CaseStudy Revlon

ORGANIZATIONAL POLICY & STRATEGY

PROGRAM COURSE

MASTER OF BUSINESS ADMINISTRATION ORGANIZATIONAL POLICY & STRATEGY

CASE STUDY – STUDY – REVLON REVLON


Acknowledgement

This paper was undertaken during enrollment of master degree of business administration and it is a great opportunity to share this paper for an academic knowledge and development as well as self-improvement management skills.


Executive Summary Revlon was founded in 1932 by brothers Charles (Joseph Revson and Charles Lachmann) with a $300 investment from nail products to beauty products. In 1937, Revlon successful started selling products in department stores and drug stores. Revlon was taken public in 1996 traded on the New York Stock Exchange.

Today, Revlon is the global company which offering the products over 100 countries and products focus on skin care, cosmetics, personal care, fragrance and professional products.

In this case study, the strategic management is focusing on the following: 

Identify the firm’s vision, mission, objectives and strategies



Develop the statement of vision and mission of the firm



Identify external opportunities and threats



Construct Competitive Profile Matrix (CPM)



Construct External Factor Evaluation (EPE)



Identify internal strengths and weakness



Construct Internal Factor Evaluation


The firm’s vision, mission, objectives and strategies

Revlon Perspectives 

To create and develop the most consumer-preferred brands;



To be the most valuable partner to our retail customers;



To profitability grow the business and its value for our stakeholders.

The statement of vision and mission of the firm

Revlon does not have visible vision and mission but emphasize on company perspective. It is disadvantage to Revlon because the direction of the company is fully depending on the leader, Chief Executive Officer. Because of the company led by leader, it is put the company on risk which each leader has different strategy and it may not relate the core value of the company.

Therefore, it is suggested the vision and mission for Revlon due to enhancing the primary objective of the company function and business particularly products penetration to customer needs and wants:

Vision


External opportunities and threats External Opportunities 

Well established of distribution channels that it is ability to serve the market and customers



ISO 9000 certification contribute the product quality assurance to compete globally



Unique organization chart giving an advantage of effective decision making locally and globally



Meeting the demand and supply of online business



Brand awareness through participation of women’s health programs



Beauty market is lucrative and continuously growth

External Threats 

Differentiation of culture and population aging affecting the brand and products offering



Lack of effective research marketing and product penetration resulted loss of market share



Consecutive financial losses resulted low confidence of investor and low motivation of employees

Justification Revlon developed the distribution channel that serving the customers over 100 countries which it is giving


Competitive Profile Matrix (CPM) Revlon Critical Factors

Weight

L'Oreal

Estee Lauder

Rating

Score

Rating

Score

Rating

Score

Market share

0.14

2.00

0.28

4.00

0.56

3.00

0.42

Marketing

0.11

3.00

0.33

4.00

0.44

4.00

0.44

Financial position

0.10

2.00

0.20

4.00

0.40

3.00

0.30

Product quality

0.06

3.00

0.18

3.00

0.18

3.00

0.18

Customer loyalty

0.09

3.00

0.27

4.00

0.36

4.00

0.36

Sales distribution

0.09

4.00

0.36

4.00

0.36

4.00

0.36

Global expansion

0.05

3.00

0.15

3.00

0.15

3.00

0.15

Production capacity

0.05

3.00

0.15

3.00

0.15

3.00

0.15

Organization structure

0.06

3.00

0.18

3.00

0.18

3.00

0.18

Customer service

0.06

3.00

0.18

3.00

0.18

3.00

0.18

Price competitive

0.07

3.00

0.21

3.00

0.21

3.00

0.21

Management experience

0.12

3.00

0.36

3.00

0.36

4.00

0.48

Total

1.00

35.00

2.85

41.00

3.53

40.00

3.41

Justification In CPM, Revlon is gauged by L’Oreal and Estee Lauder because they are fully focuses on beauty markets


Construct External Factor Evaluation (EPE) Key Factors External Opportunities

Weight

Rating

Score

0.15

4.00

0.60

0.12

4.00

0.48

0.10

3.00

0.30

Meeting the demand and supply of online business Brand awareness through participation of women’s health programs

0.08

2.00

0.16

0.10

3.00

0.30

Beauty market is lucrative and continuously growth

0.05

3.00

0.15

Subtotal

0.60

19.00

1.99

0.10

3.00

0.30

Well established of distribution channels that it is ability to serve the market and customers ISO 9000 certification contribute the product quality assurance to compete globally Unique organization chart giving an advantage of effective decision making locally and globally

External Threats Differentiation of culture and population aging affecting the brand and products offering Lack of effective research marketing and product penetration resulted loss of market share Consecutive financial losses resulted low confidence of investor and low motivation of employees

0.10

3.00

0.30

0.20

2.00

0.40

Subtotal Total

0.40 1.00

8.00 27.00

1.00 2.99

Justification


Internal strengths and weakness Internal Strengths 

Ability to serve the customers over 100 countries



Cost control management to minimize resources wastage



Restructure management functions and divisions for effective productivity



Quality standard accreditation contribute the product quality to satisfy the customers expectation



Manageable debtors aging

Internal Weakness 

Product line is limited to beauty



Lack of innovative and creativity of product development



High debt equity ratio resulted risk-taking firm



Deficit retain earning result low confidence for firm share and investment

Justification In internal strengths Revlon is ability to serve customers globally with offering ISO 9000 certified products. Thus, they are successful managing debtors aging (refer appendix iii) resulted turnover cashflow is effective.


Internal Factor Evaluation .

Weight

Rating

Score

Ability to serve the customers over 100 countries

0.15

4.00

0.60

Cost control management to minimize resources wastage

0.08

2.00

0.16

Restructure management functions and divisions for effective productivity

0.05

3.00

0.15

0.12

4.00

0.48

Manageable debtors aging

0.15

3.00

0.45

Subtotal

0.55

16.00

1.84

Product line is limited to beauty

0.10

3.00

0.30

Lack of innovative and creativity of product development

0.10

3.00

0.30

High debt equity ratio resulted risk-taking firm

0.10

3.00

0.30

0.15

3.00

0.45

Subtotal

0.45

12.00

1.35

Total

1.00

28.00

3.19

Internal Strengths

Quality standard accreditation contribute the product quality to satisfy the customers expectation

Internal Weakness

Deficit retain earning result low confidence for firm share and investment

Justification The weight score of internal strengths is high for the following:


Strengths-Weakness-Opportunities-Threats Matrix (SWOT) Strengths 

Product quality assurance through ISO 9000 certification



Product distribution and worldwide network (over 100 countries)



Continuously sales growth



Unique organization chart and functions for effective management and productivity



Debtors aging is manageable

Weakness 

Products line is limited to beauty



Lack of innovation and research product development



Debt risk taking



High inventory aging

Opportunities


Strategic Position and Action Evaluation Matrix (SPACE)

FS Conservative

Aggressive

IS

CA

Defensive

Competitive

ES

Internal Strategy Position Financial Strength (FS) Return on investment Leverage Liquidity Working capital Cashflow Inventory turnover Earnings per share Price earnings ratio

2.00 2.00 2.00 3.00 3.00 2.00 2.00 2.00

External Strategy Position Environment Stability (ES) Technological changes Rate of inflation Demand variability Price range of competing products Barriers to entry into market Competitive pressure Ease of exit from market Price elasticity of demand Risk involved in business

-2.00 -3.00 -3.00 -3.00 -3.00 -3.00 -3.00 -3.00 -3.00


Internal-External Matrix (IE)


Grand Strategy Matrix Rapid Market Growth

Quadrant 1 Market development Market penetration Product development Forward integration Backward integration Horizontal integration Related diversification

n o i t i s o P e v i t i t e p m o C Quadrant 3 g Retrenchment n o r Related diversification t S

Unrelated diversification

Quadrant 2 Market development x Market penetration x Product development Horizontal integration x Divestiture Liquidation

Quadrant 4 Related diversification Unrelated diversification Joint ventures

Divestiture Liquidation Slow Market Growth Note Quadrant 1: (Many internal Strengths, Many external Opportunities) - Calls for an aggressive strategy Quadrant 2: (Many internal Strengths, Grave external Threats) - Calls for a diversification strategy

n o i t i s o P e v i t i t e p m o C k a e W


Quantitative Strategic Planning Matrix (QSPM)

Key Factors Opportunities Continuously demand of beauty products Branding for products penetration and market segmentation New market segment of online channel that untapped

Weight

Strategy 1 Market Penetration AS TAS

Strategy 2 Product Development AS TAS

Strategy 3 Backward Integration AS TAS

0.40

4.00

1.60

4.00

1.60

2.00

0.80

0.35

3.00

1.05

4.00

1.40

3.00

1.05

0.25

2.00

0.50

3.00

0.75

2.00

0.50

1.00

3.15

3.75

2.35

Threats Strong competition from rivals

0.40

3.00

1.20

3.00

1.20

3.00

1.20

Product’s price competitiveness resulting low profit margin

0.35

3.00

1.05

3.00

1.05

4.00

1.40

Fluctuation of cost rising low purchasing of beauty products

0.25

3.00

0.75

3.00

0.75

3.00

0.75

1.00 Strengths Product quality assurance through ISO 9000 certification Product distribution and worldwide network (over 100 countries) Continuously sales growth Unique organization chart and functions for effective management and productivity Debtors aging is manageable

3.00

3.00

3.35

0.25

4.00

1.00

3.00

0.75

3.00

0.75

0.30 0.10

3.00 2.00

0.90 0.20

3.00 2.00

0.90 0.20

2.00 2.00

0.60 0.20

0.20 0.15

2.00 3.00

0.40 0.45

2.00 2.00

0.40 0.30

3.00 2.00

0.60 0.30


Should Revlon adopting Avon’s door-to-door sales tactics? Do you think that is good strategy or not and why? If yes, to what extend should this new forward integration strategy be pursued? If China, why not put salespersons on the ground in other countries such as India and even the United States?

Revlon should adopting door-to-door sales strategy in China that it is similar with Avon because of the following: 

Effectiveness to communicate with customers directly and closer understand their expectations so that product and service improvement can be achieved



Minimize the operation cost via utilize the Multi-Level-Marketing Concept so that win-win situation can be achieved. Example, people get job as business instead of employment and customers get the best economic benefits (less involvement of third-party resulted low cost).



Easier to build customer loyalty via using word of mouth strategy. It is easier to serve one-to-one because marketer is able to focus customer needs and wants.

Revlon should use 5’s P Marketing Strategy for the new forward integration strategy in China. The 5’s P


Price is the cost of the products that customer can enjoy as well as sales agent can make profit. Revlon should set the reasonable pricing so that customer can enjoy the value of money and sales agent can earn more money (product profit margin). In addition, price incentive can be introduced based on the conditions: 

Larger volume purchase by sales agent can enjoy additional discount



Annual volume purchase by sales agent can enjoy the cash bonus and premium insurance package

Promotion is the sales incentive that sales agent and customer can be enjoyed. Example, Revlon cosmetics product can be offered 30% discount at retail value of $1000 if the customer purchase more than $1000 products from all brands.

Place is the products distribution channel. Sales agent will deliver the product to customer directly which the sales amount below $500. Any purchase amount is more than $500, Revlon will utilize the courier service to delivery the purchased product. Therefore, it is giving the sales agent to focus directly to customer with fully utilize working hours. In addition, Revlon can offer online commerce to sales agent and customer for the following purposes:


Should Revlon concentrate its efforts on international market, given the low value of the dollar and competitive pressure? Which countries should Revlon focus on?

Revlon should concentrate the international market because it is contributing half revenue although low value of dollar in the competitive situation. Revlon should focus the following countries because of the following: 

China (Shanghai) 1. Population is about 18 millions and GDP per capita is about US$12,529 (nominal) 2. High demand for cosmetics and fragrances 3. Gross domestic products continuously growth resulted growth of customer purchase power 4. Competitors are not fully penetrate the market segment and customer group 5. Revlon can utilize Shanghai for Chinese Regional Sales and Distribution. Example, sales expansion to Taiwan, Korea, Japan, Hong Kong and Macau due to cost effectives and similarity customer behavior which ease to market the products



South Africa 1. Population is about 40 millions and GDP per capita is about US$5,684 (nominal) 2. Competitors are not fully penetrate the market segment and customer group


Should Revlon diversify its operations or develop joint ventures with other cosmetics companies? Would jewelry be good industry to enter given the aging society?

Revlon should diversify its operations at international such as Regional Center of Sales and Distribution because of the following: 

To serve the customer better by understanding their needs and wants especially cultural differentiation. Example, Chinese-China, Chinese-Taiwan, Chinese-Macau and Chinese-Hong Kong are having similar purchasing behavior and cultural. Therefore, if Revlon products and business model are successful in China, it can be diversified to Taiwan, Macau and Hong Kong easily.



Localized management and decentralized the decision making so that they can get closer with customer needs and wants and ease develop the new product and penetrate the market segment. Example, African customer enjoy the nail product instead of cosmetics and skin cares resulted Revlon can further study the potential nail development such as most favorable nail color, style, etc so that sales and profit can be potentially growth and expand to African countries.



International plant is more cost effective than United States result the potential of saving operation and


Does Revlon have too many brands? Should the company keep brands such as ColorStay and get rid of brands such as Mitchum?

Yes, Revlon have too many brands that losing the focus on the customer needs and wants especially those are not making profit. Revlon should downsize the brands by eliminating the products lines of losing profitability so that cost savings can be achieved to survive the business. In addition, Revlon should re-study the brands for the following objectives: 

Fast moving product lines will be continued to serve the market and speed replenishment the products so that it is always available for customer to buy.



High profit margin product lines but serving niche market should aggressive advertise for brand awareness and it’s a pplication usage advantage so that this product can growth the market share



Re-size the product line so that more customer is affordable to buy so that it can boost the sales and profitability



Re-Engineering the brand value so that customer loyalty can be retained and growth. Example, cosmetics for beauty differentiate instead of cover-up unbeautiful, fragrance is for refreshment lifestyle, etc.

Last and not least, Revlon should keep ColorStay and Mitchum because of the following:


Should Revlon agree to sell itself to Perlman or to a rival firm? What is Revlon worth on the market?

Revlon should agree to sell itself to Perlman because of the following: 

Perlman understood Revlon core value of business and beauty market since 1985 which bought all stock from public shareholders. In addition, Perlman bailouts Revlon by buy non-purchase stock in 2006 result Perlman keen on this beauty business.



Revlon has 75 years history of providing high-quality products at affordable prices over 100 countries result it is a strong and potential company that the business shall continue and rise.



Revlon is smallest beauty company compare with L’Oreal, Avon and Estee Lauder result it is worth

buyout for the lucrative market and Revlon is still ability to growth the market share especially halal market (over US billions value of demand)

Based on financial statement (refer to appendixes), Revlon’s value computation as follows: Class B Stock

EPS

Revlon Market Worth

31,250,000

21.43

31,250,000 x 21.43 = 669,687,500

Class A Stock

EPS

Revlon Market Worth

390,001,154 344,472,735

21.43 21.43

390,001,154 x 21.43 = 8,357,724,730 344, 472, 735 x 21.43 = 7,382,050,711


Appendix I – Income Statement

2006

Revlon 2005

2004

1,331.40 545.50

1,332.30 508.10

1,297.20 485.30

Gross profit

785.90

824.20

811.90

Operating expenses Research & development Selling, gen. & admin Restructuring cost & others

0.00 0.00 808.70 27.40

0.00 0.00 757.80 1.50

0.00 0.00 717.60 5.80

Total operating expenses

836.10

759.30

723.40

Operating income / loss

-50.20

64.90

88.50

Income from cont oper Interest income Equity Income Exchange gain/loss Other expense Interest expense Amortization debt costs Loss early extinguishment of debt

0.00 -1.10 0.00 -1.50 3.80 148.80 7.50 23.50

0.00 -5.80 0.00 0.50 -0.50 130.00 6.90 9.00

0.00 -4.80 0.00 -5.20 2.00 130.80 8.20 90.70

Total Others

181.00

140.10

221.70

-231.20

-75.20

-133.20

Total revenue Cost of revenue

Income before tax


Appendix II – Income Statement 2006

2005

2004

35.40 0.00 207.80 186.50 58.30

32.50 0.00 282.20 220.60 56.70

120.80 0.00 200.60 154.70 69.70

Total current assets

488.00

592.00

545.80

Long-term investments Property, plant & Equip Goodwill Intangible assets Accumulated amortization Other assets Def long-term asset charges

0.00 115.30 186.20 0.00 0.00 142.40 0.00

0.00 119.70 186.00 0.00 0.00 146.00 0.00

0.00 118.70 186.10 0.00 0.00 149.90 0.00

Total Assets

931.90

1,043.70

1,000.50

95.10 9.60 0.00 272.50

133.10 9.00 0.00 328.40

95.20 36.60 10.50 283.20

377.20

470.50

425.50

Assets Current assets Cash & cash equiv Short-term invest Net receivables Inventory Other current assets

Liabilities Current Liabilities Account payable Short/Current Long-term debt Other current liabilities

Total Current Liabilities


Appendix III – Key Index

Net Sales COGS Gross Profit Operating Income Net Income EBIT Interest Charges Gross Profit Margin Operating Profit Margin Net Profit Margin Receivable Turnover Receivable Collection Period Inventory Turnover Inventory Turnover Days Return on Assets Return on Total Assets Return on Equity Current Ratio Quick Ratio Debt Total Assets Ratio Debt Equity Ratio Times Interest Earned Ratio P/E

2006

2005

2004

1,331 546 786 -50 -251 -53 149

1,332 508 824 65 -84 60 130

1,297 485 812 89 -143 79 131

0.59 -0.04 -0.19 0.16 56.97 2.92 124.79 -0.27 -0.06 -0.28 1.29 0.80 2.32 0.82 -0.35 21.43

0.62 0.05 -0.06 0.21 77.31 2.30 158.47 -0.08 0.06 -0.11 1.26 0.79 2.05 0.97 0.46 20.85

0.63 0.07 -0.11 0.15 56.44 3.14 116.35 -0.14 0.08 -0.28 1.28 0.92 2.02 1.64 0.60 20.02


Appendix IV – Key Competitive Matrix Financial Information (in $ Millions)

Sales Operating Profit/Loss Total Assets Loans & Debts Shareholders' Equity

2004 1,297 89 1,001 1,355 514

Revlon 2005 1,332 65 1,044 1,516 769

2006 1,331 -50 932 1,618 889

Key Performance Index Against Previous Years Revlon 2004 2005 2006 Sales 3% 0% Operating Profit/Loss -27% -177% Total Assets 4% -11% Loans & Debts 12% 7% Shareholders' Equity 50% 16%

Sales Growth Analysis Revlon L'Oreal Avon Estee Lauder Total Market Growth

2004 19,097 2,925 5,705 2,195 16,555

2004

L'Oreal 2005 20,346 3,172 6,352 3,104 20,520

2006 22,106 3,557 6,786 4,661 20,474

2004 7,748 1,229 4,148 866 750

L'Oreal 2005 7% 8% 11% 41% 24%

2006 9% 12% 7% 50% 0%

2004

2004 1,297 19,097 7,748 5,742

% 4% 53% 22% 16%

2005 1,332 20,346 8,150 6,280

% 3% 53% 21% 16%

2006 1,331 22,106 8,764 6,464

% 3% 54% 22% 16%

35,888

100%

38,113

100%

40,671

100%

Avon 2005 8,150 1,149 4,761 767 794

2006 8,764 761 5,238 1,171 790

Avon 2005 5% -7% 15% -12% 6%

2006 8% -34% 10% 53% -1%

Note : Procter & Gamble and Unilever are excluded because their core business is not focus on beauty industry.

Page 24 of 24

Etee Lauder 2004 2005 5,742 6,280 649 727 3,708 3,886 462 680 1,734 1,693

2006 6,464 620 3,784 698 1,622

Etee Lauder 2005 9% 12% 5% 47% -2%

2006 3% -15% -3% 3% -4%

2004

CaseStudy Revlon

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