9-503-104

REV: MARCH 28, 2006

ROHIT DESHPANDE

SETH M. SCHULMAN

Modi-Revlon
Meghna Modi paced excitedly across the carpet of her new office. It was spring 1998, and she had
just been tapped to run Modi-Revlon, one of her father’s most important, high-profile companies.
Since its founding in 1994 as a 74–26 joint partnership between majority stakeholder Modi
Mundipharma and American cosmetics giant Revlon Inc., Modi-Revlon had helped revolutionize the
Indian color cosmetics industry by introducing branded Revlon products and American-style
marketing techniques. Sales, though, had been disappointing, and prospects for future growth
remained uncertain. Revlon’s U.S. board was growing restive. At the board’s December 1997
meeting, Revlon executives debated pulling out of the company, and indeed, out of India. Meghna’s
father, Umesh K. Modi, fought vigorously against such a move, arguing his company’s difficulties
stemmed not from Revlon products’ inherent incompatibility with the Indian market but from
cultural insensitivity shown by Revlon’s Western-oriented managers. Indians could be convinced to
buy Revlon products, U.K. Modi had claimed, but only if he and his associates in New Delhi could
freely apply their own marketing expertise. Revlon had acceded, giving Modi one year to turn the
company around.

With the stakes so high, Modi sought someone he could trust to help run the company.
Dispensing with Indian traditions barring women from taking leadership roles in business, Modi
approached his charismatic, energetic, and independent-minded daughter. Like her father, Meghna
Modi was convinced Revlon could sell its core product line of premium lipsticks and nail enamel in
India. The problem, she thought, was Modi-Revlon’s initial marketing strategy, in particular its
pricing and shade statements (seasonal promotional efforts linking cosmetics to apparels and
accessories). At its current price of 85 rupees (Rs.), a 15-milliliter (ml) bottle of Revlon nail enamel
seemed exorbitantly expensive to all but the top 2% of Indian women. Worse, Revlon’s bright
product colors—updated seasonally to keep pace with prevailing U.S. fashion trends—seemed
particularly ill-suited to Indian women’s dark skin tones. To survive, Modi-Revlon would have to
find a way to appeal to a broader Indian market while still meeting production costs and sustaining
Revlon’s international image as a premium brand. Accepting her father’s offer, Meghna faced a
daunting task: retool Revlon for the Indian consumer, and do it fast.

________________________________________________________________________________________________________________

Professor Rohit Deshpande and Research Associate Seth M. Schulman prepared this case. HBS cases are developed solely as the basis for class
discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2003 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
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photocopying, recording, or otherwise—without the permission of Harvard Business School.

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 503-104 Modi-Revlon

Company History

Revlon
In 1932, Charles Revson and his brother Joseph scraped together $300, joined forces with chemist
Charles Lachman, and started their own nail polish company. Their initial product, an opaque polish
produced in many colors rather than the few reddish shades previously available, quickly became
popular at beauty salons. Within six years, New York-based Revlon grew into a multimillion-dollar
concern selling to department stores and select drugstores. By the late 1940s, the company began
marketing new colors twice a year in sync with the fashion seasons, offering nail polishes and
lipsticks with names such as Kissing Pink and Fifth Avenue Red. During the 1950s and 1960s, Revlon
introduced innovations such as Love Pat, a pressed powder makeup that retained its color, and Blush
On, a powder-blush alternative to existing, streak-prone cream rouges. Revlon also began to export
its products overseas, building its brand through advertisements featuring American models.

During the early 1970s, the company purchased the Mitchum deodorant brand and introduced
Charlie, its own internationally renowned fragrance. By 1974, however, the year Michel Bergerac took
over the company’s helm from an ailing Revson, Revlon’s core cosmetics business faced a shrinking
market share and falling profits. Bergerac responded by purchasing ophthalmic and pharmaceutical
companies in a bid to diversify Revlon’s holdings and lower costs. But by 1985, Revlon carried almost
$3 billion in debt and the company was acquired by conglomerator Ronald O. Perelman, who sold off
Revlon’s health-care businesses and focused instead on buying beauty companies.

During the early 1990s, Revlon revitalized its core business, becoming the best-selling
manufacturer of mass color cosmetics in the U.S. on the strength of brands such as ColorStay transfer-
resistant lip color and Age Defying makeup.1 The company also fueled strong growth by expanding
overseas. By 1997, the company derived 43% of its sales from markets outside the U.S. The firm had
become the market leader in the Ukraine and Hungary, had achieved a significant presence in parts
of western Europe and South and Central America, and had begun to establish itself in China, India,
South Africa, and the former Soviet Union.2 Still, Revlon’s troubles were far from over. Since
becoming a public company again in 1996 (NYSE: REV), the firm continued to struggle with debt,
inventory problems, difficulties in Russia and Brazil, and staunch domestic competition. In 1998, the
company cut 3,000 jobs and closed three manufacturing plants, losing $143.2 million on revenues of
$2.3 billion. (Exhibit 1 shows Revlon’s revenue and net income for the years 1992–1998.)3

Modi-Mundipharma and Modi-Revlon

Modi-Mundipharma—a partnership between U.K. Modi and the Swiss company Mundipharma—
was India’s largest producer of time-released morphine. Though quite small (1996 sales were about
$40 million), the firm was only one of a number of businesses controlled by U.K. Modi and his four

1 By 1997, 60% of Revlon’s brand volume derived from cosmetics and fragrances, with the remainder generated by categories
such as beauty care and professional and licensed products. New launches accounted for roughly 20%–30% of annual volume.
In 1996, Revlon captured 21.5% of the $2.6 billion U.S. color cosmetics market. Kim-Van Dang and Pete Born, “A Rejuvenated
Revlon: Life beyond Lipstick,” WWD, February 7, 1997, p. 1; “Revlon History,” http://www.revlon.com/corporate/corp_ca_history.asp.
2 “Revlon Could Be Eyeing 1996 IPO,” High Yield Report, September 11, 1995, p. 1; Dang and Born, “A Rejuvenated Revlon”;
“Revlon History,” Revlon website.
3 Sources for this section include “Revlon, Inc.,” Hoover’s Online Company Profile, http://www.hoovers.com; and “Revlon-
Modi Business Plan Development,” presentation given in August 1993 in New York.

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brothers in partnership with multinational corporations. Indeed, the Modis held more foreign
licenses than any other Indian industrial group, with partners such as the American firms Xerox,
United Artists, Philip Morris, and Walt Disney; the European firms Lufthansa, Cunard Line, Olivetti,
and Morgardshammar; and the Asian firms Mandarin Oriental Hotel Group and Jardine Fleming
(Exhibit 2). Family revenues for 1996 were estimated at $2 billion and growing rapidly. U.K. Modi’s
individual holdings, the smallest amongst the brothers, generated revenues of $167 million.

Referring to his partnership with Revlon, U.K. Modi exclaimed: “It’s a big stake venture and my
most exciting project.”4 Under the initial agreement, Modi-Revlon produced and marketed Revlon-
branded products in India, managing quality control, marketing, and distribution while sub-
contracting manufacturing to independent factories in Hyderabad, Bombay, and New Delhi.5 The
cosmetics manufacturing process used imported finished bulk materials from Revlon, whereas
toiletries were produced with local ingredients. Revlon received a 5% royalty on Modi-Revlon’s after-
tax sales and also retained control over marketing and manufacturing. Senior Revlon executives
George R. Cannon and Desiree Paquette were appointed executive director/general manager and
director of marketing, respectively, and Cannon publicly confirmed that “[Revlon] will have the final
say in the manufacturing and marketing of the products.”6 U.K. Modi, meanwhile, oversaw finance,
legal affairs, and human resources in his capacity as Modi-Revlon’s CEO and chairman. The
company’s 1994 business plan called for the company to become profitable by 1996 and for annual
gross sales to top $25 million by 1998.

Modi-Revlon launched its line of lipstick, nail enamel, and Flex shampoo in New Delhi on
September 6, 1995. Television advertising began on India’s national networks in mid-October, with
print ads also appearing in high-readership women’s magazines. Although touted as a “tremendous
success” by Cannon, the launch took place two weeks late and was hobbled by limited availability of
merchandise, most notably product testers, which delayed openings of individual retail outlets. In
addition, packaging-supply and importation-delay issues prevented the introduction of several
Revlon products, including Liquid Make-Up, Top Speed Top Coat, Flex shampoo sachets, eyebrow
pencils, and Fire and Ice Talc, until spring of 1996. By January 1996, Modi-Revlon products had
appeared in 79 cities across India, significantly more than the 58 originally budgeted. Still, the
number of retail establishments carrying all Revlon products—6,500—was far below the targeted
number of 36,000. Gross sales were also significantly below original estimates (approximately $1.9
million as opposed to $4.3 million), due in large part to the limited availability or nonavailability of
products.

Over the next two years, Modi-Revlon continued to expand its presence in the Indian color
cosmetics and personal-care markets. By spring 1996, 32 shades of Revlon’s Super Lustrous lipstick
were available to consumers, as well as 37 shades of nail enamel. A year later, Modi-Revlon had
launched Revlon’s Charlie brand talc and perfume, Touch & Glow Advanced Fairness Cream,
Advanced Fairness Lotion and Pressed Powder, Cuticle Remover, Liquid Quick Dry, and Extra
Gentle nail enamel remover. Gross sales, however, remained substantially below budget, and even
declined between 1996 and 1997. (Exhibit 3 shows Modi-Revlon’s actual sales, actual profit, and
budgeted sales figures for 1995–1997.)

4 Quoted in Subrata N. Chakravarty, “The Collaborators,” Forbes, March 11, 1996.

5 By separating the sales/marketing function from manufacturing, Modi-Revlon would avoid a 70% excise duty, paying tax on
a lower price base. Its excise-duty obligations were calculated at approximately 25% of profit and loss.
6Quoted in Basav Bhattacharya, “Revlon Set to Launch Entire Range in India,” Economic Times, September 11, 1995.

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 503-104 Modi-Revlon

Sales of color cosmetics were initially quite promising. Revlon’s 15-ml bottles of nail enamel were
well received among consumers at the highest end of the market, selling at a rate of 500,000 units a
year at 4,400 retail outlets across India by the start of 1996. During 1996 and 1997, however, net nail
enamel sales dipped from $1.1 million to $722,000, with market share remaining stagnant at 12%–
13%. Lipstick sales, meanwhile, fell from $1.7 million to $1 million during the same period
(Exhibit 4). In 1996, Modi-Revlon saw a decrease in the number of retail outlets, a reduction in the
size of its field sales force, and a delay in the launch of multiple-shade statements. Supply problems
and quality-control issues continued to batter the company in 1997. The resulting dip in sales caused
the company to drop additional distribution outlets. Accumulated losses reached $5.8 million by the
end of 1997.

In June 1996, Modi-Revlon’s board responded to the company’s disappointing results by altering
the company’s management structure. Cannon was removed as executive director/general manager,
while Chat Chatterjee, another Revlon corporate executive, was named COO in charge of sales,
marketing, and merchandising/planning. U.K. Modi remained as CEO in charge of
finance/accounting, human resources, and legal affairs. But this arrangement proved temporary
when Chatterjee resigned in September 1997, leaving U.K. Modi on his own at the company’s helm.
He was joined by his daughter as executive director the following April.

India
With 980 million people, India was the world’s second-most-populous country and the largest
democracy. Since gaining independence from Britain in 1947, the country struggled to modernize its
economy and develop a social infrastructure. Rapid economic growth since 1980 led to a decline in
poverty rates; improvement in literacy, education, and public health; and the appearance of a fast-
growing middle class of 300 million. By the mid-1990s, India had developed a range of modern
production capabilities, including a software industry whose annual exports had grown to more than
$2 billion. Still, almost 40% of India’s population remained impoverished, unable to afford even a
basic diet. India also retained a huge unorganized economy (50% of gross domestic product)
comprising petty commercial operations, agriculture, and small-scale manufacturing.7 Strict
government regulation of the organized sector impeded economic growth there, as did India’s large
central and state government deficits. Also clouding the horizon were a series of government
corruption scandals and a rise in tensions along the India-Pakistan border.

In 1990, a balance-of-payments crisis led India’s central government to commit to greater

economic liberalization as India struggled to reduce its account deficit from a staggering high of $10
billion. Between 1991 and 1994, the average import-weighted tariff fell from 87% to 33%. Other
reforms included currency devaluations, reduced interest rates, decreased subsidies, reduced import
duties, and tax reform. Although India’s economy remained tightly regulated by Western standards,
liberalization encouraged foreign investors to take a new look at the country, as did low wage levels,
developed financial markets, and India’s pool of educated workers. By the mid-1990s, American
multinational corporations such as General Electric, Kentucky Fried Chicken, and Eli Lilly & Co. had
begun Indian operations, with more companies poised to follow. India’s GDP grew by 5% in 1997

7 An unorganized economic sector is one in which unreported income contributes to the GDP but is not captured or reported
in official government economic indicators or statistics.

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 Modi-Revlon 503-104

and was projected to grow again by at least 5.5% in 1998 (Exhibit 5), prompting observers to tout the
country as the next Asian tiger.8

The World Color Cosmetics Market

In 1998, the color cosmetics sector of the cosmetics and toiletries industry realized global sales of
$22.5 billion. North America accounted for 29.2% of sales, followed by western Europe (26.4%) and
the Asia-Pacific region (22.0%). The United States had been the primary driver of growth in recent
years, although elsewhere factors such as fashion developments, strong global brands, and the
success of direct-sales firms had also propelled sales upward. (Exhibit 6 breaks down color cosmetic
sales by country during the period 1996–1998.) Facial makeup was the most important category of
products in 1998, garnering $7.8 billion in global sales. Lip products generated $6.6 billion in sales,
followed by eye makeup with $5.2 billion and nail products with $2.9 billion. Leading manufacturers
included L’Oréal SA, Estée Lauder, Procter & Gamble, and Revlon.9

Industry analysts predicted annual global sales of color cosmetics would exceed $30 billion by
2005.10 With their rapidly expanding populations, developing countries—particularly those in Latin
America and southeast Asia—were regarded as the primary drivers of that growth.11 To succeed in
these markets, industry players during the mid-1990s focused on building global brands through the
development of centrally managed brand strategies. “A lot of women are buying [a product]
precisely because it has a global image,” remarked an Elizabeth Arden executive in 1997. Andrea
Jung, president of global marketing and new business at Avon Products, agreed, noting, “Global
branding is certainly a buzzword. We’ve had a philosophy that’s about making the company a global
brand.”12 In practice, adoption of a global strategy meant consolidating existing brands and
maintaining consistency in product marketing and development while also remaining as sensitive as
possible to local cultural differences. Avon, for example, had over 200 brands in 1994 before
implementation of a global strategy. By 1997, the company was actively working to reduce that
number to about 60 and had rolled out a coordinated ad campaign in 12 markets around the world.13
Meanwhile, company officials publicly acknowledged the need to remain responsive to local
concerns about issues such as price points and product size.

In forging its own global strategy, Revlon attempted during the mid-1990s to draw heavily on its
successful U.S. experience. Revlon CEO George Fellows explained:

In many respects, we are using the U.S. experience as a template for a lot of what will
follow throughout the international organization. The key is to determine what portions of the
U.S. experience are directly applicable as you expand throughout various regions of the world,

8 Sources for this section include The World Bank Group, “India Country Brief 2000”; “India,” Library of Congress website; Liz
Pulliam, “Bold Investors Should Consider India,” The Salt Lake Tribune, March 3, 1996; “India: World Factbook,” Tradeport
website, http://www.tradeport.org/ts/countries/India/wofact.html.
9 “World Market for Color Cosmetics,” Euromonitor, November 2001.

10 Ibid., p. 4.

11As one report concluded: “Geographical barriers, differing languages and cultures along with numerous regulations
complicate international manufacturing and selling, but do not diminish the fundamental truth: People ultimately want the
same things. To that end, the international cosmetics market can only continue to grow.” Lisa Kintish, “International Cosmetic
Report,” Soap-Cosmetics-Chemical Specialities, September 1, 1995, p. 50.
12 Quoted in Soren Larson, “Leaving Town,” WWD, September 19, 1997, p. 18.

13 Ibid.

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 503-104 Modi-Revlon

and what parts require some modifications or adjustments. Largely, what we have found is
that the similarities as you go around the world far outweigh the differences.14

Specifically, Revlon began to coordinate marketing communications on a global level, relying

heavily on Western supermodels such as Cindy Crawford and Claudia Schiffer to convey the brand’s
image of glamour and sophistication. The company also moved to consolidate factories as well as the
goods they produced. “We are taking control [of our international business], and we are running it in
a globalized fashion,” remarked Revlon Chairman Jerry Levin. “We have now conformed our
packaging and our products. It just gave us enormous operating efficiencies.” Whereas in 1997
Revlon operated approximately two dozen manufacturing plants, Levin estimated the ongoing
implementation of a global strategy would drop this number to about 10 by 2002.15

The Indian Color Cosmetics Market

The Indian color cosmetics market was worth approximately $148 million in 1997, an increase of
8% over the previous year and almost 50% over 1994 sales (Exhibit 7).16 Facial makeup was the
largest market subsector, with $66.1 million in sales. Lip products and eye makeup followed at $49.5
million and $24.7 million, respectively, while nail products made up the smallest subsector, with sales
of only $6.3 million. “India is a very important developing market with one of the lowest per capita
consumptions of cosmetics,” remarked Chatterjee. “It is a significant market for the future. This
market is . . . going to grow rapidly.”17 In fact, Indian per capita color cosmetics sales were only $0.16
in 1997—the least of any Asian country except Vietnam. The average Japanese consumer, by contrast,
spent $26.47 per year on color cosmetics, and the average Filipino $3.31 (Exhibit 8). In explaining the
relative paucity of Indian cosmetic sales, analysts pointed to a number of factors including the
persistence of low per capita incomes; the predominance of local, informal production at the low end
(the unorganized sector made up as much as 50% of the market in some subsectors); and outdated
distribution systems that thwarted foreign manufacturers’ efforts to gain market share. 18

Though the Indian market remained seriously underdeveloped, the competitive climate had
changed dramatically since 1995, the year foreign multinationals such as Revlon and Avon first
appeared on the scene. Previously, the market had been split into three segments—upper, middle,
and lower. The domestic producer Baccarose Cosmetics had claimed the upper end with its Chambor
brand, while Paramount Cosmetics’ Tips and Toes brand had prevailed in the lower end. The middle
had been dominated by Lakmé-Lever, a 50–50 joint venture between Unilever’s Indian subsidiary
Hindustan Lever Limited and the Indian firm Lakmé.19 Since 1995, by contrast, the market had
become divided into two basic categories, premium and mass market. Tips and Toes continued to
show strongly in the mass market, sharing the category with Elle 18, a new, lower-priced brand by
Lakmé-Lever. The premium segment, meanwhile, was divided into several subsections, with

14 Quoted in Dang and Born, “A Rejuvenated Revlon.”

15 Ibid.

16 Original figures were provided in rupees. They are converted here at the 1997 exchange rate of 36.31 rupees to the dollar.
st
Exchange rate reported in Economist Intelligence Unit, Country Report—India, 1 Quarter 1998.
17 Quoted in Aarti Dua, “The Retailing Metamorphosis,” Business Standard, January 8, 1997, p. 3.

18 “Asian Market for Cosmetics and Toiletries,” Euromonitor, June 1999; “Indian Market for Cosmetics and Toiletries,”
Euromonitor, July 1999.
19 In February 1998, Unilever bought out Lakme’s share in Lakme-Lever Limited along with Lakmé’s proprietary trademarks
for $51 million. A deal was also struck for Unilever to buy Lakme’s manufacturing facilities for a price to be determined.

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Chambor dominant at the super-premium level; Revlon at mass premium; and Lakmé-Lever’s
Ultrasilk, Ultra, and Kajal brands at semipremium. In 1997, Lakmé-Lever led the overall market with
a 62% share, followed by Modi-Revlon at 6% and Baccarose at 5% (Exhibit 9).20

Beyond its impact on market structure, the entry of Modi-Revlon and other foreign multinationals
had altered the very nature of the color cosmetics business. Prior to 1995, color cosmetics had
essentially been commodity products in India, the industry dominated by one major manufacturer
(Lakmé)21 and offering little in the way of quality or color differentiation. With the entry of Revlon
and other multinationals, cosmetics were transformed into a veritable fashion industry. Competition
became more intense, product innovations more rapid, and promotional campaigns more extensive.
By November 1996, the press reported, “. . . brand choices have doubled across categories and both
variety and quality have improved.”22 By 1997, cutting-edge marketing tactics such as ingredient
marketing and personalized selling had begun to take hold, particularly in metropolitan centers such
as New Delhi and Bombay. Innovations in merchandising had become particularly important;
previously sold in drab packages out of shoeboxes at thousands of small groceries, pharmacies, and
outdoor markets, cosmetics now showcased slick packaging and were sold by trained beauty
consultants working in well-designed display counters.23 A substantial innovation in this regard was
Revlon’s shade statement, which Meghna Modi credited with introducing the modern cosmetic
market into India. “We joined cosmetics with larger fashion trends, becoming in the process a
primary arbiter of Western-style elegance and chic,” Meghna Modi remarked.

Market Drivers
Observers predicted India’s color cosmetics market would grow annually by as much as 30%
during the early to mid-1990s.24 Although estimates shrunk as it became apparent market maturation
would take time, analysts by late 1997 were still anticipating future growth of around 15% to 20% per
year.25 Social and political developments gave considerable cause for optimism. With its growing
middle and upper classes, India contained increasing numbers of consumers with sufficient
disposable income to purchase cosmetics and other goods. Modi-Revlon’s own 1993 business plan
had proposed that the core of Indian consumers of color cosmetics—urban, middle- and upper-class
women aged 25–45—then numbered between 9 million and 21 million people and was growing fast.
At the same time, reduction of government tariffs on imported cosmetics from 70% to 50% portended
a reduction in consumer prices, which in turn would stimulate demand.26

Cultural factors also played a role in generating market demand. If an increasing number of
Indian women had the means to purchase cosmetics, the proliferation of an aspirational ethic among
the urban, entrepreneurial classes meant they increasingly had the desire to do so as well. Western

20 Euromonitor.

21 In November 1995, Lakmé commanded approximately 50% of the color cosmetics market, with its products sold at over
100,000 outlets nationwide. “Lakmé Will Gain From Deal with Lever,” India Business Intelligence, November 29, 1995, p. 9.
22 Anupama Chopra, Farah Baria, Rohit Parihar et al., “The Beauty Craze,” India Today, November 15, 1996, p. 44.

23 Madona Devasahayam, “India: The High-End Segment Is Where The Action Is,” Business Line (The Hindu), November 9,
1997.
24 “Cosmetics Are A Luxury with A Mass Market,” India Business Intelligence, December 14, 1994, p. 11.

25 Devasahayam. In April 1997, Modi-Revlon anticipated 10% annual growth in color cosmetics sales over the next three years.
The company’s 1994 projections had pegged growth at 12%–15% per annum.
26 “Cosmetics Are A Luxury.” This reduction took place in 1994–1995.

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products had already gained immense social cachet as a result of their visibility on Western media
and their purchase abroad by wealthy Indian travelers.27 Now, a bustling consumer society began to
take hold, with increasing foreign travel; a booming movie industry; and an emerging “MTV culture”
of parties, discos, and pubs. Indian women rushed to adopt Western norms of hygiene and health,
consequently displaying an increased awareness of cosmetics and toiletry brands.28 Journalists
observed an unprecedented craze for Western beauty styles that enveloped even working-class
neighborhoods and smaller cities. As one report noted, “The craze cuts across caste and class.” 29 In
New Delhi, women flocked to beauty parlors to dye their hair blond; in Bhopal, surgically implanted
dimples were selling for $140 apiece; in Chandigarh, a new, ultra-modern health club sold yearly
memberships for over $400, while a prominent plastic surgeon was turning away 40 people a month
seeking elective procedures. This fascination with beauty bode well for the cosmetics industry, since
“everyone want[ed] the perfect face, the perfect make-up, the perfect finish.”30

Contributing to the newly emerging beauty culture was a broader erosion of traditional attitudes
toward femininity. Whereas Indian women had largely been relegated to the domestic sphere and
corresponding social roles of subservient daughter, dutiful wife, and sacrificing mother, the present
generation explored identities as independent, self-expressive, career-minded women. As one market
researcher remarked: “The Indian woman has finally made the shift from motherhood to
womanhood. She is aware of her sexuality.”31 This shift held important consequences for cosmetics
consumption. Traditionally, it was considered unseemly for unmarried women to use cosmetics on a
regular basis, especially outside the major metropolitan areas. As more women moved into the
workplace, however, it became increasingly acceptable for them to spend their own hard-earned
salaries as they saw fit. Cosmetics took on new cultural significance, serving as a symbolic declaration
of women’s power and prestige. Feeling up-to-date, confident, and in control, Indian women relied
on brands such as Revlon to project their own personalities into the modern world.

Marketing Strategy
Modi-Revlon’s objective was to capture a leadership share of the Indian toiletries and cosmetics
market by offering an exclusive line of color cosmetics, hair-care products, body lotions, moisturizing
creams, and fragrances at reasonable prices. Within the framework of an “affordable glamour”
positioning, Modi-Revlon focused initially on establishing Revlon’s stature in India as a premium
color cosmetics brand. As Meghna Modi explained: “Revlon was essentially about cosmetics, and in
India, premium cosmetics. If we could establish a strong presence in that area, we could then leverage
that strength to sell our lesser-known toiletries products.”

Pricing
Whereas Modi-Revlon’s toiletry products were priced at parity with or at a slight premium to the
competition, the company’s cosmetics products were priced at a steep premium (Exhibit 10). At

27 Ibid.

28 As a survey by Revlon pointed out, women were eschewing “merely functional” items for “advanced and specialised” ones.
Devasahayam, “India: The High-End Segment.”
29 Quoted in Chopra, “The Beauty Craze.”

30 Ibid.

31 Ibid.

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 Modi-Revlon 503-104

launch, Revlon’s Classic Nail Enamel and Super Lustrous lipstick sold for Rs. 64 and Rs. 99,
respectively, approximately twice the cost of Lakmé’s products. Responding to a weakening of the
rupee, Modi-Revlon raised prices multiple times during the subsequent two years. By July 1997, nail
enamel had reached a high of Rs. 85, with Super Lustrous lipstick selling at Rs. 125. The contemplated
introduction of a second, lower-priced line of Revlon color cosmetics had meanwhile been postponed
indefinitely.

Price premiums for color cosmetics made sense to Revlon’s U.S. board for a number of reasons.
First, the Indian cosmetics market was saturated at its bottom with low-quality products from the
unorganized sector and dominated at its middle by Lakmé. It was at the top, therefore, where the
best opportunities for differentiation were to be found, assuming prices were not set so high as to
turn off middle- and upper-class consumers. Second, Modi-Revlon felt the superior quality of its
products would clearly allow it to command a premium over Lakmé in the marketplace. Third,
company executives hoped premium pricing would create a higher-margin brand over the long term
by generating additional funds for cosmetics marketing. Finally, and most importantly, premium
pricing would capitalize on Revlon’s historical image of international glamour in cosmetics, an
identity already familiar to the wealthiest 5% of Indian women. Targeting an overly broad segment,
by contrast, would cheapen Revlon’s brand identity in more developed markets. By remaining
resolutely upscale in its core product line, Modi-Revlon would build public awareness of the Revlon
brand while capitalizing on the overall growth in the cosmetics market to quickly propel profits
upward.

Distribution and Merchandising

In framing its distribution strategy, Modi-Revlon focused on quickly achieving both breadth
(availability of the full Revlon line) and depth (full outlet coverage of distribution) in critical
geographic and outlet areas, most notably the cosmopolitan markets of Delhi and Bombay. Modi-
Revlon’s sales force targeted a range of retail outlets, including large pharmacies, beauty salons,
major hotels and malls, apparel shops, and department stores. The company also cultivated
relationships with wholesalers, exploiting their intimate knowledge of local markets to build the
Revlon brand in regional areas. Within a few months of launch, all Revlon products were available
for sale in approximately 6,500 retail outlets. By April 1997, however, this number had fallen to
approximately 3,000 locations. Lakmé, by contrast, maintained an extensive and well-established
distribution network of over 30,000 color cosmetics retail outlets across India.

If it could not match Lakmé’s distribution might, Modi-Revlon sought to differentiate itself by
using innovative merchandising to develop the point-of-sale encounter as a special event for the
consumer. Displays, product testers, trained beauty consultants, shade cards, and glossy “Revlon
reports” were used to create drama, excitement, and brand reinforcement. To further highlight the
core color cosmetics line and encourage trial of Revlon products, Modi-Revlon relied heavily on
short-term promotions and merchandising campaigns, particularly the shade statement. Although
the company made available a permanent collection of popular shades, it also promoted portfolios of
featured colors roughly two to three times per year. Heavily advertised, shade statements produced
discernible “bumps” in month-to-month sales results. Over the long term, shade statements helped
Modi-Revlon not only by establishing Revlon as a glamorous fashion authority but also by
positioning cosmetics as a fashion statement among Indian women.

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 503-104 Modi-Revlon

Packaging and Advertising

To maintain Revlon’s global brand identity, Modi-Revlon adhered as closely as possible to
Revlon’s global standards for marketing communications. Thus nail enamel and lipstick packaging
was similar to packaging in developed markets, while Modi-Revlon’s television and print advertising
featured Cindy Crawford and Claudia Schiffer, Revlon’s global spokespeople. Revlon’s corporate
management was adamant on this last point. “Global advertising will be used in India, making
changes only when it is absolutely necessary,” wrote Desirée Paquette in an April 1996 memo. “There
should be no campaign theme changes without written New York approval.” More specifically,
Modi-Revlon was instructed to “continue to use Cindy Crawford and Claudia Schiffer in advertising
unless there is research which overwhelmingly proves that these are unacceptable models for India.
As this is a major global issue, I highly recommend that this research methodology be approved by
[the appropriate person].”32 Use of global advertising imagery was intended by Revlon corporate to
articulate the brand’s glamour and the aspirational beauty ethic while providing a vehicle to
dramatize specific Revlon products.

Modi-Revlon in Crisis
The year 1997 was especially difficult for Modi-Revlon’s marketing team. Confronted with
declining sales, management concluded in October that promotional expenditures for color cosmetics
had been “drastically inadequate” to compete with Lakmé.33 Indeed, advertising support had been
absent entirely for five months during the year, and only one consumer promotion had been offered
during that period (Exhibit 11). Further, an embargo on trade shipments from the U.S. had led to
inventory shortages for existing products and brought introductions of new shades to a standstill
beginning in February. Especially damaging was postponement of the Coffee Bar shade statement, a
highly anticipated set of dark brown colors popular among Indian consumers. Modi-Revlon was also
forced to delay the planned August launch of its Velvet Touch line of matte lipsticks. Chambor and
Lakmé, by contrast, had already launched versions of this hot-selling product. Lakmé launched 10
glossy and eight matte colors, further consolidating its position as market leader.34

“By the start of 1998, Modi-Revlon was in panic mode,” Meghna Modi remembers. “Wherever we
looked, we saw falling market share, stagnant sales, precious little inroads made against Lakmé.
Something had to be done to get the house in order.” An obvious answer was to buttress the sales
and marketing functions. At about the time Modi joined the firm in April 1998, spending on
marketing was increased 37% over 1997 levels, with a portion of overall spending carefully
earmarked for each product launch and shade statement. The size of the distribution network had
also been increased to approximately 4,500 retailers. A new shade statement, Very Currant, had been
launched in October using existing shades, and plans had also been made to launch the Coffee Bar
shade statement as well as Revlon’s Velvet Touch matte lipsticks during the first two quarters. With
the unveiling of the Lavendare shade statement later in 1998, Modi-Revlon’s short-term
merchandising would finally move in sync with Revlon’s global shade statement schedule. At the
same time, Modi-Revlon also began a reorganization of its demoralized sales force, providing new
incentives to sales staff and managers for achievement of sales targets.

32 Revlon interoffice memorandum, dated April 16, 1996.

33 In 1996, Revlon had accounted for 15% of the total media spend in the color cosmetics sector versus Lakmé’s 63%. In 1997,
Revlon’s spend declined to only 9% of the total, while Lakmé’s percentage remained constant.
34 Agenda for Modi-Revlon board meeting, May 8, 1998.

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 Modi-Revlon 503-104

Taking a broader view, Modi realized the company would need to revisit marketing fundamentals
if it were ever truly to turn itself around. The real volume in the Indian cosmetics market, she
observed, was not in the mass-premium segment, where Modi-Revlon was king, but in the semi-
premium and mass segments. Modi-Revlon would never increase sales appreciably unless it
managed to penetrate downmarket and take on Lakmé directly. Why had the company not been able
to do so? In 1995, overall market demand had been growing, Revlon’s quality had been strong, and
the Revlon brand name had been well-known and highly regarded. “We realized the real issue had to
do with price,” Modi reflected. “That, and our provision of culturally appropriate colors and
advertising on a timely basis. But really, the price-value equation was key. Essentially, we had a
product with little or no technological differentiation that nevertheless appeared to command a
relatively high price. That’s a problem.”

The Price-Value Equation

To back up her thinking on price, Modi could turn to substantial hard data accumulated by the
company. A November 1993 research study had isolated two factors as reducing consumer intention
to try Revlon: on the one hand, “very high values attached to Lakmé and a strong degree of
satisfaction with the products made by this and other Indian companies,” and on the other, “fear that
the Revlon cosmetic would be expensive[,] as it looked foreign/imported.” The study had further
observed, “[T]he stated price for each of the Revlon products appears to have reduced purchase
interest even further indicating resistance in the ‘mass market’ to paying prices higher than Lakmé.”35
Nevertheless, the report had concluded Modi-Revlon would initially capture a niche market, one that
would expand with increased brand awareness and consumer trials. An October 1997 study,
however, posited Revlon “may have crossed a major price threshold” by increasing nail and lipstick
prices beyond their initial levels. Only 21% of nail enamel users surveyed were committed to buying
Revlon nail enamel at Rs. 79, while a mere 9% of lipstick users “would definitely buy Revlon” lipstick
at Rs. 115. As the report noted, “The main reason stated by those rejecting Revlon was the brand’s
‘expensive’ pricing.” Perhaps the most illuminating finding had to do with Revlon’s image compared
with Lakmé’s. Whereas two-thirds of respondents surveyed believed Lakmé offered “good value”
and three-quarters felt it was “priced right for the quality it offers,” less than 15% agreed to apply
those statements to Revlon.36 Even among Revlon’s own users, a substantially greater number found
Lakmé to be good value for the money.

The economics of Indian cosmetics pricing helped explain these results. Given India’s low
standard of living, Revlon’s current prices felt outrageously high to consumers there, even if these
prices were in fact quite low by U.S. standards. A Super Lustrous lipstick, for instance, sold for $7 in
the United States and only $3.68 in India. Adjusted to the Indian cost of living, the latter price hit the
Indian consumer’s pocketbook as hard as a $16.20 lipstick would have hit that of an American
consumer. A similar analysis applied to nail enamel. Though a 15-ml bottle of Revlon’s product cost
only $2.20 in India as compared with $4 in the U.S., the price to the Indian consumer felt the same as
a $9.70 bottle of nail enamel would have to an American consumer. Since cosmetics were not objects
of conspicuous consumption, exorbitant prices did not in themselves add any value for the consumer.
To penetrate a broader market, then, Modi-Revlon would have to present Indian consumers with a
price point perceptibly more in line with product value.

35 “Modi-Revlon Report,” Research International, November 19, 1993.

36 “Price Sensitivity Study for Lipsticks and Nail Enamels,” MBL Research and Consultancy Group, prepared for Revlon,
October 10, 1997.

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 503-104 Modi-Revlon

Which Way Out?

Meghna Modi was determined to attack the price-value equation problem from both ends. On the
one hand, the company would provide additional value to consumers through marketing and
product innovation. More frequent product promotions and shade launches would be offered,
enhancing the consumer’s perception of Revlon as a fashion authority and increasing the number of
“must-have” colors. Modi-Revlon would also introduce technologically advanced products such as
Top Speed, a popular nail enamel capable of drying in 60 seconds. On the other hand, Modi-Revlon
would take decisive steps to reduce prices. “The real challenge facing us,” Modi remarked, “was to
deliver a lower-priced product to the Indian market so as to increase sales—and all without
substantially undercutting our brand image.”

An especially attractive pricing option was the introduction of smaller-sized products at lower
price points. At the time of Meghna Modi’s appointment to the company, Revlon corporate had
already approved the launch of a 7.3-ml nail enamel some time the following year. Priced at either Rs.
55 or Rs. 59, the mini enamel would allow the company to break into the semipremium sector while
still retaining a clear price premium over Lakmé.37 Introduction of the smaller size made sense for
other reasons as well. Research showed a considerable portion of the product in a 15-ml bottle dried
up before use, a fact that reflected the lower frequency of Indian cosmetics usage as well as the higher
preference of Indian women for color experimentation. A smaller, cheaper bottle would therefore
better fit consumer habits. It would also render Revlon cosmetics more affordable to retailers,
allowing for easier expansion of the distribution network. Finally, changes in the excise-tax structure
meant that a smaller size would not cut appreciably into Modi-Revlon’s profits, even assuming large-
scale cannibalization of 15-ml sales (Exhibit 12). Modi-Revlon estimated it could sell about 1 million
units of the mini by 2000, with only a 3.1% reduction in existing 15-ml sales.

As promising as the mini seemed, Modi had no intention of phasing out the 15-ml nail enamel.
Doing so would risk alienating retailers, who held approximately 2 million of the 15-ml bottles in
inventory. Modi also realized the classic size possessed considerable brand equity, especially among
core Revlon users who preferred to purchase their favorite shades in larger quantities. If the 15-ml
bottle was there to stay, the basic issue remained: How far would Modi-Revlon go in articulating an
independent identity and customer focus for the mini? On the one hand, energetic marketing of the
smaller size might increase market share by attracting an entirely new body of consumers to Revlon
products. On the other hand, expenditure of company resources on the mini could only come at the
expense of the classic size, leaving it more vulnerable in the market.

The issue of the mini’s position vis-à-vis the classic size gave rise to a number of specific strategic
questions. Should Modi-Revlon launch the mini in its standard-shade portfolio, or should it unveil a
new color range unique to the size? If the company did retain its standard shades, how many should
the company launch—the entire range, or simply the top 25 selling colors? Developing a special
range of glittery colors for the mini might attract younger customers, but it would also cost money
and risk turning off a broader clientele. Likewise, a wider range of colors would enhance Revlon’s
appeal as a fashion authority, but it might also put new strains on inventory management. Questions
emerged as well in the areas of promotion and distribution. Should the company develop a separate
advertising campaign for the mini, or should it simply tag the product onto promotions for future
15-ml shade statements? Should the mini appear in the same retail outlets as the 15 ml, or only in a
select group? Developing special marketing communications for the mini would enhance consumer
awareness, but it would also add significant new expense without leveraging existing ad spending

37 Lakmé’s 12-ml bottle of nail enamel sold at Rs. 48. Unlike Revlon’s 15-ml bottle, the mini would appeal to women aged 18–
25 as well as women with monthly household incomes of Rs. 5,000 to Rs. 10,000.

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 Modi-Revlon 503-104

for the larger size. Likewise, offering the mini in select locations would reduce cannibalization of the
15-ml bottle, although it would also minimize Revlon’s reach in the semipremium market.

An especially sensitive issue was how to price the mini in relation to the 15-ml bottle. Specifically,
Meghna Modi needed to decide whether to sell the mini at Rs. 55 or Rs. 59 and also whether to lower
the price of the 15 ml from Rs. 85 to Rs. 79. Lower prices for both bottle sizes would significantly
improve the price-value equation across the board while also retaining sufficient differentiation
between the two price levels. Launching the mini at the lower price would provide extra motivation
for Modi-Revlon’s sales force, since there would be less of a price gap between Revlon and the
competition. Finally, a lower-priced mini would leave more room open for price increases in the
future. In opting for lower prices, however, Modi would have to counter strong opposition from
Revlon’s U.S. board, committed as it was to retaining Revlon’s premium stature. Reducing the price
of the 15-ml bottle would likewise create new problems by causing price inconsistencies at the retail
level between new and existing stock.

Beyond the mini, Modi was considering whether to segment the market even more decisively
through introduction of a new, lower-priced brand. One proposal was to market a budget range of
lipsticks under the trade name “Charlie,” building on the brand equity of Revlon’s popular perfume
of the same name. In U.K. Modi’s view, this new brand could work if manufacturing and ingredient
expenses were reduced, retailers accepted only a 14% margin instead of the existing 18% on
Superlustrous lipstick, and distributors accepted a 2% reduction in their margin. Revlon’s U.S. board
was skeptical whether any of these conditions could reasonably be met. A second idea was to borrow
a low-priced Revlon brand from another developing market. In Brazil, Revlon’s classic brand sold at
a premium level, its price point comparable with an Estée Lauder product’s. To attract younger and
less affluent consumers, however, Revlon also marketed a brand called “Colorama” at a fifth or less
the price. As one of U.K. Modi’s business partners reported, Colorama was doing quite well, actually
making up “the heart of [Revlon’s] business there.” Might it not also represent an intriguing option
for India?

Modi-Revlon had accomplished quite a bit in the past three years. Still, the time had come to tailor
the company’s global marketing approach more closely to Indian realities. Turning around the
company in one short year would not be easy. But if Meghna Modi and her team could solve the
price-value equation in the short term, the future for Revlon cosmetics seemed bright indeed.

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 503-104 Modi-Revlon

Exhibit 1 Revlon Inc. Revenue and Net Income, 1992–1998

(000s) 1992 1993 1994 1995 1996 1997 1998

Revenue 1,632,200 1,587,100 1,730,900 1,867,300 2,092,100 2,238,600 2,252,200

Net Income (226,900) (144,700) (98,100) (41,200) 18,200 43,600 (143,200)

Source: “US 10K History (10 years) for Revlon,” Global Access, January 2, 2003.

Exhibit 2 Modi Family Foreign License Holdings

Philip Morris Xerox

Hallmark Entertainment Lufthansa
Revlon Cunard Line
Walt Disney Olivetti
Maytag Morgardshammar
Volvo Mandarin Oriental Hotel Group
Apollo Group Jardine Fleming

Source: Modi.com, January 2, 2003.

Exhibit 3 Modi-Revlon Budgeted Sales, Net Sales, and Profits, 1995–1997

1995 1996 1997

Budgeted Sales $ 4,348,000 $ 7,609,000 $10,870,000

Actual Net Sales $ 2,055,000 $ 5,294,000 $ 3,896,000
Profit (loss) $(1,623,000) $(2,406,000) $ (1,843,000)

Source: Modi-Revlon.

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 Modi-Revlon 503-104

Exhibit 4 Modi-Revlon Sales by Cosmetic Type, 1995–1997

(000s) 1995 1996 1997

Gross Sales, All Cosmetics $2,449 $6,306 $4,642

Retailer Margin $6 $16 $12
Distributor Margin $33 $84 $62
Sales Tax $355 $913 $672
Net Sales $2,055 $5,294 $3,896

Net Sales, Color Products $1,817 $3,572 $2,364

Lip $1,022 $1,691 $1,064
Nail $737 $1,106 $722
Eye $58 $273 $190
Face na $502 $389

Net Sales, Noncolor Products $238 $1,722 $1,532

Source: Modi-Revlon.

Exhibit 5 India’s Gross Domestic Product, 1991–1998

(US$ billions)

GDP
Real GDP % Real Change

1991 213.88 0.04

1992 225.48 5.4
1993 236.63 5.0
1994 254.61 7.6
1995 274.17 7.7
1996 294.00 7.2
1997 307.05 4.4
1998 325.45 6.0

Source: Modi-Revlon.

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 503-104 Modi-Revlon

Exhibit 6 Color Cosmetic Sales by Country, 1996–1998

(in US$ billions)

1996 1997 1998

United States 5.1 5.6 6.2

Japan 3.5 3.3 3.1
Germany 0.9 0.9 1
France 1.3 1.2 1.2
United Kingdom 0.9 1 1.1
Italy 0.8 0.8 0.8
Russia 0.8 0.9 0.9
Brazil 0.8 0.8 0.9
South Korea 0.9 0.7 0.4
Mexico 0.4 0.4 0.5
Canada 0.3 0.4 0.4
Spain 0.5 0.5 0.5
Taiwan 0.3 0.3 0.3
China 0.2 0.3 0.3
Argentina 0.2 0.2 0.3
India 0.1 0.1 0.2

Source: “World Market for Colour Cosmetics, MRI1101,” and “Indian

Market for Cosmetics & Toiletries, MRI-July 1999,” Table 8,
Euromonitor.

Exhibit 7 Indian Color Cosmetics Market, 1994–1998 (in US$ millions)

1994 1995 1996 1997 1998

Facial makeup 45.4 51.8 59.2 68.2 79.0

Eye makeup 17.9 19.6 22.0 24.8 28.2
Lip products 33.7 38.4 44.1 50.5 58.2
Nail products 3.6 5.2 5.6 6.3 7.2

Total 100.7 115.0 131.0 149.8 172.6

Source: Adapted from “Indian Market for Cosmetics & Toiletries, MRI-July 1999,”
Table 8, Euromonitor.

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 Modi-Revlon 503-104

Exhibit 8 Average Consumer Spending on Color

Cosmetics, Asian Market, 1997

Country

China $ 0.23
Hong Kong $22.49
India $ 0.16
Indonesia $ 0.18
Japan $26.47
Malaysia $ 2.85
Philippines $ 3.31
Singapore $30.00
South Korea $12.12
Taiwan $ 6.36
Thailand $ 2.72
Vietnam $ 0.05
Other Asia $ 0.48

Regional Average $ 1.65

Source: Adapted from “Value Sales of Make-Up & Colour

Cosmetics Per Capita by Country 1994–1998,” Asian
Market for Cosmetics & Toiletries, MRI-June 1999,
Table 14, Euromonitor.

Exhibit 9 Indian Color Cosmetics Market Share

by Manufacturer, 1997

Manufacturer

Lakmé-Lever Ltd. 62%

Modi-Revlon Pvt. Ltd. 6%
Baccarose Perfumes 5%
Paramount Cosmetics (India) Ltd. 2%
Shahnaz Hussain Group, The 1%
Biotique Botanical Extracts 1%
Others 23%
Total 100%

Source: Adapted from “Indian Market for Cosmetics &

Toiletries, MRI-July 1999,” Table 25, Euromonitor.

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 503-104 Modi-Revlon

Exhibit 10 Modi-Revlon and Competitor Wholesale Product Pricing, 1996–1998

Product (US$) 1996 1997 1998

Modi-Revlon
Lip $2.30 $2.70 $3.00
Nail enamel 15 ml $1.60 $1.64 $1.64
Nail enamel 8 ml na na na

Lakmé
Lip $1.00 $1.15 $1.67
Nail enamel 15 ml $0.58 $0.67 $0.71

Maybelline
Lip na na $1.85
Nail enamel 15 ml na na $1.23

Source: Modi-Revlon.

Exhibit 11 1997 Consumer Promotion for Exhibit 12 Comparative Profitability, 15-ml and
Modi-Revlon Nail Enamel 8-ml Nail Enamel, 1998

15-ml 8-ml
US$/piece US$/piece

Retail Price $2.34 $1.51

Wholesale Price $1.64 $1.06
Costs $0.52 $0.35
Excise Tax $0.37 $0.11
Profit Margin $0.74 $0.60
Marketing Cost $0.33 $0.21
Net Margin $0.41 $0.39

Source: Modi-Revlon.

Source: Modi-Revlon.

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