Market Analysis: Estee Lauder's Potential in the Netherlands

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EXPANDING THE COMPANY ESTEE
LAUDER IN THE NETHERLANDS
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Table of Contents
Introduction.................................................................................................................................................3
Report background......................................................................................................................................3
Porter’s five forces analysis.........................................................................................................................3
PESTLE analysis.........................................................................................................................................3
Conclusion...................................................................................................................................................3
Reference list...............................................................................................................................................4
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Reflective analysis
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Introduction
This paper focuses on the expansion of Estee Lauder Company in the Netherlands with Porter’s
five forces that include the Threat of new entrants; bargaining power of buyers; the threat of
substitute product or services and lastly, the bargaining power of suppliers. While PESTEL
analysis involves the scanning of the Political factors; Economic; Social; Technological; Legal
and Environmental factors.
Company background
Estee Lauder is a multinational prestige skincare products manufacturing company, which is
headquartered at New York City, USA. This company primarily manufactures and distributes
makeup, hair care and apparel perfume products through both online and traditional forms of
marketing. According to (), Estee Lauder has been designated at the 258th position in the Fortune
500 US corporations revenue list 2018. In contrast, () had added that this company had attained
$11.26 billion USD as net sales, which showed a 4% growth since their preceding business year.
Porter’s five forces analysis
Porter’s five forces are a significant tool the enables a business entity to identify the strategies for
potential profitability and understand the competitiveness of the business environment.
Therefore, this section provides an analysis of Estee Lauder Company competitive environment
with a major focus on the competitive rivalry, supplier power, and buyer power, threat to
substitution and threat of new entry.
Competitive rivalry
Estee Lauder is among the leading marketer and manufacturer of cosmetics that include famous
brands such as Jo Malone, MAC, Lab series, Bobbi Brown and Clinique. The Estee Lauder
Company can grow its revenues and profits through corporate focus. For instance, the more a
business moves away from its core base of products and clients, the more it becomes difficult to
attain profitable transformation. When a company focuses on its core competence, it leads to a
stronger base of both the customers and the business. The net results of the corporate focus are
the freedom to Excellency and engagement in things that matter most. The company, therefore,
prunes the extraneous hence build on its core competencies and the attributes that best describe
their customers' preference. The company assesses the position of the market competitiveness
and removing any needs that are not in line with their customers' preferences. The firm,
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therefore, intensifies all its strength towards the areas that it can perform to its best and derive the
marketing investments and returns on the product.
Activity Based Cost (ABC) is an approach that involves costing final output and tracing the
consumption of resources. Through this methodology, activities are assigned to cost objects and
resources to activities based on the estimates of consumption (Jones and Dugdale, 2002). This
approach is beneficial to the company because the ABC system will bring reliability and
accuracy in the products costs determination through the focus on the effects and causes
relationship based on the incurrence of costs. Moreover, it doesn't recognize the products but the
activities that are the major causes of costs. This system will provide the company with a
platform where activities that do not add value to a product are identified and the costs reduced
as this approach reveals the cost behavior (Jones and Dugdale 2002, 124). Therefore, the
managers of the company will be able to control a number of fixed overhead costs through
exercising control over all activities that led to the overhead costs. The costs related to fixed
overheads become more clear and visible with this system, therefore monitoring of the costs
becomes easy. With the ABC system, the Estee Lauder is in a good position of making rational
decisions based on the use of product cost data that is more reliable. Moreover, the management
will be in a good position of tracing the costs to areas related to customers, processes, and
departments.
The Estee Lauder Company is in a position of calculating accurately the mechanisms for cost
management and calculation of product costs. The transaction volumes and costs driver rates
useful to the performance and the management of the company, therefore, the firm used the cost
driver rates might be applied by the company in designing the existing products or new products
(Anderson, Hesford and Young 2002, 200). The ABC system provides a platform for managing
costs and calculation of product costs more accurately.
Supplier power
The Global Supplier Relations department through a global basis procures the raw materials for
Estee Lauder. Therefore, the improvement of quality, the increase in the speed to market and
innovation and reducing costs is the major objective that helps in reviewing the supplier base
with an effort in supplier rationalization. However, this type of model is prone to over-
dependency on suppliers.
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Buyer power
The skin care and beauty products of Estee Lauder cater to the premium market, and they are
highly priced. However, it could be difficult for the affluent buyers to switch to lower-priced
products, as they tend to be less sensitive to prices. The Coty, Hennessy Louis Vitton, LVMH
Moet, and L’Oreal premium cosmetics brand depend on department stores and specialty retail.
Products should have a good monetary value, which is affordable to consumers. The prices
should be examined and determined. The prices should be affordable to generate reasonable
profitability. The prices should represent good value for money and customers will feel happy to
pay for certain products (Rafiq & Ahmed, 2015, 6). Companies to develop a strategy of
restructuring prices of products and services to make sure they are to the standards of the current
market price. Therefore, Estee Lauder considers all these factors in pricing its products hence
remain competitive.
Threat of substitution
There are a large number of substitutes for the beauty and skin care products. However, the
replacement of a product with high reputation brand unless if a permanent skin improvement is
invented through new technologies. The research and development department of the Estee
Lauder develops its unique ingredients, therefore, becoming its major competitive advantage.
Developing the right product pertains to how one feels about the marketing of the product.
Therefore, a company decides whether the product will produce depending on the environment,
and whether it is the right commodity (Magrath 2016, 46). The company considers the design of
the product, features, and quality. Subsequently, there is the product assortment including range,
product mix, and lines. Branding is vital and packaging should be done accordingly. It is vital to
managing products through life cycle (Magrath 2016, 46). The product should satisfy customer’s
needs and must be available. Similarly, the new product should have minimal impact on the
environment with a long lifespan. Products should have a life cycle that includes sales decline
phase, maturity and growth phase that makes products to have more demands by the consumers.
Estee Lauder considers these factors to enable it to compete effectively.
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The Threat of New Entry
The income levels and the skin type form the basis for the purchase of cosmetics. Therefore,
unless a new brand features an advanced unique technology it is difficult for a new enterprise to
venture into the beauty and skin care business. Therefore, Estee Lauder, which is a high-end
company, compete mainly on product differentiation, brand recognition, and product quality and
heavily repeat customers.
PESTLE analysis
Political
Politics has the ability to affect doing business in the Netherlands as it prevents future
development of enterprises alongside the many opportunities and risks. Their political
environment is stabilized under the implementation of parliamentary democracy. Netherlands
also offers considerably lower taxation rates, which is favorable for the company’s seamless
business operations. Netherlands also encourages and protects privatized ownership rights of
commerce, in accordance with the principles of fair trade competition. However, Netherlands
only imposes political threats towards Chinese industries, as their business cultures vary largely.
Politically, Netherlands is an ideal place for the company to expand their business (Magrath
2016, 46).
Economical
Netherlands has an advanced free market economy that the government controls the taxes and
wage scales and operates on the polder model that is based on periodic negotiations among the
employers’ associations and the labor unions.
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Graph: EU GDP versus U.S, China and India
The above graph indicates that purchasing power in European Union is much higher compared to
India, China and U.S hence a better place for investment. The service sector dominates the
national economy of Netherlands by a rate of 80.7% of the entire GDP. Rest of the 19.9% of
GDP is contributed by government and welfare. In 2016, the real GDP of Netherlands was
€669.322 billion, whereas the nominal GDP of Netherlands was estimated to be 696.871 billion
(Rafiq & Ahmed 2015, 10). This had further laid the foundation of into GDP deflator 104.116.
The per capita GDP based on PPP (Purchasing Power Parity) of Netherlands was calculated to be
around $51,049.02 USD, and in comparison, their per capita GDP was an estimated margin of
$45282.63 USD. Therefore, Netherlands had suffered an output gap of -1.879% in the year 2016.
Nevertheless, the GDP growth rate of Netherlands in 2018 is 2.7%, which shows a hike of 0.3%
since its preceding year (Magrath 2016, 46). In contrast, Netherlands had witnessed a growth of
2.6% in their inflation rate from 2.2% in a month-gap in 2019, where skincare and cosmetics
products rate rose by 1.9%.
In contrast, the unemployment rate of Netherlands was 5.552% in 2016, and around 8.2 million
candidates were employed in the period. The intense search by Estee Lauder to get the best from
the employees by recruiting employees they feel are best suited also can be view as the resource-
based approach. The foundational aim of resource-based human resource strategy is focused on
coming up to the achieving in the strategic link between resources and openings from the
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effective placement of resources (Barney 2015, 668). The approach address ways in which the
firm could the long-term planning ability by the development of managers and other staff who
can be able to come up with strategic plans and understand the main issue of consideration
(Barney 2015, 664). This approach is made in the basis that the organization can gain a
competitive advantage if the organization can get and develop a workforce that enables it to get
knowledge faster and apply the knowledge more effectively compared to the rivals.
Social
The Netherlands is the most densely populated country in Europe for instance in 2000 it had a
population of 15,898,331 people. The country consists of foreigners especially the Antilleans,
Moroccans, Turks, and Germans majority originating from the European Union. As of 2016,
Netherlands has been estimated to have a population base of 17.03 million (Codita 2011, 20).
According to various studies, it is being estimated that the population of Netherlands would
significantly increase to 17.33 million citizens by the year 2022. Netherlands possesses expert
labor force, as their literacy rate is considerably high. Netherlands is furthermore the most
English-speaking nation within the EU.
Technological
The Netherlands provides a good environment where technological advancement has thrived. For
instance, the use of social media platform and the mainstream media has been enhanced.
Therefore, this is an important avenue of communication where Estee Lauder will have the
opportunity to market its products. For instance, marketing of new products is critical and used
to persuade customers to buy products through advertisement, public relation, and sale
promotion (Rafiq & Ahmed 2015, 10). Promotion is an important factor and helps in increasing
sales through proper marketing. The advertisement may be done through online, newspapers,
TV, magazines and Radio. Internet advertisement should be highly embraced set more funds
towards online advertisement. Public relation is done through press releases, seminars and
exhibition (Codita 2011, 20). In contrast, Netherlands is highly advanced in terms of technical
expertise, which positions the country as one of the most developed nations in terms of IT and
communication technologies. Due to this, the citizens of Netherlands are regularly utilizing
internet services and other technologies on a day-to-day basis for regular purposes.
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Legal
The current Netherlands regulations and legislation governing the cosmetic industry are
straightforward and promote the development of this type of industries. Having a conductive
legal environment plays a huge role in ensuring effective management and production in the
cosmetic industry. The legislature or the state through its various bodies sets regulations that
govern the cosmetic manufacturing industries in the country. Some of the regulations are
favorable to Estee Lauder but a limitation to others. The Estee Lauder Company provide quality
products to its customers and is able to do this in a cost-effective way. The corporation was able
to do this while still serving the uninsured and low-income earners in Estee Lauder who bring
little or no revenue to the corporation.
The employment laws set the minimum wage, overtime pay, family, and medical benefits. The
law protects the employee from being underpaid and this has shaped the business surrounding
since businesses have to comply or they incur lawsuits or even shut down. In the case, of the
Netherlands the case of exploitation of guest worker workers are common. The Immigration law
was put in place to address these issues and hence organizations have to comply. In the case of
Estee Lauder that has a large employee base, the labor and employment laws are a great
consideration. The company ensures compliance by formulating and implementing strategies that
ensure that the employees are well compensated for the input that they put in the company. In
case of any financial difficulties the company has, an employee lay off plan. The recruitment
strategy of the company includes the recruitment of qualified personnel from any ethnic
background or belief to prevent having any cases of discrimination. The human resource policies
in Estee Lauder allow all in members to be unionized if they wish to so comply with the labor
laws.
Environmental
The environmental factors play a critical role in the thriving of business. The Netherlands
government is committed towards matters related to climate change and the use of the natural
environment. Environmental issues also have an effect on the health of the public and hence
matters related to skin. This provides an avenue for the Estee Lauder Company to thrive its
business both in the good and extreme weather conditions as it manufactures different types of
skin care products that are compatible with different types of weather.
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Conclusion
Both the PESTEL and the Porters five forces tools provide a significant assessment of the Estee
Lauder expansion in the Netherlands. From both analyses, it is clear that the company has the
potential of expanding its business in the Netherlands as there is a big market for its products and
the various laws and regulations of the cosmetic industry in this country are favorable. Therefore,
there is an abundance of opportunities for the company in the Netherland.
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Reference list
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activity based costing teams: A field study of ABC model development time in the
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Barney, J. B., 2015. Organizational culture: can it be a source of sustained competitive
advantage?. Academy of management review, 11(3), 656-665.
Codita, R., 2011. Contingency Factors of Marketing-Mix Standardization [recursoelectrónico]:
German Consumer Goods Companies in Central and Eastern Europe. Alemania: Gabler.
Edwards, K., & Robinson, S., 2012. Labor and Employment Law: A Career Guide. Harvard Law
School.
Jones, T. C. and D. Dugdale., 2002. The ABC bandwagon and the juggernaut of
modernity. Accounting, Organizations and Society 27(1-2): 121-163.
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Magrath, A. J., 2016. When marketing services, 4 Ps are not enough. Business Horizons, 29(3),
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13(9), 4-15.
Sachs, B., 2008. Employment Law as Labor Law. Cardozo Law Review
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