Industry Rivalry SuppliersBuyers Potential Entry Substitutes Threat of Entry  Smaller cosmetics manufacturers Large firms benefit from economies of scale (Marketline, 19) Threat of retaliation: Financial strength of L’Oreal and Estee Lauder make it difficult for small players to compete on price (Marketline, p. 19) High Capital Requirements: Marketing/Advertising is critical and celebrity endorsements important, bigger firms have larger marketing budgets for these expenses (Marketline, p. 19), R&D and innovation define the industry to be leader which increases need for a large marketing budget to explain new products (IBIS World) Industry firms spend 11.5% of industry revenue on marketing (IBIS) High cost of access to distribution: New entrants will need to convince stores to carry their products, displacing other existing brands. (Marketline, p. 19) Overall: Extent of Rivalry  Estee Lauder, Revlon, Unilever, P&G The large players have their own production facilities, causing relatively high fixed costs, and high exit barriers driving competition (Marketline, p. 22) Low product differentiation (IBIS World) BUT… C(4)=72.6%, highly concentrated (Marketline, p. 22) Most of the leading companies are geographically diversified, weakening rivalry (Marketline, p. 22) Diverse range of products manufactured within a firm eases rivalry (Marketline, p. 22) Industry Growth: Revenue will grow at an average annual rate of 4.9% to $66.3 billion in the five years to 2019 (IBIS World) Overall: Power of Buyers  Wholesalers, Drug Stores, Department Stores, Hair and Beauty Salons, Direct Sellers, Mass Merchandisers and Supermarkets, Export Markets (IBIS World) Retailers are positioned at the end of the value chain and subject to unpredictable changes in fashion, and must stock popular products in order to maintain sales (Marketline, p. 17) More likely for consumers to have brand loyalty for designer brands over retailer brands (Marketline, p. 17) Direct Selling is possible through e-commerce channels to end consumers, which limits buyers power (Marketline, p. 17) BUT…Large retailers such as Sephora can integrate upstream and do their own manufacturing and product development (ex. Originals, Marc Jacobs Beauty) (BoF) Overall: Revlon: Cosmetic & Beauty Products Manufacturing in the U.S. Five Forces Analysis: REGULATION OF SUPPLIERS & MANUFACTURERS = Strong pressure contributing to LOW industry profit Threat of Substitutes  Traditional cosmetics such as Henna or Kohl Make-up products have very few strong substitutes (Marketline, p. 20) Traditional cosmetics in other countries may be a minor threat but not in the global market (Marketline, p. 20) Overall: Power of Suppliers  Inorganic Chemical Manufacturers, Organic Chemical Manufacturers, Soap & Cleaning Compound Manufacturing (IBIS World) Suppliers often small in scale (Marketline, p. 18) Supplier switching costs are negligible for make-up manufacturers as inputs are typically undifferentiated. (Marketline, p. 18) Supplier inputs are a commodity: chemicals, dyes, essential oils, and alcohols (IBIS World) FDA approval of ingredient safety required which lowers supplier power (Marketline, p. 18) Overall: Phillips, Jocelyn. “Cosmetic & Beauty Products Manufacturing in the US. IBIS World, June Marketline Industry Profile, “Make-Up in the United States.” Marketline, September September Sherman, Lauren. “Inside Sephora’s Branded Beauty Strategy.” Business of Fashion, September 2013.