Lakmé is a renowned name in the Indian cosmetics industry, being managed by Hindustan Unilever, offering its customers with different skin related products and cosmetics. The Porter’s Five Forces analysis of Lakme reviews the way threat of new entrants, substitute products and competitors define its market dynamics. Moreover, the influence of buyers and suppliers is analyzed in the following section.
Lakmé – Threat of New Entrants
The attractiveness of an industry makes it a viable option for new entrants as they see chances of growth and development. There are certain factors that make an industry appealing for the organizations. When market entry does not require intensive capital investment and is not guarded by strict government regulations that limit the entry of new firms the industry becomes an opportunity. When government regulations make it difficult to enter in a specific market, or the firms are challenged due to high capital requirement or intense backlash from competitors, the industry attractiveness decreases.
Lakmé is operating in the cosmetic and skin care industry which comprises of different brands, including the local and international ones. Setting up a new company in this domain requires substantial investment, as the new company would be required to develop the products, launch them and market the brand. Since there are already different companies operating in this industry, the new entrants will find it difficult to create a space in the industry. Nevertheless, ventures with significant financial backup can opt to enter this industry. The new entrants find the industry attractive as the reduction in excise tax enabled the organizations to adjust their prices accordingly, making the price more appealing to the customers (Ungson & Wong, 2014). Therefore, it can be seen that Lakmé is facing moderate level of threat of new entrants.
Lakmé – Threat of Substitute Products
For skin care and cosmetic industry, the substitute products comprise the different brands that are selling the products that are similar in nature and offer closely the same results as claimed by their counterparts. The feature that helps large scale companies like Lakmé to respond well to the threat of substitute products is its well established market presence. Furthermore, the credibility that the company has retained in the market becomes a source of benefit when it comes to dealing with the threat of substitute products. The customers view the range of items available by the company as having good quality within affordable prices.
However, the availability of other options with little to no switching cost increased the risk of substitute products disrupting the market position of Lakmé. In 2019, Lakmé had 25% market share and 26% of the market share was covered by other brands, followed by a smaller share owned by companies such as L’Oréal and Patanjali Ayurved (Statista, 2022). Therefore, it can be seen that there is moderate level of threat of substitute products for Lakmé as the company has to deal with the competitive pressure from other organizations in an industry that is defined by low switching cost.
Lakmé – Bargaining power of Buyers
The bargaining power of the buyers is high for Lakmé as customers can easily switch from the company to its competitors in case if the price or quality is not in accordance with their expectations. The bargaining power is strengthened due to the lack of uniqueness of the products, easy availability of alternatives and a large customer base. The customers can easily switch to alternate brands, giving them a high bargaining power. Due to this, Lakmé products need to be marketed at a cost-effective price range, along with maintaining good quality.
Lakmé – Bargaining power of suppliers
Bargaining power of suppliers can affect the dynamics of an industry. When there are few suppliers, the bargaining power increase, as companies have to be more flexible in their dealing with the limited suppliers. On the other hand, when numerous suppliers are offering same products, the businesses have a leverage to make choice according to their cost decisions. There is low level of bargaining power of suppliers for Lakmé. Obtaining contract from a leading cosmetic and skin care brand is deemed as a success, therefore the suppliers who are providing raw materials for the product manufacturing for Lakmé are not likely to engage in extensive bargaining.
In addition to the company size being a decisive factor, the fragmented nature of suppliers makes it more difficult to hold a high bargaining power. In case if one set of suppliers decline to accept the price offered by the company, the organization can secure a deal with another supplier with relative ease, showing minimum power of the suppliers.
Lakmé – Competitive Rivalry
Competitors in an industry determine the profitability and market share that can be acquired by the organizations, in addition to the efforts required to keep the customer base intact. A high number of competitors in an industry lead to extreme rivalry, which is further intensified when there are conglomerates competing with each other. The company has a history of 70 years, which serves as a support for its brand image, sustaining customer loyalty (Rukhsana, 2021). Lakmé is facing high competition from international brands like L’Oréal and Revlon, as well as the locally managed ventures such as skincare range of Patanjali Ayurved (Statista, 2022). It can be stated that the company is facing a high level of competitive rivalry.
To respond to the threat of competitive rivalry, Lakmé has used salon franchises and brand ambassadors to retain its market position. The association of leading actresses as company brand ambassadors serves as a competitive edge for Lakmé, and despite the intense competition, the company has maintained a notable position in the market.
Lakmé – Conclusion
The cosmetic and skincare domain in which Lakmé is operating has low level of attractiveness due to the high bargaining power of the buyers and intense competition among existing companies. Moreover, the new entrants find moderate level of difficulty in setting up a skincare and cosmetic brand, making the competitive landscape more intense, while adding to the list of substitute products for Lakmé. The low bargaining power of suppliers indicates a favorable aspect of the industry for the company.
References
Rukhsana, K. (2021). Lakmé, One of India’s leading Cosmetics Brands. Doer. Retrieved from https://doerlife.com/lakme-secret-behind-exotic-indian-beauty-since-1952/
Statista (2022). Preference of cosmetic brands among consumers in India as of March 2019. Retrieved from https://www.statista.com/statistics/996669/india-preferred-cosmetic-brands/
Ungson, G. R., & Wong, Y. Y. (2014). Global strategic management. Routledge.