Procter Gamble Going Global in Cosmetics

PROCTER & GAMBLE, THE MULTINATIONAL company- known for its household products Daz, Fairy, etc., has decided to expand its cosmetics business. The question is: can the firm that has got us to Pamper-away our babies wetness, Crest-away our cavities and Tide-away the grime in our clothes now get us to make up our faces?

Step 1 Diversifying

P & G's aggressive chairman, Edwin L. Artzt, thinks it can. The company tiptoed into the skin-care business in 1985 when it bought the Oil of Ulay skin-care line. Under Artzt's leadership, P & G then drove headlong into the cosmetics business. In 1989 it bought Noxell Corporation and its Cover Girl and Clarion brand cosmetics lines for $1.3 billion,

A Baltimore pharmacist had founded Noxell in 1917 to sell little blue jars of a sunburn remedy he later named Noxzema skin cream. In the early 1960s, Noxell launched the Cover Girl Jine with a foundation cream designed

to conceal acne. It used famous models to advertise the product and eventually became the best-selling mass-market eosmetics brand in the United States, overtaking Maybelline in 1986. Noxell had also been successful with its 1987 launch of Clarion, a line of moderately priced, mass-market eosmetics for sensitive skin. However, to develop its new businesses, as with its expensive Clarion introduction, Noxell had to take money from its Cover Girl and Noxzema marketing budgets. Consequently, in the late 1980s, these established brands were in danger of fading,

Artxt saw the opportunity to strengthen Noxcll's marketing support with P & G's considerable resources while at the same time providing P & G with new growth opportunities outside its stable of mature products. Artzt also recognized that cosmetics carried high gross margins and resisted recessions. In 1990 P & G obtained 47.7 per cent of its £24.08 billion in total sales from personal-care products. About one-half of these wales came from paper products, including diapers. Another 32.2 per cent of its total sales came from laundry and cleaning products: 13.4 per cent from food and drinks and 6.7 percent from pulp and chemicals.

After acquiring Noxell, Artzt turned P & G's marketers loose. They quickly redesigned Cover Girl's packaging, giving it an elegant look, but retained the brand's budget pricing strategy. P & G also sped up new product development. It hacked these changes with a 58 per cent increase in advertising, spending $47.5 million on Cover Girl in the first nine months of 1990 alone. Ads spotlighted famous models of various ages who featured a more natural look. By 1991 Cover Girl's market share had increased to 23 per cent, up from 21 per cent in 1986. Meanwhile Maybelline's share had fallen to 17 per cent, down from 19 per cent in 1986.

Step 2 Going International

P & G realized that it could not rest on its success. The cosmetics industry was changing, and P & G would have to change if it wanted to become a serious contender. Consumers were deserting department stores in droves, looking for distinctive brands offered by speciality clothing chains and cosmetics boutiques, such as The Body Shop. Analysts believed that women were tired of being assaulted as they entered department stores' cosmetics sections. Women wanted to buy cosmetics where they bought other items, which was increasingly in speciality shops. As a result, department store cosmetics sales were declining and mass merchandiser shares were increasing. The Cover Girl brand also faced problems. For example, the Cover Girl name suggested that the brand was for young, glamorous women, giving the line a built-in problem when appealing to career women, housewives and older women. In addition, Cover Girl generated 90 per cent of its sales in the United States, whereas the rest of the industry was increasingly going global. For these reasons, Artzt went shopping again.

At the same time, New York financier Ronald Perelman had decided that he might need to sell Revlon, his beauty-products company. Perelman had bought Revlon in 1985 for SI.83 billion, following a bitterly hostile takeover. However, Perelman had used junk bonds to finance this and other deals, and found himself facing large debt repayments that caused a cash squeeze. As a result, Perelman considered selling some or all of Revlon's brands, including Max Factor and Almay cosmetics, Charlie and Jontou perfumes, and Flex shampoo.

Several big firms besides P & G expressed an interest in Revlon. Like P & G, these other companies wanted to expand their cosmetics businesses through acquisitions. Unilever, the Anglo-Dutch multinational, began buying US personal-care brands in 1989. As a result of its Faberge and Elizabeth Arden acquisitions, Unilever held the no. 3 spot behind Estec Lauder and L'Oreal in sales at US department store cosmetics counters. Unilever had worldwide personal-care sales of §4,7 billion in 1990. Gesparal, SA owned the majority of Cosraair's L'Oreal, which had 1989 worldwide revenues of $5.3 billion. In turn. Nestle, the Swiss food conglomerate, owned 49 per cent of Gesparal.

P & G was especially interested in Revlon's Max Factor and Betrix lines, because 80 per cent of their sales were outside the United States. These two brands would fit well with P & G's other lines and give the company a good basis to compete for a bigger share of the Bid billion worldwide cosmetics and fragrance business. In April 1991, Artzt announced that P & G would pay $1.1 billion for the two Rcvlon lines, which together captured $800 million in sales. Artzt decided not to buy Revlon's other big brands, which sold at higher prices in department stores.

It turned out, however, that Artzt had more in mind than simply buying lines that would give P & G an international presence. He also saw opportunities to use the new brands' distribution and marketing networks to speed Cover Girls transition from a US brand to an international brand. Max Factor and Bctrix gave P St. G immediate access to Europe and Japan. Before the acquisitions, P & G had no cosmetics or fragrance sales in Japan and only $2$ million in Europe. After the acquisition, P & G had annual sales of S237 million in Japan and $340 million in Europe. About 75 per cent of Max Factor's $600 million sales came from outside the United States, whereas all of Betrix's $200 million came from other countries. One analyst estimated that P & G had shortened by three years the time it would have taken to go global with its US brands.

Just as the Max Factor and Betrix lines helped P & G, so acquisition by P & G helped those two brands immensely. Betrix, especially, had learned that it took deep pockets to compete in the international cosmetics business. It achieved about 62.5 per cent of its sales in its home market, Germany, with the remainder coming from Switzerland. Spain, Italy and Sweden. Betrix wanted to crack the French market, but had not been successful against powerful L'Oreal, the dominant market leader, and P & G's marketing muscle could not help Betrix to force its way into the French market. Betrix's main brands were the mid-priced Ellen Betrix women's skin-care products and cosmetics and Henry M. Betrix men's toiletries. Its Eurocos Cosmetic subsidiary sold upmarket cosmetics under the Hugo Boss and Laura Biagiotti brand names.

Step 3 Reviving Max Factor in the US Market

P & G felt that it could make Max Factor more competitive in the USA now that it was not under Revlon's umbrella. As it had done with Cover Girl, P & G quickly learned Max Factor's business and plotted strategies to improve its performance. P & G's managers questioned Max Factor's use of actress Jaclyn Smith as a spokesperson. They revamped Max Factor with new products and technological improvements and strengthened the brands promotion and advertising support.

Revkm, however, did not stand still after selling Max Factor to P & G. It hired a new management team for its Revlon brand, cut its manufacturing costs and introduced a $200 million advertising barrage that featured a jazzy 'Shake Your Body' message.

Both firms realized that they had to find ways to attract younger women, including teenagers, without alienating older customers. Mass-market sales, such as sales through drug stores and discount shops, grew only 2 per cent in 1991, compared with 6 per cent in 1990. Changing consumer demographics and shopping habits seemed to account for this slowdown. Ageing

Case 5; Procter & Gamble. 225

baby boomers had decided to invest in skin-care products and were buying fewer cosmetics like mascara, nail polish and lipstick.

These changes meant that attracting younger women had become even more important if the cosmetics companies were to revive sales growth. One college student suggested that she could understand the companies' interest in younger consumers. She felt that younger women often wanted to look older and might even use more cosmetics than they needed. 'Putting on make-up', she added, 'is a big part of growing up.' An industry consultant noted that 'Younger women are constantly changing and reapplying their nail polish, something older women don't do,'

Yet the companies faced problems in attracting younger customers. First, there were fewer younger women than baby boomers. Second, all cosmetics manufacturers were fighting for shelf space and the attention of younger buyers. One analyst noted: 'There are simply too many manufacturers and too many products chasing too few customers. Competition was intense.' The analyst continued: 'Even at the prestige end of the mass market, L'Oreal had dropped its emphasis on quality and had begun emphasizing having fun to lure more young customers.' Additional competition was coming from department store product lines, speciality shops, direct marketers such as Avon and home shopping networks.

As a result, P & G's cosmetics sales remained flat in 1991 at $722 million; and its market share slipped slightly to 34 per cent, down from 34.4 per cent in 1990. Revlou's share increased to 22.5 per cent, up from 2(1.4 per cent in 1990, Even with the slowdown, however, P & G remained the USA's largest seller of cosmetics sold through drug and mass merchandise stores, P & G admitted that it was still learning the cosmetics business. It faced distribution problems, being slow to fill orders and slow to deliver promised new products. In addition, the company had consolidated its cosmetics sales force. Its salespeople now sold al! three lines - Cover Girl, Clarion and Max Factor. Some distributors argued that P & G was expecting too much from a single salesperson. The product lines were simply too wide to expect one person to know much about all the products. P & G countered that the new system would reduce the number of salespeople with whom retailers had to deal.

Step 4 Going Global

Most recently, P & G has decided to overhaul the Max Factor line and launch its first simultaneous worldwide product introduction. The company introduced the new Max Factor line during the spring of .1993. The new products feature more elegant styling and more colours. The initial range was eye shadows, blushes and lipsticks. In 1994 it will introduce foundations, face powders and mascaras.

All of these products will be the same, no matter where in the world P & G sells them. Previously, P & G had used different products and strategies in different markets, often using local manufacturers. In Japan, for example, the Max Factor line had consisted primarily of skin-care products sold at high prices in department stores. Max Factor had accounted for 28 per cent of Revlon's Japanese sales of 8507 million in 1990. However, the brand had not kept up with changing Japanese lifestyles and tastes, and it was steadily losing market share. Kao Corporation and Shiseido Company were emerging as powerful competitors in the Japanese market. In Europe, P & G sold Max Factor products in chain stores and pharmacies at lower prices.

The new line would feature similar styles, colours and images across all international markets. Packages are a deep-blue colour with gold trim. The products, come in a variety of colours to meet the needs of women with differing skin tones. P & G has also revised its in-storc displays. To support such changes, it will increase prices to between 8 and 10 per cent above previous Max Factor prices.

P & G is following the successful strategies of Estee Lander's Glinique and Chanel, which have both been successful with standardized global marketing. Consumers around the globe recognize Clinique's blue-green packaging and Chanel's classic black compacts. P & G hopes that the standardized strategy will allow it to save money by unifying and consolidating many of its marketing efforts.

Step 5 Watching the Com petition

Despite Artzt's perpetual optimism, however, P & G knows it is making a bold move. No other company has tried to develop a worldwide, massmarket cosmetics brand. The company has already learned from its experiences in the US market that the cosmetics business is complicated. P & G also knows that Kevlon will be right behind with its own global strategy. Revlori already receives between 30 and 35 per cent of its revenue from 126 foreign countries and P & G expects that Revlon will try to take more of its regional brands global.

P & G also knows dial it must watch its home market. Noting all the attention being paid to younger women, Maybelline is now focusing on ageing baby boomers. It plans to introduce a new line called Maybelline Revitalizing, which targets women of 35 and older. Maybelline claims that these products will help mature women look younger and it plans to sell the products through mass-market outlets. To stay ahead of the competitors in cosmetics, P & G will have to find some new marketing wrinkles.

QUESTIONS

1. Who are Procter & Gamble's competitors, from an industry point of view and from a market point of view? Are there strategic groups in the industry?

2. Why are these questions important for P & G?

3. What trends are shaping competitors' objectives in the cosmetics industry?

4. Based on information in the case, identify competitive positions have the various cosmetics competitors pursued to gain competitive advantage?

5. What actions should P & G take in order to expand the total cosmetics market and to protect and expand its market share?

6. What competitive strategies would you recommend for P & G's competitors?

SOURCES: Randall Smith, Kathleen Deveny and Aleoia Svvasy. 'Sale of Re«I0n beauty Hue is conhidered by Perelraan'. Wall .Strttl Journal (1 March 1991), p. B4; Aleoia Swasy, 'Cover Girl is growing up and moving out as its new parent, I3 & G, takes charge'. Wall Street Journal (28 March 1991), p. B1; Pat Sloan and Jennifer Lawrence, 'What P & G plans for cosmetics', Advertising Age (15 April 1991), pp. 3, 46; Zaohary Schiller and Larry Light, 'Procter & (iambic is following its nose', liusiness Week (22 April 1991), p. 28; Valerie Rcitman and Jeffrey A. TYacheflberg, 'Rattle to make up the younger woman pils Revlon against its new rival, P & G', HWi Street Jowwurf (10 July 1992); Valerie Reitman, 'P&G planning a fresh lace for Max Factor', Wall Street Journal (29 December 1992), p. HI; Marilyn Much, 'Cosmetic war £ets u~ly as front moves abroad', Investor's liusiness Daily (14 January 1993), p. 4; and Gabriella Stem, 'Aging boomers arc new target for Maybelline', Wall .Street Journal (13 April 1993), p. HI.

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Responses

  • elanor
    What action should procter and gamble take inorder to expand the total cosmetics market?
    2 years ago

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