make mct management consulting template based on the attached case study
W25813 W25813 CHEEKBONE BEAUTY – BUILDING AN INDIGENOUS GROWTH VENTURE R. Chandrasekhar wrote this case under the supervision of Simon Parker solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e)
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[email protected]. i1v2e5y5pubs Copyright © 2021, Ivey Business School Foundation Version: 2021-10-29 On an early morning in June 2020, Jennifer Harper was at her seven-employee office in the sprawling basement of her home in St. Catharines, Ontario. The Canadian province of Ontario, including the Niagara Region, had been under a state of emergency since March 15 due to COVID-19. Although many brick-and- mortar businesses in the province had shut down here, as they had in the rest of Canada and indeed in the rest of the world, Cheekbone Beauty (Cheekbone), the cosmetic products company Harper had founded four years earlier, was not only open for business but doing well. The reason was that the company had been built on an online sales model. After only a slight drop in the first four weeks of the pandemic, sales of Cheekbone products had gathered momentum. A member of the Anishinaabe tribe of what was known in Canada as the First Nations community, Harper had been driven by the goal of becoming “the first Indigenous woman to create a unicorn1 beauty brand from Canada.” She repeated this personal ambition to herself that morning while waiting for the daily staff meeting—which had moved online—to begin. At the same time, Harper was seeking resolution to an ongoing entrepreneurial dilemma she had been facing: How should she identify the fledgling company’s unique strengths and build them into sustainable competitive advantages? COSMETICS INDUSTRY The European Commission defined a cosmetic product as any substance or mixture intended to be placed in contact with the external parts of the human body (epidermis, hair system, nails, lips and external genital organs) or with the teeth and the mucous membranes of the oral cavity with a view exclusively or mainly to cleaning them, perfuming them, changing their appearance, protecting them, keeping them in good condition, or correcting body odours.2 1 The term unicorn was used in the venture capital industry to refer to a privately held start-up valued at over $1 billion. The term was coined in 2013 by venture capitalist Aileen Lee, who chose the mythical animal to represent the statistical rarity of such successful ventures. 2 “Glossary and Acronyms Related to Cosmetics Legislation,” European Commission, January 29, 2015, https://ec.europa.eu/docsroom/documents/13021?locale=en. A ut ho riz ed fo r us e on ly in th e co ur se B U S I6 40 a t U ni ve rs ity C an ad a W es t t au gh t b y D r. B re nt R am sa y fr om 1 2/ 14 /2 02 1 to 5 /3 0/ 20 22 . U se o ut si de th es e pa ra m et er s is a c op yr ig ht v io la tio n. https://en.wikipedia.org/wiki/Startup_company https://en.wikipedia.org/wiki/Startup_company https://en.wikipedia.org/wiki/Aileen_Lee https://en.wikipedia.org/wiki/Unicorn Page 2 W25813 Globally, the cosmetics industry had revenues of US$356.7 billion in 2018.3 At 9.2 per cent, it had a high profit margin. The industry was generally outpacing the rate of growth of the gross domestic product (GDP). With the top four companies holding 22.5 per cent share of the global market, the industry was fragmented. Its three main categories were skin care, hair care, and makeup, and skin care was the largest category by sales.4 In Canada, the cosmetics industry had revenues of CA$1.6 billion in 2018, with a profit margin of 7.4 per cent.5 There were a total of 4,247 cosmetics establishments in Canada. Their revenues had grown by 1.2 per cent in 2019, to reach CA$1.8 billion. L’Oréal Canada Inc. (L’Oréal) led the Canadian market with a 32 per cent market share in 2019. The slow growth in demand was due to two factors, which were uniquely Canadian: the country’s aging population and the growing preference of younger consumers for a natural appearance.6 The distribution of cosmetics in Canada was store-based, to the extent of 83.9 per cent, and it involved traditional channels like grocery stores and health and beauty stores. The cosmetics industry was characterized by a wide prevalence of contract manufacturers, which relieved cosmetics companies of the need to own production facilities. It also left these companies free to focus on capturing value at the retail end, through brand building and marketing. Most cosmetics companies, particularly in the small and medium enterprise (SME) sector, were thus buying “pre-made” products. Their day-to-day involvement in the business was limited to marketing. Branding was the only way to differentiate a product that was largely homogenous across categories. In its elementary form, for example, a lipstick was no more than a combination of wax, oil, and pigment. The industry had two types of contract manufacturers: original equipment manufacturers (OEMs) and original design manufacturers (ODMs). OEMs were responsible for producing products according to the specifications provided by clients and then selling the products to other companies, which were responsible for their distribution. ODMs were responsible for designing the products before producing them. The operations of OEMs and ODMs often had several combinations. For example, some OEMs made what were called private labels, on which a marketeer was free to place the logo of its own brand. The formulation of the product was often owned by an OEM or ODM; however, the manufacturer did not have the rights to market it. Some OEMs served as one-stop-shops by providing product life-cycle support for customers, and this helped in establishing successful product lines. A major trend in the industry was the growing demand for natural, herbal, and organic beauty products. The demand was fuelled by young consumers, who were seeking locally made, artisanal brands. They were pushing the industry to become “greener” by tracking the raw-material compositions of the products they were buying and insisting that cosmetics companies followed sustainable practices such as not using animals for testing. These consumers were enlisting the help of governments, which acted as regulators. Some countries of the European Union, for example, had banned the use of plastic microbeads in cosmetics.7 Another major trend was the recognition by the industry of the concept of life cycle thinking (LCT), which was widely considered to be the starting point for any sustainability assessment. LCT ensured that sustainability was built in right from the design stage of a product and lasted throughout its life cycle. 3 IBISWorld, Global Cosmetics Manufacturing Industry – Market Research Report, 6, September 2019, https://www.ibisworld.com/global/market-research-reports/global-cosmetics-manufacturing-industry/. 4 IBISWorld, Global Cosmetics Manufacturing Industry. 5 IBISWorld, Beauty, Cosmetics, and Fragrance Stores in Canada – Market Research Report, 31, April 2020, https://www.ibisworld.com/canada/market-research-reports/beauty-cosmetics-fragrance-stores-industry/. 6 IBISWorld, Beauty, Cosmetics, and Fragrance Stores in Canada, 13 7 S. Bom, J. Jorge, Helena M. Ribeiro, and Joana Marto, “A Step Forward on Sustainability in the Cosmetics Industry: A Review,” Journal of Cleaner Production 225 (2019): 270–290. A ut ho riz ed fo r us e on ly in th e co ur se B U S I6 40 a t U ni ve rs ity C an ad a W es t t au gh t b y D r. B re nt R am sa y fr om 1 2/ 14 /2 02 1 to 5 /3 0/ 20 22 . U se o ut si de th es e pa ra m et er s is a c op yr ig ht v io la tio n. Page 3 W25813 As a global market leader, L’Oréal had taken some pioneering initiatives in promoting sustainability. The company’s designers had worked for two years to develop an innovative tool that assessed the social and environmental performance of L’Oréal products. Known as the Sustainable Product Optimisation Tool (SPOT), it had been implemented in 2017 by the company across all its brands. SPOT used fourteen sustainability criteria—from sourcing, production, and packaging to consumer use. It monitored the impacts of waste reduction across every aspect of the company’s products in four areas: (1) the proportion of renewable ingredients, sourced sustainably or derived from green chemistry; (2) packaging; (3) the carbon footprint of the product’s formula; and (4) the social benefit of the product.8 Packaging was the largest component of waste in cosmetics production. Instead of being sent to incinerators, packaging waste was increasingly