Project Name: Pearl Harbor

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Executive Summary

We, Shiseido , are the company who constantly seek to identify new, richer sources of value and use them to create beauty in the lives and culture of our customers. Based on the solid and outstanding domestic performance, we seek to provide our services in overseas market. Currently, we acquired 1.3% of international market share, however, we are pursuing the growth up to 11% within next 5 years while being the no.1 in quality, service, and corporate image . In order to accomplish our goal, we decided to enter US market as an initial step. The constant growth in the overall cosmetics industry, especially the enormous potential predicted for the Skin Care segment, provides us with the great opportunity to thrive in the international cosmetics market. Our solid domestic cash cows, scientific and reliable image of Japan, our own prominent R&D systems and growing interest in oriental philosophies are guiding us to the bright future. However, there also are several threats and weaknesses that we should overcome. For instance, having thin corporate image in US market, existence of huge competitors, and having no competitive perfume, which is crucial for acquiring prestige image as well as entering the male cosmetics, are several representatives.

Based on the above analysis, the principal strategy that we, Shiseido, have decided to take is the promotion of scientific cum-inner well being image . The scientifically proven colors and aromas, influencing various human senses, have positive effects over spiritual being, and ultimately aid recovery of the outer appearance. Overall Shiseido products have this psychological influence, however, the 5S system further intensifies this concept. targeted with the brand Shiseido(Global Line), Benefience, The Skin Care, and the Suncare meeting specific customer needs. 5S products aim for both the skin and the mind care targeting the general middle class women, including the teenage group which shows great potential for the future cosmetics market. Another target market is prestige class women, mainly career women with high income. The market will be which differentiates its subordinate product groups such as Pureness,

Table of Contents 1. Environmental Analysis - Trends of Cosmetics Industry - Trends of Skin Care Industry 2. Competitive Analysis 3. BCG Matrix Analysis 4. SWOT Analysis 5. Goal/Objectives/Strategies 6. Specific Strategy(Product Portfolios) 7. STP 2

1-1. Environmental Analysis - Trends of Cosmetics Industry

The growth of cosmetics industry, which has shown a constant growth with the annual growth rate of 4.8%, has always been closely related to women ’ s development and the general trend of the society. In 1990s, women rights have been more equalized to men than past decades. For example, the number of top female managers is constantly increasing. More social interactions for women means more make-up needs for them as well. Nowadays the trend of making-up is going so far as to the girls in the age of 12 years old. These are the clear signs of the current and the potential growth of the entire cosmetics market.

A. Dollar Volume in Manufacturer's Sales Note that the clear divisions between product categories are becoming blurred. Body & Bath 17% Men’s Products 7% Skin Care 28% Women’s Fragrance 17% Skin Care Color Cosmetics Women ’ s Fragrance 1997 (Millions$) $ 5,551 6,173 3,345 Body & Bath Men ’ s Products TOTAL 3,498 1,478 $20,045 B. Growth Rate All product categories experienced some growth, except Men's Products which continued a sales decline.

Color Cosmetics 31% Skin Care Color Cosmetics Women ’ s Fragrance Body & Bath Men ’ s Products TOTAL 1997 (%) +3.4% +8.9% +1.4% +7.5% (-2.6%) +4.8%

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1-2. Environmental Analysis - Trends of Cosmetics Industry: Greatest Potential Lying in the Skin Care Market

While all cosmeceutical categories will experience healthy growth in the next five years, Datamonitor predicts that the skin care market will see the largest growth rate .

"Between 1995-1999, the makeup and hair care categories were the growth leaders in the cosmeceutical market," comments Post. "However the next few years is likely to see a slowdown in growth in makeup and hair care cosmeceuticals as consumers realize that formulating makeup and hair care products with active ingredients is largely a marketing strategy, and these ingredients are more effective in skin care products." Skincare Forecasts (US$ million)

3000 2500 2000 1500 1000 500 0

Facial Care = 0,8% Hand & Body Care = 0,8% Sun Care = 0,8% Medicated skincare = 0,8% 1998 Lip Care = 0,8% Depilatories = 0,8% Petroleum Jelly = 0,8% 1999 2000 2001 2002

Such high potential expected in the Skin Care market led us to choose the Skin Care products , especially Facial Care products , as our major product line.

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6000 5000 4000 3000 2000 1000 0

1-3. Environmental Analysis - Trends of Skin Care Industry

North America, overall skin care market value sales by category ($ million U.S.), 1993-1997 Category ( Year-on-year growth) 1993 1994 1995 1996 1997 1993-1997 Depilatories Facial Care 46 2,776 46(1.2%) 2,907(4.5%) 48(3.1%) 3,003(3.2%) 52(9.3%) 3,073(2.3%) 54(1.4%) 3,143(2.2%) 4.0% 3.2% Hand and Body Care Lip Care Petroleum Jelly Sun Care Overall 1,164 211 32 596 4,824 1,211(3.9%) 216(2.4%) 31(-2.1%) 651(8.5%) 5,062 1,296(6.6%) 223(3.1%) 31(-0.9%) 722(9.8%) 5,323 1,356(4.4%) 237(5.6%) 31(-0.4%) 784(7.9%) 5,533 1,388(2.3%) 256(7.7%) 30(-1.5%) 834(6.0%) 5,705 4.5% 5.0% -1.2% 8.8% 4.3% Skin Care Market Segmentation 1993 1994 1995 1996 1997 Sun Care Petroleum Jelly Lip Care Hand and Body Care Facial Care Depilatories The population is maturing and the skin care industry keeps on growing. People are trying anything to reverse the strain time has put on their faces and bodies. Recognizing this, skin care marketers have turned the category into a potluck dinner, throwing all kinds of ingredients into the mix. Also, consumers are ravenous. Mass market facial cleanser sales jumped 43.2% to $622 million and moisturizer sales jumped 7.6% to $531 million in 1998, according to Information Resources, Inc., Chicago, IL. Also, the prestige anti aging segment grew 12%, according to NPD BeautyTrends of Port Washington, NY. In fact, the segment is growing so rapidly that the average life of a new product is estimated at only three years, said Dr. Daniel Maes, vice president research and development, Estee Lauder.

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2. Competitive Analysis Market Share for Department Store Cosmetics in the U.S.

“ Why Women find Lauder Mesmerizing ” , Nina Munk , Fortune, New York, May 25, 1998 Estee Lauder 18% Other 27% Shiseido 1% Giorgio 2% Ralph Lauren 3% Prescriptives 3% Elizabeth Arden 3% Aramis 4% Chanel 4% Calvin Klein 6% Lancome 12% Clinique 17% The industry is dominated by Estee Lauder Companies (Estee Lauder, Clinique, Aramis, Prescriptives, Tommy Hilfiger, Origins, M.A,C., Aveda, La Mer, Danna Karan, Bobbi Brown etc.), which accounts for 45% of all department store cosmetics purchases. Other companies include LVMH, Chanel, Elizabeth Arden and Clarins. Why have we, Shiseido, decided to choose Estee Lasder as our major competitor? The reasons follow; 1.It may seem that competing with small market share holders is easier than competing with huge Estee Lauder for the initial stage. However, Chanel, Elizabeth Arden, Georgio etc. have extremely prestigious reputation; thus, the customers are mostly very loyal to their conventional brands.

2.Our ultimate goal is to become world no.1 which means becoming even bigger than Estee Lauder. Thus, we must compete with the biggest brand to acquire their position as ours, not the small brands with highly loyal customers. This will help us to focus on our ultimate goal without any unnecessary divergence of strategies.

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3. BCG Matrix Analysis

Note that various cash cows in the domestic cosmetics market, not shown in this matrix , firmly supports the new global line brands displayed on the dog and question sectors of this matrix.

High

4.0% (averagee cosmetic market growth Rate in 1999)

Shiseido Suncare

Shiseido Benefiance

Shiseido The Skincare

Shiseido Pureness

5S Low

4x 2x 1x 0.5x 0.25x

High

Relative Market Share in the U.S.

Low

Targeted Future Position by 2004 Present Position In 1999

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4. SWOT Analysis

Strength Weakness Opportunity Threat

- Special concept of caring for inner well being as well as the skin itself. - Has Solid Cash Cows which yield enormous profits so as to support the international investment - Big and experienced company who has the know-how to be a global player (has prominent and experienced Human Resources to deal with various issues) - Excellent sources for research on new and better products through own R&D facilities and established Research Centers - no reputation established in US market with hard-to-pronounce name - low market share - doesn't have high reputation for perfumes which is significant in US when creating the brand image

Opportunity

– The market for cosmetics, especially the skin care segment, shows great growth potential. –Career women are looking for inner or natural spiritual well-being products –Japan has a scientifically advanced and reliable image in overseas –The interest in eastern philosophies, famous for the assimilation with the nature, is dramatically increasing.

• Make good use of the enormous cash produced by the Cash Cows of domestic market to invest in the new global product lines.

• Apply the interest toward oriental philosophies and the conventional image of Japan in US to promote the “ scientific-cum-inner well being concept ” .

•Create a unique image through the use of the conventional Japanese image being “ scientific ” and the use of oriental philosophy •Apply the technology of utilizing natural resources to create aroma effecting the inner being into the creation of Shiseido ’ s new fragrance brand.

Threat

-One of the competitors, Estee Lauder group, plays extremely dominant role in the prestige cosmetics market. This means Estee Lauder has already acquired solid costumer basis. Moreover, most of the other small market share holders have extremely unique and prestige image formed over long period of time along with other industry lines such as fashion in western society. (e.g. Chanel, Ralph Lauren, Calvin Klein) -US consumers may demand different (different needs from those of Japan).

style •The cash cow should be used to wisely support the new brands so as not to fail due to the extensive competition with Estee Lauder.

•Experienced Human Resources, and R&D facilities should be managed effectively to successfully handle the severe competition.

•The Shiseido Research Centers and R&D facilities should be used wisely to discover the US consumer needs .

•Establishing prestigious image as well as overcoming the hard-to-pronounce name against Estee Lauder is one of the major tasks to acquire the greatest international market share.

•Finding out the need and taste of US and the difference from those of Japan is crucial for the success.

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5. Goal/Objectives/Strategies Corporate Mission

“ To become no.1 in quality, service, and corporate image ”

Business Statement

“ To fulfill the customer needs and desires through individual scientific-cum-inner-well being products and the company ’ s know-how.

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Objectives

1) To Increase overseas market share from 1.3% to 11% within next 5 years 2) To create and establish a unique group & individual brand image suitable for the US market

Strategies

-Target market: attracting prestige class class women with high income(with the brand Shiseido women including the teenage groups with extreme market potential (with the ), as well as the brand 5S ) middle -Positioning: scientific-cum-inner well-being products providing healthier looks through healthier spirit -Price: targeting prestige and middle class/ trying to set lower costs for middle class products and similar price for prestige class when compared with the competitors -Distribution: focus on department stores and color effects as well as on-line shops / special 5S stores for experiences in aroma -Sales Promotion: advertising campaigns focusing on the use of natural resources to influence consumers

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senses, promoting the spiritual being.

/ Shiseido store dedicated to free try-outs for customers various -Company Growth: in order to increase the market share, We should not only pursue selling our own products and brands, but also has to make joint ventures , buy or take over US companies , or sell our products under other company brands

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6-1. Specific Strategy Accomplishment through Various Brands/Product Portfolios - Shiseido (Prestige Class):

“

Product Differentiation

”

meeting specific customer needs a. The Skincare b. Pureness

The Skincare is for overall prestige customers. It has been designed to offer calming solutions for stressed-out skin. The Skincare line strengthens, restores and protects.

Pureness is a skincare line that provides the ideal type of moisture replenishing for young skin, refines it and brings out the skin's natural clarity. It contains the exclusive Shiseido ingredient Phytogenic Complex, a water-based moisturizing factor found in various fruits and plants.

c. Benefiance

Designed for mature women with a keen interest in anti-aging skincare, Shiseido Benefiance was developed to please the customer entirely, to please her body and mind. The concept is "Total Luxury for the Skin."

d. Suncare

Shiseido's Suncare line offers products that are ultra gentle and protect skin from the redness, dryness, oxidation, skin peeling and damage caused by UV rays, thus minimizing skin aging.

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6-2. Competitive Advantage - 5S (Middle Class): Skin Care + Mind Care

5S system is the product that represents the Shiseido philosophy most distinctively, “

harmony of spirit and form: the outer reflection of the inner self

.” Combined with advanced technology, herbs and natural extracts function to effectively care for customers’ skin and positively influence their minds with scientifically proven color and aroma effects. The number 5 is deeply significant throughout many cultures and religions, as well as philosophies about the natural and spiritual world. For example, Confucianism has the five classics, Islam the five pillars, and we all have 5 fingers and toes, as well as 5 senses.

5S skincare is about UNION: mind and body, east and west, nature and technology.

5S was born out of a collaboration between scientists, dermatologists, color therapist, environmental specialist, aroma therapists and herbalists in order to have positive influence on skin though using all 5 senses.

Major Competitor

–

Clinique

Clinique, one of the biggest subordinate brands of Estee Lauder Group, is the strongest competitor in the Skin Care industry for the middle class consumers. Not only they target the same market segment, but 5S and Clinique also have similar image of being “ scientific ” since they both were founded upon the researches of dermatologist.

However, 5S has a very significant competitive advantage over Clinique,that is using natural ingredients for positive influence on the inner being. Clinique products are formulated with chemicals; thus, when applied on the skin, the initial users may feel a kind of hurt as well as the stinging smell of strong chemicals. On the contrary, the 5S Products are made up of natural resources, such as herbs, while outsourcing them in an environmentally sustainable ways.

These natural resources influence consumers

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5 senses so that the skin care and the mind care are both done simultaneously.

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7-1. STP Segmentation

Market Segmentation High Prestige Market/Product Features •Extremely high quality with solid brand reputation established upon long period of tradition.

•Images are created along with the famous fashion designers •Perfume plays significant role in the image formation.

•Long-term PLC •Main channels: department stores and specialty stores Prestige Middle Mass Consumer Features •High income •Strong loyalty to their current brands Competitors (Brand Names) •Chanel •Christian Dior •Elizabeth Arden •Aramis •Lancome •Estee Lauder •High quality with high reputation •Main channels: department stores and specialty stores •Average price with good quality •Great market potential due to increase in beauty interest as well as the decline in the initial age of using cosmetics and men ’ s cosmetics •Main channels: department stores, general merchandise stores, and variety stores •Low Price •Great potential due to increase in beauty interest as well as the decline in the initial age of using cosmetics •Main channels are general merchandise stores, convenience stores, drug stores and supermarkets.

•Dominant products are body & bath care.

•Relatively high income with constant social activities (i.e. career women, mainly late 20s-40s) •Broad age groups, especially early 20s •Teenage consumers show high growth potential • Men consumers are coming in.

•All age groups with low income.

•Teenage consumers play significant role.

•Clinique •Estee Lauder •Tommy Hifiger •Clinique •Body Shop •Origions •Revlon •L ’ oreal •Body Shop •Origions •Revlon •L ’ oreal

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7-2. STP Targeting

•Target skin care market as they occupy the greatest portion of the whole cosmetics market with high market growth rate. •Target prestige and middle classes for the initial stage . The high prestige class is hard to take over due to the solid brand reputation and high consumer loyalty of conventional brands. Also, The mass market consists of mainly the body and bath products, not the skin care nor color cosmetics segment. In addition, targeting mass market from the initial step might lower the overall Shiseido group reputation. Prestige market should be targeted since Shiseido showed greatest volume of sales in domestic prestige sector. Furthermore, the middle class is targeted as it is expected to show the greatest potential growth in the teen and men market. Thus, targeting prestige and middle classes will contribute greatly to the increase in the overseas market share, one of the ultimate goals of Shiseido.

Brand Name Shiseido (Global Line) 5S Target Market Prestige Class Middle Class (Concentrating on the Skin Care market) Product Feature • Includes specialty products such as anti-aging, sun care, and young skin.

• Utilizes scientifically proven color and aroma effects on skin & spirit. • Relatively low-price, suiting diverse market, esp. young generation.

7-3. STP Positioning

Brand Name Shiseido (Global Line) 5S Overall Brand Positioning •Main global brand, embodying the Shiseido corporate brand image.

•Brand targeted at urban women, based on a SoHo, New York City, image.

•Spiritual/Psychological image as well as scientific.

Main Channels •Department stores •Specialty stores •Department stores •Variety stores •General merchandise stores •5S stores Selling Format •Counseling •Advice •Self selection

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