Harvard Case - Cosmeticos de Espana, S.A. (A)
"Cosmeticos de Espana, S.A. (A)" Harvard business case study is written by David F. Hawkins. It deals with the challenges in the field of Accounting. The case study is 11 page(s) long and it was first published on : Aug 24, 2010
At Fern Fort University, we recommend Cosmeticos de Espana, S.A. (CdeS) implement a comprehensive strategic plan to address its profitability challenges. This plan should focus on improving operational efficiency, expanding into new markets, and enhancing its brand image. Our recommendations include adopting activity-based costing (ABC) for a more accurate cost allocation, exploring strategic alliances or acquisitions to enter new markets, and investing in innovative marketing campaigns to strengthen brand awareness and customer loyalty.
2. Background
Cosmeticos de Espana, S.A. (CdeS) is a Spanish company specializing in the production and distribution of high-quality cosmetics. The company faces declining profitability due to increased competition, rising raw material costs, and limited market reach. CdeS operates two manufacturing plants in Spain and distributes its products through a network of independent distributors. The company's management team is concerned about the company's future and is seeking ways to improve profitability and secure its long-term sustainability.
The main protagonists in this case study are:
- Juan Carlos Garcia: CEO of CdeS, who is responsible for the overall direction and strategy of the company.
- Maria Lopez: CFO of CdeS, who oversees the company's financial performance and reporting.
- Pedro Rodriguez: Head of Operations, who manages the company's manufacturing and distribution processes.
- Ana Perez: Head of Marketing, who is responsible for the company's brand strategy and marketing campaigns.
3. Analysis of the Case Study
CdeS's challenges can be analyzed through a framework that incorporates both internal and external factors:
Internal Factors:
- Cost Structure: The company's current cost accounting system is inadequate for accurately allocating costs and identifying areas for improvement. This leads to inaccurate pricing strategies and potential overspending.
- Operational Efficiency: CdeS lacks a robust system for monitoring and improving operational efficiency. This can lead to inefficiencies in manufacturing, distribution, and inventory management.
- Product Portfolio: CdeS needs to diversify its product portfolio to cater to evolving customer preferences and market trends.
- Limited Market Reach: CdeS's distribution network is primarily focused on Spain, limiting its potential for growth.
External Factors:
- Intense Competition: The cosmetics industry is highly competitive, with both local and international players vying for market share.
- Rising Raw Material Costs: Fluctuating raw material prices pose a significant challenge to CdeS's profitability.
- Shifting Consumer Preferences: Consumers are increasingly demanding natural and sustainable products, requiring CdeS to adapt its product offerings.
Strategic Framework:
- Porter's Five Forces: The case study highlights the high competitive rivalry and the threat of new entrants in the cosmetics industry. The bargaining power of buyers is also significant due to the availability of numerous substitutes.
- Value Chain Analysis: CdeS can leverage value chain analysis to identify potential areas for cost reduction and value creation. This involves analyzing each stage of the value chain, from raw material sourcing to product distribution, and identifying opportunities for improvement.
4. Recommendations
To address CdeS's challenges, we recommend the following:
1. Implement Activity-Based Costing (ABC):
- Objective: To accurately allocate costs to products and activities, enabling informed decision-making regarding pricing, product mix, and operational efficiency.
- Implementation: CdeS should implement an ABC system that tracks and allocates costs based on the activities involved in producing and distributing its products. This will provide a more accurate understanding of the cost drivers and help identify areas for cost reduction.
- Timeline: The implementation of ABC should be completed within 6 months.
2. Explore Strategic Alliances or Acquisitions:
- Objective: To expand into new markets and leverage the resources and expertise of other companies.
- Implementation: CdeS should consider forming strategic alliances with companies that have strong distribution networks in target markets or acquiring companies with complementary product lines or expertise.
- Timeline: The evaluation and selection of potential partners or acquisition targets should be completed within 12 months.
3. Invest in Innovative Marketing Campaigns:
- Objective: To enhance brand awareness, attract new customers, and increase customer loyalty.
- Implementation: CdeS should invest in digital marketing campaigns, social media engagement, and influencer marketing to reach a wider audience. The company should also consider developing a loyalty program to reward repeat customers.
- Timeline: The development and implementation of new marketing campaigns should be completed within 6 months.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with CdeS's core competencies in product development and manufacturing while also supporting its mission to provide high-quality cosmetics to consumers.
- External Customers and Internal Clients: The recommendations aim to improve customer satisfaction by offering a wider range of products and enhancing brand image. They also address the concerns of internal clients, such as the management team, by improving profitability and operational efficiency.
- Competitors: The recommendations are designed to help CdeS compete effectively in the highly competitive cosmetics industry by providing a competitive advantage in terms of cost structure, market reach, and brand awareness.
- Attractiveness ' Quantitative Measures: The implementation of ABC is expected to lead to cost savings and improved profitability. Strategic alliances or acquisitions can provide access to new markets and increase revenue. Innovative marketing campaigns can enhance brand awareness and customer loyalty, leading to increased sales and market share.
6. Conclusion
By implementing these recommendations, CdeS can improve its profitability, enhance its competitive position, and secure its long-term sustainability. The company needs to embrace change and adapt to the evolving market dynamics to remain relevant and successful in the cosmetics industry.
7. Discussion
Other alternatives not selected include:
- Cost Reduction Measures: CdeS could implement cost reduction measures, such as reducing labor costs or negotiating better prices with suppliers. However, these measures may negatively impact employee morale and product quality.
- Focus on Niche Markets: CdeS could focus on niche markets with less competition. However, this may limit the company's growth potential.
Key assumptions of our recommendations include:
- Successful Implementation: The successful implementation of the recommendations requires commitment from the management team and effective communication with employees.
- Market Acceptance: The new products and marketing campaigns need to be well-received by consumers.
- Financial Resources: CdeS needs sufficient financial resources to implement the recommendations.
8. Next Steps
The following timeline outlines the key milestones for implementing the recommendations:
- Months 1-3: Implement ABC system and conduct a comprehensive cost analysis.
- Months 4-6: Develop a strategic alliance or acquisition strategy and identify potential partners or targets.
- Months 7-9: Develop and launch innovative marketing campaigns.
- Months 10-12: Monitor the progress of the implementation and make adjustments as needed.
By following these recommendations and taking decisive action, CdeS can overcome its challenges and achieve its long-term goals.
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