Revlon Strategic Plan

I. BACKGROUND OF THE STUDY

Revlon Inc. is a world leader in cosmetics. It was formed in 1932 by brothers Charles and Joseph Revson and Charles Lachmann with a $300 investment. During Revson’s time, a near monopoly on beauty parlor sales was developed brought about by door-to-door sales of nail polish. He expanded into the lipstick market with the slogan “Matching Lips and Fingertips”. Thus, after six years the small nail Enamel Company transformed into one of the most recognizable brands and companies in the world. After the death of Charles Revson, Michel Bergerac took over and built up the pharmaceutical side of the business. As a result of this, Revlon lose its ground in cosmetics. Thereafter, Ronald Perelman, chairman and CEO of MacAndrews and Forbes, made five offers to purchase Revlon, took over the company for $1.8 Billion and placed it back to its roots as a manufacturer and seller of cosmetics and fragrances. As of now, Revlon is in peril and is attempting to reduce expenses but continued to struggle with their debt reaching almost $2.3 Billion.

II. STATEMENT OF THE PROBLEM
The researchers aim to determine the following problems faced by Revlon: 1. What industry does Revlon belong to?
2. What must be done to improve the Research and Development Division of Revlon? 3. How to improve the financial condition, specifically the debts, of the company? 4. Which market segment must Revlon target in the Philippines? 5. What are the applicable and effective marketing strategies for the Philippine market? III. OBJECTIVE(S)

This study aims to address the aforementioned problems by providing information about threats, opportunities, weaknesses and strengths of Revlon and making use of this information to achieve the following: 1. Identify the industry where Revlon belongs to base on the needs of the consumers. 2. Improve the Research and Development of the Company within the next two (2) years. 3. Improve the Debts of the Company within the next five (5) years. 4. Strengthen Revlon’s Brand Recognition in the Philippines within the next five (5) years. IV. INDUSTRY ANALYSIS

A. ANALYSIS OF THE MACRO-ENVIRONMENT
1. Demographic/Social/Cultural Environment
The beauty and personal care industry is impacted by major changes in the demographic composition of the Philippines as well as the social awareness of most of its people. Women, more than ever, feel the need to be camera-ready at all times, thanks mainly to cellphone cameras. Social media like Facebook, Twitter, Multiply, among endless list of others, also is feeding a subculture of “getting ready,” where dressing and grooming before a big event can sometimes overshadow the event itself. “You have to be in a demographic where women care about makeup and care about their looks and care about the whole package,” says Allison Conrad, president of Blushington. In the onset of the new millennia where women outnumbered men in terms of population and women started to take their places in the business world, cosmetics and personal care products became more of a necessity.

In the 2012 Philippine Demographic Profile conducted in the Philippines, ages 15-64 comprise the 61.1% of the total population of the Philippines (male 31,103,967/female 31,097,203). There is a potential large market for beauty and personal care products in the Philippines as more and more women on this age range are considered career women in which cosmetics is a necessity. 2. Political/Legal/Governmental Environment

Philippine Government regulates operations of any business entity in the country. It is also one of the countries around the globe to impose high tax rates. Thus, any entity wishing to import or export any goods must get clearance from Bureau of Customs (BOC). Revlon, being an American institution is subject to the rules and regulations of the BOC and also to the Bureau of Internal Revenue for income that could be derived by the firm in the country. Before Revlon products could be imported to the Philippine industry, 7% import duties must be paid so that Revlon could commence operations and a further 12% sales tax rate shall be imposed to their sales. 3. Economic Environment

The availability of economy brands in the market significantly strengthened the strong growth in color cosmetics amid the tighter economic conditions in the Philippines. In 2009, an increasing number of middle-income consumers shifted to more affordable brands in order to cope with the economic slowdown in the country. However, the increased prominence of lower-priced products may lead to a not-so favorable market for high priced beauty products as Revlon.

B. COMPETITIVE ANALYSIS

INTENSITY OF COMPETITIVE RIVALRY
| High | Low| Intensity of Competitive Rivalry|
No. of competitors| | | High|
Industry Growth rate| | | Low|
Product Differentiation| | | High|
Switching Cost| | | High|
Exit Barrier| | | High|
Strategic Stakes| | | Low|

Using the above table as a guide, the researchers found out that the intensity of rivalry among existing competitors of Revlon in the Philippines is high considering both international and local companies offering beauty and personal care products. The presence of strong international and local beauty companies in the Philippine market led to a high intensity of rivalry. International competitors like Avon and Estee Lauder are major players in the Philippine market; local companies such as Belo, Ever Bilena and Careline are also gaining a fair share of the market. THREAT OF NEW ENTRANTS

| High | Low| Threat of New Entrants|
Product Differentiation | | | Low|
Capital Requirements| | | Low|
Switching Costs| | | High|
Incumbent controls of distribution channels| | | High|
Incumbents proprietary knowledge| | | Low|
Incumbent access to raw materials| | | Low|
Incumbent access to government subsidies | | | High|

There is a low threat of new entrants for the beauty and personal care industry because of the high barrier of entry such as the capital requirement in this industry. Moreover, people now are more health conscious as ever, they are skeptics on the rise of new cosmetic products. As such, new players trying to penetrate the market are having a hard time surviving in the market unless the consumers perceived the value and safeties of the products as attested by experts.

THREAT OF SUBSTITUTE PRODUCTS
| High| Low| Threat of substitute products|
The differentiation of substitute products| | | High|
Rate of improvement in price-performances Relationship of substitute product| | | High |

There is a high threat of product substitute in the beauty and personal care industry as evidence by the great number of major players in the market. These players offer relatively the same products that it is very easy for the consumers to switch from one product to another. BARGAINING POWER OF BUYERS

| High| Low| Bargaining power of buyers|
Concentration of buyers relative to suppliers| | | Low| Switching costs| | | High|
Product differentiation of suppliers| | | High|
Threat of backward integration by buyers| | | Low|
Extent of buyers’ profits| | | High|
Importance of the supplier’s input to quality of buyers’ final product| | | High|

The bargaining power of buyers is high due to the presence of a lot of competing players in the market. Competing beauty companies operating in the Philippines has a low differentiated products thus switching costs are very
low. With this situation, buyers have a high bargaining power as competing companies seek ways to lure consumers to patronize their products.

BARGAINING POWER OF SUPPLIERS
| High| Low| Bargaining power of suppliers|
Concentration relative to buyer industry| | | Low|
Availability of substitute products| | | Low|
Importance of customer to the supplier| | | Low|
Differentiation of the suppliers products and services| | | High| Threat of forward integration by supplier| | | Low|
Switching cost of the buyer| | | High|

The bargaining power of suppliers in the market is low due to the presence of the competing players in the market. Suppliers could not afford to increase prices as they please because they have to take into consideration the price competency of their products, or the availability of product substitutes in the market as compared to other products of competitors.

V. ENVIRONMENTAL ANALYSIS
TOWS ANALYSIS
* Threats
* Tighter economy in the Philippines
* Local beauty and personal care products with much lower prices * Consumer concern about product safety
* Strong competition in the industry
* Opportunities
* Large number of women population in the Philippines as potential clients * Human perception of the necessity of being presentable and made up, thus making beauty and health care products a need * People’s clamor for quality product

* Weaknesses
* Inadequate and non-aggressive marketing strategy of Revlon that made it less popular among middle class and lower class segment of the society * Huge amount of long term debts
* Lack of financial resources
* Not-so effective Research and Development division
* Higher prices of products as compared to competitors
* Minimum diversified products as compared to competitors
* Slow product innovation
* Strength
* Strong brand recognition
* Quality of products
* Human perception of equating quality with high prices

VI. GENERIC STRATEGIES
Focus
More than 13 million or approximately 30% of the total population of the Philippines belong to the women with the age range of 15-64 years. These are the years where women take more conscious effort to enhance their beauty while still caring for their skin. Among this potential market, it is still to be divided as according to their statuses. Age Range| Status|

15-20| Teenagers|
20-30| Young Professionals|
30-60| Career Women (married or not)|
60-64| Retiring age|

While all of these women use beauty and personal care products, not all are willing and capable to purchase beauty products with higher prices if it can be bought in a much lower price. Teenagers, for examples, don’t have yet the means to patronize Revlon products. Meanwhile, women from retiring age may not be as beauty conscious as when they were younger, thus, they lessen their purchase of beauty and personal care products.

It is logical for Revlon to focus their market to the young professionals and the career women who are at the prime of their age and career. These types of women are at the point of their lives where society dictates them to be presentable; their growing awareness of enhancing their beauty without prejudicing the personal care needs of their skin; and they have the means to purchase. VII. ALTERNATIVE COURSES OF ACTION

Financial Ratio Analysis
LIQUIDITY RATIO| 2006| 2007| Analysis|
Current Ratio| 1.293743| 1.36507| Current ratio indicates that for every $1 of current liabilities there is 1.29 of current assets on 2006 and 1.36 on 2007. This means that the company is managing its short term obligations quite well.| Quick Ratio| 0.799311| 0.913453| This ratio indicates the extent to which it can meet its short term obligations without relying on the sales of its inventory. This ratio is below 1 which refers to the fact that the company relies quite a lot on its inventory to meet its short term obligation.| Working Capital ratio| 0.118897| 0.153267| |

Total Asset Turnover| 1.31474| 1.501318| This ratio measures the ability of a company to use its assets efficiently generate sales. This means that the company efficiently utilizing their assets. | Inventory Turnover| 6.380251| 7.763203| This ratio states the number of times company’s inventory is sold and replaced over a period. The lower the ratio (as compared to the industry average which is 11.54) the better it is for the company. | Ave. no. of days to sell| 57.20778| 47.01668| This means that the company is taking 58 days on 2006 and 47 days in 2007 to sell off its inventory.| AR Turnover| 5.300816| 6.767822| This indicates how many times the company collected its receivables.| Ave. Collection Period| 68.85732| 53.93168| This means that the company is taking 69 days on 2006 and 54 days in 2007 to collect its accounts receivable.| Current asset turnover| 2.820741| 2.85332| |

PROFITABILITY RATIOS| | | |
Gross profit Margin| 0.593671| 0.630093| There is a margin of 63.01% for the company to cover its operating expenses and still yield a profit.| Operating Profit Margin| 1.04004| 0.913393| This means that the company is spending more than they sold.| Net Profit Margin| -0.1935| -0.01178| This value indicates a negative amount of net profit for every $1 of net sales. This means that the company is incurring a net loss.| ROA| -0.26966| -0.0181| For every $1 of assets the company yields a profit of $-0.26966 on 2006 and $-0.0181 on 2007.| ROE| 0.204342| 0.023804| For every $1 of assets, $ .2043 is contributed by the owners in 2006 and it decreases tp $ 0.0238 in 2007.| LEVERAGE RATIOS| | | |

Debt Ratio| 2.319669| 2.206567| This means that the company is very insolvent since they have a greater liability than asset.| Time interest earned ratio| (0.35)| 0.87| A metric used to measure a company’s ability to meet its debt obligations. This means that the company is having a hard time in the payment of the interest of the debt of the company.| times fixed charges earned| -0.33419| 0.860465| This measure of a company’s ability to pay its fixed expenses. This means that the company is not able to cover its fixed expenses of the company.|

With the prevailing financial condition of the company, the researchers would like to propose the following alternative courses of action: Marketing
1. Revlon should be more aggressive in advertising their products here in the Philippines thru commercials, billboards, and online advertisements wherein named actors/actresses are to be used as models. 2. It should sponsor events (e.g. Fashion events), makeup workshops. 3. Revlon should also increase its distribution channels in the Philippines to make the products offered by the firm known by the public. 4. It should also create its own slogan to make known to the public the value it offers through a one-liner statement of who Revlon really is. Research and Development

1. Revlon should increase its capital investments for Research and Development because this functional area plays a vital role in the success or failure of a product innovation that every firm needs in order to deal with the stiff competition in the market. 2. It should also hire young researchers to inculcate fresh ideas in the product development.

Finance
1. To somehow improve the financial condition of the company, particularly the debts of the firm, instead of extending or increasing the debt of the company by increasing loans, Revlon should opt to issue more stocks.
VIII. CONCLUSION/RECOMMENDATION

Conclusion
Through the case analysis made by the researchers in consideration with the given information and some information taken independently, the researchers conclude that Revlon should belong to the beauty and personal care industry rather than the cosmetics industry. The researchers believe that in choosing a suitable industry, the need of the consumers must be taken into consideration. The consumers needed something beyond cosmetics; they needed beauty and personal care.

Also, the researchers conclude after the analysis that Revlon’s focused market segment in the Philippine market must be the professionals, both the young and in their later years. This group of women has the need of beauty and personal care as they present themselves at work. You are what you wear as the saying goes. Women who take care of themselves have the added confidence to face their job and their colleagues. Also, they are the best market as they have the means to patronize Revlon’s product prices.

Finally, the researchers conclude that, after thorough analysis, the Research and Development Division of Revlon is not so effective, as evidenced by the flop of its product line Vital Radiance. The researchers agreed that Revlon is spending lesser than necessary to its R&D Division with $24.4 million in 2006 as compared to the $100+ million it spends on advertising. It is true that advertising is very important but R&D to assess the market before launching is also as important. Revlon must not also rest on its laurels as one of the leading cosmetic brands. It must always be aggressive to dominate the market. Thus, necessary marketing strategies must be implemented to win the larger share of the Philippine market.

Recommendation
The researchers recommend a Vertical Integration strategy specifically the Forward Integration. Revlon already has its name recognized internationally but is very uncommon to the major portion of the Philippine market. This is because the price of their product limits their market to the upper class men of the Philippine society more than the middle class or the lower class.

Forward integration or the acquisition of distributors can provide advantages for the operation of Revlon like allowing Revlon to limit its exposure to sales and focus its resources on efficient manufacturing techniques; it also becomes the responsibility of the distributors to find retail outlets for products. The manufacturer can broaden its retail exposure through distribution without having to spend more money or involve more company resources in sales; Revlon also can turn the responsibility of dealing with international trade laws, shipping through customs and handling the laws and cultures of foreign countries over to the distributors; and Revlon can turn over the responsibility of administering customer service duties to its distributors and reduce the manufacturer’s need to invest in a customer service department, thus, reduces the administrative responsibilities of the manufacturer and lowers operating costs.

Revlon is in a tight financial condition. This is the best time to make optimum use of its available resources. Philippine market is a potential large market for beauty and personal care products as more and more women give better treatment to their selves. The mission of Charles Revson as he pioneered Revlon is a great cause. It is time that this mission be more made known and be expanded to a bigger market making more and more women be motivated, pushed and enticed to build an idea of who they truly are and express their fabulous femininity.