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1.1 Industry overview
Health as well as beauty in the United Kingdom market is in its recovery stages has assumed a growing trend since 2009. 2010 was marked by beauty and health retail sales growing by approximately 4.3 per cent. With reference to figure 1 below, cosmetics outlet numbers went up by 29.7 per cent in the period between 2004 and 2008. The share sales earned from beauty and health in 2009 amounted to $ 17, 687 million with Boots being ranked as the market’s leading company. There were concerns about consumer prices which were high in the beauty retail market despite the rise in the UK’s VAT to 20 percent from 17.5 percent in January 2011. Mintel predicts a higher growth rate in the consumer purchasing power with regards to toiletries and beauty in the period between 2010 to 2015 by a margin of 13.5 per cent (Mintel, 2011).
Body Shop was originally founded in Brigton by Anita Roddick in the year 1976. Since its establishment, the shop strategies have been centred on beauty brand identity that is ethically sourced and ethical consumerism (MIntel, 2011). To increase its market, Body Shop decided to merge with L’Oreal group in 2006 for an amount approximated to be $652.3 million. The shops has retail branches in more than 64 countries but this paper will only focus on UK market where Body Shop operates a divergent-channel strategy that covers shops which operate as online shops and franchises owned by the company. Its main strategy concentrates on masstige sector that covers the mass market proposition. With this strategy in place, the shop offers excellent shopping services to its customers with its wide range of cosmetic products that are naturally inspired (Kent and Stone 2007). The Body shop also has a good reputation when it comes to social awareness campaigns like community support trade fair, defending human rights and being against animal testing. (The Body Shop,2009).
The Body Shop deals in a variety of products consisting of all environmental ingredients and those produced with none of animal testing. In 2010, The Body Shop launched 171 new products as its own brand goods (Mintel, 2011). The Body Shop has a broad range of nature beauty cosmetics such as hemp hand cream, coconut body butter, and banana shampoo (Dorn, 2011). Furthermore, the Body Shop also applied a maca root fragrance on the men’s facial care cosmetics such as shaving cream, scrub and deodorant spray (The Body Shop, 2011).
According to figure 2, the average facial skin care product price is £8.75. Significantly, the graph shows that the product prices range never exceeds £30, even though facial skin care gifts are included going for over £20. Lip care products go relatively lower price than most of the other products while serums products happen to be the most expensive (The Body Shop, 2011).
Body Shop stores are mostly located in the city centre, high street, and shopping centres. In these shops, the Body Shop has launched skincare and make-up rooms since 2008 (Mintel, 2011). According to figure 3, the number of Body Shop outlets gradually increased the period between 2005 to 2008 but there was no further expansion from 2008 due to the financial crisis during that period.
Appendix 2 indicates that The Body Shop’s advertising spending per year significantly increased in the period between 2006 to 2007. The total of promotion spending was £511,000 and the main channels of promotions were direct mail, Internet, and press (Figure 4).In addition to these channels, The Body Shop promotes aggressively through online store. For instance, the shop offers periodic free standard delivery and free gifts when one spends over £25, with its online discount voucher (Mintel, 2011).
All the employees of The Body Shop have to undergo a training course before they are allocated in the stores so as to enable them have the five key elements which are passion, personality, the ability to be persuasive, positivity, and people- focus. In particular, persuasive is the key to encourage customers to try their products through demonstrations and by making a stimulating atmosphere in the shop (The Body Shop, 2011).
Generally, The Body Shop has two ways of providing purchasing process; online and offline stores. Offline stores are found in the high street or city centre, and have assistant staffs always ready to guide the customers to the right product. Recently, online store has proved to be the most convenient means of searching for the detailed products information and simplest way to find out informaion about the various promotions. Furthermore, customers are able to make their transactions or contact online customer services (The Body Shop, 2011).
2.7 Physical evidence
The green exterior logo is expressed as a natural brand identity and has a light coloured wood to include the environmental concept. The packaged products are visible on glass shelves and backlit wall panels in the retail shops. The free standing floor and light wood floor units are designed to create the effect of a more spacious surrounding environment (Kent and Stone, 2007).
In 2006, The Body Shop merged with L’Oreal a deal that involved £652 million. At that period, L’Oreal’s turnover exceeded £10 billion. This was able to cover The Body Shop’s problem of inadequate financial resources to invest on future growth. The Body Shop in return supported L’Oreal’s retail distribution channels so as to expand its domestic as well as overseas markets. In addition, The Body Shop expected that the potential synergy effects in marketing by L’Oreal’s business experience will boosts its overall sales (Strategic Direction, 2007). Furthermore, The Body Shop has strongly targeted a niche market in its sale of ecological products. It has imprinted on consumers with ethical issues (Mintel, 2011).
The shops greatest weakness is the problem of positioning. The Body Shop’s identity has been centred on ethically brand image themselves but this also reflects a level of inflexibility to the merchant. There are possible limits to the products positioning, developing, marketing, and pricing (Mintel, 2011).
The men’s grooming and shaving products market grew by 12 per cent between 2006 and 2011, and this growth increased the total sales from £720 million to £805 million (Figure 5). In addition, Mintel forecasts that the men’s grooming market will increase by 8 per cent between 2011 and 2016, and the total sales likely to be achieved will be £869 million by the year 2016. Therefore, beauty and toiletry manufactures based on the UK have an opportunity to increase sales in men’s grooming products market. This will offer a high demand for skincare products such as anti-aging, fatigue, hair dyes and hair restorative products (Mintel 2011).
When The Body Shop merged with a French conglomerate L’Oreal group in 2006, the merge is believed to be leading to cultural incompatibility, conflict of leadership styles and human resources approaches between the different countries (Personal Today, 2006).
2. PESTLE Analysis
4.1 Political factors
In 2005, the EU regulation published that cosmetic products should contain the identification of the product ingredients, brand name, batch code, and an appropriate contact information. In addition, the EU encouraged the cosmetic companies to cooperate with dermatologists for feedback programs that can be beneficial through reinforcing the information on products regarding safety (Engasser, et al., 2007).
4.2 Economical Factors
The consumers could spend less on consumption than what was experienced in 2010 due to the UK average wages which decreased while the VAT increased by 20 per cent in January 2011. However, Mintel forecasts that the purchasing power of beauty and health market will be profitable and the growth of market sales will be pointed at 8.6% from the year 2010 to 2015 (Mintel, 2011).
4.3 Social Factors
The Body Shop has strong public relationships with Green Piece, the NGO, and Amnesty International. Mostly, The Body Shop runs green and ethical issues campaigns with social organizations such as Green Piece, the NGO, and Amnesty. In 1990, The Body Shop established the distribution of charitable donations. Within six years, the Foundation managed to donate more than £3.5 million to more than 180 charitable organizations over the world (Anita, 2005).
4.4 Technological Factors
The Body Shop has focused on e-commerce and home shopping through their website. This website provides full range of the products with online promotions such as e-vouchers. Three quarters of The Body Shop website visitors are female and the dominant visiting age group is the 45 to 54 year olds. In 2010, The Body Shop online store had 188,000 UK visitors in ttotal (Mintel, 2011).
4.5 Environmental Factors
The UK government encourages the companies to recycle the product materials. Following this, 60 per cent packages were recycled in 2006 (Direct Government, 2006). Likewise, The Body Shop has begun to reduce environmental impact by using 100 per cent recycled material in all of its package products (The Body Shop, 2011). Ultimately, The Body Shop was ranked No.1 green brand company from 1,525 UK consumers in 2007 (Hall, 2007).
4.6 Legal factors
Recently, all countries’ within the EU’s beauty and toiletry companies have been asked to follow EU regulations. The regulations include; The Cosmetic Products Safety Amendment Regulations 2010 by the law of European Union and United Kingdom. The law contained cosmetic product, labelling, product safety, consumer protection, and analytical chemistry (UK legislation, 2010).
3. Competitive Analysis: Porter’s 5 Forces (400 words)
5.1 Supplier Power
The Body Shop’s supplier power ranges from low to medium. The role of the supplier is key to maintaining the quality of products. This is because The Body Shop only uses the natural ingredients. The company imports its product materials from 36 different countries making it complicated to manage all supply chain. Thus, The Body Shop has a community trade system with a fair pricing policy that supporting the local community. The Body Shop believes that the system will ensure balance in the suppliers power (Anita, 2005).
5.2 Buyer Power
Consumer power is comparatively high in cosmetics industry, since there exists a diversity of products available in the markets, and a wide ranging in price. However, the bargaining power of buyer is low for The Body Shop. Since the company has successfully positioned itself in a niche market following its responsible reputation of promotions and reasonable price selling the ethical and natural products. Therefore, the niche products can be highly differentiated and with its features generating switching costs that are relatively high (Kumar, Massie, and D. Dumonceaux 2006).
5.3 Competitive Rivalry
Boots is positioned as the leading UK beauty retail and had its market share at 37.5 per cent whereas The Body Shop was ranked 9th and only gained less than one per cent market share in 2009 (Appendix 1). Thus, The Body Shop should emphasis on its diversity in order to be positioned as an unique brand identity in this exceedingly competitive sector by targeting niche markets and reflecting the green brand image for its services and products. This would be lead to customers stand dedicated to the brand associated with the green image and environmental reputation of its brand name (Kent and Stone 2007).
5.4 Threat of Substitution
The threat of substitute products is relatively low in cosmetic industry. This is because The Body Shop operates as the ecological products segment of the beauty market, where only a small number of the UK cosmetic companies are running. Moreover, The Body Shop mainly targets the niche segments, customers who are appealed by the message of the company (Bainbridge, 2007).
5.5 Threat of New Entry
Threat of entry is relatively high in cosmetic industry. Generally, cosmetic companies conduct businesses which require a high degree of investment funds, committed with research and development and marketing expenses. This is because, for launching a product, the company has to follow the government regulations and requirements regarding direct contact on human skin. However, The Body Shop expects to maintain its position despite threat of new entry. The Body Shop merge with L’Oreal group generated a synergy and collaboration work process with a powerful financial support (Kumar, Massie, and D. Dumonceaux 2006).
The Body Shop has positioned itself as a market leader in the nature based cosmetic industry. This report has found that The Body Shop has a strong ethical and social marketing strategy that has led to its high success in the UK market. The company value messages delivered an appeal to all the environment aware customers who can associate themselves with the ethics of the brand identity. Although operating in a highly competitive UK cosmetic market, The Body Shop will targeted and maintain its niche customers based on is social and environmental responsible appeal.
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