ABOUT MICHAEL PORTEL

(ABOUT PORTEL AND A PHOTOGRAPH OF PORTEL)

COSMETIC INDUSTRY
The cosmetic industry has grown over the past few decades and it is currently a
billion dollar industry. Consumers are aware of the importance of cosmetic products and
especially their positive impacts on improving self image, confidence and self esteem. They
are also aware of the importance of first impression both at the workplace and in society in
general. The realization of the importance of cosmetic products has spurred demand for
these products which are consumed by both males and females equally. Products such as
lotions, creams, lipsticks, perfumes, makeup, toe and nail polish, hair spray and gels,
bath salts and bubble baths as well as baby products are in high demand especially
in developed countries. The global cosmetic industry generates over $160 billion,
which shows the importance of the industry. In addition to consumer knowledge, there
has been increase in innovation of different cosmetic products across the world. These
products aim at improving the physical and mental state of humans in general. Due to
increased innovation and supply, demand for cosmetic products has also gradually increased

It must be noted that the global cosmetic industry is a large industry which has high entry
costs, if firms are to be successful. This industry is very dynamic and requires huge
investments in research and development to meet client needs. In addition, the intense
competition presently seen in the market especially by large manufacturers such as Avon,
Revlon, Clinique, Estee Lauder, LR, Mac, Unilever and others, demand high expenses in
marketing and advertising. These are already established global cosmetic brands which have
market goodwill and loyalty, and capturing a fair market share demands aggressive
advertising and innovating unique products. 

However, there are certain factors which affect the entry to the cosmetic industry by firms.
These factors can be briefly analyzed using the Porter Five forces analysis. They include the
threat of substitutes, threat of new entry, bargaining power of customers and suppliers
as well as intensity of rivalry in the industry. These factors should be assessed whenever a
firm is entering any industry since they help the management develop effective marketing
and competitive strategies. Knowledge of the Porter Five forces also helps business evaluate
the feasibility of making profits in the long run.
PROTEL’S FIVE FORCES ANALYSIS

1. THREAT OF NEW ENTRY :- HIGH

#  This is likely to reduce the overall profitability of firms which are present in the
industry. In order for firms to enjoy long term profitability, they should develop
customer loyalty within their industry.

# The cosmetic industry has a low threat of new entrants. This is due to several
factors. The first is the huge costs of entry. Developing unique cosmetic products
requires a lot of resources both in terms of research and development and the actual
manufacturing process.

# Another factor which discourages entry into this industry is the huge competition
present in the industry. In addition to the huge competitors such as Avon, Revlon,
Clinique, Estee Lauder, LR, Mac and Unilever, who have a large market share, there
are many other small scale competitors who also have a small market share and who
reduce the overall profitability of firms in the industry .

2. BARGAINING POWER OF CUSTOMERS :- HIGH

# The bargaining power of customers analyzes the power which consumers have
relating to price changes in the industry. This factor analyzes the power which
consumers have in manipulating price changes due to shifts in demand.

# When consumers have a high bargaining power, the manufacturers and sellers
may not adequately predict future demand by the market. This may make them
unable to achieve long term profitability due to unpredictable demand patterns.

# The cosmetic industry has a high bargaining power of customers. This is due
to the increase competition and availability of cosmetic products from a variety of
manufacturers.

# Since these products have high substitutes, then it is possible for consumers to
force manufacturers to reduce their product prices through purchasing those of their
competitors. This is a challenge which manufacturers of cosmetic products face
across the world.
 3. BARGAINING POWER OF SUPPLIERS :- LOW

# This factor analyzes the power which suppliers have regarding making price changes
for their products.

# Suppliers who have a high bargaining power are able to influence price changes
through using techniques such as market manipulation through hoarding and restraining
supply. Although some of these strategies are illegal in many countries, suppliers usually
apply them when they want to effect price changes.

# The cosmetic industry has a low bargaining power of suppliers. This is due to the
high number of market players and large supply of diverse products to the market

# There are many cosmetic products which are developed by both large and small scale
manufacturers. Due to the huge supply, consumers have the power to influence the
market prices as opposed to the suppliers.

4. THREATS OF SUBSTITUTES :- HIGH

# The threat of substitutes arises when there are similar products developed by
competitors which satisfy the market needs.

# When consumers have access to substitute products which can satisfy their market
needs, then manufacturers and suppliers lose their bargaining power. Consumers are
able to purchase competitor’s products if they are not satisfied with product price or
quality.

# In order for suppliers to tackle the challenge of threat of substitutes, they have to
innovate products which meet the needs of their target market segments,

# In the cosmetic industry, there are many competitors as has been discussed. There is
therefore a high threat of substitute products.  If manufacturers sell their products at
higher prices, or if the products are of low quality, then consumers are able to purchase
substitutes from the many competitors who are present in the market environment.

#  It is therefore essential for the market players in the cosmetic to be innovative if they
are to tackle the challenge of the threat of substitute
 5. BARRIERS TO ENTRY AND EXIT :-

# Barriers to entry and exit refer to the challenges firms face when entering or
leaving the industry respectively. It has been discussed that there are huge costs
which are associated with entry to the cosmetic industry. These costs include costs for
developing the products as well as research costs.

# These costs include costs for developing the products as well as research costs.
These are some of the barriers to entry in the cosmetic industry. In addition, there are
many competitors who reduce the overall profitability of the industry, which makes it
a barrier to entry.

# Finally, the many large scale cosmetic firms which enjoy economies of scale make
it a barrier to entry especially for middle and small scale firms.

# Barriers to exit include the high development and research costs. Due to the high
costs associated with developing cosmetic products, it is difficult for firms to leave
the industry without achieving the costs for production. 

#  There are also many machines and equipment used in developing cosmetic
products and disposing these at a fair market value is difficult hence making it an exit
barrier.

SUMMARY AND CONCLUSION

Various aspects of the cosmetic industry have been discussed in detail. Due to the
realization of the importance of self image, this industry has grown over the years.
The impact of Porter Five forces on the industry has also been discussed. The
industry has high competition, high entry barriers, low supplier power, high
customer power and a large number of substitutes. In order for a firm to enter
and be successful in the cosmetic industry, it has to apply various strategies. These
include focus on emerging markets and developing countries, implementing a cost
leadership strategy, implementing research and development and applying
aggressive marketing campaigns. These strategies will ensure that they capture a
market share, develop customer loyalty and achieve long term profitability over the
years.