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Revlon Inc.

Case Study:

1). Introduction

History:
Revlon is a universal company that sells products for skin care, cosmetics, personal care,
fragrance and professional products. It was founded in 1932 and began in the nail polish
market, soon after expanding into lipstick. Over the past six years, Revlon has consistently
lost revenue and struggled with debt. Even though they have eliminated executive positions,
reduced staffing and consolidated sales and marketing functions to save an approximate $33
million, the company is still in serious trouble.

Revlon was founded in 1932, by Charles Revson and his brother Joseph, along with a
chemist, Charles Lachman, who contributed the "L" in the REVLON name. Starting with a
single product nail enamel unlike any before it - the three founders pooled their meager
resources and developed a unique manufacturing process.
The company began its success with opaque long-lasting nail enamel sold to beauty salons.
Revlon sold its nail enamel through department stores and selected drugstores.
Revlon contributed directly to the war effort, by manufacturing first aid kits and dye markers
for the navy. At war's end, Revlon began to produce manicure and pedicure instruments.
Following the war, Revlon launched twice-yearly nail enamel and lipstick promotions tied to
seasonal clothing fashions. Revlon also turned to television sponsorship to boost sales. In
December 1955, Revlon first offered stock to the public. At the end of the following year,
Revlon was listed on the New York Stock Exchange.
Revlon laid the ground work for its highly successful international presence in the 60's,
bringing the "American Look" to the rest of the world through advertising featuring U.S.
models.
Growth and innovation led the way for Revlon. In 1985, Revlon was sold to a subsidiary of
MacAndrews & Forbes Holdings. In 1987 Almay joined the Revlon lineup
In the 1990's, Revlon revitalized its cosmetics business and strengthened its industry
leadership role. Revlon introduced the first transfer resistant lipcolor which led to a full
ColorStayTM Collection of transfer-resistant products. The company closed the gap on its
closest competitors and reached a dramatic goal - the #1 brand in mass color cosmetics.
Revlon again became a public company in 1996, listed on the New York Stock Exchange
(NYSE).

Present Conditions:
Revlon is struggling to recover and collect debt of almost $2.3 billion. The research and
development department is also struggling to offer new products to the market. In recent
years Revlon launched Vital Radiance, a cosmetic line for older women with 100 products
and it was the largest launch since ColorStay in 1994. However the product was not well
received by the market because other competitors already provide the products and the prices
of the Revlon product was also very high as compare with rivals. Revlon discontinued the
brand in September 2006. 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 nay 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.
Competitors:
The Revlon’s major competitors are Proctor and Gamble, Avon Products, Estee Lauder
Companies, L’Oreal, and Unilever. Other competitors include samall companies such as
Urban Decay, Specialty stores such as Bath and Body Works, Body Shop, and Victoria’s
Secret.
2). Analysis:
After studying the case of Revlon Inc’ now we are going to analyze it that what type of
strategy they need to follow in the coming years. The Revlon is in troubles in these days and
therefore we are going to analyze the external and internal environments of Revlon first then
we will suggest with the help of different tools and techniques an appropriate strategy for
them.

EFE Matrix for Revlon:


Weighted
Key External Factors. Weight Rating Score

Opportunities:
1. The young migrants to America are increasing. 0.15 4 0.60
2. Personal Care products usage is increasing. 0.10 3 0.30
3. Men also using the cosmetic products. 0.07 2 0.14
4. Latin America represents a growth opportunity. 0.09 2 0.18
5. The older age women entering to the cosmetic industry. 0.08 3 0.24
6. Women in China, India and Middle East are rapidly
growing Interested in purchasing more cosmetics 0.06 1 0.06

Threats:
1. The young age women are decreasing. 0.10 4 0.40
2. The racial and ethnic issues. 0.09 3 0.27
3. Consumers’ concerns about product safety. 0.08 2 0.16
4. The competition is increasing day by day. 0.07 2 0.14
5. Strong competitors are entering to industry. 0.05 1 0.05
6. Disposable income of Americans decreasing. 0.06 3 0.18
1.0 2.72

From the above analysis we can conclude that the company position is not too much bad not
too much good but only .22 points are high than the average score.
Internal Factors Evaluation (IFE) Matrix:

Weighted
Key Internal Factors. Weight Rating Score

Strengths
1. Strong social responsibility programs. 0.08 3 0.24
2. Minimum management expenses. 0.09 3 0.27
3. Strong marketing program. 0.10 4 0.40
4. Strong research and development program. 0.10 4 0.40
5. Large mass merchandisers and chain drug stores. 0.07 3 0.21
6. Great operating efficiency and use of capital assets. 0.06 3 0.18
7. Continues new product development. 0.08 3 0.24

Weaknesses
1. A huge amount of long term debts. 0.10 2 0.20
2. High prices than competitors. 0.09 1 0.09
3. Lack of financial resources. 0.05 1 0.05
4. Minimum diversified products compared with competitors. 0.08 2 0.16
5. Large amount of advertising expenses. 0.05 2 0.10
6. Decrease in current assets and increase in current liabilities. 0.05 1 0.05
1.0 2.59

From the above analysis we can conclude that the company internal position is only .09 is not
too much strong because the minimum score is 2.50 and it got only .09 points more than the
average score.
The Strategic Position and Action Evaluation (SPACE) Matrix.

FS

+6
+5
Conservative. +4 Aggressive
 Market penetration. Vertical integrations.
 Market development. +3 Market penetration
 Product development. Market development
 Related diversification. +2 Diversification.
+1
CA IS
-6 -5 -4 -3 -2 -1 0 +1 +2 +3 +4 +5 +6
-1
-2
Defensive -3 Competitive
 Retrenchment Vertical integrations
 Divestures -4 Market penetration.
 Liquidation Product development.
-5
-6

ES

The SPACE Matrix for Revlon

Financial Strengths (FS) Ratings

Operating income 1.0


Net income 1.0
Working capital 1.0
Leverage 1.0
Inventory turn over 2.0
Earning per share 1.0
7.0
Industry Strengths (IS)

Growth potential 4.0


Profit potential 3.0
Ease of entry into the market 3.0
Resource utilization 4.0
14.0
Environmental Stability (ES) Ratings

Price elasticity of demand -5.0


Competitive pressure -4.0
Demand variability -4.0
Price range of competing firms -5.0
Risk involved in business -2.0
-20.0

Competitive Advantage (CA)

Control over supplier and distributors -3.0


Market share -4.0
Customer loyalty -3.0
Product life cycle -4.0
Product price -3.0
-17.0

Conclusion

ES average is -20/ 5 = -4.00 IS average is +14/ 4 = +3.50


CA average is -17/5 = -3.40 FS average is +7/ 6 = +1.17

x-axes : -3.40 + (+3.50 = +0.10


y-axes : -4.00 + (+1.17)= -2.83

From the above analysis and diagram we can conclude that the best strategy for Revlon is
competitive strategy which contains backward, forward and horizontal integrations,
market penetration, market development, and product development.
The Grand Strategy Matrix for Revlon

In the case study of Revlon we saw that the market is growing world wide even in America
the young migrants increasing year by year but the competitive position of Revlon is not
strong because the competitors are Proctor & Gamble, Unilever, Avon Products, Inc’ which
is very strong and have popular brand names. Therefore according to Grand Strategy Matrix
the Revlon lies in quadrant II. According to this quadrant the Revlon needs strategies like
Market development, Market penetration, Product development, Horizontal
integration, Divestiture, and Liquidation. One of these strategy is important for Revlon.

The Grand Strategy Matrix for Revlon Inc’.


Rapid market growth

Quadrant II Quadrant I
 Market development Market development
 Market penetration Market penetration
 Product development product development
 Horizontal integration Forward integration
 Divestiture Backward integration
 Liquidation Horizontal integration
Related diversification
Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV


 Retrenchment Related diversification
 Related diversification Unrelated diversification
 Unrelated diversification Joint ventures
 Divestiture
 Liquidation

Slow market growth


3). Conclusion

As we saw in the case study of Revlon which was actually written in 2007 that the company
is in great troubles. The financial position is also very weak and it generates losses in the
recent years. After applying the tools and techniques of strategic management our conclusion
is as follow.

1). The company should develop new markets, which is not tapped by the competitors.

2). The company should improve the quality of products as well as the price minimization
efforts should be taken.

3). The company also need to increase sales through increasing marketing efforts.

4). The other strategy option is the integration it may be forward, backward or horizontal
integration.

5). The company should sell some unprofitable division.

6). The last option is liquidation. If the company fails to follow the above strategies then it
should liquidate the business.

END
Strategic Management
Assignment

“Case Study of Revlon Inc’ 2007”

SUBMITTED TO:

Dr. Muhammad Mohsin Khan

SUBMITTED BY:

Muhammad Amad
Shahid Rafiq
Riaz Noor

MBA (3 semesters)
Group “B”
Date: June 28, 2010

Institute of Management Sciences Peshawar