Roddick herself estimates that she generated around 2 million pound a year of free publicity (Body Shop international case Mintzberg, Quinn, Ghoshol : 99, 453)
The press liked Anita and being forward with her opinions made her very quotable, in a sense they worked off each other.
For the consumer this lack of conventional marketing really went against the usual ways of the beauty and cosmetics industry. Over 85 percent of its costs are packaging and advertising, The Body Shop simply ignores this. Charles Revlon founder of Revlon said “In the store we sell hope, We are a dream machine” (Body Shop international case Mintzberg, Quinn, Ghoshol : 99, 453)
The Body Shop simply say “There are no magic potions, no miracle cures, no rejuvenating creams, skin care products can do nothing more than cleanse, polish and protects that’s it end of story!” (Body Shop international case Mintzberg, Quinn, Ghoshol : 99, 448)
This educates its consumers to know what to expect when purchasing Body Shop produce. No false hopes just the notion to simply to inform, usually via products labels, media.
However as the early nineties arrived this strategy came under threat. Questions arose regarding the authenticity of The Body Shop claims of using natural products. Body Shop stepped down from this stance and acknowledged that some ingredients were in fact synthetic preservatives. They also had to step down from the claim that they didn’t test their products on animals as they could not guarantee that this was the case with some third world suppliers. Instead they “Are against animal testing”
These cases along with becoming the victim of its own success with ever increasing competition in its market we have seen Body Shops power and sales decline.
Operating profits in the UK were just 4.9 Million with an operating profit margin of just 8.4% this was down by 57.0% since 1994 and the international profit margin was also down by 18.7% between 94-99. Shown in figure 2 (source: Mintel)
These results brought about a large stimulus for change of strategy. In 1999 The Body Shop underwent an organisational and management shake-up which intended to reposition the group and rejuvenate its performance.
Out went Anita Roddick and in came the likes of A. Bellamy (Executive Chairman), A Murray (Finance director) P. Saunders (Chief Executive Officer).
Their new strategy started to run itself round cutting costs and improving efficiency. No longer were they manufacturing their own goods as they began to outsource to cut company costs. By February 2000 they had sold its Littlehampton manufacturing business to COSi. (Mintel: 03)
It also saw of change of strategy regarding its marketing. They have moved from it stance against marketing and have now advertised through strategic advertising in select media and in terms of posters and billboards.
They are slowing down the fast global expansion of The Body Shop through franchising and building to place resources in existing stores and buy existing franchises. This falls into the strategy of tighter control, costs and working capital to increase the profitability and cash generation. Its appears that despite core competences remaining with regards to ethics and social responsibility, well on the outside at least, Body Shop are trying to steady themselves among the raising competition whilst still trying to differentiate their selves.
DECISION AND STRATEGIC MODELS AND THEIR COVERAGE ON THE SUCCESS, FALIURE OF THE BODYSHOP
Theoretical and decision making models are a responsible way of accounting for an over view of the Body Shops success and Failure. I will discuss the following two frame works of SWOT (Design school, Mintzberg, Andrews) linked with the resource based ideology and Porters five forces (Positioning School, Porter: 85) we will over look the Body Shops Strategy by inserting the relative data into each frame work and then discussing it with reference to how the model deals with the esoteric aspects of body shops way of doing business.
“A swot analysis summarises the key issues from an analysis of the business environment and strategic capability of an organisation” (Johnson, Scholes: 190)
From SWOT analysis as written above a company is able to get an idea of its external environment and thus be able to exploit its competitors.
Looking in Figure three we can see the SWOT analysis for The Body Shop in its current state. The SWOT analysis is spilt into four sections of analysis Strengths, Weaknesses, Opportunities and Threats and from this we can see the some of the strategies that have taken the Body Shop forward yet we can also assume the factors that have held it back.
Take for example in the strengths section we can see most of the key historic and current strategies that have propelled Body Shop to its world wide status.
The focus on its strong ethical and environmental credentials as well as its franchising schemes is seen as its major strengths. These have been with the company since the start and the companies’ strong ethical and environmental stance can be seen as its core competency that raises the company above its competition.
The Weaknesses and threats in the analysis chart bring forth the concerns and challenges that face The Body Shop today.
Suffering from its earlier success it shows how the competition has increased. An earlier SWOT analysis would have contained more capital and expansion threats and weaknesses as they were a new company starting in a new niche market now as Body Shop become Mature and its market exposed many firms have joined the band wagon of going green and being environmentally friendly. Most natural beauty retailers such as boots, L’Oreal are against animal testing and competition of natural products is ever increasing with supermarkets now producing their own brands. So how The body Shop differentiates itself, manages its weaknesses and exploits its opportunities is a now dilemma that Body Shop must face.
“Five forces analysis is a means of identifying the forces which affect the level of competition in an industry” (Johnson, Scholes: 1998)
M. Porter sees competition “as the core of the success or failure of firms” (Wit, Meyer : 345) and that the essence of formulating competitive strategy is by relating a company to its environment (Porter: 3) Therefore he designed a frame workforce to that shows state of competition in an industry which is based around five forces. We can see these five forces and what they involve in figure 4.
As we can see it is in a rather simplified format regarding the amount of the detail it goes into. Porter actually goes into more depth and detail regarding his texts, therefore simplified models of the five forces are not as informative as it could possibly be so should be considered as a framework for further analysis.
However for use in the case of Body Shop and the word constraint it still can provide us with a useful knowledge of the environment that Body Shop is facing and how it accounts for it success and failings
Firstly considering the threat of substitution for Body Shop products we can consider this to be high. Body Shop is in direct competition with the beauty industry both natural and unnatural. As competition in its niche market increases substitution becomes a bigger threat. This is certainty is a hindrance to Body Shop currently. However the threat of substitutes has actually helped in this case, Porter asks the question of “whether or not a substitute poses the threat of obsolescence to a firms product or service, or actually provides a higher perceived benefit or value” (wit, meyer : 120) This covers the case of the Body Shop actually providing beauty products but actually only providing natural ones. This means that Body Shop in the case of this model have been able to add value by offering a natural alternative to typical ones, this has been one of the key factors of The Body Shops success. Therefore this section of the model accounts for both success and failure for the Body Shop.
The potential entrants force also provides an account of the success of the Body Shop. Porter states that the treat on entry is dependant on barriers to entry. Within the six major forces that affect the barriers we can account for the product differentiation of Body Shop acting as an entry barrier. During the 80’s Body Shop had established itself as the original and leading retailer of natural based cosmetics with a good brand image. This formed a consumer loyalty base and has acted as a deterrent for potential entrants, as building a brand up is very costly especially against the flow of success that the Body Shop were experiencing. “This barrier is perhaps the most important entry barrier for baby products, over the counter drugs, cosmetics” (Porter :9) All of which are connected also with the SWOT analysis of the firm.
However as the nineties came forth Body Shop suffered some damaging anti natural claims as well an apparent lack of ability to re–invent itself possibly saw the consumer become accustomed to Body Shop as well as possibly becoming down hearted with body shops reversal on some of its claims. Then seemed a good time for more competitors to try and enter the market. Larger cosmetics companies such as L’Oreal, Boots had resources to be able to defeat another major barrier of Porters in regards to distribution channels.
These competitors already had secure logical forms of distribution in terms for their numerous stores both nationally and globally. This gives them a substantial starting base to promote their selves within a new product market. Supermarkets are now also using distribution channels as a means of entering the natural cosmetics sectors. Both Asda and Sainsbury’s have their own ranges already as well a massive store base.
This section of the model has accounted for both Body Shops strength in keeping away the competitors but also its weaknesses.
THE ESOTERIC ASPECTS OF STRATEGIC MODELS IN REGARDS TO THE BODY SHOP
Strategic models are not always that flexible in terms of its scope, well some more then others. In the following text we will discuss how strategic frameworks deal with the esoteric aspects of the Body Shop.
Looking over porter’s five forces framework again we should look at how the model deals with the supplier aspect of the Body Shop. Porters approach on this is that “The profitability of an enterprise is determined by the bargaining power it enjoys” (porter: 85)
This therefore suggests that to be successful you should be bringing down the prices and terms of exchange of your suppliers to gain greater operating margins. However with the case of the Body Shop we see clear examples of them going against this.
In 1989 the body Shop invested £1 million in a soapworks project in Easterhouse Glasgow. This factory was situated 400 miles away from the companies other facilities had high unemployment and low education levels.
Anita approached this by saying “It certainly would have been more conventional to set up the soapwork factory near Littlehampton and yes its not economic in terms of transport, but its more fun, more motivating and better for morale” (Body Shop international case Mintzberg, Quinn, Ghoshol : 99, 458)
This style of supply power is clearly not with Porters keeping. However during the 90’s Body Shop still managed to operate with operating margins of 13.4% and profits of 12.9 million in 1995 within the UK (Figure Two)
Admittedly however since Bellamys appointment Body Shop how gone toward the Porter strategy with the process of outsourcing. However it was deemed that this type of radical business differentiation by the Body Shop and Roddick that was central toward their earlier success.
Going down to the bottom of the vertical link of the five forces we can also see Porter mentioning higher revenues, higher profit. With the power of consumer Porter assumes that the smaller the amount of buyers or existing organisation the larger the power over its consumers, this in turn allows them to charge higher prices and gain higher return. Although during the 80’s Body Shop were able to and did charge higher than average prices. Instead of investing this higher return inward toward itself and its shareholders it invested some of it profits to the wider community in the form of projects and campaigns. This went against many business practices and doesn’t fit with Porters ideology.
In the words of Mrs Roddick “my mission is to create a new business paradigm” and “the responsibility of business is not to create profits but to create live, vibrant honourable organisations. A company should not be evaluated solely on their annual report and accounts” (Body Shop international case Mintzberg, Quinn, Ghoshol : 99, 459)
Finally problems also arise with SWOT in regards to the Body Shop esoteric methods. SWOT provides a resource based overview of the company in terms of it strength and weaknesses. However what a company may see as their strengths may actually be a weakness in another country. Take for example the Body Shops U.S expansion, in the U.S there was a great concern for the Body Shop radical values and whether they would actually fit into the market. “I thought our values were global, and that our image and style were so strong that they would be easily transferable across the Atlantic. I was wrong” (Wit, Meyer: 1998)
This shows that despite the SWOT listing its esoteric values as strength it doesn’t take into account the different traits of other countries. The Body Shop has had to go back on several of its values to become accustomed with the market. Gone are it’s “against testing on animals” and the refill service. “We had to modify our trading practices drastically” (Wit, Meyer: 1998)
Therefore SWOT is not extremely flexible and rather static with regards to environment, and is also extremely opinionated. Body Shop may well have done a fresh SWOT for the American market alone. But as Anita stated they assumed that their esoteric stance toward ethics would have been transferable. Therefore as SWOT is based on the opinion from management mistakes have and are likely to occur.
Operating profit in 1999 throughout the U.S was a mere 0.8 million although this has since rose to 11 million in 2002 (Mintel: 2003)
Yet from another perceptive looking at Porters generic competitive strategies which is linked also with the value chain with can see how he determines competitive scope.
From this Body Shops esoteric methods actually fit in well with the differentiation focus of its model This covers the Body Shops aim of uniqueness and the way in which it can therefore gain advantage over it average competitor (i.e. through its ethical and social stance). If this is achieved and it is “truly different form its rivals” (Porter: 1985) then they can be expected to achieve a premium price, which Body Shop has done. Therefore it could be argued that Body Shop have simply used their ethical and social stance as a marketing tool to gain a premium price for their goods, simply invest some money into society and then still reap above average profits. Cases such as change of ethical stance for adoption of maximising profit within a set environment has been shown (Its entry in the U.S), also the fact their products are not as natural based as first assumed all lead to ploys of marketing differentiation to gain profit. That said Body Shop has provided social and ethical benefits, whether from the deepness of their hearts or for the benefits of self promotion is down to debate.
CONCLUSION
Overall the decision making and strategic models have provided us with an overall view of Body Shop in terms of its strategic thinking and position. The models above work around the authors notion of the Body Shops positioning and competitive rivalries. However there are many other models/strategies that could be discussed more thoroughly but due to the small compounds of this assignment I have been unable to. These would include more detail on the value chain, resource based views among others.
These models and way of thinking provide us with an overview of the organisation in terms of observing how it strategically operates across several fields. For example we have understood the strengths and core competences among Body Shop International over the past 27 years. We also understand the challenges facing the company, and what actions may be appropriate to counteract them. These types of models not only provide an overview for ourselves but also an overview and understanding for the Body Shop to observe themselves from the outside in.
Strategic models are designed for the process of influencing and aiding decision making and from using such models as SWOT analysis companies are able to assess themselves and if necessary change direction or continue to drive themselves forward. We gather from the essay that this is certainty the case with Body Shop changing its direction in 1998 toward a more cost minded approach.
The impression is that the models provide a solid frame work from which to aid decision, however frameworks can be simplified, static or simply too opinion based. Such as is the case with SWOT. Therefore when considering esoteric strategies models can sometimes be less than accommodating as with such examples as shown in the case of the five forces SWOT.
I conclude that frameworks are good for guidance and a foundation to build upon but are less than perfect for calculating entire decisions.
As for the success of the Body Shops current strategy of more traditional strategic thinking whilst still supposedly keeping its older core competence we can only wait and see.
Although it must be said if The Body Shops prime concern is for its ethical and social stance and as Anita claimed “Businesses should not be judged on profit” (Mintzberg, Quinn, Ghoshol : 99, 457) then why is it that they have allowed themselves to change to a cost based function as well as change its ethics from environment to environment. Do they or have they really had an esoteric way of doing business or is a simply a strategic marketing pitch?
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