revlon case analyis.docx

Revlon Case Analyis

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Revlon: Case Study analysis|

BUS 490 Comprehensive Examination: Strategic Management :: Online|

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3/16/2012|

Table of Contents

Introduction3

Mission Statement3

Vision of the Company4

External Assessment4

Technological trends4

Demographic trends4

Economic Trends5

Political and legal constraints5

Sociological factors7

Global trends8

Industry Analysis8

Competitor analysis9

External Factor Evaluation (EFE) Matrix10

Internal Assessment11

Company organizational structure12

Personal policies and management12

Operational production capacities and policies13

Financial stability (common ratios and measures)14

Ratio Analysis15

Leadership and organizational behavior, corporate culture, etc20

Marketing21

Ethical/ legal issues22

Management information systems and research and development22

Patents, Trademarks and Proprietary Technology22

The Internal Factor Evaluation (IFE) Matrix23

Strategy Formulation24

Strategic solutions30

Timeline for Implementation32

Consequences33

References:34

REVLON: CASE STUDY ANALYSIS INTRODUCTION

Introduction

Revlon is a global color cosmetics, hair color, beauty tools, fragrances, skincare, anti-persiparant/deodorants, and beauty care products company.

Revlon case is a comprehensive strategic management case that includes 2006 and 2007 financial statements, competitor information, internal factors, future outlook and more of Revlon Company. It has posted losses for eight consecutive years and has struggled with debt since Ron Perelman purchased a majority stake in the company in 1985. And Revlon is a company in trouble. Net sales for 2006 decreased by $1 million to $1331 billion and net losses in 2006 were $251 million following a loss of $84 million in 2005.In recent years Revlon launched a new product for older women with 100 products, and it was the largest launch of the company since ColorStay product in 1994. Unfortunately, this product was not received very well by the market because other competitors were providing products and the prices of the Revlon product was too high as comparing with competitors.

Revlon planned to launch a new prestige fragrance called Flair in 2006, but delayed the launch until debt could be restructured. The company issued $185 million in stock in 2006 to raise money to reduce debt. MacAndrews and Forbes Holdings agreed to purchase a portion of the stock and to purchase any stock not purchased by current stockholders. MacAndrews also extend a line of credit of $87 million to Revlon which can help the Revlon in the recovery of losses.

Revlon produces and markets skin care, cosmetics, and personal care, fragrance and professional products. Revlon produces in more than 100 countries around the world in different countries under brand names such as Revlon, Ultima II, ColorStay, Almay, Charlie, Flex, Mitchum, Jean Nate, and ColorSilk. Revlon Company continues to introduce new products. Alma Intense Eye Color (package that combines liner, mascara, and eye shadow) was successfully introduced in 2005 and Almay Smart Shade (colorless foundation that changes to correct color when applied) and ColorStay Smooth Lip Color were introduced in 2006. (Austin, 2007)

Mission Statement

The long-term mission of Revlon Company is to emerge as the dominant cosmetics and personal care firm in the twenty-first century by appealing to young/trendy women (1), health-conscious women (skin care), and older women with its variety of brands offered all around the world (2). Also, continuing growing product line with new products (3), which are safe and effective, and that is responsibility of very experienced chemists (4). Revlon and its employees are active in supporting women health programs and other community efforts (5).

1. Customers

2. Markets

3. Products or services

4. Concern for employees

5. Concern for public image

Vision of the Company

Vision of Revlon Company is to provide glamour, excitement and innovation through quality products at affordable prices.

External Assessment

Revlon, Inc. is one of the major leaders in the global cosmetics, skin care, fragrance, and personal care industry. Revlon is a leading mass-market cosmetics brand as well. This company provides a variety of products to its customers who are health and beauty conscious. Since Revlon is operating worldwide, it is it is necessary to consider some technological, demographic, economic, political and legal, sociological and global trends in order to get a broader understanding of major issues that might arise for this company.

Technological trends

Technological research and development is essential for companies to gain a higher market share and recognition among other brands in this competitive industry. Whereas some products have the purpose to beautify, others to heal, and other products have the specific purpose to stop aging, companies have to spend large amounts of money into research. While cosmetics, skin care, fragrance and personal care products consist of a variety of ingredients, manufacturers have gained the advantage to combine all the achievements in both pharmaceuticals and biotechnology to use new substances as the ingredients in their production. Awareness about ingredients among the consumers has increased. Aware consumers demand for safe products. Until the recent year manufacturers have relied mainly on extracts from plants or synthetic substances as the ingredients used to effectively absorb the products to the skin. Now researchers are paying more attention to implementing nanotechnology and to replace plant extracts by mineral extracts and other more natural ingredients to increase the effectiveness of absorption and the other effects, and finally to meet the needs of the customers. Increasing the effectiveness and creating long-lasting effects is a key technological challenge for cosmetics manufacturers. The main purpose of technological advancements now is to make cosmetics more natural, skin-friendly, long lasting and more effective.

Demographic trends

Demographic factor impacts heavily the industry of cosmetics and personal care products. World population is reported to continually grow: by 0.3% in more developed countries from 2000 to 2010, by 1.3% in less developed countries, and by 2.7% in least developed countries. The worlds population more than doubled between 1960 and 2010. The increase in global population between 1960 and 2010 can be largely attributed to growth in Asia, Africa and Latin America. However, European and U.S. countries now are facing much slower population growth. Europe and Japan is at the danger of ageing. Ageing could reduce economic power of Japan. Without rapid growth in productivity, greater participation rates in the labor force, or other aggressive corrective actions, labor force contraction in many of the worlds leading economies could depress economic output, boost inflation and curb investment. This could lead to overcapacity and falling returns on investment in key sectors of some industrialized economies.The United States higher fertility rate and its ability to absorb and assimilate newcomers in ways that others culturally reject support the notion that demographic trends will only enhance the United States ability to maintain its position as superpower on the world stage. With continued superpower status will remain continued pressure for leadership and increased challenges. As the CIA reports, by 2050, nearly 1.5 billion people or 16.3 percent of the worlds population will be aged 65 or older compared to about 420 million or 6.9 percent in 2000.

Economic Trends

The last few years of recession have had impact on the sales of perfumes, cosmetics and personal care items. Several new patterns have become noticeable in this industry. First, during the recession people had lower income; therefore they turned their heads to lower-priced production. Second, consumers have found that buying items through dedicated Internet channels is a cheaper way to get the desired products at a lower price. However, since the value of the dollar is considered weak, production and export from U.S. creates a benefit against rivals who manufacture in European countries where Euro is stronger than dollar and the production costs more. Production in Europe is considered expensive due to the appreciation of the Euro, exports are declining. Developing countries, such as India and China, with low cost labor force has become the main threat to U.S. and European manufacturers. The United States experiences slow growth and high unemployment, without much policy action until after the presidential election, leaving the fiscal stabilization, growth, and employment largely unattended, and structural adjustment in the hands of the private sector without much public sector investment or support. Emerging economies settle down to near pre-crisis growth patterns and remain the incomplete growth engine of the global economy. Eurozone has financial problems with several of its members, who have become a threat to the whole Eurozone countries. In case those financially unstable countries defaulted all the members would be facing serious consequences and the European economy as well.

Political and legal constraints

U.S.

The United States where the headquarters and one of the manufacturing plants of the Revlon company is located has had significantly stable government since the end of the Civil war. In contrast many other nations have not enjoyed such longevity of stability in governance. For example, such countries as Germany, Italy or Russia have had internal conflicts and political instability. Due to political stability U.S. is considered a safe place to operate for the Revlon, Inc.

Tax rates:

* Federal taxes and State taxes exist

* Progressive federal tax rates vary from 15% to 35%

* State tax rates vary from state to state and are also progressive

Mexico

Revlon has a manufacturing plant in Mexico. Mexico is Federal presidential constitutional republic. This country has global attention as the center of drug production and trafficking. However, Mexico is in the middle of a political transition towards democracy, complete with fair elections, public accountability and the rule of law. One of the main threats today is Mexicos financial stability due to political turbulence. Foreign investors may freely establish a company in Mexico or buy stock of already established companies (Foeth, 2007).

Tax rates:

* Income tax rate 30%

* Corporate tax rate 30%

* Sales tax/VAT 16%

Venezuela

Venezuela is causing concerns to the U.S. because of violation of human rights, and dysfunctional government provides a welcome heaven for criminals and terrorists.

Tax rates:



* Sales tax/VAT 12%

South Africa

S. Africa is maintaining high reputation in world rankings, with a number of recent international reports supporting the countrys strengths as an investment destination. Despite some skepticism which emerged after elections in 2009, business analysts are still optimistic about S. Africa and they are naming it as less risky and more rewarding for investment than other African countries. According to Janes Country Risk Ratings reports, South Africa was placed in 115th position out of 235 countries. This ranking shows that S. Africa is rated alongside such developed economies as Ukraine or Vietnam and was ranked 2ndthe most stable country in Sub-Saharan Africa (Janes Information Group, 2008).

According to Business Times, South Africas ratings are:

* 62 out of 100 for economic stability

* 69 of 100 for military steadfastness

* 42 of 100 for social stability (indicators of health, social cohesion and crime)

* 78 of 100 for external factors (S. Africas relationship with neighboring countries)

* 78 of 100 for political stability

Tax rates in S. Africa:



* Sales tax/VAT 14%

China

According to Eichengreen, investors should be worried about Chinas political stability. Risk consultancy agency called Maplecroft recently analyzed China and the country was categorized as the extreme risk across several areas. According to Maplecroft those areas would be civil and political rights, judicial independence, democratic governance, labor rights and human rights violations. Due to these factors entrepreneurs that want to establish companies in China may suffer from reputational damage. China is a communist party-led state.

Tax rates:



* Sales tax/VAT 17%

France

Type of government in France is republic. The upcoming presidential election will take place in April. France was scored 0.58 by the political stability and absence of violence Index in the range from -2.5 to 2.5, the higher index score the better governance the country has (Kaufmann, Kraay, and Mastruzzi, 2009). This index is the measure of perceptions of the likelihoods that government will be stabilized or overthrown by possibly unconstitutional or aggressive means. Low scores indicate distrust of the citizens towards continuity of the government policy (Kaufmann, et al., 2009).

Tax rates:


* Corporate tax rate 33.33%

* Sales tax/VAT 19.60%

Sociological factors

Celebrities have an enormous contribution in advertising and making beauty and health products popular among casual people. The new trend is that males are now more concerned about their appearance, so no longer only females are to be targeted as possible consumers. Market expansion for male products is the opportunity to increase sales for personal care, fragrance and cosmetics manufacturers. One more target of interest for beauty products manufacturers is the U.S. teenage market since females in this age group has exceeded almost 20 million by 2010. The Hispanic American segment is the fastest growing and is projected to be the largest minority sector in the U.S. Non-Hispanic whites population has been expected to decline to 68% by 2010. More and more consumers are concerned about products safety and animal-testing. Since the competition in the labor sector is drastically increasing, due to the globalization and the workforce migration within and outside countries and the overall population growth in the world, people are very concerned about their appearance, increased consumption of beauty and health products is the result. However, older people are spending less on cosmetics due to rapid decrease in disposable income which is caused by higher prices of scarce resources.

Global trends

Asian, Asian-Pacific and South Latin countries are becoming an increasing market for consumption of beauty products. A new trend is that cosmetics consumers now prefer natural-look beauty products that make them look natural, like wearing no make-up. Male consumers are now more concerned about their appearance, no longer only females are the consumers of these personal care and cosmetic items. Consumers are also concerned about ethical production conditions and animal testing. The increased awarenessamong consumers about ingredients has created the trend that buyers of cosmetics and beauty production now require manufacturers to use safe substances.

Industry Analysis

Supplier power

The bargaining power of suppliers is favorable. There are many, so they do not have lots of power, therefore players in the industry can keep switching them at almost no cost. This makes the industry highly attractive. In addition, huge manufacturers are able to produce ingredients used for cosmetics, personal care items and perfumes on their own.

Buyer power

Power of buyers is unfavorable in this industry.Buyers in the cosmetics, fragrance and personal care products industry are not fairly loyal to a particular company and they have the ability to switch to other brands at very low or no cost. Moreover, consumers often do not stick to one particular brand. This means that buyer power is high. The majority of buyers own a variety of different brands of makeup, perfume or personal care products. This also allows customers to shop for favorable prices and products.

Threat of new entrants

Threat of new entrants is unfavorable for this industry. This industry is considered not to have high barriers of entry, it is not seen difficult for a new firm to step into the industry. It makes the threat of new entrants high. New small and large makeup and fragrance companies are entering this industry constantly. Since makeup and fragrances are usually produced in large volumes, due to economies of scale effect, there is low relative production cost per unit. Also, it is pretty tough for new companies to compete with older companies whose brands are already recognized by consumers.However, decreased competition is causedby much relative capital needed to become a player in the industry, as capital is needed to acquire plant, equipment and supplies for production, and it makes it more difficult for new firms to enter.

Threat of substitutes

The level of threat of substitutes for cosmetics, personal care, and fragrances is low. These are the products that have very low number of substitutes offered by other industries. One and main of the substitutes would be cosmetic surgery, more specifically injections of substances to the body. However, surgery is very expensive and still considered risky, therefore this substitute is not yet very popular. Another factor that some consumers may find attractive or unattractive, depending on the preferences, is that surgery creates permanent results on ones body and appearance. As there are no other alternatives for cosmetics, fragrance and personal care products, demand elasticity is constrained.

Degree of rivalry

The degree of rivalry in this industry is high due to large number of firms competing for the same resources and customers. Slow industry growth also intensifies rivalry as companies fight for market share. In addition high fixed costs resulting in the economy of scale effect increase the degree of rivalry. Rivalry is decreased by the nature of products as they are not highly-perishable and can be stored for a longer time before being sold. Costs for customers to switch from one product to another are low, therefore rivalry is intensified. Brand identification, which is attributable in this industry, reduces rivalry.

Competitor analysis

Procter and Gamble

Procter & Gamble is a multinational company offering which is offering wide range of products in many categories, such as: personal care, cosmetics, fragrances, hair care and skin care. P&G Company is differentiated. P&G offers products outside cosmetics/skin care industry include diapers, baking mixes, bleach, dish care products, juice, laundry products and etc. The company operates in more than 70 countries worldwide (Austin, 2007).

P&G offers hair care products through its well-known brands which are Pantene, Head & Shoulders and Herbal Essences. P&G has acquired Gillette for $57 billion in 2005. Beauty care products have contributed to P&G sales with &21.1 billion and $3.2 billion in profit. P&G offers a line of products called Cover Girl Advanced Radiance for baby boomers generation (Austin, 2007).

LOreal

LOreal is the world largest firm in the cosmetics industry. LOreal has acquired Maybelline which was one of the leading competitors in cosmetics industry. In 1996 it was bought for $758 million. This was the attempt to increase its market share in the U.S. this attempt was successful; since LOreal became 2nd largest cosmetics firm (Austin, 2007).

Unilever

Unilever is the Anglo-Dutch firm which was known for manufacturing soap/detergent and food products. Recently the company started to manufacture personal care and cosmetics products, which contributes to the company with 26% of their business sales. Some of the most known Unilever product brands are: Dove, Ponds, Vaseline and Sunsilk. In 2005 Unilever sold its fragrance brand called Calvin Klein to Coty for $800 million. The firm is for using noncelebrities models to promote their products and launching controversial marketing campaigns. Skin care products of Unilever Company are leading in North America, Africa and Latin America regions (Austin, 2007).

Avon Products, Inc.

Avon is the leading firm in direct selling of cosmetics and beauty care products. Companies direct sales reaches 5 million people in 114 countries. Most known Avon brands are: Avon color, Avon Skin Care Solutions, Anew and Mark. Besides beauty care products and fragrances Avon sells vitamins and nutritional supplements, as well as jewelry, gift items and lingerie. 98% of sales are contributed by the sales representatives, to maintain a smaller percentage Avon have lunched its website. Avon has made a few cost-cutting decisions in 2006. The decisions involved the simplification of brands and Avon has reduced the of management levels (Austin, 2007).

Estee Louder

The Estee Louder Companies, Inc. manufactures and markets cosmetics, fragrances, skin care products and hair care products for sale in 103 countries and territories. Some of best known brands of Estee Louder are Estee Louder and Clinique. Estee Louder holds license to sell products by the name of Tommy Hilfiger and Donna Karan. In 2006 net sales have reached $6,464 million (Austin 2007).

External Factor Evaluation (EFE) Matrix

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Key External Factors| Weight| Rating| Weighted Score|

Opportunities| | | |

1. Implementation of the relatively new nanotechnology| 0.1| 3| 0.3|

2. Constant growth of world population (by 2050, nearly 1.5 billion people or 16.3 percent of the worlds population will be aged 65 or older)| 0.01| 2| 0.2|

3. Devaluation of dollar against Euro| 0.04| 4| 0.16|

4. Increasing sales over the Internet| 0.08| 2| 0.16|

5. Emerging new markets (Asian, South Latin, Asian-Pacific countries)| 0.2| 4| 0.8|

6. Stability of political governance in countries of operation| 0.05| 2| 0.10|

8. Increasing number of male consumers| 0.08| 2| 0.16|

| | | |

Threats| | | |

1. Continual ageing of world population | 0.08| 2| 0.16|

2. Increased awareness and demands of safety from customers| 0.06| 2| 0.12|

3. Financial problems in the Eurozone| 0.07| 1| 0.07|

4. Decrease of free disposable income of older consumers| 0.07| 2| 0.14|

5. Future regulations of industry production| 0.05| 3| 0.15|

6. Acquisitions of competing companies like LOreal and Maybeline that have larger share in the market| 0.06| 3| 0.18|

7. Competitor companies like Proctor & Gamble that are differentiated| 0.05| 3| 0.15|

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Total:| 1.00| | 3.39|

Internal Assessment

Company organizational structure

Organizational Chart Revlon, 2007

The company is characterized by a large degree of formalization where each function relies on standardized ways of operating. The decision-making power is often centralized at the top of the hierarchy.The simple scheme of hierarchy can be like this Plant Manager>>Manager Engineering > Manager Accounting > Manager Information Systems > Manager Human Resources> Managers Purchasing. The company has a clearly functional organizational structure. The size of the company with its low rates of change and dynamism promoted the establishment of this type of structure.(Rao, 2010)

Personal policies and management

Planning

Employees in the company are differentiated and perform narrow span or specialized tasks. Those tasks are organized around the functions of operations, finance, human resources, and product research and development. Putting like specialties together results in economies of scale, minimizes duplication of personnel and equipment and makes employees comfortable and satisfied because it gives them the opportunity to talk the same language as their peers. However, this efficiency might have a potential problem which is based on the communication gaps and complexes with management. (Functional Organization Structure, 2012)

Motivation

The company created new incentive rewards programs, including restricted stock grants fora broad group of key contributors who will be important in executing our strategies andin contributing to the achievement of our goal of achieving long-term, profitable growth. The high standards and tough policies in the company are being rewarded highly and generously as well. One of the prominent acts towards employee appreciation was undertaken by creating and launching a Revlon learning center where employees are offered a better training. Besides, since 2004 there was an even more exciting encouragement policy introduced which was Charlie Awards. (Revlon Annual Report 2007)

Staffing

By December 31, 2007, the Company employed approximately 5,600 people. As ofDecember 31, 2007, approximately 20 of such employees in the U.S. were covered by collective bargainingagreements. The Company believes that its employee relations are satisfactory. Although the Companyhas experienced minor work stoppages of limited duration in the past in the ordinary course of business,such work stoppages have not had a material effect on the Companys results of operations or financialcondition.(Revlon Annual Report 2007)

Controlling

The scientists at the Edison facility are responsible for all of the Companys new productresearch worldwide, performing research for new products, ideas, concepts and packaging. The researchand development group at the Edison facility also performs extensive safety and quality testing on theCompanys products, including toxicology, microbiology and package testing. Additionally, quality controltesting is performed at each of the Companys manufacturing facilities.( Revlon Annual Report, 2007)

Personnel policies and management

Policies reflect a companys value system. The tone and language of policy statements will be taken as reflections of management attitudes toward employees. Revlon has a strong team of experienced managers. With the coming of the new CEO the company sticks to very high standards. For example, one of the policy requires a 99% inventory and order accuracy in accounting procedures. Some of the plants where cosmetics are being elaborated are issued ISO 9000 certificate which signifies a very high manufacturing level. ( Revlon Annual Report, 2007)

Operational production capacities and policies

Capacity

Management considers theCompanys facilities to be well-maintained and satisfactory for the Companys operations, and believesthat the Companys facilities and third party contractual supplier arrangements provide sufficient capacityfor its current and expected production requirements.( Revlon Annual Report, 2007)

Process/Facilities

The Company continually reviews its manufacturing needs against its manufacturing capacities toidentify opportunities to reduce costs and operate more efficiently. The Company purchases raw materialsand components throughout the world, and continuously pursues reductions in cost of goods through theglobal sourcing of raw materials and components from qualified vendors, utilizing its purchasing capacitydesigned to maximize cost savings. The Companys global sourcing strategy for materials and componentsfrom accredited vendors is also designed to ensure the quality of the raw materials and components andassists in protecting the Company against shortages of, or difficulties in obtaining, such materials. TheCompany believes that alternate sources of raw materials and components exist and does not anticipateany significant shortages of, or difficulty in obtaining, such materials.( Revlon Annual Report, 2007)

Financial stability (common ratios and measures)

Financial Overview

Revenue

NASDAQ, 2007

Revlon Avon Estee Lauder

$1.4B9.947.04

Income

NASDAQ, 2007

Revlon Avon Estee Lauder

-16.1M$530.7M$449.2M$

Analysis: The negative income is a very serious index revealing a substantial problem in the company.

Ratio Analysis

Liquidity ratio

Current ratio = Current Assets/ Current Liabilities

NASDAQ, 2007

2007 Avon Estee Lauder

1.351.421.86

Analysis: Current ratio is above 1 that means for every 1$ of current liabilities there is a 1.35$ current assets. The short term obligations are being managed well. This index might be fine for the creditor but unlikely to be satisfactory for the investor.

Quick Ratio= Current Assets - Inventory/ Current liabilities

NASDAQ, 2007


0.871.021.41

Analysis: Quick ratio shows to which extent the company can deal with its short term obligations without relying on the sales of its inventory. Since the ratio is lover than 1 it implies that the company heavily relies on its own inventory to meet the short term obligations. Being slightly below zero means that there is some small problems in the company though these hardships are not disastrous.

Leverage Ratios

Debt to Equity ratio

NASDAQ, 2007


-1.823.931.4

Analysis: The negative index points to conclusion that the share of owners equity comparing with the creditors in lending money is bigger. Equity is of prime dependency for the company.

Profitability ratios

Gross profit margin= Sales Cost of Goods Sold/Sales

NASDAQ, 2007


69.61%63.3175.87

Analysis: This margin can cover the companys 69.61 % of operating expense and still generate a profit. Not a bad indicator in comparison to the competitors.

Operating Profit Margin = Earnings Before Income Tax/ Sales

NASDAQ, 2007


8.54%0.5322.41

Analysis: The residual 11.5 % profit prior to paying off tax and interest. Not bad in comparison with some competitors while in contrast to others the index is small.

Return on Assets= Net Income/ Average Assets

NASDAQ, 2007


13.2%11.75%11.55%

Analysis: For each dollar of assets the firm generates a profit of 0.13$. It is not a very high indicator because the profit might not be big after paying off taxes and interest.

Return on Equity= Net Income/ Total Stockholders Equity

NASDAQ, 2007


1.39%70.67%31.84%

Analysis: For every stockholders equity the profit per dollar is 0.0139$. This is a seriously low indicator which significantly warns the potential investors.

Price to Earnings Ratio= Price/ Earnings per Share

NASDAQ, 2007


-39.6130.2519.5

Analysis: This indicator measures the attractiveness of the company in the equity market and shows how much investor is willing to pay to owe one share of the company. -39.61 is a very low figure which shows that investors are not expecting to receive much in returns from the company.

Leadership and organizational behavior, corporate culture, etc

Corporate or organizational culture often times is based on stories and legends which are communicating the values and norm of the company. People are sharing these stories as a result they create unspoken corporate atmosphere. Inside people are aware of answer for such questions How does the boss react to mistakes? What eventsare so important that people get fired? Who, if anyone, can break the rules? A founder and CEO of Revlon Charles Revson and he was prominent for demanding every worker to be in time whereas himself was arriving for work after noon. Other cases with his involvement are notorious as well.

The contemporary corporate culture is based on behaviors of accountability, collaboration, communication, execution, value of integrity, respect and trust (Revlon, 2012).

The Code of business Conduct states:

* Everything each of us does in our business must reflect the highest ethical standards as well as our commitment to integrity.

* It is essential for our success that we protect and preserve Revlon's assets to enable us to grow our business and its value for our stakeholders.

* We must always collect and report accurate information about our results so that we base our business strategies and decisions on accurate data and properly fulfill our public reporting obligations; and

* Finally, Revlon is fully committed to fully complying with all applicable laws and each of us must reflect this commitment in our day-to-day behavior.

Marketing

Promotion

The company reinforces clear, consistent brand positioning through effective,innovative advertising and promotion. It also uses cooperative advertising programs, supported by Company-paid or Company subsidized demonstrators, and coordinated in-store promotions and displays. The Company also has various arrangements with customers pursuant to its trade termsto reimburse them for a portion of their advertising or promotional costs, which provide advertising andpromotional benefits to the Company. (Revlon Annual Report 2007)

Celebrities advertising

The company is intended to continue a strategy of supporting newproducts with advertising and promotions at spending levels that are intended to be competitive, using talented, well known, celebrity brand ambassadors.( Revlon Annual Report, 2007)

Price

The Company markets extensive consumer product lines principally priced in the upper range of themass retail channel and certain other channels outside of the U.S.( Revlon Annual Report, 2007)

Distribution

The Companys products are sold in more than 100 countries across six continents. The companysworldwide sales forces had approximately 340 people as of December 31, 2007. In addition, the Companyutilizes sales representatives and independent distributors to serve certain markets and related distributionchannels. Net sales in the U.S. accounted for approximately 57% of the Companys 2007 netsales, a majority of which were made in the mass retail channel. Net sales outside the U.S. accounted for approximately 43% of the Companys 2007net sales. The five largest countries in terms of these sales were South Africa, Australia, Canada, U.K andBrazil, which together accounted for approximately 23% of the Companys 2007 net sales.( Revlon Annual Report, 2007)

Customers

The Companys principal customers include large mass volume retailers and chain drug stores,including such well-known retailers as Wal-Mart, Target, Kmart, Walgreens, Rite Aid, CVS and Longs inthe U.S., Shoppers DrugMart in Canada, A.S.Watson & Co. retail chains in Asia Pacific and Europe, andBoots in the United Kingdom.( Revlon Annual Report, 2007)

Ethical/ legal issues

The Company is subject to regulation by the Federal Trade Commission (the FTC) and the Foodand Drug Administration (the FDA) in the U.S., as well as various other federal, state, local and foreignregulatory authorities, including the European Commission in the European Union (EU). TheCompanys Oxford, North Carolina manufacturing facility is registered with the FDA as a drugmanufacturing establishment, permitting the manufacture of cosmetics that contain over-the-counter drugingredients, such as sunscreens and anti-perspirants. Compliance with federal, state, local and foreign lawsand regulations pertaining to discharge of materials into the environment, or otherwise relating to theprotection of the environment, has not had, and is not anticipated to have, a material effect on theCompanys capital expenditures, earnings or competitive position. State and local regulations in the U.S.and regulations in the EU that are designed to protect consumers or the environment have an increasinginfluence on the Companys product claims, ingredients and packaging.(Revlon Annual Report, 2007)

Management information systems and research and development

The Company believes that it is an industry leader in the development of innovative andtechnologically-advanced cosmetics and beauty products. The Company has across-functional product development process, including a rigorous process for the continuous developmentand evaluation of new product concepts. As of December 31, 2007, the Company employed approximately 160 people in its research and development activities, including specialists in pharmacology, toxicology, chemistry, microbiology,engineering, biology, dermatology and quality control. In 2007, 2006 and 2005, the Company spent$24.4 million, $24.4 million and $26.1 million, respectively, on research and development Activities. (Revlon Annual Report, 2007)

Patents, Trademarks and Proprietary Technology

The Companys major trademarks are registered in the U.S. and in well over 100 other countries, andthe Company considers trademark protection to be very important to its business. Significant trademarksinclude Revlon, ColorStay, Revlon Age Defying makeup with Botafirm, Super Lustrous, Almay, SmartShade, Mitchum, Charlie, Jean Nat, Revlon Colorsilk, Eterna 27 and, outside the U.S., Bozzano, Cutex,Gatineau and Ultima II. The Company regularly renews its trademark registrations in the ordinary courseof business.(Revlon Annual Report, 2007).

The Internal Factor Evaluation (IFE) Matrix

Key Internal FactorsWeightRatingWeighted Score |

|

Strengths|

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1.Expenditure of 24.4 million $ on R&D 0.0630.18|

|

2.ISO- 900 certification 0.0440.16|

|

3.Attempt to introduce new products0.0430.12|

|

4.CSR program 25$ million expenditure0.0530.15|

|

5.Brand recognition0.0620.12|

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6.Social Responsibility programs0.0530.15|

|

7.120$ worth aggressive advertising0.0940.36|

|

8. New product development continuation0.0340.12|

|

9.High operating efficiency0.0540.2|

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10.Production for all type of women0.0430.12|

|

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Weaknesses|

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1.1 million $ sales decrease 0.0410.04|

|

2.Mac Andrew 87 million debt extension0.0310.03|

|

3.Financial resources deficit0.0610.06|

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4. Prices higher than competitors0.0910.09|

|

5.Less diversified products then 0.0510.05|

competitors have|

6. 2.3 billion as a long term debt0.0720.14|

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7.High net losses from discontinuation 0.0420.08|

of Vital radiance production|

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8. Often organizational restructuring0.0430.12|

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9.High advertising expenses0.0220.04|

|

10. The negative impact of customer|

non responsiveness to Vital radiance0.0520.1|

production, the loss of 110$ million|Dampak negatif dari pelanggan non tanggap terhadap produksi cahaya Vital, hilangnya 110 juta $|

|

Total12.43|

Strategy Formulation

SWOT Matrix

Strengths | Weaknesses|

1. Loyal customer base| 1. Large debt|

2. Health awareness programs| 2. Short product life cycle|

3. Well known brand name| 3. Lack of innovative, new products|

4. Product sold all around the world| 4. Constant employee cuts|

5. Strong manufacturing/distribution centers| 5. Weak management|

6. Well-known advertising representatives| 6. Decreasing market share|

7. Strong research and development| 7. Narrow target market|

8. High quality products| 8. Lack of diversification in products|

| 9. Very slow growth |

| 10. Capital allocation|

Opportunities| Threats|

1. Possible acquisitions| 1. Very strong competition|

2. Issuance of more stock| 2. Unstable financially |

3. Different approach to sales| 3. Lower cost products|

4. Developing countries markets| 4. Highly dependent on baby-boomer generation|

5. Younger generation customers| 5. Economic slowdown|

6. Products for male market| 6. Counterfeiting|

SPACE Matrix

FP

ConservativeAggressive

+2

+6

CPIP

Defensive-2Competitive

-2

SP

Revlons financial position is very poor, with increasing debt, which in 2006 was $3,329 million. It also means increasing interest expenses over the coming years. Financial position was also weakened by restructuring costs and unsuccessful product launches. It leaves Revlon with +2 rating.

The company is very stable in competitive cosmetics industry, since it has strong customer base and has been a recognizable brand for many years. On the other hand, there is strong competition, more products are cheaper. It means 2 rating.

Competitive position is threatened by market share mainly, because it has been steadily decreasing, but in 2010, it was still 20% in the US (NASDAQ). Product qualities, R&D, suppliers (mainly Wal-Mart and K-Mart) are also strong, which means Revlon has -2 rating.

Industry position is strong; exploring Asian, African markets is bringing more value to Revlon. It means +6 rating.

Conclusion is, that Revlon is a financially troubled, although strong competitively company, in a large, competitive and growing industry of cosmetics.

BCG Matrix

Relative Market Share Position

High MediumLow0.100.050.030.00

| 3%|

| |

High10%

4.8%

Medium0%

Low-10%

Global makeup market has been growing at the average rate of 4.8% since 2001. Revlons global market share has decreased to 3% in 2006 (Datamonitor). This puts Revlon at the position of question marks in the BCG Matrix. Company that is one of the oldest in the industry being in this position can be explained that it is just going through normal cycle and the next stage will probably be that of star. The disadvantage of this matrix is, that it does not show Revlons advantages over other companies in the industry, also other large cosmetics companies would also be in the similar position in the BCG Matrix.

Internal-External (IE) Matrix

| Strong3.0 to 4.0| Average2.0 to 2.99| Weak1.0 to 1.99|

High3.0 to 4.0| | | |

Medium2.0 to 2.99| | | |

Low1.0 to 1.99| | | |

The IFE Matrix provides result of 2.43 of strengths and weaknesses. EFE Matrix provides result of 3.39. It means that IE Matrix provides a solution of grow and build, which is exactly what strategic plan suggests that company should do.

Grand Strategy Matrix

Rapid Market Growth

Weak Strong

Competitive PositionCompetitive Position

Slow Market Growth

In the Grand Strategy Matrix, Revlon is in the Quadrant II, because considering all the previous information about the company, it is in a relatively weaker competitive position than other cosmetics companies. The whole market is growing every year rapidly, with huge possibilities to strengthen market share overseas. Revlon is already taking means to become more aggressive and competitive by improving R&D. On the other hand, it is not nearly enough, so Revlon must consider stronger market penetration and diversification. The strength of Grand Strategy Matrix is that it sums up what has already been seen as a problem weak Revlons competitive position. On the other hand, it does not show what other strengths of the company are.

Overall, every matrix showed that Revlons main problem is staying competitive among other large cosmetics companies. The problem is that Revlon is not diversified and their main target market is women, who are baby-boomer generation, which means that the company is not taking steps to further increase their market share by targeting women of other age groups and even possibly men.

Quantitative Strategic Planning Matrix (QSPM)

Strategic Alternatives:

Outsourcing to Asia and Diversifying in products

Africa, while also targeting ethnic

expanding to their minorities, males and

markets. women of more diverse

age groups

KEY EXTERNAL FACTORSOPPORTUNITIES 1. Possible acquisitions|

2. Issuance of more stock|

3. Different approach to sales|

4. Developing countries markets|

5. Younger generation customers|

6. Products for male market|

THREATS 1. Very strong competition|

2. Unstable financially |

3. Lower cost products|

4. Highly dependent on baby-boomer generation|

5. Economic slowdown|

6. Counterfeiting|

TOTALKEY INTERNAL FACTORSSTRENGHTS 1. Loyal customer base|

2. Health awareness programs|

3. Well known brand name|

4. Product sold all around the world|

5. Strong manufacturing/distribution centers|

6. Well-known advertising representatives|

7. Strong research and development|

8. High quality products|

WEAKNESSES 1. Large debt|

2. Short product life cycle|

3. Lack of innovative, new products|

4. Constant employee cuts|

5. Weak management|

6. Decreasing market share|

7. Narrow target market|

8. Lack of diversification in products|

9. Very slow growth |

10. Capital allocation|

TOTAL| WEIGHT0.10.080.050.120.110.10.120.080.060.050.090.041.000.10.020.120.060.050.080.040.10.030.030.050.020.050.040.060.070.050.031.00 | AS13412224231212| TAS0.10.360.440.10.240.20.040.480.120.30.30.10.050.142.97| AS21143141313424| TAS0.20.120.110.40.360.10.080.120.180.10.90.20.10.283.25|

Strategic solutions

After the development of SWOT, SPACE, BCG, IE, Grand Strategy and QSPM matrixes best strategic alternatives would be to adopt competitive strategy. Competitive strategy would be to try adopting forward and horizontal integration as well as market development and product development and unrelated diversification strategy models. These strategies will help the Revlon Inc. to turn its weaknesses into strengths and threats into opportunities.

To maintain reasonable and efficient implementations and strategies in general the following criterias has to be met. Strategies should not create inconsistent goals and policies within organization. Strategy should be representing adaptive response to the external environment and to the critical changes occurring within it. The final broad test of strategies is its feasibilities. Strategies must neither overtax available resources nor create unsolvable problems. The last not the least metric to follow is the advantage. Strategies must provide for creation and maintenance of competitive advantage in a selected area or activity (David, 2011). To evaluate strategic solutions evaluation metrics has to be followed.

Adopting forward integration will result in gaining ownership or increased control over distributors or retailers. Since Revlon is not using direct sales assistants to obtain net sales, the ownership of distributors or retailers will help the company to shrink distribution channel. In this case the profit margin will be higher. Horizontal integration will result in increase in ownership and control of firms competitors. The acquisition of well known brand will eliminate the weakness of narrow target market since new brands will offer new products for new customers. Market development strategy is the key to higher profits. According to Davis hugest percentage of Revlon products are consumed by the Baby Boomer generation. Without researching new products the same product lines might be introduced in the countries where birth rates are declining and there are more elder people. Attractive markets would be Japan, Hong Kong and etc. This strategy will eliminate the threat of big dependability on Baby Boomer generation.

According to SWOT matrix weaknesses of Revlon Corporation are lack of lack of diversification in products, narrow target market and lack of innovative/new products. Product development strategy is strongly recommended for Revlon Corporation. Present product improvement or development of new products services or are inevitable in the competitive cosmetics industry since competitors such as P&G, Avon, LOreal are offering more products for bigger variety of target markets. Besides strong competition the narrow target market is the reason of market share decrease for Revlon 3 percent yearly even when global trend for cosmetics industry is measured 4 percent yearly in sales. Revlon should strongly consider unrelated diversification strategy. Since the competition is very intense in this industry and the target market of Revlon is very narrow. Adding new unrelated products would change the consumer view on the company. The company would be seen as more innovative which will attract teenage consumers. According to David teenage market will reach 20 million by 2010.

Due to economic, political and demographic trends Revlon should be seeking and establishing business in Asia-Pacific, Africa and Latin America regions. These regions are adapting vast technological advances and integration of new technologies which gives benefits for people living in these regions and increases the productivity of countries which are in these regions. Due to fast growth of developing countries more disposable income are generated by households which provides sufficient funds to buy cosmetics, skin and body care products.

In the case study of Revlon David was describing the growth of world-wide market and even market growth in U.S. Since the inflow of human capital is increasing year by year. While the competitive position of Revlon is weak since the competitors like Proctor & Gamble, Unilever, Avon Products, Inc has stronger positions due to well known brand names and diversified products, which are adapted to diverse population of U.S. Therefore white non-Hispanic population of citizens in U.S. will decrease till 68% by 2010 (David, 2007). This means that almost every third citizen in U.S. will belong to ethnical minorities. According to Grand Strategy Matrix Revlon Company lies in 2ndquadrant, this means that the company needs to adapt strategies like market development, product development, and horizontal integration. Grand Strategy Matrix proves that the strategy alternatives suggested for Revlon are the ones that have to be implemented in order to turn weaknesses into strengths and threats into opportunities. The best alternative for the Revlon would be a mixture of market development, product development, and horizontal integration strategies.

The actions items required to achieve implementation would first of all have to start with raising capital and decreasing Revlons debt. If the company wants to implement forward integration by acquiring other companies products, it has to have resources to do that. Revlons sales have not been competitive enough, so implementing a strategy of direct sales would possibly increase their profits, as well as decrease debt. More emphasis on other customer groups can be achieved by direct marketing of products, which is cheaper than advertising campaigns Revlon currently has to pursue their customers. All of that means that the company would have to employ more people to achieve their long term goals, which still would be less expensive than going further into debt.

To achieve more diversification, Revlon has to produce new products and introduce them to the mass market, not a specific group of consumers. That can be done by creating supplementary products, substitutes. Also, in the past it proved to be costly to create strong brand products that were introduced to the market, so Revlon should focus more on cheaper, generic goods for mass market.

Gaining a competitive market share in other regions such as Asia and Africa can be achieved by building new production plants in those countries. It would be very expensive, but it is a strategy that has proved to be successful for Revlon in the past. Developing relationships and signing contracts with Asian stores would be the main step needed to achieve results. Also finding suppliers and creating a logistics system in those markets would decrease costs by a lot. Outsourcing would also decrease costs.

Targeting changing US population of Hispanics would also need changing of Revlons strategy in marketing and new products. New advertising campaigns would have to include more diverse faces, which would show that Revlon is targeting bigger market. Right now, companys adverts are including white females, which leave males and minorities out of the context. Another step to gain share in fast growing market of ethnic minorities would be introduction of cheaper products. This market segment does not have a lot of disposable income, so prices of the products would have to be competitive, on the other hand quality might suffer, but that can be improved later, when a loyal customer base is achieved.

Timeline for Implementation

2012

* Creation of new distribution channels in Asia, Africa

* Research of possible marketing segments with the US

* Research and development of new, cheaper generic Revlon products

* Start of employing new direct sales workforce in the US

2013

* Implementation of strategies of direct sales and marketing

* Start of new marketing campaign targeting ethnic minorities in the US

* Introduction of new, cheaper generic Revlon products

* Expanding direct sales into foreign markets mostly Europe

* 2014

Opening of new distribution centres in Asia and Africa

* Expansion of direct sales into Asia and Africa

* Restructuring employment of more workforce in marketing and sales

* Start of advertising campaign in Asia and Africa

* 2015

Possible acquisitions of other brands and products

* Establishment of Revlon as a diversified company targeting more market segments

2018

* Decrease in debt

* Repurchase of shares of stock

The measurements whether implementation is complete would be those of percentage of market share, sales, and finally debt. Steady increase of at least 3% of market share in the US each year and at least 7% increase in market share in Asia and Africa each would mean that the implementation of new strategies is successful. By the year 2018, there is goal to have at least 50% of the Asian and African supermarket chains as partners where Revlons products would be sold.

Consequences

Strategies should not create inconsistent goals and policies within the organization, also it should not create unsolvable problems. Any strategies what are offered can help Revlon company to improve in positive way and to increase its sales. What consequences would be if applying any of those strategies is not hard to predict.

Firstly, to gain ownership and increase control on distributors is the way what is going to happen if adopting forward integration. Higher profits would be achieved if using Market development strategy. The strategy of adding new unrelated products to the product line would lead to change of consumers view. This would give really positive consequences because teenage marked for the company would expand. Also, it is necessary to make protections for future. Revlon is dependent on Baby boomer generation, so creating markets in Japan, Hong Kong and etc. would help to reduce dependency on it. That is because in those regions live more elder people and attracting them would let to involve more people to the market.

As it was mentioned earlier, the best alternative for the Revlon Company would be a mixture of market development, product development, and horizontal integration strategies. Using those strategies company could solve its problems and improve.

On the other hand not everything can look so positive. What would change if Revlon Company would choose the strategy of not changing anything, it is hard to know. Main thing is that changing nothing and not applying any of those strategies lead company to troubles. The consequences of not applying any strategy would really hurt the company. Knowing the fact that Revlon are struggling in some cases it is necessary to improve the situation. And as it was said the best thing is to choose the best strategy to avoid biggest possible problems and bankruptcy.

References:

1. Datamonitor. (2008, March). Global Make-Up Market to 2011. Research andMarkets. Retrieved March 14, 2012, from www.researchandmarkets.com/reports/597392/global_make_up_market_to_2011

2. Eichengreen, B. J., Gupta, P., & Kumar, R. (2010). Emerging giants: China and India in the world economy. New York: Oxford University Press.

3. Foeth, M. (n.d.). Legal Obligations of Mexican Companies - Or How to Avoid Common Pitfalls - Corporate/Company Law - Mexico. Articles on All Regions, Law, Accountancy, Management Consultancy Issues. Retrieved March 15, 2012, from http://www.mondaq.com/unitedstates/article.asp?articleid=50684

4. Kaufmann D., Kraay A., & Mastruzzi M. (2009). Governance matters VIII aggregate and individual governance indicators 1996-2008. Washington, D.C].: World Bank Development Research Group, Macroeconomics and Growth Team.

5. Perry, W. (2007). Jane's sentinel country risk assessments. Coulsdon, Surrey: Jane's Information Group.

6. Rao, R. (2010). Why do companies implement functional structures?. Global Online Corporate Community. Retrieved March 14, 2012, from www.citeman.com/8601-why-do-companies-implement-functional-structures.html

7. Revlon Annual Report. (2007). Revlon Financial Reports. Retrieved March 15, 2012, from library.corporate-ir.net/library/81/815/81595/items/290476/Revlon_AR.pdf

8. What is a Functional Organizational Structure?. (2008). Business Management | Business Models | MBA Theories. Retrieved March 14, 2012, from http://www.businessmate.org/Article.php?ArtikelId=184

9. Wiki Invest Revlon. (2012). http://www.wikinvest.com/stock/Revlon_%28REV%29. Retrieved March 14, 2012, from ww.wikinvest.com/stock/Revlon_%28REV%29

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