We have decided to conduct this analysis with taking into consideration not just the natural cosmetics market but also paying attention on the whole UK market of personal care products to get more precise look at the situation on the market. At the beginning we should point out that the strongest force which is driving the market is the bargaining power of customers and the force which has the smallest impact on the industry is the threat of substitute products.
Bargaining power of customers:
First of all we determine the cosmetics market as customer’s market because of huge supply with different products and brands. Customer can choose whatever he/she wants. Manufacturers of personal products can differentiate their products quite strongly, not only by the overall function (shampoo or toothpaste, for example) but also by properties like brand, fragrance, design, and health benefits etc. Branding is an important way of maintaining end-user loyalty, and as a result retailers are required to stock the more popular brands, which reduce their bargaining strength and buyer power. Besides customers are not ready to «search» for a particular brand and there is the tendency of «close-to-home purchases». Also wide variety of brands makes easy for customers to switch from one brand to another one. The other point of power of customers here is that theymore frequently demand pre-testing of cosmetics but this often does not lead to forthcoming purchases. Overall, buyer power is assessed as moderate.
Threat of new entrants:
A large number of brands, many of which are globally recognized, have a strong position in this market.The demand is growing, so that 3 new cosmetics brands are launched every 6 months. However potential entrants will need to compete with major companies which are large firms whose scale economies allow them to compete more effectively on price, and invest in their own business; companies entering the market may find it difficult to compete. They will need great investments in production, distribution, and also advertising, which is crucial to success in this market. But the rising popularity of environmentally-friendly skin, body, hair and oral health care products makes it possible to enter this market on a small scale. Specialty and custom-made personal care products, which are usually handmade and created using all-natural ingredients, can be sold at higher prices and any initial investment in raw materials, production equipment, can be recouped by adding a substantial margin to the price of the end-product. At the same time the new threat can appear because international cosmetics companies are also starting to launch «eco-friendly» cosmetics brand. Moreover big British farmers could start selling their own natural cosmetics.
Bargaining power of suppliers:
Because of the specific of production most of the cosmetics eco-companies have their own production of natural raw material. Their aim is to avoid dependence on the suppliers because the time in supply chain from raw materials to production should be as short as possible. If there is no possibility to evade intermediaries from the supplier side companies sign exclusive contracts.
Threat of substitute products:
The natural cosmetics can be seen as a substitute of cosmetics with artificial ingredients. But situation on the market is changing and eco-cosmetics already gain the share in the cosmetics market about 2%. Concerning substitutes for organic cosmetics it can be referred that vitamins and active admixtures are extremely popular in the Great Britain, for instance, in frame of anti-ageing programs. Also the growing popularity of cosmetic medicine can lead to decreasing demand for cosmetics in particular organic one.
Competition in the industry:
The British cosmetics market is highly competitive but the niche of eco-cosmetics is not fully occupied. The biggest threat is raising from the international cosmetics companies that are starting new natural cosmetics brands. Hence to become strong actor on the UK market company needs to have strong competitive advantages and to break the obstacles of entrance. To have an opportunity to set competitive and reasonable prices company should has no dependence on suppliers. Besides as the role of customers is becoming stronger massive advertising campaign is needed.
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