Table of Contents

Industry ......................................................................................................................................................... 1
Definition of the Industry .......................................................................................................................... 1
Major Competitors .................................................................................................................................... 2
Economic Characteristics ........................................................................ Error! Bookmark not defined.
Industry Analysis ...................................................................................................................................... 3
Porters 5 Forces ................................................................................................................................... 3
Opportunities and Threats ......................................................................................................................... 5
Conclusion of Industry Analysis ............................................................................................................... 5

Industry
Definition of the Industry
The cosmetics industry is dominated by a small number of multinational corporations that
originated in the early 20th century. The distribution and sale of cosmetics is spread among a wide range
of different businesses. The largest cosmetic companies are The L'Oral Group, The Procter & Gamble
Company, Unilever, Shiseido Company, Limited and Este Lauder Companies, Inc.
Avon, having 72% of their net sales on Beauty products on 2008, is one of the companies that
made their names in the cosmetics industry. The demand for cosmetic products normally remains constant
and unaffected by economic distress making more and more companies focusing their market on beauty
products.
Due to Global Warming, companies are now creating products that are environment friendly. A
research says that consumers are unlikely to give up their commitments to organic products just to save a
little money.
Major Competitors
Avon products Inc. considers Mary Kay, Inc. and Revlon, Inc. as their major competitors. Mary
Kay, Inc.s distribution channel resembles that of Avon which is direct marketing. Although Mary Kay,
Inc. is a major competitor, it is nearly eight times smaller than Avon with only 5,000 employees
worldwide as compared to 42, 000 of Avon.
Comparison of Avon and Mary Kay for the year 2008
AVON MARY KAY
Market Cap $9.71 Billion 242.84 Million
Employees 42, 000 5, 600
Quarterly Rev. Growth -12.90% -2.70%
Revenue 10.37 Billion 1.34 Billion
Gross Margin 63.03% 63.48%
EBITDA 1.44 Billion 171.40 Million
Operating Margins 12.07% 11.42%
Net Income 807.90 Million 28.50 Million
EPS 1.884 1.422

For the year 2008, the revenue of Avon far exceed its competitors, with Mary Kay selling $2.40
billion and Revlon selling $1.35 billion as compared to Avons $10.37 billion.

Industry Analysis
Porters 5 Forces
Michael Porters Five Forces Intensity
1 Threat of New Entrants Moderate
2 Rivalry Among existing firms Strong
3 Threat of substitute products Moderate
4 Bargaining power of buyers Strong
5 Bargaining power of suppliers Moderate
6 Relative power of other stakeholders Moderate

1. Threat of New Entrants
73%
10%
17%
Revenues for 2008
Avon
Revlon
Mary Kay
The threat of new entrants in cosmetic industry is moderate. Although it requires a lot of
capital to be invested in research and development and also to the actual manufacturing of the
product, small firms can still enter the market by producing natural alternatives with low cost.
2. Rivalry among existing firms
The concentration of companies creating cosmetic products is strong especially in
developed countries creating a high rivalry among existing firms. Only few firms dominate the
market, each using their competitive advantage to get a market share and to achieve the
companys goal.
3. Threat of substitute products
The threat for substitute products is moderate. Cosmetic products are very popular in the
new generation. This is the reason why the demand for these products is not affected by economic
distress. People will still buy cosmetic products because they know the importance of these
products and their impacts on improving confidence, self-esteem and self image. The use of
natural alternatives, even if this is an option, creates lower threat as substitute products.
4. Bargaining power of buyers
The bargaining power of buyers is strong. This is due to the fact that many companies are
creating almost the same products. The price tends to be a major factor in choosing which brand
to buy because products usually have similar quality or little difference.
5. Bargaining power of suppliers
The cosmetic industry has a moderate bargaining power of suppliers. This is due to the
high number of competitors in the market and the large supply of products to the market. This
creates a high bargaining power for the buyers in term of price as compared to the suppliers.
6. Relative power of other stakeholders
The trend nowadays in cosmetic industry is to create environmental friendly products. It
is the companys responsibility to provide consumers with safe products not just to consumers but
to the environment. The government has less control on the price of cosmetic products. The
relative power of other stakeholder is therefore moderate.
Opportunities and Threats
Conclusion of Industry Analysis