Revlon Case Analyis

Revlon: Case Study analysis

BUS 490 Comprehensive Examination: Strategic Management :: Online |

3/16/2012

Table of Contents

Introduction 3

Mission Statement 3

Vision of the Company

External Assessment

Technological trends

Demographic trends

Economic Trends

Political and legal constraints

Sociological factors 7

Global trends

Industry Analysis

Competitor analysis

External Factor Evaluation (EFE) Matrix 10

Internal Assessment

11

Company organizational structure

12

Personal policies and management

12

Operational production capacities and policies

13

Financial stability (common ratios and measures)

14

Ratio Analysis

15

Leadership and organizational behavior, corporate culture, etc

20

Marketing

21

Ethical/ legal issues

22

Management information systems and research and development

Patents, Trademarks and Proprietary Technology

The Internal Factor Evaluation (IFE) Matrix

Strategy Formulation

22

22

23

24

Strategic solutions 30

Timeline for Implementation

Consequences

32

33

References: 34

REVLON: CASE STUDY ANALYSIS INTRODUCTION

Introduction

Revlon is a global color cosmetics, hair color, beauty tools, fragrances, skincare,
anti-persiparant/deodorants, and beauty care products company.

Revlon case is a comprehensive strategic management case that includes 2006

and 2007 financial statements, competitor information, internal factors, future

outlook and more of Revlon Company. It has posted losses for eight consecutive
years and has struggled with debt since Ron Perelman purchased a majority
stake in the company in 1985. And Revlon is a company in trouble. Net sales for
2006 decreased by $1 million to $1331 billion and net losses in 2006 were $251
million following a loss of $84 million in 2005.In recent years Revlon launched a
new product for older women with 100 products, and it was the largest launch of
the company since ColorStay product in 1994. Unfortunately, this product was
not received very well by the market because other competitors were providing
products and the prices of the Revlon product was too high as comparing with
competitors.

Revlon planned to launch a new prestige fragrance called Flair in 2006, but
delayed the launch until debt could be restructured. The company issued $185
million in stock in 2006 to raise money to reduce debt. MacAndrews and Forbes
Holdings agreed to purchase a portion of the stock and to purchase any stock not
purchased by current stockholders. MacAndrews also extend a line of credit of
$87 million to Revlon which can help the Revlon in the recovery of losses.

Revlon produces and markets skin care, cosmetics, and personal care, fragrance
and professional products. Revlon produces in more than 100 countries around
the world in different countries under brand names such as Revlon, Ultima II,
ColorStay, Almay, Charlie, Flex, Mitchum, Jean Nate, and ColorSilk. Revlon
Company continues to introduce new products. Alma Intense Eye Color (package
that combines liner, mascara, and eye shadow) was successfully introduced in
2005 and Almay Smart Shade (colorless foundation that changes to correct color
when applied) and ColorStay Smooth Lip Color were introduced in 2006. (Austin,
2007)

Mission Statement

The long-term mission of Revlon Company is to emerge as the dominant

cosmetics and personal care firm in the twenty-first century by appealing to
young/trendy women (1), health-conscious women (skin care), and older women
with its variety of brands offered all around the world (2). Also, continuing
growing product line with new products (3), which are safe and effective, and
that is responsibility of very experienced chemists (4). Revlon and its employees
are active in supporting women health programs and other community efforts
(5).

1. Customers

2. Markets

3. Products or services

4. Concern for employees

5. Concern for public image

Vision of the Company

Vision of Revlon Company is to provide glamour, excitement and innovation

through quality products at affordable prices.

External Assessment

Revlon, Inc. is one of the major leaders in the global cosmetics, skin care,
fragrance, and personal care industry. Revlon is a leading mass-market cosmetics
brand as well. This company provides a variety of products to its customers who
are health and beauty conscious. Since Revlon is operating worldwide, it is it is
necessary to consider some technological, demographic, economic, political and
legal, sociological and global trends in order to get a broader understanding of
major issues that might arise for this company.

Technological trends

Technological research and development is essential for companies to gain a

higher market share and recognition among other brands in this competitive
industry. Whereas some products have the purpose to beautify, others to heal,
and other products have the specific purpose to stop aging, companies have to
spend large amounts of money into research. While cosmetics, skin care,
fragrance and personal care products consist of a variety of ingredients,
manufacturers have gained the advantage to combine all the achievements in
both pharmaceuticals and biotechnology to use new substances as the

ingredients in their production. Awareness about ingredients among the

consumers has increased. Aware consumers demand for safe products. Until the
recent year manufacturers have relied mainly on extracts from plants or
synthetic substances as the ingredients used to effectively absorb the products
to the skin. Now researchers are paying more attention to implementing
nanotechnology and to replace plant extracts by mineral extracts and other more
natural ingredients to increase the effectiveness of absorption and the other
effects, and finally to meet the needs of the customers. Increasing the
effectiveness and creating long-lasting effects is a key technological challenge
for cosmetics manufacturers. The main purpose of technological advancements
now is to make cosmetics more natural, skin-friendly, long lasting and more
effective.

Demographic trends

Demographic factor impacts heavily the industry of cosmetics and personal care
products. World population is reported to continually grow: by 0.3% in more
developed countries from 2000 to 2010, by 1.3% in less developed countries,
and by 2.7% in least developed countries. The worlds population more than
doubled between 1960 and 2010. The increase in global population between
1960 and 2010 can be largely attributed to growth in Asia, Africa and Latin
America. However, European and U.S. countries now are facing much slower
population growth. Europe and Japan is at the danger of ageing. Ageing could
reduce economic power of Japan. Without rapid growth in productivity, greater
participation rates in the labor force, or other aggressive corrective actions, labor
force contraction in many of the worlds leading economies could depress
economic output, boost inflation and curb investment. This could lead to
overcapacity and falling returns on investment in key sectors of some
industrialized economies.The United States higher fertility rate and its ability to
absorb and assimilate newcomers in ways that others culturally reject support
the notion that demographic trends will only enhance the United States ability to
maintain its position as superpower on the world stage. With continued
superpower status will remain continued pressure for leadership and increased
challenges. As the CIA reports, by 2050, nearly 1.5 billion people or 16.3 percent
of the worlds population will be aged 65 or older compared to about 420 million
or 6.9 percent in 2000.

Economic Trends

The last few years of recession have had impact on the sales of perfumes,
cosmetics and personal care items. Several new patterns have become
noticeable in this industry. First, during the recession people had lower income;

therefore they turned their heads to lower-priced production. Second, consumers

have found that buying items through dedicated Internet channels is a cheaper
way to get the desired products at a lower price. However, since the value of the
dollar is considered weak, production and export from U.S. creates a benefit
against rivals who manufacture in European countries where Euro is stronger
than dollar and the production costs more. Production in Europe is considered
expensive due to the appreciation of the Euro, exports are declining. Developing
countries, such as India and China, with low cost labor force has become the
main threat to U.S. and European manufacturers. The United States experiences
slow growth and high unemployment, without much policy action until after the
presidential election, leaving the fiscal stabilization, growth, and employment
largely unattended, and structural adjustment in the hands of the private sector
without much public sector investment or support. Emerging economies settle
down to near pre-crisis growth patterns and remain the incomplete growth
engine of the global economy. Eurozone has financial problems with several of its
members, who have become a threat to the whole Eurozone countries. In case
those financially unstable countries defaulted all the members would be facing
serious consequences and the European economy as well.

Political and legal constraints

U.S.

The United States where the headquarters and one of the manufacturing plants
of the Revlon company is located has had significantly stable government since
the end of the Civil war. In contrast many other nations have not enjoyed such
longevity of stability in governance. For example, such countries as Germany,
Italy or Russia have had internal conflicts and political instability. Due to political
stability U.S. is considered a safe place to operate for the Revlon, Inc.

Tax rates:

* Federal taxes and State taxes exist

* Progressive federal tax rates vary from 15% to 35%

* State tax rates vary from state to state and are also progressive

Mexico

Revlon has a manufacturing plant in Mexico. Mexico is Federal presidential

constitutional republic. This country has global attention as the center of drug
production and trafficking. However, Mexico is in the middle of a political
transition towards democracy, complete with fair elections, public accountability
and the rule of law. One of the main threats today is Mexicos financial stability
due to political turbulence. Foreign investors may freely establish a company in
Mexico or buy stock of already established companies (Foeth, 2007).

Tax rates:

* Income tax rate 30%

* Corporate tax rate 30%

* Sales tax/VAT 16%

Venezuela

Venezuela is causing concerns to the U.S. because of violation of human rights,

and dysfunctional government provides a welcome heaven for criminals and
terrorists.

Tax rates:

* Income tax rate 34%

* Corporate tax rate 34%

* Sales tax/VAT 12%

South Africa

S. Africa is maintaining high reputation in world rankings, with a number of

recent international reports supporting the countrys strengths as an investment
destination. Despite some skepticism which emerged after elections in 2009,
business analysts are still optimistic about S. Africa and they are naming it as
less risky and more rewarding for investment than other African countries.
According to Janes Country Risk Ratings reports, South Africa was placed in 115th
position out of 235 countries. This ranking shows that S. Africa is rated alongside
such developed economies as Ukraine or Vietnam and was ranked 2ndthe most
stable country in Sub-Saharan Africa (Janes Information Group, 2008).

According to Business Times, South Africas ratings are:

* 62 out of 100 for economic stability

* 69 of 100 for military steadfastness

* 42 of 100 for social stability (indicators of health, social cohesion and crime)

* 78 of 100 for external factors (S. Africas relationship with neighboring

countries)

* 78 of 100 for political stability

Tax rates in S. Africa:

* Income tax rate 40%

* Corporate tax rate 28%

* Sales tax/VAT 14%

China

According to Eichengreen, investors should be worried about Chinas political

stability. Risk consultancy agency called Maplecroft recently analyzed China and
the country was categorized as the extreme risk across several areas. According
to Maplecroft those areas would be civil and political rights, judicial
independence, democratic governance, labor rights and human rights violations.
Due to these factors entrepreneurs that want to establish companies in China
may suffer from reputational damage. China is a communist party-led state.

Tax rates:

* Income tax rate 45%

* Corporate tax rate 25%

* Sales tax/VAT 17%

France

Type of government in France is republic. The upcoming presidential election will

take place in April. France was scored 0.58 by the political stability and absence
of violence Index in the range from -2.5 to 2.5, the higher index score the better
governance the country has (Kaufmann, Kraay, and Mastruzzi, 2009). This index
is the measure of perceptions of the likelihoods that government will be
stabilized or overthrown by possibly unconstitutional or aggressive means. Low
scores indicate distrust of the citizens towards continuity of the government
policy (Kaufmann, et al., 2009).

Tax rates:

* Income tax rate 40%

* Corporate tax rate 33.33%

* Sales tax/VAT 19.60%

Sociological factors

Celebrities have an enormous contribution in advertising and making beauty and

health products popular among casual people. The new trend is that males are
now more concerned about their appearance, so no longer only females are to be
targeted as possible consumers. Market expansion for male products is the
opportunity to increase sales for personal care, fragrance and cosmetics
manufacturers. One more target of interest for beauty products manufacturers is
the U.S. teenage market since females in this age group has exceeded almost 20
million by 2010. The Hispanic American segment is the fastest growing and is
projected to be the largest minority sector in the U.S. Non-Hispanic whites
population has been expected to decline to 68% by 2010. More and more
consumers are concerned about products safety and animal-testing. Since the
competition in the labor sector is drastically increasing, due to the globalization
and the workforce migration within and outside countries and the overall
population growth in the world, people are very concerned about their
appearance, increased consumption of beauty and health products is the result.
However, older people are spending less on cosmetics due to rapid decrease in
disposable income which is caused by higher prices of scarce resources.

Global trends

Asian, Asian-Pacific and South Latin countries are becoming an increasing market
for consumption of beauty products. A new trend is that cosmetics consumers
now prefer natural-look beauty products that make them look natural, like
wearing no make-up. Male consumers are now more concerned about their
appearance, no longer only females are the consumers of these personal care
and cosmetic items. Consumers are also concerned about ethical production
conditions and animal testing. The increased awarenessamong consumers about
ingredients has created the trend that buyers of cosmetics and beauty
production now require manufacturers to use safe substances.

Industry Analysis

Supplier power

The bargaining power of suppliers is favorable. There are many, so they do not
have lots of power, therefore players in the industry can keep switching them at
almost no cost. This makes the industry highly attractive. In addition, huge
manufacturers are able to produce ingredients used for cosmetics, personal care
items and perfumes on their own.

Buyer power

Power of buyers is unfavorable in this industry.Buyers in the cosmetics, fragrance

and personal care products industry are not fairly loyal to a particular company
and they have the ability to switch to other brands at very low or no cost.
Moreover, consumers often do not stick to one particular brand. This means that
buyer power is high. The majority of buyers own a variety of different brands of
makeup, perfume or personal care products. This also allows customers to shop
for favorable prices and products.

Threat of new entrants

Threat of new entrants is unfavorable for this industry. This industry is considered
not to have high barriers of entry, it is not seen difficult for a new firm to step
into the industry. It makes the threat of new entrants high. New small and large
makeup and fragrance companies are entering this industry constantly. Since
makeup and fragrances are usually produced in large volumes, due to economies
of scale effect, there is low relative production cost per unit. Also, it is pretty
tough for new companies to compete with older companies whose brands are
already recognized by consumers.However, decreased competition is causedby
much relative capital needed to become a player in the industry, as capital is
needed to acquire plant, equipment and supplies for production, and it makes it
more difficult for new firms to enter.

Threat of substitutes

The level of threat of substitutes for cosmetics, personal care, and fragrances is
low. These are the products that have very low number of substitutes offered by
other industries. One and main of the substitutes would be cosmetic surgery,
more specifically injections of substances to the body. However, surgery is very
expensive and still considered risky, therefore this substitute is not yet very
popular. Another factor that some consumers may find attractive or unattractive,
depending on the preferences, is that surgery creates permanent results on
ones body and appearance. As there are no other alternatives for cosmetics,
fragrance and personal care products, demand elasticity is constrained.

Degree of rivalry

The degree of rivalry in this industry is high due to large number of firms
competing for the same resources and customers. Slow industry growth also
intensifies rivalry as companies fight for market share. In addition high fixed
costs resulting in the economy of scale effect increase the degree of rivalry.
Rivalry is decreased by the nature of products as they are not highly-perishable
and can be stored for a longer time before being sold. Costs for customers to
switch from one product to another are low, therefore rivalry is intensified. Brand
identification, which is attributable in this industry, reduces rivalry.

Competitor analysis

Procter and Gamble

Procter & Gamble is a multinational company offering which is offering wide

range of products in many categories, such as: personal care, cosmetics,
fragrances, hair care and skin care. P&G Company is differentiated. P&G offers
products outside cosmetics/skin care industry include diapers, baking mixes,
bleach, dish care products, juice, laundry products and etc. The company
operates in more than 70 countries worldwide (Austin, 2007).

P&G offers hair care products through its well-known brands which are Pantene,
Head & Shoulders and Herbal Essences. P&G has acquired Gillette for $57 billion
in 2005. Beauty care products have contributed to P&G sales with &21.1 billion
and $3.2 billion in profit. P&G offers a line of products called Cover Girl Advanced
Radiance for baby boomers generation (Austin, 2007).

LOreal

LOreal is the world largest firm in the cosmetics industry. LOreal has acquired
Maybelline which was one of the leading competitors in cosmetics industry. In
1996 it was bought for $758 million. This was the attempt to increase its market
share in the U.S. this attempt was successful; since LOreal became 2nd largest
cosmetics firm (Austin, 2007).

Unilever

Unilever is the Anglo-Dutch firm which was known for manufacturing

soap/detergent and food products. Recently the company started to manufacture
personal care and cosmetics products, which contributes to the company with
26% of their business sales. Some of the most known Unilever product brands
are: Dove, Ponds, Vaseline and Sunsilk. In 2005 Unilever sold its fragrance brand
called Calvin Klein to Coty for $800 million. The firm is for using noncelebrities
models to promote their products and launching controversial marketing
campaigns. Skin care products of Unilever Company are leading in North
America, Africa and Latin America regions (Austin, 2007).

Avon Products, Inc.

Avon is the leading firm in direct selling of cosmetics and beauty care products.
Companies direct sales reaches 5 million people in 114 countries. Most known
Avon brands are: Avon color, Avon Skin Care Solutions, Anew and Mark. Besides
beauty care products and fragrances Avon sells vitamins and nutritional
supplements, as well as jewelry, gift items and lingerie. 98% of sales are
contributed by the sales representatives, to maintain a smaller percentage Avon
have lunched its website. Avon has made a few cost-cutting decisions in 2006.
The decisions involved the simplification of brands and Avon has reduced the of
management levels (Austin, 2007).

Estee Louder

The Estee Louder Companies, Inc. manufactures and markets cosmetics,

fragrances, skin care products and hair care products for sale in 103 countries
and territories. Some of best known brands of Estee Louder are Estee Louder and
Clinique. Estee Louder holds license to sell products by the name of Tommy

Hilfiger and Donna Karan. In 2006 net sales have reached $6,464 million (Austin
2007).

External Factor Evaluation (EFE) Matrix

Key External Factors

Opportunities

| Weight

| Rating

| Weighted Score

||||

1. Implementation of the relatively new nanotechnology

| 0.1

|3

| 0.3

2. Constant growth of world population (by 2050, nearly 1.5 billion people or 16.3
percent of the worlds population will be aged 65 or older) | 0.01 | 2
| 0.2 |

3. Devaluation of dollar against Euro

| 0.04 | 4

| 0.16 |

4. Increasing sales over the Internet

| 0.08 | 2

| 0.16 |

5. Emerging new markets (Asian, South Latin, Asian-Pacific countries)

| 0.8 |

6. Stability of political governance in countries of operation

0.10 |

8. Increasing number of male consumers

||||

| 0.08 | 2

| 0.2

| 0.05 | 2

| 0.16 |

|4

Threats

||||

1. Continual ageing of world population | 0.08

|2

| 0.16 |

2. Increased awareness and demands of safety from customers | 0.06 | 2

0.12 |

3. Financial problems in the Eurozone | 0.07 | 1

| 0.07 |

4. Decrease of free disposable income of older consumers | 0.07 | 2

5. Future regulations of industry production

| 0.05 | 3

| 0.14 |

| 0.15 |

6. Acquisitions of competing companies like LOreal and Maybeline that have

larger share in the market
| 0.06 | 3
| 0.18 |

7. Competitor companies like Proctor & Gamble that are differentiated | 0.05 | 3
| 0.15 |

|||

Total: | 1.00 | | 3.39

Internal Assessment

Company organizational structure

Organizational Chart Revlon, 2007

The company is characterized by a large degree of formalization where each

function relies on standardized ways of operating. The decision-making power is
often centralized at the top of the hierarchy.The simple scheme of hierarchy can
be like this Plant Manager>>Manager Engineering > Manager Accounting >
Manager Information Systems > Manager Human Resources> Managers
Purchasing. The company has a clearly functional organizational structure. The
size of the company with its low rates of change and dynamism promoted the
establishment of this type of structure.(Rao, 2010)

Personal policies and management

Planning

Employees in the company are differentiated and perform narrow span or

specialized tasks. Those tasks are organized around the functions of operations,
finance, human resources, and product research and development. Putting like
specialties together results in economies of scale, minimizes duplication of
personnel and equipment and makes employees comfortable and satisfied
because it gives them the opportunity to talk the same language as their peers.
However, this efficiency might have a potential problem which is based on the
communication gaps and complexes with management. (Functional Organization
Structure, 2012)

Motivation

The company created new incentive rewards programs, including restricted stock
grants fora broad group of key contributors who will be important in executing
our strategies andin contributing to the achievement of our goal of achieving
long-term, profitable growth. The high standards and tough policies in the
company are being rewarded highly and generously as well. One of the
prominent acts towards employee appreciation was undertaken by creating and
launching a Revlon learning center where employees are offered a better
training. Besides, since 2004 there was an even more exciting encouragement
policy introduced which was Charlie Awards. (Revlon Annual Report 2007)

Staffing

By December 31, 2007, the Company employed approximately 5,600 people. As

ofDecember 31, 2007, approximately 20 of such employees in the U.S. were
covered by collective bargainingagreements. The Company believes that its
employee relations are satisfactory. Although the Companyhas experienced
minor work stoppages of limited duration in the past in the ordinary course of
business,such work stoppages have not had a material effect on the Companys
results of operations or financialcondition.(Revlon Annual Report 2007)

Controlling

The scientists at the Edison facility are responsible for all of the Companys new
productresearch worldwide, performing research for new products, ideas,
concepts and packaging. The researchand development group at the Edison
facility also performs extensive safety and quality testing on theCompanys
products, including toxicology, microbiology and package testing. Additionally,
quality controltesting is performed at each of the Companys manufacturing
facilities.( Revlon Annual Report, 2007)

Personnel policies and management

Policies reflect a companys value system. The tone and language of policy
statements will be taken as reflections of management attitudes toward
employees. Revlon has a strong team of experienced managers. With the coming
of the new CEO the company sticks to very high standards. For example, one of
the policy requires a 99% inventory and order accuracy in accounting
procedures. Some of the plants where cosmetics are being elaborated are issued
ISO 9000 certificate which signifies a very high manufacturing level. ( Revlon
Annual Report, 2007)

Operational production capacities and policies

Capacity

Management considers theCompanys facilities to be well-maintained and

satisfactory for the Companys operations, and believesthat the Companys
facilities and third party contractual supplier arrangements provide sufficient
capacityfor its current and expected production requirements.( Revlon Annual
Report, 2007)

Process/Facilities

The Company continually reviews its manufacturing needs against its

manufacturing capacities toidentify opportunities to reduce costs and operate
more efficiently. The Company purchases raw materialsand components
throughout the world, and continuously pursues reductions in cost of goods
through theglobal sourcing of raw materials and components from qualified
vendors, utilizing its purchasing capacitydesigned to maximize cost savings. The
Companys global sourcing strategy for materials and componentsfrom
accredited vendors is also designed to ensure the quality of the raw materials
and components andassists in protecting the Company against shortages of, or
difficulties in obtaining, such materials. TheCompany believes that alternate
sources of raw materials and components exist and does not anticipateany
significant shortages of, or difficulty in obtaining, such materials.( Revlon Annual
Report, 2007)

Financial stability (common ratios and measures)

Financial Overview

Revenue

NASDAQ, 2007

Revlon Avon Estee Lauder

$1.4B 9.94

7.04

Income

NASDAQ, 2007

Revlon Avon Estee Lauder

-16.1M$

530.7M$

449.2M$

Analysis: The negative income is a very serious index revealing a substantial

problem in the company.

Ratio Analysis

Liquidity ratio

Current ratio = Current Assets/ Current Liabilities

NASDAQ, 2007

2007 Avon Estee Lauder

1.35

1.42

1.86

Analysis: Current ratio is above 1 that means for every 1$ of current liabilities
there is a 1.35$ current assets. The short term obligations are being managed
well. This index might be fine for the creditor but unlikely to be satisfactory for
the investor.

Quick Ratio= Current Assets - Inventory/ Current liabilities

NASDAQ, 2007

2007 Avon Estee Lauder

0.87

1.02

1.41

Analysis: Quick ratio shows to which extent the company can deal with its short
term obligations without relying on the sales of its inventory. Since the ratio is
lover than 1 it implies that the company heavily relies on its own inventory to
meet the short term obligations. Being slightly below zero means that there is
some small problems in the company though these hardships are not disastrous.

Leverage Ratios

Debt to Equity ratio

NASDAQ, 2007

2007 Avon Estee Lauder

-1.82 3.93

1.4

Analysis: The negative index points to conclusion that the share of owners
equity comparing with the creditors in lending money is bigger. Equity is of prime
dependency for the company.

Profitability ratios

Gross profit margin= Sales Cost of Goods Sold/Sales

NASDAQ, 2007

2007 Avon Estee Lauder

69.61%

63.31 75.87

Analysis: This margin can cover the companys 69.61 % of operating expense
and still generate a profit. Not a bad indicator in comparison to the competitors.

Operating Profit Margin = Earnings Before Income Tax/ Sales

NASDAQ, 2007

2007 Avon Estee Lauder

8.54%0.53

22.41

Analysis: The residual 11.5 % profit prior to paying off tax and interest. Not bad
in comparison with some competitors while in contrast to others the index is
small.

Return on Assets= Net Income/ Average Assets

NASDAQ, 2007

2007 Avon Estee Lauder

13.2%11.75%

11.55%

Analysis: For each dollar of assets the firm generates a profit of 0.13$. It is not a
very high indicator because the profit might not be big after paying off taxes and
interest.

Return on Equity= Net Income/ Total Stockholders Equity

NASDAQ, 2007

2007 Avon Estee Lauder

1.39%70.67%

31.84%

Analysis: For every stockholders equity the profit per dollar is 0.0139$. This is a
seriously low indicator which significantly warns the potential investors.

Price to Earnings Ratio= Price/ Earnings per Share

NASDAQ, 2007

2007 Avon Estee Lauder

-39.6130.25 19.5

Analysis: This indicator measures the attractiveness of the company in the equity
market and shows how much investor is willing to pay to owe one share of the
company. -39.61 is a very low figure which shows that investors are not
expecting to receive much in returns from the company.

Leadership and organizational behavior, corporate culture, etc

Corporate or organizational culture often times is based on stories and legends

which are communicating the values and norm of the company. People are
sharing these stories as a result they create unspoken corporate atmosphere.
Inside people are aware of answer for such questions How does the boss react
to mistakes? What eventsare so important that people get fired? Who, if anyone,
can break the rules? A founder and CEO of Revlon Charles Revson and he was
prominent for demanding every worker to be in time whereas himself was
arriving for work after noon. Other cases with his involvement are notorious as
well.

The contemporary corporate culture is based on behaviors of accountability,

collaboration, communication, execution, value of integrity, respect and trust
(Revlon, 2012).

The Code of business Conduct states:

* Everything each of us does in our business must reflect the highest ethical
standards as well as our commitment to integrity.

* It is essential for our success that we protect and preserve Revlon's assets to
enable us to grow our business and its value for our stakeholders.

* We must always collect and report accurate information about our results so
that we base our business strategies and decisions on accurate data and
properly fulfill our public reporting obligations; and

* Finally, Revlon is fully committed to fully complying with all applicable laws
and each of us must reflect this commitment in our day-to-day behavior.

Marketing

Promotion

The company reinforces clear, consistent brand positioning through

effective,innovative advertising and promotion. It also uses cooperative
advertising programs, supported by Company-paid or Company subsidized
demonstrators, and coordinated in-store promotions and displays. The Company
also has various arrangements with customers pursuant to its trade termsto
reimburse them for a portion of their advertising or promotional costs, which
provide advertising andpromotional benefits to the Company. (Revlon Annual
Report 2007)

Celebrities advertising

The company is intended to continue a strategy of supporting newproducts with

advertising and promotions at spending levels that are intended to be
competitive, using talented, well known, celebrity brand ambassadors.( Revlon
Annual Report, 2007)

Price

The Company markets extensive consumer product lines principally priced in the
upper range of themass retail channel and certain other channels outside of the
U.S.( Revlon Annual Report, 2007)

Distribution

The Companys products are sold in more than 100 countries across six
continents. The companysworldwide sales forces had approximately 340 people
as of December 31, 2007. In addition, the Companyutilizes sales representatives
and independent distributors to serve certain markets and related
distributionchannels. Net sales in the U.S. accounted for approximately 57% of
the Companys 2007 netsales, a majority of which were made in the mass retail
channel. Net sales outside the U.S. accounted for approximately 43% of the
Companys 2007net sales. The five largest countries in terms of these sales were
South Africa, Australia, Canada, U.K andBrazil, which together accounted for
approximately 23% of the Companys 2007 net sales.( Revlon Annual Report,
2007)

Customers

The Companys principal customers include large mass volume retailers and
chain drug stores,including such well-known retailers as Wal-Mart, Target, Kmart,
Walgreens, Rite Aid, CVS and Longs inthe U.S., Shoppers DrugMart in Canada,
A.S.Watson & Co. retail chains in Asia Pacific and Europe, andBoots in the United
Kingdom.( Revlon Annual Report, 2007)

Ethical/ legal issues

The Company is subject to regulation by the Federal Trade Commission (the

FTC) and the Foodand Drug Administration (the FDA) in the U.S., as well as
various other federal, state, local and foreignregulatory authorities, including the
European Commission in the European Union (EU). TheCompanys Oxford,
North Carolina manufacturing facility is registered with the FDA as a
drugmanufacturing establishment, permitting the manufacture of cosmetics that
contain over-the-counter drugingredients, such as sunscreens and antiperspirants. Compliance with federal, state, local and foreign lawsand regulations
pertaining to discharge of materials into the environment, or otherwise relating
to theprotection of the environment, has not had, and is not anticipated to have,
a material effect on theCompanys capital expenditures, earnings or competitive
position. State and local regulations in the U.S.and regulations in the EU that are
designed to protect consumers or the environment have an increasinginfluence
on the Companys product claims, ingredients and packaging.(Revlon Annual
Report, 2007)

Management information systems and research and development

The Company believes that it is an industry leader in the development of

innovative andtechnologically-advanced cosmetics and beauty products. The
Company has across-functional product development process, including a
rigorous process for the continuous developmentand evaluation of new product
concepts. As of December 31, 2007, the Company employed approximately 160
people in its research and development activities, including specialists in
pharmacology, toxicology, chemistry, microbiology,engineering, biology,
dermatology and quality control. In 2007, 2006 and 2005, the Company
spent$24.4 million, $24.4 million and $26.1 million, respectively, on research and
development Activities. (Revlon Annual Report, 2007)

Patents, Trademarks and Proprietary Technology

The Companys major trademarks are registered in the U.S. and in well over 100
other countries, andthe Company considers trademark protection to be very
important to its business. Significant trademarksinclude Revlon, ColorStay,
Revlon Age Defying makeup with Botafirm, Super Lustrous, Almay, SmartShade,
Mitchum, Charlie, Jean Nat, Revlon Colorsilk, Eterna 27 and, outside the U.S.,
Bozzano, Cutex,Gatineau and Ultima II. The Company regularly renews its
trademark registrations in the ordinary courseof business.(Revlon Annual Report,
2007).

The Internal Factor Evaluation (IFE) Matrix

Key Internal Factors

Weight

RatingWeighted Score |

Strengths

1.Expenditure of 24.4 million $ on R&D 0.06 3

0.18

2.ISO- 900 certification 0.04

0.16

0.04

0.12

0.05

0.15

3.Attempt to introduce new products

4.CSR program 25$ million expenditure

5.Brand recognition

0.06

0.12

6.Social Responsibility programs 0.05

0.15

0.09

0.36

0.03

0.12

0.2

0.04

0.12

7.120$ worth aggressive advertising

8. New product development continuation

9.High operating efficiency

0.05

10.Production for all type of women

Weaknesses |

1.1 million $ sales decrease 0.04

0.04

2.Mac Andrew 87 million debt extension

0.03

0.06

0.09

0.09

0.05

0.14

0.08

0.03

3.Financial resources deficit

0.06

4. Prices higher than competitors

5.Less diversified products then 0.05

competitors have

6. 2.3 billion as a long term debt0.07

7.High net losses from discontinuation 0.04

of Vital radiance production

8. Often organizational restructuring

0.04

0.12

0.02

0.04

10. The negative impact of customer

non responsiveness to Vital radiance

0.05

0.1

production, the loss of 110$ million

9.High advertising expenses

Dampak negatif dari pelanggan non tanggap terhadap produksi cahaya Vital,
hilangnya 110 juta $
|

Total 1

2.43

Strategy Formulation

SWOT Matrix

Strengths | Weaknesses

1. Loyal customer base

| 1. Large debt

2. Health awareness programs

| 2. Short product life cycle

3. Well known brand name

| 3. Lack of innovative, new products

4. Product sold all around the world

| 4. Constant employee cuts

5. Strong manufacturing/distribution centers | 5. Weak management

6. Well-known advertising representatives

7. Strong research and development

8. High quality products

Opportunities

| 7. Narrow target market |

| 8. Lack of diversification in products |

| Threats

1. Possible acquisitions

| 1. Very strong competition

2. Issuance of more stock | 2. Unstable financially |

3. Different approach to sales

| 6. Decreasing market share

| 9. Very slow growth |

| 10. Capital allocation

| 3. Lower cost products

4. Developing countries markets

generation |

| 4. Highly dependent on baby-boomer

5. Younger generation customers

| 5. Economic slowdown

6. Products for male market

| 6. Counterfeiting |

SPACE Matrix

FP

Conservative

Aggressive

+2

+6

CP

IP

Defensive

-2

Competitive

-2

SP

Revlons financial position is very poor, with increasing debt, which in 2006 was
$3,329 million. It also means increasing interest expenses over the coming
years. Financial position was also weakened by restructuring costs and
unsuccessful product launches. It leaves Revlon with +2 rating.

The company is very stable in competitive cosmetics industry, since it has strong
customer base and has been a recognizable brand for many years. On the other
hand, there is strong competition, more products are cheaper. It means 2 rating.

Competitive position is threatened by market share mainly, because it has been

steadily decreasing, but in 2010, it was still 20% in the US (NASDAQ). Product
qualities, R&D, suppliers (mainly Wal-Mart and K-Mart) are also strong, which
means Revlon has -2 rating.

Industry position is strong; exploring Asian, African markets is bringing more

value to Revlon. It means +6 rating.

Conclusion is, that Revlon is a financially troubled, although strong competitively

company, in a large, competitive and growing industry of cosmetics.

BCG Matrix

Relative Market Share Position

High Medium

| 3%

||

High 10%

4.8%

Medium

0%

Low

0.10

0.05

0.03

0.00

Low

-10%

Global makeup market has been growing at the average rate of 4.8% since 2001.
Revlons global market share has decreased to 3% in 2006 (Datamonitor). This
puts Revlon at the position of question marks in the BCG Matrix. Company that
is one of the oldest in the industry being in this position can be explained that it
is just going through normal cycle and the next stage will probably be that of
star. The disadvantage of this matrix is, that it does not show Revlons
advantages over other companies in the industry, also other large cosmetics
companies would also be in the similar position in the BCG Matrix.

Internal-External (IE) Matrix

| Strong3.0 to 4.0

| Average2.0 to 2.99

High3.0 to 4.0

||||

| Weak1.0 to 1.99 |

Medium2.0 to 2.99 | | | |

Low1.0 to 1.99

||||

The IFE Matrix provides result of 2.43 of strengths and weaknesses. EFE Matrix
provides result of 3.39. It means that IE Matrix provides a solution of grow and
build, which is exactly what strategic plan suggests that company should do.

Grand Strategy Matrix

Rapid Market Growth

Weak Strong

Competitive Position

Competitive Position

Slow Market Growth

In the Grand Strategy Matrix, Revlon is in the Quadrant II, because considering
all the previous information about the company, it is in a relatively weaker
competitive position than other cosmetics companies. The whole market is
growing every year rapidly, with huge possibilities to strengthen market share
overseas. Revlon is already taking means to become more aggressive and
competitive by improving R&D. On the other hand, it is not nearly enough, so
Revlon must consider stronger market penetration and diversification. The
strength of Grand Strategy Matrix is that it sums up what has already been seen
as a problem weak Revlons competitive position. On the other hand, it does
not show what other strengths of the company are.

Overall, every matrix showed that Revlons main problem is staying competitive
among other large cosmetics companies. The problem is that Revlon is not
diversified and their main target market is women, who are baby-boomer
generation, which means that the company is not taking steps to further
increase their market share by targeting women of other age groups and even
possibly men.

Quantitative Strategic Planning Matrix (QSPM)

Strategic Alternatives:

Outsourcing to Asia and Diversifying in products

Africa, while also targeting ethnic

expanding to their minorities, males and

markets. women of more diverse

age groups

KEY EXTERNAL FACTORSOPPORTUNITIES 1. Possible acquisitions |

2. Issuance of more stock |

3. Different approach to sales

4. Developing countries markets

5. Younger generation customers

6. Products for male market

THREATS 1. Very strong competition

2. Unstable financially |

3. Lower cost products

4. Highly dependent on baby-boomer generation

5. Economic slowdown

6. Counterfeiting

TOTALKEY INTERNAL FACTORSSTRENGHTS 1. Loyal customer base

2. Health awareness programs

3. Well known brand name

4. Product sold all around the world

5. Strong manufacturing/distribution centers |

6. Well-known advertising representatives

7. Strong research and development

8. High quality products

WEAKNESSES 1. Large debt

2. Short product life cycle |

3. Lack of innovative, new products

4. Constant employee cuts

5. Weak management

6. Decreasing market share

7. Narrow target market

8. Lack of diversification in products

9. Very slow growth |

10. Capital allocation

TOTAL|
WEIGHT0.10.080.050.120.110.10.120.080.060.050.090.041.000.10.020.120.060.
050.080.040.10.030.030.050.020.050.040.060.070.050.031.00 |
AS13412224231212
|
TAS0.10.360.440.10.240.20.040.480.120.30.30.10.050.142.97 |
AS21143141313424
|
TAS0.20.120.110.40.360.10.080.120.180.10.90.20.10.283.25
|

Strategic solutions

After the development of SWOT, SPACE, BCG, IE, Grand Strategy and QSPM
matrixes best strategic alternatives would be to adopt competitive strategy.
Competitive strategy would be to try adopting forward and horizontal integration
as well as market development and product development and unrelated
diversification strategy models. These strategies will help the Revlon Inc. to turn
its weaknesses into strengths and threats into opportunities.

To maintain reasonable and efficient implementations and strategies in general

the following criterias has to be met. Strategies should not create inconsistent
goals and policies within organization. Strategy should be representing adaptive
response to the external environment and to the critical changes occurring within
it. The final broad test of strategies is its feasibilities. Strategies must neither
overtax available resources nor create unsolvable problems. The last not the
least metric to follow is the advantage. Strategies must provide for creation and
maintenance of competitive advantage in a selected area or activity (David,
2011). To evaluate strategic solutions evaluation metrics has to be followed.

Adopting forward integration will result in gaining ownership or increased control

over distributors or retailers. Since Revlon is not using direct sales assistants to
obtain net sales, the ownership of distributors or retailers will help the company
to shrink distribution channel. In this case the profit margin will be higher.
Horizontal integration will result in increase in ownership and control of firms
competitors. The acquisition of well known brand will eliminate the weakness of

narrow target market since new brands will offer new products for new
customers. Market development strategy is the key to higher profits. According
to Davis hugest percentage of Revlon products are consumed by the Baby
Boomer generation. Without researching new products the same product lines
might be introduced in the countries where birth rates are declining and there
are more elder people. Attractive markets would be Japan, Hong Kong and etc.
This strategy will eliminate the threat of big dependability on Baby Boomer
generation.

According to SWOT matrix weaknesses of Revlon Corporation are lack of lack of

diversification in products, narrow target market and lack of innovative/new
products. Product development strategy is strongly recommended for Revlon
Corporation. Present product improvement or development of new products
services or are inevitable in the competitive cosmetics industry since
competitors such as P&G, Avon, LOreal are offering more products for bigger
variety of target markets. Besides strong competition the narrow target market is
the reason of market share decrease for Revlon 3 percent yearly even when
global trend for cosmetics industry is measured 4 percent yearly in sales. Revlon
should strongly consider unrelated diversification strategy. Since the competition
is very intense in this industry and the target market of Revlon is very narrow.
Adding new unrelated products would change the consumer view on the
company. The company would be seen as more innovative which will attract
teenage consumers. According to David teenage market will reach 20 million by
2010.

Due to economic, political and demographic trends Revlon should be seeking and
establishing business in Asia-Pacific, Africa and Latin America regions. These
regions are adapting vast technological advances and integration of new
technologies which gives benefits for people living in these regions and increases
the productivity of countries which are in these regions. Due to fast growth of
developing countries more disposable income are generated by households
which provides sufficient funds to buy cosmetics, skin and body care products.

In the case study of Revlon David was describing the growth of world-wide
market and even market growth in U.S. Since the inflow of human capital is
increasing year by year. While the competitive position of Revlon is weak since
the competitors like Proctor & Gamble, Unilever, Avon Products, Inc has stronger
positions due to well known brand names and diversified products, which are
adapted to diverse population of U.S. Therefore white non-Hispanic population of
citizens in U.S. will decrease till 68% by 2010 (David, 2007). This means that
almost every third citizen in U.S. will belong to ethnical minorities. According to
Grand Strategy Matrix Revlon Company lies in 2ndquadrant, this means that the
company needs to adapt strategies like market development, product

development, and horizontal integration. Grand Strategy Matrix proves that the
strategy alternatives suggested for Revlon are the ones that have to be
implemented in order to turn weaknesses into strengths and threats into
opportunities. The best alternative for the Revlon would be a mixture of market
development, product development, and horizontal integration strategies.

The actions items required to achieve implementation would first of all have to
start with raising capital and decreasing Revlons debt. If the company wants to
implement forward integration by acquiring other companies products, it has to
have resources to do that. Revlons sales have not been competitive enough, so
implementing a strategy of direct sales would possibly increase their profits, as
well as decrease debt. More emphasis on other customer groups can be achieved
by direct marketing of products, which is cheaper than advertising campaigns
Revlon currently has to pursue their customers. All of that means that the
company would have to employ more people to achieve their long term goals,
which still would be less expensive than going further into debt.

To achieve more diversification, Revlon has to produce new products and

introduce them to the mass market, not a specific group of consumers. That can
be done by creating supplementary products, substitutes. Also, in the past it
proved to be costly to create strong brand products that were introduced to the
market, so Revlon should focus more on cheaper, generic goods for mass
market.

Gaining a competitive market share in other regions such as Asia and Africa can
be achieved by building new production plants in those countries. It would be
very expensive, but it is a strategy that has proved to be successful for Revlon in
the past. Developing relationships and signing contracts with Asian stores would
be the main step needed to achieve results. Also finding suppliers and creating a
logistics system in those markets would decrease costs by a lot. Outsourcing
would also decrease costs.

Targeting changing US population of Hispanics would also need changing of

Revlons strategy in marketing and new products. New advertising campaigns
would have to include more diverse faces, which would show that Revlon is
targeting bigger market. Right now, companys adverts are including white
females, which leave males and minorities out of the context. Another step to
gain share in fast growing market of ethnic minorities would be introduction of
cheaper products. This market segment does not have a lot of disposable
income, so prices of the products would have to be competitive, on the other
hand quality might suffer, but that can be improved later, when a loyal customer
base is achieved.

Timeline for Implementation

2012

* Creation of new distribution channels in Asia, Africa

* Research of possible marketing segments with the US

* Research and development of new, cheaper generic Revlon products

* Start of employing new direct sales workforce in the US

2013

* Implementation of strategies of direct sales and marketing

* Start of new marketing campaign targeting ethnic minorities in the US

* Introduction of new, cheaper generic Revlon products

* Expanding direct sales into foreign markets mostly Europe

* 2014

Opening of new distribution centres in Asia and Africa

* Expansion of direct sales into Asia and Africa

* Restructuring employment of more workforce in marketing and sales

* Start of advertising campaign in Asia and Africa

* 2015

Possible acquisitions of other brands and products

* Establishment of Revlon as a diversified company targeting more market

segments

2018

* Decrease in debt

* Repurchase of shares of stock

The measurements whether implementation is complete would be those of

percentage of market share, sales, and finally debt. Steady increase of at least
3% of market share in the US each year and at least 7% increase in market share
in Asia and Africa each would mean that the implementation of new strategies is
successful. By the year 2018, there is goal to have at least 50% of the Asian and
African supermarket chains as partners where Revlons products would be sold.

Consequences

Strategies should not create inconsistent goals and policies within the
organization, also it should not create unsolvable problems. Any strategies what
are offered can help Revlon company to improve in positive way and to increase
its sales. What consequences would be if applying any of those strategies is not
hard to predict.

Firstly, to gain ownership and increase control on distributors is the way what is
going to happen if adopting forward integration. Higher profits would be
achieved if using Market development strategy. The strategy of adding new
unrelated products to the product line would lead to change of consumers view.
This would give really positive consequences because teenage marked for the
company would expand. Also, it is necessary to make protections for future.
Revlon is dependent on Baby boomer generation, so creating markets in Japan,
Hong Kong and etc. would help to reduce dependency on it. That is because in
those regions live more elder people and attracting them would let to involve
more people to the market.

As it was mentioned earlier, the best alternative for the Revlon Company would
be a mixture of market development, product development, and horizontal
integration strategies. Using those strategies company could solve its problems
and improve.

On the other hand not everything can look so positive. What would change if
Revlon Company would choose the strategy of not changing anything, it is hard
to know. Main thing is that changing nothing and not applying any of those
strategies lead company to troubles. The consequences of not applying any
strategy would really hurt the company. Knowing the fact that Revlon are
struggling in some cases it is necessary to improve the situation. And as it was
said the best thing is to choose the best strategy to avoid biggest possible
problems and bankruptcy.

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