chapter 2 Managing Industry Competition 57 CLOSING CASE Five Forces in the Beauty Products Industry As a $160 billion-a-year global industry, the beauty melt 1.1 kilograms (2.4 pounds) of body fat a month products industry encompasses makeup, skin and hair without any need to diet or exercise. care perfumes, cosmetic surgery, health clubs, and While the market for traditional beauty products diet pills. Incumbents have remarkably long staying becomes increasingly competitive. the industry's power in this industry. L'Oreal of France, today's real growth may come from areas outside the "radar industry leader, was founded in 1909. In 1911. both screen" of the main players: cosmetic surgery and Nivea of Germany and Shiseido of Japan were estab- well-being products. First, cosmetic surgery is no lished. In America, Elizabeth Arden and Max Factor longer the exclusive temtory of actresses and celeb- were founded at about the same time. All these brands nities. In the United States, it used to cost $12,000 to are still around, although not necessarily as indepen- reconstruct a woman's breasts ten years ago-now dent companies it can be done for $600. More than 70% of such Recently, the industry has been growing at customers now eam less than $50,000 a year. The approximately 7% a year, more than twice the rate US market for cosmetic surgery, a $20 billion busi- of the developed world's GDP. Two groups around ness, has grown 220% since 1997. The second area the world underpin such strong growth: (1) richer, for growth is well-being products, consisting of aging baby-boomers in developed economies and spas, salons, and clubs linking beauty with natural (2) an increasingly more affluent middle class in solutions such as exercise and diet. as opposed to emerging economies such as Brazil, China, India, chemicals. The market has been fragmented with Russia, and South Korea, Brazil, for example, has a numerous entrepreneurs operating a few spas, salons, larger army of Avon Ladies (900,000 strong than its and clubs here and there. It seems that sooner or men and women in the army and navy combined(). later, traditional beauty products companies will Three major changes affect this industry. First, a turn their attention to these new areas. number of new entrants have emerged. Most luxury goods firms, such as Chanel, Dior, Ralph Lauren, S: Beseda ) Duke University Libraries Digital Collection and Yves St Laurent, now have beauty products 28. Briefly of beauty and hygiene products by duket Two consumer goods giants, Procter & Gamble The Ed393. Pots of promise, May 24 69-71: The (P&G) and Unilever, pose probably the most sig. Em 2003. The right to be beautiful. May 24 (4) N. Shute. nificant threats. As their traditional products such as 204. Makeover nation. US News Well Riport May 31:53-3. diapers and soaps mature, they are increasingly pour- ing resources into their beauty divisions. Second, Case Discussion Questions changes in consumer behavior help no-frills retail chains such as Wal-Mart gain bargaining power, at 1. Why do incumbents have long staying power in the expense of fashionable department stores, whose this industry selling costs are high and whose sales are declining 2. How do new entrants overcome entry barriers? Wal-Mart, for example, only wants to deal with How do incumbents react to new entries 2 handful of big suppliers, which plays into the strength of L'Oreal and P&G Smaller players, such 3. Why do retail chains gain bargaining power as as Estee Lauder and Revlon, which depend more buyers at the expense of department stores? on department stores are hurting as a result. Finally. 4. Should traditional competitors focus on expanding incumbents increasingly fight back, by emphasiz- new country markets in emerging economes, or ing how unique their products are. L'Oreal, for on entering hot new growth product markets in example, advertised how many patents it has filed. developed economies? Shiseido claimed that its Body Creator skin gel can