Each industry has its special rules demanded by product and user. Cosmetics, in particular at the high end of the market, are governed by various such forces as intimacy versus mass market, charm versus rough and tumble competition, and everything in between. Goetz Winter, head of Estée Lauder Switzerland, has seen it all.
What is it about modern cosmetics and perfumes that engages people so deeply? After all, human beings have been beautifying themselves since ancient times when marketing strategies were far less complex – though distribution channels even back then took ingredients like sandalwood and frankincense to the ends of the known world.
Cosmetics appeal to our most basic of primeval instincts – we simply want to be as attractive as possible, whether to lure a romantic partner, exude confidence in a business meeting, psychologically destroy a perceived opponent, or look better than everyone else around the mah-jong table.
In our world of television, Flickr and Facebook, where the visual has become everything, it’s no wonder that women, and increasingly men, are willing to spend a small fortune on creams, pastes, oils, scents, and surgery to fix up Mother Nature’s sustained and vigorous assault on Madison Avenue’s ideal of beauty.
And beauty is big business. And as always in industries with billions of dollars at stake, the cosmetics sector is extremely competitive. One of the world’s major players is Estée Lauder, a company that has been around for over half a century. It has come a long way from the pharmacy of Estée’s uncle John. Founder Estée Lauder herself understood the personal relationship that had to develop between the buyer and the product. She always remained close to the customer, showing up in person in beauty salons and coining the little phrase “Telephone, Telegram, Tell-a-woman” to describe her jungle-drum marketing strategy. The famous blue colour scheme in packaging was her idea as well and was created specifically to fit better into home décors. This way, her products could be integrated into the lives of her customers.
For executives with a tough constitution, the cosmetics industry is exciting and challenging – and one that is facing increasing scrutiny by the public at large. Indeed, there is a special intimacy that develops between the products and the user that will stand little compromise. As for government regulatory bodies, they are not nearly as picky as is often assumed, perhaps because cosmetics are considered fundamentally frivolous. While food production labours under strict guidelines, the language for make-up, soaps, and the like is vague, the goals blurry, the communication fluffy. The all-powerful FDA, for instance, does not explicitly require animal testing, but rather places the responsibility on the “manufacturer to substantiate the safety of both ingredients and finished cosmetic products prior to marketing”.
But you cannot become more beautiful, smell better, or feel very comfortable with a product you know is simply full of chemicals, whale blubber, artificial colourings and cheap scents and has been tested on Gibraltar macaques and rabbits. Today’s consumers are very preoccupied with what goes into the products that are to be applied to their face. In an industry whose products surround us in our own homes, decisions made in the corporate boardroom have a direct effect on our daily lives and it is not only an issue of our physical being, but also of our conscience. Today, most large companies are finally moving away from animal testing, which is not the best marketing ploy, even though the statements, often bold and seemingly all-encompassing, do leave space for broad exceptions.
A tough market
Switzerland is both an important market and one marked by intense competition and Estée Lauderis in the leading pack. What makes the market special is the paradoxical mix of love of luxury, the need for large volume and consumers with a keen eye for a bargain. The local head is Goetz Winter, appointed General Manager Switzerland in December 2009 in a professional shift that took him from the Germanic management style of Beiersdorf to an American style with more responsibility for products and the bottom line. At Beiersdorf, Winter was responsible for the La Prairie line of luxury products, a tiny part of a large group.
Winter had a great deal of new challenges to contend with. “Estée Lauder is a company only dealing with luxury cosmetics. We have some brands that are very close to mass market, but the heart of the brands is in luxury,” he suggests. “To be successful in luxury goods, you have to have a completely different distribution strategy to maintain the exclusivity of the product, one of the most important intangibles in its value.” This is one of the most challenging aspects of luxury cosmetics, namely, expanding market share without sacrificing exclusivity. Wide distribution may cheapen a product’s image, yet narrow distribution limits points of sale. For Winter it was a puzzle to be solved. “I would rather have a few doors with high turnover, than many doors with low turnover,” he says. La Mer was given 24 doors, and Estée Lauder about 320. “So if we concentrate all the La Mer consumers in the few doors we have, it gives the brand a push in that specific door, and so the brand earns number one ranking in those doors.”
Another challenge Winter faced was the difference between Germany’s mass market and the more exclusive Swiss market. “We’ve done studies on it, in Switzerland there is more disposable income and the Swiss enjoy more quality and high-end products,” he says. “Per capita consumption of cosmetics in Switzerland is about twice as high as the average in Europe.” These statistics mean that the country is among the most avid users in cosmetics worldwide, after Korea and Japan. “For Europe, it’s No. 1. In a global perspective, Switzerland is a small market, but in terms of volume, we do the same volume in Switzerland as the whole of Germany with Estée Lauder.” Finally, Switzerland is divided up into sections and there are “significant differences” between them. The Romandie gravitates more toward France, whereas German-speaking Switzerland feels more comfortable with German, Italian and American brands. “There is a spill-over from communications as well with French magazines being read in French-speaking Switzerland, and so on.”
Goetz Winter’s portfolio of brands under his command has expanded from four at La Prairie to fourteen at Estée Lauder. Coming from a smaller organisation, he was able to apply the principles from his previous position to a larger company. As is often the case, an outside point of view adds a new perspective to business. Even a hugely successful company like Estée Lauder has room for improvement. “The company was using very few synergies between the brands,” he says. Each brand had its own customer service, maintained its own sales statistics and its own time-card system. All that back-office work was taken to the corporate level, allowing individual brands to focus on the products instead of their administration. Human resources was another area where each brand was in charge of its own hiring; that was moved to the corporate level. While on the surface this may sound like a move toward a more rigid structure, in fact it allows more flexibility. In hiring, for example, a candidate unsuitable for one brand might turn out to be excellent for another, but under the previous arrangement, where strict focus was on each brand, such a candidate would slip through the system unnoticed.
Internal harmony in corporate policy is obviously an important aspect of doing business. How many companies actually have this? Are the instances of tacit capitulation more numerous than enthusiastic embracing of a company’s, an employer’s, policies? Winter’s tenure at Estée Lauder began just months after that of Fabrizio Freda, the current President and CEO. As the first non-family member to helm the company, Freda brought a new perspective to an already forward-thinking organisation. With both men coming into their positions amid the economic uncertainty affecting the world at that time, Winter was expected to take action to improve Estée Lauder’s position in Switzerland. In one way, the economic environment of the time was a catalyst for improvement within a company accustomed to success on its own terms. Now, with outside forces exerting a serious impact on the bottom line, a nimbler corporate structure was needed.
There are many ways of dealing with a severe recession and the drying up of funds. Some companies used delicate surgical means in order to ensure that their employees would not suffer unduly and that when the recession was over, they could be hired back or full-time again (see Victorinox article in this issue, page 13). Estée Lauder took a different tack: “During the crisis the company realised that there were lots of possibilities of improving efficiencies, looking at stock levels, productivity of people, and number of days outstanding for payment,” he says. “So Estée Lauder managed to reduce the number of people in order to improve productivity, but we did it really in a smart way because now that the industry is booming again we don’t need to hire people we got rid of before. So efficiency now is much better than before the crisis and without the crisis.” This is a genuine case of challenges being the mother of opportunity.
Perhaps what allowed Estée Lauder a slightly freer hand with personnel during the recession was its dual commitment to the family on the one hand and to public interests on the other. The two aspects have been fairly well combined. As a corporate entity, it can be run according to the usual efficiencies demanded by today’s business costcutting/ profit optimising dictates. “The family is also still very strong in the company,” Winter points out. Chairman Emeritus Leonard Lauder, as one of the company’s largest shareholders, is already a very wealthy man who has the patience and resources to invest in a long-term return.
Goetz Winter in fact has direct access to the Lauder family, which is still heavily involved in the enterprise that bears its name despite having gone public in 1995. “It’s a real pleasure when the main stakeholder in the company knows the business so well and you really feel that Switzerland and the Swiss market have a special importance for Estée Lauder.” The approach is as set out by founder Estée Lauder herself, very personal and very direct. Having an exclusive product means that the company can establish a strong relationship between individual buyers and the beauty advisor trained and supervised by Estée Lauder. “If that happens the consumer will become attached to the beauty advisor and the brand.”
Ultimately, the brand relies on its sales personnel to represent and sell at a very high level. This, in turn, involves an intense training programme for all the brands, which is done either at the company offices or in hotels. “Estée Lauder as a brand has always had an excellent reputation in the market in terms of training,” says Winter, who already knew about the quality of the training even before joining the company. “Every brand has its own training department. This is especially important when the salesperson is not paid directly by the company, to make sure it is your brand that she or he understands best.” Work with the sales personnel is a win-win for all actors – better sales personnel means more sales – but Winter admits that stores are at times reluctant to free up their floor staff and the company has to do some pushing.
Estée Lauder is a big name in the cosmetics industry and in spite of strong competition and a certain ruthlessness in the business, the company’s position is safe and will continue do be so as long as people feel the need to guild their own personal lily. The figures are rising steadily. Interesting, perhaps, is the strong growth in male cosmetics, though Winter points out that it remains at low overall level: “Men have a long way to go to catch up with women,” he chuckles. The industry, however, is not only product and customer orientated. Sales personnel, while often the first to be rationalised when times get tough, are also excellent ambassadors for brands. So, as usual, it’s all about people, a reminder that bottom lines are not made of ink or toner, but rather flesh and blood.
Estée Lauder Companies
Founder: Estée Lauder
Employees: 31,000 worldwide
Major brands: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series Skincare for Men, Origins, Tommy Hilfiger, M·A·C, Kiton, La Mer, Bobbi Brown, Donna Karan, Aveda, Jo
Malone, Tom Ford Beauty, Coach
Operations: sold in more than 150 countries
Sales 2010: USD 7.8 billion
Net earnings 2010: USD 478 million
Ownership: 70% of voting stock owned by the Lauder family, 30% owned by investors
Management: Leonard Lauder, Chairman Emeritus; William P Lauder, Chairman of the Board; Fabrizio Freda, President and CEO
Corporate website: www.elcompanies.com
Article by Robert La Bua