik, Galeria Centrum, Ina Center and French Sephora. The medium and low-priced cosmetics are distributed via hypermarket and supermarket chains, drug stores and specialty stores. Companies such as Avon, Oriflame and Amway use direct selling. The largest distributor of cosmetics is Polbita. It is a privately owned company established in 1990. Polbita owns 20 % of the cosmetics distribution system in Poland and runs its store chain Drogeria Natura, consisting of more than 330 retail outlets. Since 1988 almost all global and international cosmetics brands have entered the Polish market. They seek new market development and expansion. The best recognized foreign brands are: Christian Dior, Guerlain, Yves Saint Laurent, Yves Rocher, Yves Saint Rocher, L’ Ore´al, Laboratories Paris, Lanco ˆ me, Paloma Picasso, Guy Laroche, Giorgio Armani, Cacharel, Coty, Elizabeth Arden, Pierre Robert, Colgate Palmolive, Nivea, Jean Pierresand, Vichy Laboratories, Jade, Max Factor, Revlon, Maybelline, Biotherm, Givenchy, Nino Cerruti, Margaret Astor and Rimmel. They have all set up their own exclusive stores and beauty salons. Aggressive advertising, new product development and simultaneous product introduction in Paris and Warsaw reinforce their premium market position. Global companies such as Procter & Gamble and Unilever have also invested heavily in Poland. The ongoing process of market liberalization and EU enlargement has been favourable for the growing market presence of foreign cosmetics brands in Poland. The variety of products and services has led to much greater consumer choice. This has increased the competitive pressure on Polish brands. They have less financial and market strength to launch aggressive marketing campaigns. Moreover, most of the Polish companies are too small to compete against global multinationals. One manager of a Polish medium-sized cosmetics company who preferred not to be identified stated: ‘Small and medium-sized cosmetics companies do not have enough market power. I cannot see how they can compete successfully against the multinationals after the EU enlargement. It is unlikely that the Polish Government will protect us. It will not provide financial help for consolidation. Foreign giants will

have no problem pushing us out of business. There will be more products, but Polish brands will gradually disappear’.

The Company Dr Irena Eris Cosmetic Laboratories was set up in socialist Poland in 1982 with a monthly production output of 3000 packages. By 1986, the demand for Eris cosmetics increased and the company expanded its operations rapidly. It had increased capacity and introduced new products. The transition period with its diverse economic and political reforms created new opportunities for business growth. The increased productivity and profitability of the company in the early 1990s led to the launch of a new plant. Dr Eris re-invested most of the company profits in product innovation and new technologies. Presently, the company employs 350 employees and produces 300 types of products grouped in several product lines. The monthly output is approximately 1 000 000 units. All company cosmetics products meet the quality standards defined by the European Union and the US Food and Drugs Administration. Dr Irena Eris holds ISO 9001 (since 1996) and Environment Management ISO 14 001 (since 2001). Those certificates guarantee that the company’s cosmetics are of global quality and their production is environmentally friendly. Dr Eris has decided to focus on innovative solutions and R&D. The R&D investment in 2004 was 3.4 % of the company’s turnover. In 2005 it was increased to 4.6 %. A large team of dermatologists, allergy specialists, biologists and molecular biologists works on various projects at the company’s Centre for Science and Research set up in 2001 (see Figure 5.2). The Centre is active in the efforts to establish the Polish Platform of the International Agreement for the Development of Alternative Animal Research Methods. R&D is intrinsic for the company’s philosophy. It is the core of its strategy to develop scientifically advanced products. They are targeted at consumers who are interested in cosmetics with scientifically advanced functional characteristics. Scientific research and innovative solutions have become the core in the brand positioning strategy of Dr Irena Eris in the cosmetics market in Poland. The recipes for all products are original

CASE ST UDY 5 COSMET ICS FROM P OLAND

467

R&D Depa rtment Develop ment Director

R&D Depa rtment Hea d

Dr Irena Eris Center for Sc ienc e a nd Resea rc h

In Vitro Resea rc h La bora tory

La bora tory fo r Tec hnolo g y a nd Implementa tion

In Vivo Resea rc h La bora tory

Figure 5.2: Structure of the R&D department. More details about the research programme can be obtained from: http:// www.drirenaeris.pl/badania/en/badania.php and http://www.drirenaeris.pl/en/kosmetyki_skladniki.php. Source: Dr Irena Eris Cosmetics Laboratories.

and based on in-company research. This makes them distinctive and more difficult to copy by competitors. In the mid-1990s, Dr Eris was the first in Europe to propose the use of vitamin K in cosmetics and lately, it was the first company in the world to test and use an innovative complex FitoDHEA + folacin in its products. Brand Image The brand image of Dr Irena Eris is built upon respect for people, stressing their individual nature and the importance of co-operation. The brand development strategy reflects the value of interpersonal relationships within the company and with its clients. The brand value of Dr Irena Eris is based on its holistic approach to the individual specific needs and preferences of customers. It offers an individual skin care programme for home use and for use in specialized professional salons and spa hotels. Dr Irena Eris is one of the best known Polish brands. In 2001, market research carried out by Pentor showed that 93 % of Poles can recognize it among other cosmetics brands. The brand has gained international recognition. In 2005 it was nominated for that year’s Beauty Awards for the best cosmetics introduced in the UK market. It was also awarded Prix d’Excellence Marie Claire for being the most advanced cosmetics brand in the Polish market in 2004, and the Gold Glamour award by the British edition of Glamour.

The consumer target groups of Dr Irena Eris span all age groups. These are women who prioritize cosmetic efficiency based on research. They wish to use high quality products that are modern and pleasant in use. The market segmentation approach of the company is based on four segments (see Figures 5.3 and 5.4). The company targets the economy segment with mass products. The premium segment is reached with innovative products. The dermocosmetics segment is served with health and hygienic products. Specialized products are designed for the professional segment. These segments are reached via 20 000 retail points of sale for widely distributed products and 1000 points of sale for products destined for limited distribution via pharmacies, beauty parlours and centres. Diversification The company has diversified in related activities. Following the success of a four star Spa Hotel Dr Irena Eris in Krynica Zdro´ j in Poland, it has invested in a second Spa Hotel Dr Irena Eris Wzgo´ rza Dylewskie in Wysoka Wies ´ near Ostro´da, which was completed in the first half of 2006. The Spa Hotels offer a comprehensive, tailor made skin treatment and revitalizing programme. Skin treatment is complemented by a range of health improvement packages including exercises, massage, spa therapy and physical activities. The spa

468

PA R T 6 C A S E S T U D I E S

Men

Fa c e Ca re

W omen

2 5 –3 0

3 0 –3 5 3 5 –4 0 4 0 –4 5

Dr Irena Eris Skin M ood

Dr Irena Eris ReACT!

Dr Irena Eris SIN SKIN

Dr Irena Eris InCell

4 5 –5 0

5 0 –5 5

55 + Dr Irena Eris Fortessimo Ma xima

Dr Irena Eris Fortessimo

Dr Irena Eris N AN O EN TRÉE

Dr Irena Eris YO U Body Care

Dr Irena Eris BO DY A RT

Fa c e a nd body c are

PLA TIN UM MEN

Figure 5.3: Brands and consumer target groups. More information about the products and brands can be found at http://www.beautyexclusive.com/erisskincare.html. Source: Dr Irena Eris Cosmetic Laboratories.

hotel concept promotes Dr Eris as a modern lifestyle brand. Moreover, the brand Dr Irena Eris has been extended to the franchise chain Dr Irena Eris Cosmetic Institutes. There are 22 of them established in the largest Polish cities. Such institutes were opened in Moscow, Russia and Bogota, Colombia. By the end of 2007, 12 new institutes were serving clients in

Poland and abroad. The institutes offer several basic company treatments based on the Dr Irena Eris Professional Program. The treatments are carried out using preparations from the company’s own specialized line of cosmetics. They are exclusively used in beauty parlours (Prosystem). The therapy is complemented by a line of products for subsequent home care (Prosystem home care). The treatments are

Fa c e and bo dy c a re c osmetic s

ECO N O MY (ma ss ma rket c osmetic s)

PREMIUM (Dr. Irena Eris exc lusive co smetic s)

DERMO CO SMETICS

PRO FESSIO N AL CO SMETICS

Pha rma ceris

Figure 5.4: Market segments and company brands. Source: Dr Irena Eris Cosmetic Laboratories.

selected individually and preceded by obligatory skin diagnosis by dermatologists partnering with Dr Irena Eris Cosmetic Institutes. The personnel of the institutes consist of beauty therapists trained at the company’s own training centre. Marketing Communications The marketing communications strategy of Dr Irena Eris is consistent with its overall strategic focus on innovative and modern cosmetic solutions. It is the Polish company with the highest advertising expenditure. Advertising and PR activities are carried out in the lead international markets. Advertising and promotional materials are generally standardized but adapted to the local language requirements. The company has strengthened its position in the professional segment through developing close relationships with key business customers and participating in international fairs. Dr Irena Eris Cosmetic Laboratories is involved in sponsorship and social activities. Every year the company donates products and money to the value of more than PLN500 000 for charitable causes. It is a key contributor to the Always Healthy and Active Club programmes set up to meet the needs of 7 000 000 adult Polish women. The programme aims to increase the knowledge of mature women about health-related issues, and improve their general health and quality of life. In 2001, Dr Eris was awarded the Summa Bonitas award from the foundation Zda˛˙zyc´ z pomoca˛ for its corporate social responsibility (more information at http://www.businessweek.com/ magazine/content/04_19/b3882011.htm). In 2004, the sales volume of Dr Irena Eris Cosmetics Laboratories was PLN97.6 million (s24 million) from domestic and export sales. This was 15 % growth compared with the results in 2003. In 2004, after-tax profit was PLN7 million. Internationalization Dr Irena Eris has been developing its international presence since the mid-1990s. The company management has recognized the potential benefits of economies of scope and used various sources of information and business support for foreign market entry. Most of the initial attempts were driven by opportunities based on personal contacts. In 1989 the company started exporting its products. The debut

Irena Eris Cosmetics Laboratories in its internationaliza-tion. small firm in an industry characterized by consolidation and take-overs (acquisitions of smaller firms by bigger ones)? and digitalization affected the internationalization of Dr Irena Eris?...