International Cosmetics from Poland
The case was developed by Svetla T. Marinova and Marin A. Marinov. It is intended to be used as a
basis for classroom discussion rather than to illustrate either effective or ineffective handling of a
business situation. The case cannot be used without the written permission of the authors or reproduced
in any way.
The authors wish to acknowledge the assistance of Dr. Irena Eris and her Personal Assistant Ms.
Aleksandra Trzcinska in developing the case.
Dr Irena Eris is famous in Poland. In 1999 the Business Centre Club honored her with
the title Business Woman of the Decade; in 2003 she was recognized for the creation
of an internationally competitive Polish brand, and in 2004 she was placed on the list
of influential women in Polish history that had turned the course of events, overcome
stereotypes, and initiated new thinking. In 2005 she received the Economic Award of
the President of Poland.
It all started in 1982 when Dr. Eris, a Ph.D. from the Faculty of Pharmacology at
Berlin’s Humboldt University, inherited the equivalent of six small Fiat cars. With
this inheritance she and her husband opened a cottage workshop producing nourishing
facial cream in 1983. The first cosmetic products were mixed in a makeshift machine
made by a local locksmith friend.
The Polish Cosmetics Market
With its population of 40 million people Poland is the eighth largest country in
Europe. Its per capita consumption is only one-fifth of the average of the pre-2004
European Union (EU) member countries. The key competitive factors are price,
quality, and brand recognition. Packaging and advertising have become increasingly
important. Poles tend to be risk averse when choosing everyday cosmetics. They
prefer to buy a known brand from a known store. Purchasing decisions are determined
by company reputation and brand recognition.
Poland has long traditions in the production of cosmetics. Max Faktor born in Łódź,
Poland during the 1870s, became the founder of modern make-up creating the global
Max Factor brand. Helena Rubinstein, a Polish immigrant to the United States is one
of the biggest names in facial care. In the Communist Era, Poland was by far the
largest cosmetics producer in the former socialist countries. The cosmetics of Pollena
and Nivea were cherished by women and men of all ages. Poland was also a large
market for cosmetics. Most of the cosmetics products were affordably priced. Only 5
percent represented luxury products, most of them imported. The collapse of the
CMEA (Council for Mutual Economic Assistance) market in the end of the 1980s and
the beginning of the 1990s caused enormous market stagnation for the Polish
cosmetics producers. Existing procurement and distribution networks in the domestic
and foreign Soviet Bloc markets were dismantled. Market positions were lost in the
big Russian market and in the other markets of Central and Eastern Europe. Polish
cosmetics companies and markets underwent a complete restructuring.
Today, the cosmetics industry in Poland employs approximately 19,000 people.
It has remained a key employer in a volatile labor market. The transition process to a
market-led economy has caused enormous job losses for the Polish workforce. The
“shock therapy” approach to the privatization of state-owned enterprises led to the
mushrooming of small domestic cosmetics companies. By the end of 2005 there were
more than 470 of them. Less than 15 percent employed more than 50 people. The
contemporary Polish cosmetics industry is highly fragmented. Small producers have
limited financial resources and lower productivity. Their bargaining power vis-à-vis
suppliers and distributors is comparatively low. Their knowledge and expertise in
international markets is scarce.
International cosmetics manufacturers were quick to enter the Polish cosmetics
industry via acquisition of former state-owned companies or greenfield investment.
They have big production capacity, premier facilities, established retail clout, and
high brand recognition.
In the last 10 years the production of cosmetics in Poland has experienced
steady annual growth (see Exhibit 1). In 2002 the market was valued at 1.85 billion
Polish Zloty (PLN), the equivalent of US$450 million at the current exchange rate.
600
500
400
300
200
100
0
2000
2001
2002
Production of cosmetics in Poland
2003
Import
Export
2004
Exhibit 1 Market Size, US$ million
The value of Polish cosmetics exports in 2002 was US$291 million, representing
almost 10 percent growth over 2001. More than two-thirds of all exports went to
former CMEA markets and about 30 percent to the European Union member
countries. The major importers were Russia (18 percent of the total value of Polish
exports), Hungary (14 percent), Lithuania (12 percent), Ukraine (11 percent),
Germany (8 percent), and the United Kingdom (7 percent). Avon Cosmetics,
Miraculum, Cussons Group, Kolastyna, Ziaja, Dr. Irena Eris, Polena Ewa, and L’
Oréal are the biggest exporters.
Cosmetics imports come from Germany (23 percent), France - 21 percent, the
United Kingdom 17 - percent, and Italy and Spain with 6 percent each. Imported
cosmetics sell at a price premium and enjoy high brand recognition.
Cosmetics manufacturers in Poland can be divided into four groups:
-Producers owned by the Pollena conglomerate, owned by foreign
investors (Beiersdorf, Cussons Group, and Unilever). They develop
and introduce new products in the Polish market and upgrade the
acquired cosmetic products.
-Formerly state-owned cosmetics manufacturers, privatized and
functioning independently (Pollena Ewa and Miraculum).
-A large group of Polish private cosmetics firms established in the
1980s and 1990s (Inter-Fragrances, Dr. Irena Eris Cosmetics
Laboratories, Kolastyna, Soraya, Dax Cosmetics, Dermika, and Ziaja).
-New
factories
built
by
global
cosmetics
companies
(Johnson&Johnson, L’Oréal, Avon, and Oriflame).
The strong domestic producers have established positions in the skin and body care
product market segment. They control about two-thirds of this market. The market
leader in the body care cosmetics is Beiersdorf-Lechia with almost 30 percent share,
followed by Johnson&Johnson with 8 percent, Unilever - 7 percent, Kolastyna – 6.5
percent, Dr. Irena Eris - 5 percent.
The facial care cosmetics market segment is dominated by Dr. Irena Eris with
16 percent, followed by Ziaja – 10 percent, Oceanic – 9 percent, and Cussons – 8
percent. All foreign facial care brands have positioned themselves in the middle or
premium sector of the market. For example, the U.S. firm Johnson&Johnson
dominates the middle sector with 45 percent market share, while the French Garnier
with its brand L’Oréal leads in the premium sector with more than 50 percent market
share. The market pressure coming from foreign brands has pushed most of the Polish
facial care brands into the low price mass markets. The self-tanning cosmetics
segment is dominated by L’Oréal – 27.5 percent, Beiersdorf – 25.3 percent, and Dr.
Irena Eris with 12.2 percent market share.
Premium cosmetics brands are sold via specialized networks of stores such as
Empik, Galeria Centrum, Ina Center, and French Sephora. The medium and lowpriced cosmetics are distributed via hypermarket and supermarket chains, drug stores
and specialty stores. Companies such as Avon, Oriflame and Amway use direct
selling. The largest distributor of cosmetics is Polbita. It is a privately owned
company established in 1990. Polbita owns 20 percent of the cosmetics distribution
system in Poland. Its store chain Drogeria Natura has more than 330 retail outlets.
Since 1988 almost all global and international cosmetics brands have entered
the Polish market. They seek new market development and expansion. The best
recognized foreign brands are: Christian Dior, Guerlain, Yves Saint Laurent, Yves
Rocher, Yves Saint Rocher, L’ Oréal, Laboratories Paris, Lancôme, Paloma Picasso,
Guy Laroche, Giorgio Armani, Cacharel, Coty, Elizabeth Arden, Pierre Robert,
Colgate Palmolive, Nivea, Jean Pierresand, Vichy Laboratories, Jade, Max Factor,
Revlon, Maybelline, Biotherm, Givenchy, Nino Cerruti, Margaret Astor, and Rimmel.
They have all set up their own exclusive stores and beauty salons. Aggressive
advertising, new product development, and simultaneous product introduction in Paris
and Warsaw reinforce their premium market position.
The ongoing process of market liberalization and EU enlargement has been
favorable for the growing market presence of foreign cosmetics brands in Poland. The
variety of products and services has led to a much greater consumer choice. This has
increased the competitive pressure on Polish brands that are mostly too small to
compete against global multinationals. One manager of a Polish medium-sized
cosmetics company stated: “Small and medium-sized cosmetics companies do not
have enough market power. I cannot see how they can compete successfully against
the multinationals after the EU enlargement. It is unlikely that the Polish Government
will protect us. It will not provide financial help for consolidation. Foreign giants will
have no problem pushing us out of business. There will be more products, but Polish
brands will gradually disappear.”
Nevertheless, domestically owned cosmetics companies in Poland have been
increasingly trying to gain market presence in the EU markets. Some managers
believe that the EU enlargement can provide more opportunities for export and
participation in partnerships with other cosmetics firms from the wider Europe.
The Company
Dr. Irena Eris Cosmetic Laboratories was set up in socialist Poland in 1982 with a
monthly production output of 3,000 packages. Demand for Eris cosmetics constantly
increased and the company expanded its operations rapidly.
The transition period with its diverse economic and political reforms created
new opportunities for business growth. The increased productivity and profitability of
the company in the early 1990s led to the launch of a new plant. Dr. Eris re-invested
most of the company profits in product innovation and new technologies.
Presently, the company employs 350 employees and produces 300 types of
products grouped into several product lines. The monthly output is approximately
1,000,000 units. All company cosmetics products meet the quality standards of the
European Union and the U.S. Food and Drug Administration. Dr. Irena Eris holds
ISO 9001 (since 1996) and Environment Management ISO 14001 (since 2001). Those
certificates guarantee that its cosmetics are of global quality and their production is
environmentally friendly.
Dr. Eris’s focus is on innovation and R&D. Its R&D investment in 2004 was
3.4 percent of company turnover, growing to 4.6 percent in 2005. A large team of
dermatologists, allergy specialists, biologists, and molecular biologists works on
various projects at the company’s Centre for Science and Research set up in 2001 (see
Exhibit 2). R&D is the core of the company’s strategy to develop scientifically
advanced products. They are targeted at consumers who are interested in scientifically
created cosmetics.
R&D Department
Development Director
R&D Department Head
Dr. Irena Eris Center
for Science and Research
In Vitro
Research Laboratory
Laboratory for Technology
and Implementation
In Vivo
Research Laboratory
Source: Dr. Irena Eris Cosmetics Laboratories.
Exhibit 2 Structure of the R&D Department.1
Scientific research and innovative solutions are key to the brand positioning strategy
of Dr. Irena Eris. All products are original and based on in-company research. This
makes them distinctive and more difficult to copy by competitors. In the mid-1990s,
Dr. Eris was the first in Europe to propose the use of vitamin K in cosmetics. More
recently, it was the first company in the world to test and use an innovative complex
FitoDHEA + folacin in its products.
Brand Image
The brand image of Dr. Irena Eris is built on respect for people, stressing their
individual nature and the importance of cooperation. The brand development strategy
reflects the value of interpersonal relationships within the company and with its
clients. The brand value of Dr. Irena Eris is based on its holistic approach to the
individual specific needs and preferences of customers. It offers an individual skin
care program for home use and for use in specialised professional salons and spa
hotels.
1
More details about the research program can be obtained from:
www.drirenaeris.pl/badania/en/badania.php; www.drirenaeris.pl/en/kosmetyki_skladniki.php
The brand has also gained international recognition. In 2005 it was nominated
to the 2005 Beauty Awards for the best cosmetics introduced in the UK market. It was
also awarded the Gold Glamour award by the British edition of Glamour.
The consumer target groups of Dr. Irena Eris span all age groups. Users are women
who prioritize cosmetic efficiency based on research. They wish to use high quality
products that are modern and pleasant in use. The market segmentation approach of
the company is based on four segments (see Exhibit 3).
Source: Dr. Irena Eris Cosmetic Laboratories.
Exhibit 3 Market segments and company brands
The company targets the economy segment with mass products. The premium
segment is reached with innovative products. The dermocosmetics segment is served
with health and hygienic products. Specialized products are designed for the
professional segment. These segments are reached via 20,000 retail points of sale for
widely distributed products and 1,000 points of sale for products destined for limited
distribution via pharmacies, beauty salons, and centers.
Diversification
The company has diversified in related activities. Following the success of a four star
Spa Hotel Dr. Irena Eris in Krynica Zdrój in Poland, it has invested in a second Spa
Hotel Dr. Irena Eris Wzgórza Dylewskie in Wysoka Wieś near Ostróda, which is to
be completed in the first half of 2006. The Spa Hotels offer a comprehensive, tailor
made skin treatment and revitalizing program. Skin treatment is complemented by a
range of health improvement packages including exercises, massage, spa therapy and
physical activities. The spa hotel concept promotes Dr. Eris as a modern lifestyle
brand.
Moreover, the brand Dr. Irena Eris has been extended to the franchise chain Dr.
Irena Eris Cosmetics Institutes. There are 22 of them established in the largest Polish
cities. Such institutes were also opened in Moscow, Russia and Bogota, Colombia. It
is projected that ten new Institutes will serve clients in Poland and abroad by 2007.
The Institutes offer several basic company treatments based on Dr. Irena Eris
Professional Program. The treatments are carried out using preparations from the
company’s own specialised line of cosmetics. They are exclusively used in beauty
salons (Prosystem). The therapy is complemented by a line of products for subsequent
home care (Prosystem home care). The treatments are selected individually and
preceded by obligatory skin diagnosis by dermatologists partnering with Dr. Irena
Eris Cosmetic Institutes. The personnel of the Institutes consist of beauty therapists
trained at the company’s own center.
Marketing Communications
The marketing communications strategy of Dr. Irena Eris is consistent with its overall
strategic focus on innovative and modern cosmetic solutions. It is the Polish company
with highest advertising expenditure. In Poland the company advertises on national
and regional state-owned and private TV channels, on billboards, and in fashion and
women’s magazines. Advertising and PR activities are carried out in the lead
international markets with materials generally standardized but adapted to the local
language. Private TV channels are mostly used for the firm’s international advertising
campaigns. Next come advertisements in fashion magazines and in-store promotion.
The company has strengthened its position in the professional segment through
developing close relationships with key business customers and participating in
international fairs.
Dr. Irena Eris Cosmetic Laboratories is involved in sponsorship and social
activities. Every year the company donates products and money to the value of more
than PLN500,000 for charitable causes. It is a key contributor to the Always Healthy
and Active Club programs set up to meet the needs of seven million adult Polish
women. The program aims to increase the knowledge of mature women about health-
related issues, and improve their general health and quality of life. In 2001, Dr. Eris
was awarded the Summa Bonitas award from the foundation Zdążyć z pomocą for its
corporate social responsibility.2
In 2004 the sales volume of Dr. Irena Eris Cosmetics Laboratories was PLN97.6
million (€24 million) from domestic and export sales. This was 15 percent growth
compared with the results in 2003. In 2004 after-tax profit was PLN7 million.
Internationalization
Most of the initial attempts to go international were driven by opportunities
based on personal contacts. In 1989 the company started exporting its products. The
debut was made in the vast U.S. market. The large Polish community in the U.S.
formed a formidable basis for foreign market expansion. Personal relationships and
contacts were of foremost importance. Currently, Dr. Eris cosmetics are available in
over 1,000 specialized U.S. salons.
After tapping into the U.S. market, Dr. Eris turned her sight to the neighboring
German and the former CMEA markets. Geographic proximity, low psychic distance
and previously strong positions of Polish cosmetics in these markets proved to help
market entry and penetration.
Dr. Irena Eris has been trying to systematically develop its international
presence since the mid-1990s. Direct exporting has been the preferred mode of
foreign market entry. The company management have recognized the benefits of
economies of scope and use various sources of information in support of foreign
market expansion. They work with a range of exclusive distributors. In 2004 Dr. Irena
Eris products were introduced to the British market via Boots retailer. The growth of
exports has been substantial and in 2004 the company recorded an increase of
international sales by 40 percent. By 2006 the products of Dr. Irena Eris were
available in 24 countries around the globe. They are sold in beauty shops, pharmacies,
supermarkets and beauty salons. Major markets are the U.S.A., Lithuania, Russia, the
Czech Republic, Hungary, the Slovak Republic, the Ukraine and Germany, Tasmania,
Taiwan and Singapore.
Franchising has been used for the company’s international growth in the form of
cosmetics institutes. Apart from the two franchise operation in Moscow and Bogota,
an expansion of franchise operations is planned across Europe.
2
more information at http://www.businessweek.com/magazine/content/04_19/b3882011.htm