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Case Study Skin Care Segment

From soaps and shampoos in the morning to overnight repair face creams, from sunscreen products in summers to moisturizing lotions in winters; skin care products literally touch our daily lives. These products we use are in some measure the signature of our lifestyles and standards of living. The skin care industry worldwide is a 50 Billion Dollar plus business. Caring for the skin of people throughout the world is an extraordinary business. It is a business where people are passionate about their work, because it matters. It matters to their families, to their communities and to the world.

It is a business filled with tremendous opportunity for leadership and growth in the 21st century; a business where unmet needs still abound and where people around the world are waiting for new and better solutions. Skin care includes dramatic breakthroughs in science and technologies are opening the doors to bold new approaches; where global demographic and economic trends favor growth.

It is a business where a broadly based company with a strong vision, a culture of caring and the resources to invest in the future has the opportunity to take the skin care to a new level for people throughout the world and where such a company can make a profound, positive difference for its customers.

As the world’s obsession with fair blemishes skin continues, skin care products have emerged as a key driver for the personal care category. All the personal care majors, from HUL, P&G and Emami to L’Oreal, CavinKare, Nivea and Dabur, are fighting a high-pitch battle to gain share in the small, but fast-growing skin care market.

Indian skincare market ~ Rs 2,100 crore

Skincare moisturizer market ~ Rs 1,600 crore

Premium Skincare Market ~ Rs 450 crore

Skincare market has been steadily growing at 16 per cent as of last year

Anti-Ageing Market ~ Rs 60 crore

Avon’s Face care Recommendation: Steps to cleanse and moisturize your face

Step 1: Wash face thoroughly with a Cleanser. This opens up the pores on one’s face

Step 2: Apply Toner to close the pores to prevent dirt and dust from accumulating in the opened pores

Step 3: Apply a Treatment (meaning a product like a wrinkle cream, firming cream, brightening etc.)

Step 4: Apply a Moisturizer (During the day, your moisturizer should have a SPF in it. One can even use a combination of a fairness cream with SPF)

That’s it! This process should only take about 3 to 5 minutes. Remember, a small amount goes a long way with your products. Don’t over apply. That may decrease the effectiveness of the product. We note that every step caters to a different range of products

LARGEST SKINCARE MARKETS WORLDWIDE

France- It lives up to the reputation of the skincare knowledge centre with its the consumers having regular skincare routines

The US is the second largest skincare market in the world, with a strong forecast growth in hand care

The Japanese purchase high amounts of skincare products, as caring for skin forms a key element of their beauty routines

Skin whitening creams form an important basis of Middle Eastern women’s skincare regimes

Per capita consumption in Hong Kong US$ 40, US$ 9 in Philippines, US$ 10 in Malaysia and Taiwan, 12 US$ in Japan and US$ 1.5 in China.

Segment Market Overview

Personal care category in India is valued at Rs 54.6 billion. An average Indian spends 8% of his income on personal care products. Skincare forms the largest part of the overall personal care market in volume terms. In 2009, around 15% of all spend on personal care came in the skincare category. The market size of this segment is US$ 200 million.

Skin care grew by 13% in 2009 to reach nearly Rs32 billion. Skin care products comprise of personal grooming and personal hygiene products. The broad product categories are as follows-

Personal Wash: soaps, face wash, body wash, shower gels

Facial Care: face packs (or masks), anti acne, anti ageing, fairness, lip calms, astringents, toners

Body Care: sunscreens, moisturizers, talcum & prickly heat powders, antiseptics

Foot care: Anti crack creams

Hand care: Untapped market

Skin Care Category: All India Urban Volume 13265.3 tonnes

Conclusions derived from the above chart:

Fairness sub category- 60% of the Skin care category volumes comes from this segment

Winter Care sub category- Decline in consumption and decrease in small pack size buyers resulting in decline in volume

Antiseptic sub category- New customers are driving the growth for this segment

Sunscreen sub category- Low new trier rate

Cleansing sub category- Increase in consumption from retainers is increasing volumes

The anti-ageing phenomenon continues to gather momentum, with the worldwide market expected to reach $115.5bn by the end of 2010. Nourishers/anti-agers saw the fastest value growth of 19% in 2009.

SWOT

STRENGTHS

World’s largest FMCG company with a 61% share in the Indian skincare market

Hindustan Unilever Ltd’s products continue to dominate skin care sales in 2009

The company’s brands Fair & Lovely, Ponds and Lakme were the top three skin care brands in India in 2009, with Fair & Lovely accounting for 48% of the value sales of skin care in India.

Long product mix

Sophisticated Supply chain

Strong brand name

Major brands – Ponds, Lux, Dove, Vaseline, Lifebuoy, Liril, Pears, Breeze, Hamam

Since the brands have individual names, HUL’s reputation is not tied with that of the product. HUL carries all the advantages that come as a result of being a “house of brands”.

Broad product line catering to all segments

Low-priced sachet SKUs, free samples and new variants for its major brands boosted sales

WEAKNESSES

Significantly higher advertising expenditure incurred by HUL to build up all its brands from scratch since a blanket family name is not attached to the individual brands.

Unilever generated revenues of $55.4 billion in the financial year (FY) ended December 2009, a decrease of 1.7% over 2008. The company’s net income totaled $4.7 billion in FY2009, a decrease of 33.0% over 2008.

OPPORTUNITIES

The personal care division of HUL is recording an increase in revenues to the tune of $ 16.5 billion in 2009, an increase of 4.1% over 2008 owing to a volume growth of 2.3% driven by stronger innovation, advertising and promotional activities.

Skin care grew by 13% in 2009 to reach nearly Rs32 billion

Average unit prices continued to rise in 2009

Skin care is forecast to see a constant value CAGR of 10%

Skin care continued to attract new players, both in the mass and premium categories, and, despite concerns about economic and financial security in the first half of 2009, skin care continued to see dynamic growth in 2009.

THREATS

Large numbers of relatively unorganised local players give it competition in the lower-price segments. Since these players typically operate in small geographies, they invest almost nothing in brand building and are thus able to offer higher trade margins and sell to consumers at prices lower than those of HLL’s brands.

Competition from organised national brands especially P & G in the higher-price segments. In recent years, price war between the two FMCG giants has resulted in a dwindling of profits for both.

4.2 PROCTOR & GAMBLE

P&G Hygiene and Health Care Limited is one of India’s fastest growing Fast Moving Consumer Goods Companies that has in its portfolio P&G’s Billion dollar brands such as Vicks & Whisper. With a turnover of Rs. 500+ crores, the Company has carved a reputation for delivering high quality, value-added products to meet the needs of consumers.

SWOT

STRENGTHS

Diversification: Product diversification with about 300 products. The diverse product mix includes personal and beauty items, household products, health and wellness, Baby and family and pet care and nutrition.

Research and development: P&G invests 3 – 4 % of Net outside Sales in research and development (R&D). This amount easily exceeds their leading competitors, among consumer products companies. They also have more Ph.D.s working in labs around the world than the combined science and engineering faculty at Harvard, MIT and Berkeley.

Innovation: In fiscal year 2004-05, P&G was granted 27,000 patents globally. P&G has produced a number of new products like diapers; shampoo and conditioner in one; toothpaste that prevents osteoporosis. Its diversified product mix helps in connecting technology across categories and brings innovation to the product.

Brand building: Advertisement expenditure of P&G is twice than the next company on the list of companies which spend highly on advertising.

WEAKNESSES

Has only recently, in 2007, made a foray into the skincare sector in India with the launch of its Olay brand. Is still a novice in a sector full of highly experienced competitors.

Inadequate quality control: With large number of product profile, the quality control of all the products has deteriorated.

OPPORTUNITIES

Developing markets: The economies of China and India are growing at a very fast pace. The company currently competes in only about 10 of its top 25 categories in most developing countries. This provides P&G with an opportunity to enhance its market share as well as expand its presence in other categories.

THREATS

It’s brand Olay faces direct competition Pond’s premium skincare range.

Faces competition from local low-cost manufacturers

4.3 JOHNSON & JOHNSON

SWOT

STRENGTHS

Johnson & Johnson’s range of baby products is used widely by adults as it is one brand which is known for being very gentle on the skin.

Clean and Clear face wash has effectively targeted the teenage segment which is paranoid of pimple problems and needs an effective and affordable remedy to acne.

WEAKNESSES

Neutrogenaoffering around 25 beauty items ranging from fairness creams, face cleansing lotions to sun protection and hand and body care products which was launched as a premium product is priced too steeply and not differentiated enough from Clean and Clear to justify the high price.

OPPORTUNITIES

The skincare segment is growing at a rate of 13% in India and thus provides immense growth opportunities to Johnson and Johnson.

THREATS

Ayurvedic products which are similarly gentle on the skin for e.g. Himalaya

Faces competition from FMCG giants HUL and P & G which have very long product line

Factors shaping the industry

5.1 Growth Drivers

Consumers clearly believe that taking care of their skin is one of the most important parts of their overall health and beauty regimes. Research shows that more consumers rated taking care of their skin as ‘important’ than they did for looking their best in day-to-day life, highlighting how pivotal skincare is to the majority.

Rapid urbanisation

Increased purchasing power

Greater awareness of fashion amongst the younger population

Rising participation of women in urban work force

Growing tendency to focus on individual and self gratification

Growing importance of looks and personal grooming for personal and professional reasons

Market trends like spread of organized retail to Tier II cities

Development of non-traditional segments like men’s cosmetics

Development of a wide range of products at different price points

Increasing competition with entry of large MNCs

Increased brand building

Customer awareness initiatives by companies

Source-EIU CIA world fact book

5.2 INHIBITORS

CULTURAL ISSUES

Some cultures are more complex to service beauty-wise than others. It has been widely documented that some brands fail to build successful relationships with Muslim consumers because they fail to understand the consumers they are talking to. Because of cultural and religious issues, women focussing too much on looks are considered to be sinners and hence are not encouraged to focus on beautifying themselves.

PRICE SENSITIVITY

India is a very price sensitive market and thus there is a dire need for innovative solutions to cater to the Indian preferences and budgets.

5.3 Trend Analysis

Key Trends in terms of product categories:

Anti- ageing

Anti-ageing solutions are nascent but gaining ground. It is the fastest growing segment in the skincare market (approximately 3 per cent of the overall skin category, it has doubled in the last three years)

Brands & Companies in anti ageing

HUL – Pond’s Age Miracle Range

P&G – Olay Total Effects: Fighting the ‘7 signs of ageing’ (lines and wrinkles, sagging, uneven skin tone, age spots, pores, dullness and dryness). Olay is a $2-billion brand.

L’Oreal

Garnier: In India since last decade

Target Consumer for anti ageing: Indian Women – looking for one product that will help her stay young and beautiful (Agelessness)

Consumer Activation: Counters at cosmetics stores with counselling by expert beauty consultants at departmental stores and large modern retail outlets and further education on skincare

Ayurveda

Ayurveda is one of the most ancient medical traditions practiced in India, Sri Lanka and other South Asian countries, and has a sound philosophical and experiential basis. [4] Ayurveda has several formulations for management of aging and other skin care related conditions. Its literature describes over 200 herbs, minerals and fats to maintain and enhance the health and beauty of the skin.

Today there is once again a revival of preference for natural products, and in recent years there has been a great upsurge in the study of Indian herbs. [7] Thus brands like Himalaya and Dabur Uveda have come to the fore. They offer specific solutions to skin problems.

For example: Himalaya offers Neem (the derma specialist), Acne and pimple cream, antiseptic cream, foot care cream for cracks and a variety of face packs

Clinics for skin treatment: Clinics such as VLCC and KAYA provide acne, hair removal and anti ageing treatments And this is in addition to offering a range of products in skin care.

Fairness: Fairness creams have become the major drivers of the skin care segment’s growth. Fair and Lovely dominates this market catering to the needs of Indian women who wish to be fair (fair is beautiful) and that too at a very affordable price. Another new trend is the introduction of Emami and Garnier’s fairness creams for men.

An overview of trends in India:

The pace of new brand/product launches in skin care remained robust in 2009.

Leading players, including Hindustan Unilever Ltd, modernized their brands with the addition of new product variants to feed female consumer appetite for more sophisticated products and male consumers increasing willingness to pay for specialized products for men.

Skin care continued to attract new players, both in the mass and premium categories, and, despite concerns about economic and financial security in the first half of 2009, skin care continued to see dynamic growth in 2009.

2009 value growth was slightly higher than the CAGR of 12%. Robust growth towards was driven by increasing consumer sophistication and premiumization.

Some consumers may have traded up from basic products such as Fair & Lovely to more sophisticated variants offered by mass brands such as Ponds Flawless White, which incorporates SPF, UVAB filters and matt effect.

Premium skin care grew slightly faster at 15% in current value terms than skin care as a whole in 2009. While skin care sales continued to be dominated by mass brands in India, urban women increasingly added one or two premium brands such as Este Lauder and Artistry to their skin care regimen alongside staples such as Fair & Lovely and Ponds

Word-of-mouth publicity for direct selling brands and the growing visibility of international brands in outlets in the major cities boosted the growth of premium products in 2009.

Whitening and fairness and glowing/clear complexion remained the most prominent marketing claims in skin care in India in 2009 due to the prevailing preference of Indian consumers for fair skin.

Acne treatment brands are commonly available in cream/ointment, lotion and bar soap formats. Cream/ointment is by far the most popular format, accounting for 81% of value sales of acne treatments in 2009.

In September 2009, Clean & Clear Active Clear Acne Clearing Gel was launched by Johnson & Johnson Ltd. Acne kits are not available in India, and sales of acne treatment products are dominated by chemists outlets.

L’Oreal India Pvt Ltd increasingly stationed beauty advisors in upmarket chemists outlets to promote Vichy in Mumbai, Bangalore and Delhi. Nonetheless, due to its high price points and premium positioning, Vichy remained a highly niche brand in 2009.

The launch of Garnier Light Eye Roll On in early 2009 was a huge success as the product highlighted the commonly faced problems of puffiness of eyes and dark circles and leveraged consumers latent need for such a product.

The use of face scrubs and peel-off face masks is very common in India and the products are mainly used to improve skin complexion by removing dead skin.

Facial cleansers witnessed a higher value growth rate in 2009 compared to 2008, spurred by the emphasis among newly launched brands such as Neutrogena (Johnson & Johnson Ltd) and EverYuth Menz (Cadila Healthcare Ltd) on this category through their mass-media campaigns.

Moreover, existing brands with a loyal consumer base, such as StreetWear (Modi Revlon Pvt Ltd), Nivea for Men (Nivea India Pvt Ltd) and Lactocalamine (Piramal Healthcare Ltd), expanded their product portfolio by launching facial cleansers in 2009.

Even premium brands such as Clinique (Elca Cosmetics Pvt Ltd) saw a robust increase in the sales of their facial cleansers in 2009.

5.4 TRENDS IN ADVERTISEMENTS

LUX: Today, the brand is still heavily advertised in India using Bollywood stars. Madhubala, Hema Malini, Sridevi, Madhuri Dixit, Juhi Chawla, Rani Mukerji have all been past brand ambassadors] Aishwarya Rai, Priyanka Chopra and Katrina Kaif are the present brand ambassadors of Lux. In India Shahrukh Khan was the first male in a Lux advertisement. LUX signed up the King Khan as its ambassador for its 75th celebration year. This was quite interesting and made a clutter breaking endorsement. Why SRK? We can only speculate that he is a person who relates to emotions quite strongly, especially with ladies emotions. This could also be a way of the company wanting to create a wider space around the brand LUX to cater to a wider target group. Beauty being the central theme and emotions being the space around beauty. In this respect, currently Abhi-ash (Abhishek and Aishwarya Rai Bachchan) endorse the brand together.

We don’t see much of male models doing endorsement for soaps. Cinthol got Vinod Khanna, and it made the first mark in the consumer mind of male soap.

Lifebuoy advertised with a bunch of males and it was more oriented towards cleanliness and god health and not in the beauty space.

DOVE: Brand managers the world over are understandably jealous. Imagine having unearthing and exposing some of the neuroses women have about themselves, create a sensitive and believable marketing campaign, and then – yes – inspire change! In 2004, Unilever’s Dove dared to launch this as its new positioning.

And of course, it worked. Till date, the brand continues to excel in its role as marketer-turned-social activist, while, naturally, never losing sight of the core business. “What we’re getting a lot better at now is incorporating the Campaign for Real Beauty message along with the product-specific, product-superiority kind of message,” says Sharon MacLeod, Dove’s brand manager, on its evolution this year. Ordinary women from different walks of life feature in Dove ads rather than celebrities which enhances believability of the product.

FAIR AND LOVELY: It’s the ultimate product in India in catering to fairness needs of women. Advertisements highlight the plight of dark women who are under confident and even ridiculed in society. Then once they use FAL they are not only fair and glowing but also confident about going out into the world and getting a corporate job or becoming a super star. Such ads have a mass appeal. india is one country where women are judged and discriminated on the basis of their complexion and this brand offers a solution to facing that so called humiliation, hence it has sold like hot cakes since its launch. A similar product has been launched by other companies for fairness creams suited for men,

PONDS: The ponds “googli wooglie” ads are supposed to be charming and have been readily accepted by the customers. However, the launch of PONDS AGE MIRACLE has been quite successful. The ad reads “see the change in your husband” i.e. PONDS reverses wrinkles and spots of ageing to transform oneself into one’s “youthful” self. This brand too doesn’t use celebrities to make ads more believable and simple rather than using celebrities who often divert the attention from the brand to themselves

OLAY: Olay anti-ageing ads make extensive use of celebrities to endorse its brand. these include Sushmita Sen, Gul Panag etc to vouch for these brands. This adds credibility to the brand. This a premium brand and mostly symbolizes sophistication.

JOHNSON & JOHNSON: Baby care products are virtually a monopoly. These ads feature cherubic babies learning to walk, being cared for by their mothers etc. The products are also used by adults with sensitive skin. In order to cater to the needs of other adult segments, Neutrogena provides cleansers toners moisturizers lotions anti-ageing creams etc. The brand is endorsed by new age icons like Prachi Desai and Deepika Padukone. Clean & Clear is a major brand in treatment of acne with it’s astringent, face wash and pimple “zapping” ointment.

5.5 BARRIERS TO ENTRY

India being a price sensitive market there is low penetration by international brands

High rate of new product launches – Calls for ability to constantly update their products to changing customer needs or else the competitor can sweep the market away

High advertisement spending

Barriers specific to anti ageing sub segment: It is the working woman who is more conscious of the way she looks rather than the woman who stays at home. And in India that segment is still small, unlike the Chinese market where there is a high population of working women. To that extent, the companies find it limiting to enter this segment India. Also products are on the more expensive side. They are considered premium. For example, Olay is priced at Rs 599 for a 50 gm pump jar Producing efficacious anti-aging solutions requires a lot of science and research, which can prove expensive. This compresses the target market therefore discouraging companies from entering this sub segment and competing with already established brands commanding a high degree of brand loyalty.

BRAND PERCEPTION SURVEY

6.1 Questionnaire

If we assume every brand to be personified, what personality trait would you associate each of these brands with?

Lux

Dove

Fair and Lovely

Lakme

Ponds

Johnson & Johnson Baby care

Neutrogena

Himalaya

Boroplus

Olay

Garnier

Vaseline

Clear n Clear

For making a decision regarding the purchase of a skin care product, rank the importance of the following in the decision process

Price

Quality

Advertisements & Publicity

Innovation

Note: Fairness, Anti ageing and Winter-care have contributed to either fuelling or sustaining growth in the skin care segment. The following questions therefore pertain to one major brand from each of these sub-segments namely Fair & Lovely, Olay and Pond

Answer the following in Yes/No

FAL OLAY PONDS

Quality

The brand is of superior quality

You would refer the brand to others

Price

The brand offers competitive pricing

Its value proposition for the price is best in this class

Innovation

You view the brand as innovative

The brand offers “real-world” solutions

The brand understands the need of the market

Advertisements & Publicity

The ads for the brand are superior to competitors

The ads are suitable to the brand

6.2 RESULTS OF THE SURVEY

Popular responses to the brands were:

Lux : Competent

Dove: Sincere

Fair and Lovely: Imaginative

Lakme: Spirited

Ponds: Charming

Johnson & Johnson Baby care: Loving

Neutrogena: Fresh

Himalaya: Natural

Boroplus: Reliable

Olay: Sophisticated

Garnier: Classy

Vaseline: Gentle

Clear n Clear: Confident

On the basis of survey the following were the criteria as ranked by consumers in making a purchase decision regarding a skin care product:

Rank Criteria

Quality

Price

Innovation

Advertisements & Publicity

FAL

OLAY

PONDS

The brand is of superior quality

80%

84%

80%

You would refer the brand to others

92%

76%

68%

The brand offers competitive pricing

100%

60%

84%

Its value proposition is best in this class

96%

80%

92%

FAL

OLAY

PONDS

You view the brand as innovative

92%

96%

60%

The brand offers “real-world” solutions

80%

92%

76%

The brand understands the need of the market

100%

72%

72%

The ads for the brand are superior to competitors

56%

52%

52%

The ads are suitable to the brand

80%

92%

80%

6.3 ANALYSIS & CONCLUSIONS DRAWN

Since all responses are above 50% in favor of Yes, the percentages indirectly reflect the degree of to which people agree:

50-70: Somewhat Agree

70-90: Agree

90-100: Totally agree

We found that these brands are superior in their respective sub segments. On interviewing the women, we found that while FAL is the undisputed champion in fairness creams, OLAY is viewed as reasonably good as compared to other anti-ageing creams due to its extensive advertising and PONDS is the most viable solution for winter-care hence the popularity of Ponds Cold Cream.

FAL

It is viewed to be reasonably priced and thus is value for money. A whopping 100% feel that the brand is catering to the needs of the market. In India, it is no secret that women wish to be fair, hence FAL provides the perfect solution at the best price. Ads are believed to be superior to competitors but by a very small margin. The ads have a mass appeal and are considered suitable to the brand.

OLAY

The positive responses point to the fastest growing sub segment in skin care: Anti-Ageing creams. OLAY is premium brand (not meant to cater to the masses). The brand is viewed as very innovative and effectively provides a solution to the new-age need of agelessness among women. There are other players that dilute the impact of this brand on consumer minds but OLAY has made an impression with its celebrity endorsements. PONDS anti ageing creams offer ads which are more attractive hence the OLAY ads are not able to build an exclusive brand perception in the minds of people.

PONDS

Its value proposition is best among cold creams. It may not cater to the needs of all people as those with oily skin may choose to avoid using PONDS. The cream may cause stickiness in such cases which can lead to acne problems. However, when it comes to using a cold cream, most prefer this brand. The ads are considered endearing and suitable to the brand. The new emerging needs for fairness and anti-ageing solutions have not completely overruled the importance of ponds cold creams. Also as noted earlier, PONDS “See the difference in your husband” Anti-ageing creams are preferred in terms of ads

UNMET NEEDS IN SKINCARE

Oily skin: For skin which is more on the oilier side. A regular matt base cream or even the anti oil creams available in the market causes flakes to accumulate on the surface and oil based cream results in stickiness which may aggravate acne. An oil control version of Fair and Lovely solved the problem to some extent but it was still on the stickier side. Moreover, this product is not to be seen in the market anymore. There is a need to cater to people with this skin type as they often find themselves not using moisturizers or sunscreens at all (rather be tanned than have an acne outbreak)

Elimination acne for good: There is no effective fool proof method of preventing recurring outbursts of acne. People prone to acne succumb to outbreaks throughout their life. Even those who regularly use cleansers to maintain oil free skin as well as anti acne creams or “zap” pimples with anti-pimple acid based ointments have to face them again.

Anti-Radiation: Long-term exposure to radiation from televisions, microwaves, cell phones, computers and laptops etc. increases the risk of all forms of cancer, tumors, blood disorders, miscarriage, headaches, insomnia and anxiety. This we have heard but little do people know that it also causes aging of the skin by drying or wrinkling the skin, skin burn, etc. This form of skin damage is identical to sun damage and causes the same health problems. Computer radiation is most harmful to skin health because we sit directly in front of the computer for long periods of time with our face absorbing the radiation. This may require extensive research and development on the part of companies but a skin care product catering to protect one from these radiations can be regarded as a latent need.

Hand care : There is no product specifically catering to this sub segment. Regular manicures are not feasible to care for one’s hands. Indian women’s hands are abused in the course of washing clothes and dishes, Hands become rough and hard. Lotions, moisturizers and antiseptics exclusively for one’s hands are an unmet need.

Premium skin care range specially designed to suit men’s skin is largely unmet. The only progress in this respect is with regards the new entry of fairness creams fo

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