Nivea is one of the world’s leading manufacturers of cosmetics products. It covers almost every market segment including products for both women and me. Recently, it added products such as fairness creams, alcohol-free after shave, deodorants, body sprays and other products for men into its product line, after serving the women cosmetic industry for such a long time (Santos, 2011). It has now established its place in the market and is a known market leader in the cosmetic world.
Following is a detailed Porter Five Forces Model Analysis of Nivea:
Competitive Rivalry – High
Competitive rivalry is high for Nivea. There are a number of huge brand names such as L’Oreal, Ponds, Revlon etc. manufactured by giants like Unilever and Proctor & Gamble that are strongly competing for market share. They all have captured market shares, regularly spend huge amounts on research and development, innovate and introduce new and modified products every now and then. They have also entered into all the market segments of the cosmetics industry. Other than these huge players, there are other medium and even small-sized manufacturers at the national level in various countries that have been able to compete and capture market share. As a result of a large number of players in the market and diversity of products, competitive rivalry for Nivea is high.
Threat of New Entrants – Medium
The cosmetic industry has a medium level threat to new entrants. There are a number of reasons for this. First is the huge capital requirement for establishing a manufacturing setup. Second is the cost of developing these products i.e. research and development, extensive advertisement and promotion costs required to develop market presence, economies of scale required to achieve economical production, people trust only tested and tried brands for themselves as the use of cosmetics is a sensitive issue for many and so on. However, some small level firms have been able to penetrate into the markets of developing countries by specifically focusing on the specific needs of those market segments and have captured market share e.g. Skin White in Pakistan is a local cosmetic manufacturer that has been able to grab market share from Nivea, Unilever and P&G in that market by focusing on the unique needs of that market segment. Thus, the threat of new entrants for Nivea is medium.
Bargaining Power of Suppliers – Low
This refers to the ability of the buyers to influence the prices of the products. In the cosmetic industry, the raw materials for the production process are procured from a number of suppliers e.g. General Chem, Cosmetic Index etc. and there are a large number of suppliers that are able to supply the same raw materials to the industry. Secondly, the cost of switching from one supplier to the other is almost negligible if any supplier tries to influence prices. Thirdly, a number of large manufacturers of cosmetic have acquired their suppliers through backward vertical integration reducing the impact of the supplier to zero. Thus, overall the suppliers are in no position to manipulate Nivea or try to force the company to buy at higher costs. Therefore, the bargaining power of suppliers is low.
Bargaining Power of Buyers – High
In the cosmetics industry, the bargaining power of buyers is high. This is due to increasing competition and availability of similar cosmetics from a variety of manufacturers. For every product, there are a number of manufacturers that make a similar product. E.g. Nivea, Unilever, P&G all make moisturizing lotions. Thus, the buyer has a high level of bargaining and can easily switch from one brand to the other. They can force the manufacturers to reduce the prices through decreased purchasing. However, there is another angle to this. In the cosmetic industry, a number of buyers focus on quality and take products of a particular brand like Nivea to be suitable for their skin and products from any other brand may cause them skin problems. They under no circumstances switch between brands are price insensitive. They are willing to go across the town to buy their particular brand cosmetics. In this case, the bargaining power of the buyers is very little (CourseHero, 2011). Thus, overall we can take the bargaining power of the buyers to be high as the later segment is relatively smaller.
Threat of Substitutes – High
Due to the wide variety of products that are available in the market, any unsatisfied user of Nivea products can easily switch to a product of another brand that will satisfy his or her needs. E.g. a Nivea user may switch to Vaseline, L’Oreal or any other brand very easily. The high level of innovation in the cosmetic industry has made it difficult for any particular brand to overcome this threat. Thus, the threat of substitutes is high for Nivea.
References
CourseHero, 2011. 5 forces model NIVEA. [Online] University of Amsterdam Available at: https://www.coursehero.com/file/16679030/5-forces-model-NIVEAdocx/ [Accessed 13 June 2017].
Santos, A., 2011. Nivea Strategy. [Online] Available at: https://prezi.com/g34e0xxz7nhh/nivea-strategy/ [Accessed 13 June 2017].