During the 2009 global recession, more than 92,000 businesses in different parts of the world experienced failures at different levels. According to the American Association of Cosmetology Schools, the cosmetology industry held steadfast. This was substituted by the evidence that the spas and salons that were non-employee based increased by 72% in the period of 1999-2009. Furthermore, these businesses also experienced a 116% increase in their sales. For the spas and salons that hired more employees, there was an 11% increase in their sales. In the United States, opening and operating a business in the cosmetology industry requires high level of interest and eductaion and skills in making people’s skin, hair, nails and faces look beautiful. Furthermore, it is necessary to acquire facts about the industry and the customers before venturing into the business. The main objective of this research paper describes the cosmetology industry using Porters Five Forces Model. While focusing on the United States of America, the paper will also provide information on the current size of the industry with regard to revenues, the evolution of revenue, and the number of competitors.
Country level of information
Compared to other countries, the United States has the largest cosmetology industry with its revenue expected to increase by $62 billion in 2016. The top segments in the cosmetology industry in the United States include make up, fragrances, lotion and skin care, and hair products (MarketResearch.com, 2016). In the period of 2016 to 2018, the United States make up market is expected to maintain growth with an anticipated compound annual growth rate of 3.8%. For the five-year period of 2013-2018, the makeup market is expected to attain $8.4 billion (MarketResearch.com, 2016). The perfume and fragrance market from a global perspective is also expected to attain growth through 2018 with an annual growth of 2%. In the United States cosmetology industry, skin care is considered as the largest category accounting for approximately 35.3% of the market (MarketResearch.com, 2016). The products that constitute the skin care industry have facilitated the creation of a billion dollar industry. Hair care products are representative of large segments of the cosmetology industry in the United States with sales worth $11 billion in 2014 (MarketResearch.com, 2016).
Premium products have also been considered as some of the major contributors to the cosmetology industry. The global premium cosmetic industry is expected to realize profits of about $126 billion. This is because companies within this industry are experimenting on the emerging trends as a technique of boosting their market share and customer base in the United States (MarketResearch.com, 2016).
The success of professional cosmetology in the United States can be attributed to the availability of numerous academic institutions that provide high quality program for those interested in the profession. In addition, the licensing boards at the state and the federal level have also contributed to streamlining of the industry within the United States (Peiss, 2012). Furthermore, the desire among customers to acquire high quality services has necessitated improvements in the skills, aptitudes, and abilities of cosmologists. This has also ensured an improvement in their communication and interpersonal skills, level of creativity towards good-looking designs and ability to operate in lengthy hours (Peiss, 2012). The booming industry can also be attributed to the availability of numerous career options in the cosmetology industry. They include salon and spa managers, hair stylist, and nail technician among others (Peiss, 2012).
Main competitors in the cosmetology industry in the United States
The main competitors in the cosmetology industry within the united states include Concept Hair and Beauty Salon, Beautiful Texture Hair Salon, Rendezvous Hair Salon, Helaine Marie Salon and Retouch Salon. Retouch Salon is located in Colorado United States and has been in operation since 1996. This salon specializes in the provision of numerous beauty and hair services, which include hair styling, cutting, hair extensions, waxing, massages, nail polishing, hair extensions, and hair coloring. Furthermore, the company also specializes in the provision of its services in occasions such as weddings and parties.
Helaine Marie Hair Salon is located in the United States and has been in operation for approximately seven years. The salon specializes in the provision of a variety of beauty services, which include hair-cutting, styling, nail polishing, perms and hair extensions. In addition, the salon also provides skin care and aesthetic services, and hair polishing including a variety of high quality products.
Rendezvous Hair Salon is located in the United States and its offers varieties of beauty services, which include body waxing, haircutting and styling, hair extensions, nail art, facial, make up and massage. Furthermore, the salon also has its line of premium hair care products, which makes it highly competitive in the United States cosmetology industry.
Concept Hair and Beauty Salon has been in the cosmetology business for approximately 25 years. Other than the provision of beauty services, the company also recommends and sells a wide range of hair and beauty products to its customers. Beautiful Texture Hair Salon provides hair treatments such as Trichology to patients suffering from hair loss. In addition, the company also provides beauty service suitable for adults and children. Their services include eyebrow and eyelashes enhancing, relaxer services, advance weaving, hair removal, coloring hair cutting, styling and permanent wave.
Cosmetology industry and Porters five forces model
The use of Porters five forces model facilitates development of an understanding of the external environment, which is essential for companies in the cosmetology industry to engage in effective competition in the market (Peiss, 2012). Porter’s five forces is defined by the threat of substitute, threat of new entrants, industry rivalry, bargaining power of buyers and bargaining power of suppliers (Porter Five forces Analysis, 2014). According to Porter, in any industry the intensity of competition can be determined by the relative strengths of the market forces (Peiss, 2012). Porter’s five forces play a determining role in the definition of an industry structure, and the level of competition within the said industry. When the competitive forces are string within an industry, the less profitable that industry can be said to be. An industry characterized by low entry barriers, few suppliers and buyers but with many competitors and substitute products will be considered as highly competitive and profitable (Porter Five forces Analysis, 2014). This means that it is possible for an industry to be less attractive because of low levels of profitability. Recognizable features will therefore be very essential in determining high and low profit industries. In the view of Porter, high entry barriers, weak bargaining power by suppliers and buyers, few substitute products and low levels of competition define an attractive industry that is characterized by high profits. Unattractive industry characterized by low profits sis defined by low entry barriers, strong supplier and buyer bargaining power, numerous substitute products and intense competition (Peiss, 2012).
Threat of new entrant
In the cosmetology industry, a new business often threatens the existing businesses. This means that the existing businesses often discourage potential competitors for entering the market because such entry would make it relatively difficult for the existing businesses to protect their market share, customer base and their profit margins (Peiss, 2012). In the United States cosmetology industry, the threat of new entrant is high and this threatens the profitability of existing businesses. For beauty salons and spas in the cosmetology, industry in the United States the high threat of a new entrant makes it difficult to increase the prices of products and services a technique of improving on their profit levels (Tungate, 2011). The treat of new entrant is high because the barrier of entry is relatively low. This means that there are limited obstacles that prevent new businesses from entering the cosmetology market.
To be able to establish a salon or spa in the United States, the requirements include the acquisition of skills and knowledge from recognized higher learning institutions. In addition, the availability of licensing authorities at the state level also makes the process of acquiring licenses relative easier and transparent (Peiss, 2012). The popularity of the cosmetology industry arises from the understanding that majority of the population in the United States are interest in acquiring high quality services from different beauty service and product providers (Peiss, 2012). This makes it the responsbility of the United States government to make the industry accessible to new businesses that embrace technology and creativity in the execution of services and provsionof products. Furthermore, the proliferation of new businesses is also considered as a technique of reducing the levels of unemployment in the United States (Peiss, 2012).
The threat of new entrants in this industry is also high due to low capital requirements and the level of capital accessibility. Other factors include level of brand loyalty, switching cost, government regulations, and access to major suppliers within the industry. Consumers within the United States are defined by their ability to develop brand loyalty. However, in the cosmetology industry it is often affected by the level of creativity and technological innovations that new and existing businesses are able to embrace in the process of establishing their competitive advantage, protecting their markets share and customer base to ensure that they realize the intended profits (Tungate, 2011). This means that limited barrier to new businesses, low levels of brand loyalty in the cosmetology industry encourages more businesses into the market. Governments regulations also play and essential role in the determination of the threat of a new entrant. This is because according to existing government regulation in the United States it is important for a cosmetologist to be licensed to practice. There are also insurance regulations required in the cosmetology industry (Tungate, 2011). Government policies and insurance regulations in the United States are not considered as threats to new entrants because it is necessary for any business to operate in accordance with the requirements of the law. For the government to be able to acquire revenue in the form of taxes from the cosmetology industry it is important to create an environment that encourages innovation and competition. Furthermore, the availability of numerous products and the absence of definite technique of haircutting or styling make the cosmetology industry open for new entrants willing to use the industry as a platform of advancing their creativity levels (Tungate, 2011).
Bargaining power of suppliers
The bargaining power of suppliers in the cosmetology industry is essential in the determination of the level of competition in the industry. This is because in an industry characterized by the presence of powerful supplier, there will be less profits. Suppliers have the ability of increasing the level of competition in the cosmetology industry when they threaten to raise commodity prices and reduce the quality of services and products (Peiss, 2012). In such situations, they facilitate the reduction of profitability levels considering that businesses within the industry will not have the ability to recover cost increases in their own prices.
Furthermore, in the cosmetology industry suppliers can be considered powerful in situations where there is limited numbers of suppliers of essential products. Their bargaining power can also be high in situations where they supply rare products or when the switching cost to another supplier is relatively high. It is also notable that in the cosmetology industry, the bargaining power of suppliers can also be high in situations where it is it is easier for customers to differentiate products and this makes it relatively difficult for loyal businesses to be hesitant in switching to another supplier (Peiss, 2012).
In the cosmetology industry, the bargaining power of suppliers is low. It is the responsbility of the suppliers in the industry to provide products for hair styling, nail polishing, facial and body treatments. The products may also include creams, salon sized washes, bed sheets, towels, and masks. Since there are so many suppliers offering similar products at prices considered relatively the same in the United States, the bargaining power of suppliers relatively low (Tungate, 2011).
The bargaining power of suppliers in this industry is further reduced by the fact that the cost of similar products is relatively cheaper when imported from Asian countries such as China. Despite the low bargaining power, suppliers of facial products can have a relatively high bargaining power compared to the suppliers of other products because customers often develop some level of brand loyalty towards the products that they have been using (Peiss, 2012). This level of loyalty is attributed to the exiting assumption that frequent changes in facial products may result in undesirable outcomes with regard to enhancing facial beauty. However, since there are numerous selections of other facial products with the cosmetology industry the bargaining power of these suppliers may not be high enough to influence the prices in the market. In most cases, it is often considered the responsbility of the cosmetologist or esthetician to persuade customers or recommend to customers to purchase specific products that is well suited for their bodies (Tungate, 2011).
In the cosmetology industry, prices for beauty and hair products are often set at wholesale. This makes the prices relatively negotiable hence giving the purchasers an opportunity of haggling to determine the average market price of different products. According to the United States laws on beauty and hair products, it is the responsbility of the suppliers and manufactures to disclose the ingredient in their products as a technique of protecting customers from harmful material. This explains why the bargain power of suppliers is low (Peiss, 2012).
Bargaining power of customers
An industry is often considered attractive when the customers have the ability to set the terms and conditions under which they are willing to purchase product. This means that powerful buyers have the ability to put pressure of industry profits. In situations where the features of products are standard and the differentiation between products is small, customers will have a high bargaining power that allows them to negotiate for discounts. However, companies will engage their competitors in strong competition by reducing their prices to maintain their sales and minimize the possibility that their customers will switch to alternative businesses (Tungate, 2011).
The bargaining power of buyers in the cosmetology industry is high because there are so many sections of salons and spas that customers can choose form. For instance, in New York City, there is at least a spa and salon in every block. This means that customers have a high level of influence and power over businesses in this industry (Peiss, 2012). This is an indication that the businesses have the responsbility of keeping their prices at a competitive level because if salons and spas offered similar services and some operated on lower prices, then customers would prefer businesses offering services and products at cheaper prices. The understating that the existing business in this industry offer similar services makes it is the responsbility of the business to ensure that they offer services of utmost quality to attract more customers (Tungate, 2011).
Customers in this industry also have a high bargaining power in terms of brand loyalty. Businesses build brand loyalties by fostering relationships through effective communication with their customers. Ineffective brand loyalties make it easier for customers to switch to alternative salons and spas considering that the switching cost can be very low (Peiss, 2012).
Threat of substitute products or services
A substitute product in the cosmetology industry is considered as an alternative product or service that satisfies the same need. In this industry, substitute products or services are considered a source of competitive pressure to a business or supplier when the cost of the substitute product and the switching cost are significantly low for the customer. The existence of such products and services threaten to reduce the attractiveness of the market and the supplier power. It is the responsbility of suppliers, salons and saps to improve the performance of their products, ensure differentiation, reduce product, and service cost (Peiss, 2012).
In the United States cosmetology industry, the threat of substitute products is relatively low. This is because the industry comprises of hair, beauty, and facial products. The potential for substitute of facial products is low because customers have the ability of purchasing alternative facial products such as masks and cream. Furthermore, products such as miniature machineries used in facial treatment can be bought for home use (Tungate, 2011). This makes it easier for customers to perform facial treatments on themselves using such treatments at home. It is notable that products used by customers for facial and hair treatments are often acquired from salons and spas. This means that even if the industry loses customers for treatments, they still make profits through sale of the products. Substitute for body treatment and massages are low because it is difficult for customers to perform such services for themselves (Tungate, 2011). It is often convenient to seek the expertise of professional. The threat of substitute products or services in this industry is low considering that most people have stress from their daily lives and they prefer being pampered by professionals who provide services in the cosmetology industry (Tungate, 2011).
Intensity of rivalry
From Porters five forces it is notable that the intensity of rivalry among companies is one of the definitive forces that shape the competitive structure of any industry. Intensity of rivalry is therefore the level of competition between existing businesses that offer similar products or services. In situations where there are low barriers of entry into an industry, the level of competition is expected to be high (Peiss, 2012). Furthermore, if it is easier to customers to locate substitute products or services in an industry, then there will be high intensity of rivalry. In circumstances where the rivalry is intense, then it is possible that the competitors will be stealing profit and market shares from each other. This results in profit reduction potential for all companies within the industry (Peiss, 2012).
In the United States cosmetology industry, the intensity of rivalry is high. This is because the industry is a fragmented one populated by small and medium businesses. Most of these businesses have low to medium market share considering that they are owned by individuals or chains. This is an indication that customers in this market have a wide selection of businesses considering that they can easily change from one competitor to another (Peiss, 2012). The understanding that customers in this industry have more power results in an opportunity of price wars. This is because the businesses have the responsbility providing customers with utmost quality gods and services to minimize the possibility of customer shift to an alternative business. In some situations, these businesses also provide their customers with incentives as a technique of attracting more customers and establishing a competitive advantage (Tungate, 2011).
The level of demand for products and services in the cosmetology industry is medium. This is because the services and products are not of absolute necessity but they are considered as things enjoyed by customer, which can only become necessary when the customers are geared towards the realization of a desired result. The buyers continue to use products or services that they consider are beneficial to their wellbeing. The growth in the levels of demand is not too high and this explains why there is high competition and intense rivalry among businesses (Peiss, 2012).
In the United States, opening and operating a business in the cosmetology industry requires high level of interest and eductaion and skills in making people’s skin, hair, nails and faces look beautiful. Furthermore, it is necessary to acquire facts about the industry and the customers before venturing into the business. In the United States cosmetology industry, the threat of new entrant is high and this threatens the profitability of existing businesses. The threat of substitute products is relatively low. This is because the industry comprises of hair, beauty, and facial products. The bargaining power of buyers in the cosmetology industry is high because there are so many sections of salons and spas that customers can choose form. The intensity of rivalry is high. This is because the industry is a fragmented one populated by small and medium businesses. The bargaining power of suppliers in this industry is low because the cost of similar products is relatively cheaper when imported from Asian countries such as China.
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