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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Estée Lauder has an extremely large presence as the global leader in prestige beauty with products being sold in more than 150 countries. This global success is attributed to their focus on cultural relevance, making sure that their products, signage, marketing etc. appeals to consumers in each local market.

Estée Lauder also benefits from brand recognition and loyalty; however, this seventy-two year old company isn't only known for high-end, classic products anymore. They have a very successful track record of incorporating complimentary firms through merger and acquisitions. Consumers from each age category are being drawn to Lauder products within their broad brand portfolio. After realizing how important it is for them to diversify their distribution, Estée Lauder made judicious acquisitions. Playful brands such as M.A.C. and newly acquired Becca and Too Faced tend to appeal to teens and young adults, while older generations tend to prefer Clinique and its namesake brand. Thanks to their strong performance and that of their other acquired brands, as well as their increase in market share, Estée Lauder is forecasting an increase in sales by around 13%, while the industry average is closer to 5%.

Estée Lauder launched the free sample marketing strategy. These gift-with-purchase and purchase-with-purchase techniques have proven to be very compelling promotional campaigns. They are able to reward loyal customers and entice new customers that may have otherwise not purchased their products.

Their R&D budget for developing and promoting locally relevant products is also a massive strength. The company spent $179 million on research and development in 2017 alone. With this budget they are able to identify shifts in customers preferences, improve upon existing products and to deliver the new superior products they are known for.


Estée Lauder's distribution network consists of salons, specialty stores and high-end department stores. This is potentially limiting its reach to customers. A limited distribution strategy tends to increase dependency on specific channels which could be disastrous. For instance, Macy's is Estée Lauder's biggest client, accounting for nine percent of total sales and nearly forty percent of sales in the United States. Macy's is also aggressively closing stores.

Unfortunately, the company has not fully made use of the internet, increasing its online presence and focusing more on e-commerce would be beneficial. They were also very late to the specialty channel stores, such as Sephora. This has cost them prime placement. Estée Lauder should work to expand its reach if they want to stay relevant.


Estée Lauder focuses on high-end products and, therefore, has a limited portfolio compared to competitors P&G and Unilever, which supply lower-end products but reach exponentially more consumers. “Prestige beauty” is, however, outperforming mass as disposable incomes are increasing. The beauty market, in the United States alone, is worth more than $62 billion and is growing fast. With a growing preference for sun protection and anti-aging creams, men's personal care products are also proving to be a fast growing and large potential market.

China is on its way to becoming the world's largest beauty market. The rise of their consumer class has created a market for people who want to buy expensive beauty products. Import tariffs were reduced in 2015, allowing companies with a wider presence to discount retail prices and maintain market share. Chinese e-commerce websites have also provided more opportunities for cosmetics brands to grow. According to research firm Euromonitor, Chinese consumers prefer major international brand skincare products and are much more quality-driven than before and expect the $50.2 billion beauty and skin care market to grow to over $61 billion by 2020.


The company, and market as a whole, are threatened by increased regulations due to the concern of harmful ingredients in products. As of now, FDA approval is not required to sell a beauty product, with the exception of color additives. They are also not required to disclose ingredients or to report any adverse effects. California Senator Dianne Feinstein introduced a bill that will significantly increase the FDA's oversight of cosmetics companies. This would allow for mandatory product recalls, limited ingredient use, fees and numerous other conditions.

In regards to competition, the sheer competitive nature of the beauty industry poses a serious threat to Estée Lauder's market share. Competitors such as Proctor and Gamble and L'Oreal, offer more diversified product lines at lower costs,  allowing them to reach a larger number of consumers with their drugstore brands. Barriers to entry have also lowered thanks to an increase in social media driven trends and specialty stores such as Sephora.

Since 2008, there has been an abundance of counterfeit beauty products, particularly M.A.C., due to its iconic and easily duplicated black packaging. According to a report by the Organization for Economic Cooperation and Development, global seizures of counterfeit beauty products rose 25 percent between 2011 and 2013. In 2016, Estée Lauder Companies conducted more than 1,350 seizures and confiscated more than 2.6 million pieces of counterfeit products.

Foreign exchange rates may also pose a threat to Estée Lauder Companies as sales are generated in more than 150 countries. Currency fluctuations could have a negative impact on their bottom line.

Corporate Strategy

After thorough investigation of growth trends in the beauty industry, I propose global expansion through acquisition. China is known for its strong demand for luxury items and its make-up market is expected to see tremendous growth over the next few years. I suggest that Estée Lauder Companies acquire Chinese beauty firm JALA Group to capitalize on China's growing prestige beauty market.

JALA Group was founded in 2001 in Shanghai and is the largest domestic cosmetic company in China. They currently have four very distinct brands: Maysu, Chando, Botanical Wisdom and Insea, covering low, middle and high-end markets. Total sales revenue grew by 15 percent with brands Chando and Maysu leading the pack. Supermarket and department store sales grew by 19 percent. Three of Chando's skincare products had annual sales of over $15.3 million each last year. They also have 73 patented technologies in design and product formulation. In February 2017,  JALA claimed to have successfully printed Asian skin with 3D bioprinting technology in an effort to develop better cosmetics products. This bioprinted skin will enhance research and development capabilities, undoubtably giving them a competitive advantage in the industry.

There are more than 25,090 JALA retail outlets throughout 31 provinces and municipalities, covering all major cities in China. They also have brand counters in department stores, supermarkets, pharmacies and cosmetics stores. The company's core values consist of honesty, integrity, trust, initiative and ownership which is appealing when considering the collaboration that will be necessary amongst management. Their goals are to be a domestic industry leader in cosmetics, enter into the international market and to establish China's own world-class brand. With Estee Lauder's vast resources, world-wide network and strong research and development team, JALA could reach these goals.

There is strong potential in this region but there are very specific differences in Asian skin in terms of both texture and structure as well as diet, air pollution and other environmental factors. To appeal to Chinese consumers, is important for Estée Lauder to understand their behavior and preferences such as increased focus on sun protection and whitening skincare. By acquiring JALA Group, they will have the ability to be closer to Chinese consumers and to further understand and meet the needs of Asian consumers, ultimately earning increased loyalty.

Right now, foreign brands make up around 60% of the cosmetics in China; however, domestic brands are rapidly developing. To increase market share and sales growth, brands are incorporating tradition Chinese medicine concepts along with natural extraction methods. “Cosmeceuticals” (products than combine cosmetic and pharmaceutical features), including Chinese herbal cosmetics, currently have a market share of roughly 20% in the mainland. In Europe, Japan and the United States, they have 50-60% of market share, so there is plenty of room for growth.

According to cosmetics analyst Zhang Fei, premium cosmetics brands have done better than mass cosmetics brands in the China market in 2016. The middle-class is growing and with an increased awareness of beauty, they are after a more luxurious lifestyle. Consumers are tending to favor major international brand skincare, as they are less focused on price and mores on quality.

Chinese brands have always come second to Korean competition in terms of quality. By recruiting Koreans in areas such as brand management and marketing and offering 50% higher wages, domestic firms are attempting to close the quality gap. Just last year, JALA hired the former head of Amorepacific's Etude brand, Kim Dong-young to gain a competitive edge. Chinese companies have been advancing but the trend appears to have been sped up by Seoul's installation of a U.S. anti-missile system against Beijing's wishes. This dilemma has caused resentment against Korean companies and increased loyalty to domestic firms.

It is still imperative that they grow their online presence. According to a KPMG report, 50% of China's domestic luxury consumption will be generated online. During the online shopping festival in November, Chando's sales more than doubles last year's and out of the half a million consumers who purchase their products, 85% were first-time consumers. Sales of its make-up products grew by 52% from last year.

This acquisition would be successful both internally and externally for both companies. JALA Group would still operate under its own name but would be able to take advantage of Estée Lauder's core competencies. Estée Lauder would be able to gain valuable insight into Chinese consumer preferences and the use of traditional Chinese concepts while further infiltrating this growing market. With this strategy, Estée Lauder could overtake rival L'Oreal in Chinese market share.


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