Corporate Strategy

BUSM1537 Case Study Paper - The Body Shop

Ford/RMIT Consortium - September 2003

Kendrick Pavey s2102848E

Vijay Jeganathan s2102867A

Andrew Czompo s9401299D

Andrew Lord s2102852J

Lecturer - Tim O'Shannassy

Abstract

The Body Shop (TBS) is an interesting and innovative international organisation. Their focus on core beliefs, press/advertising, management, supplier networks, training and treatment of staff are perhaps best practice. In this paper we will review the external environment, the financials of the business, conduct SWOT analysis and analyse its competitive stance from the Porter Five Forces Model. Our recommendations focus on retaining their core competencies and values, minimising financial risks, and opening up new opportunities in the future. These include mail order as well as the growing male market, and developing a CEO succession plan.

Introduction

The question for many businesses is whether they can operate successfully internationally and maintain integrity in a world of seemingly empty advertising claims. TBS has taken this challenge head-on. By selling only environmentally friendly recyclable or biodegradable products in minimalist packaging, they are practicing what they preach in a clearly identifiable way. Furthermore the way they develop new products by developing operations in third world countries (profits with principles) shows a commitment beyond most others who buy abroad solely for cost reasons. The article implies that they operate a best practice. Analysis will indicate whether this is the case and where any further opportunities lie.

The External Environment

The Hair-care market is fragmented - in 1988 the total size of the UK market was £139M with the top five companies sharing 44%, the others 56%. The Shampoo market was similar - 10-11 brands competed for half the market and 80-90 competed for the other half, with conditioner use growing. These products are highly advertised major brands in magazines and TV, leading to blurring of product lines to create 'new products' - e.g. conditioning shampoo.

The market is segmented by price, target market age, function (health and hygiene, beauty products). Growth is mainly in upmarket product ranges - mainly from women, with men on the rise. Supermarkets also have their own skincare ranges (30% of market) - hair-care is being seen as a 'grocery item' and is sold in family pack sizes. There is also growth in anti-ageing products - minimising affects of wind, sun and polluted air.

In 1986 the soap market peaked and was thought to be declining with bath oil/foam overtaking soap in 1987. Fruity soaps introduced by the Body Shop were imitated and pure fragrance-free brands like Simple and Pears and liquid soap were introduced. The latter had about 5% of the market then.

The Body Shop is one of the few in colour cosmetics. Yves Rocher is main competitor to TBS which has a mail order focus and 1200 Beauty Centres worldwide.

Financial Analysis

Our financial summary (refer Appendix 1) is that there is generally good growth, however there are operational issues associated with the US market that require analysis and resolution.

SWOT Analysis

Introduction

SWOT identifies the risks/opportunities of the position TBS is currently in - refer Appendix 2 for the tabular summary:

Strengths

TBS overall has made good rising profits year over year, despite market forces. Its profitability comes from its leadership, the franchise system (lower cost of expansion for the company), rapid growth for the market for "green" products and the ability for competitors to enter a fragmented market with little direct competition.

TBS's main competitive edge is its people and the way they are selected, trained and empowered to promote their products enthusiastically.

TBS does not advertise. Rather, they depend on "quality of product".

Weaknesses

The Body Shop is a small player in a fragmented market. Their products are easily imitated (although the natural ingredients make it logistically difficult) - in fact most of ideas were copied from existing products and processes elsewhere in the world.

The Managing Director in her bid to promote the company made enemies of prominent organisations that will not assist developing cooperative networks.

In its efforts to enter the mainstream colour cosmetics sector of the market, has the company compromised its ideological stance? How will its loyal consumers regard this act will only unfold in the future. In some ways the Body Shop is trapped in its philosophical ideologies. The other markets sectors are only available by modifying their philosophy. Market wise the client base may age over time and the younger generation may not feel the same affinity towards all that the Body Shop stands for. A good example of this is Laura Ashley who failed to attract younger buyers to her clothes range and hence moved into home wares.

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Staking an almost holy claim on their environmental issues is fraught with danger should they falter - allegations in 1989 regarding claims of 'Not tested on animals' proved difficult but ultimately successful to defend (HREF3) - and they did suffer share price ramifications during this time.
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A succession plan is required for Anita Roddick who is the face of the company. That successor will require similar skills and ideology mindset.

Opportunities

There are several opportunities to consider (refer Recommendations for discussion):

) The growing younger market is health conscious and therefore demands products with this attribute. TBS's strategy is sound and should be continued.

2) Further expansion into the "colour products" is another areas that need to be considered, eg nails.

3) Development of TBS owned raw material facilities both locally and internationally.

4) Analysis, development and ...

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