Bain analyzes the price strategy of Estée Lauder

27 July 2012 Consultancy.uk

Estée Lauder has hired management consultants Bain & Company to review its pricing strategy and the potential impact of further price harmonization of its products across geographies. The study will initially focus on the Australian market and if findings prove valuable the global cosmetics house may extend the analysis to other countries as well.

The Australian retail partner of Bain & Company, David Zehner, declined to comment on the project.

Price difference across geographies

The rise of online channels has made differences in prices across geographies very transparent. For example, some popular Estée Lauder products such as Re-Nutriv and Clinique cost 60% to 100% more in Australia than they do on Estée Lauder’s US e-commerce site. Estée Lauder’s Re-Nutriv Ultimate Lift Age Correction serum (30 mls) costs $410 from Estée Lauder’s Australian online store compared with $US210 on the group’s US website. And the Idealist skin correction serum (50 ml) costs $150 on Estée Lauder’s Australian site, compared with $US85 on the US site, and Clinique SuperDefense SPF 25 costs $90 on Estée Lauder’s local site and in Myer, compared with $US44.50 on Estée Lauder’s US website.

Bain Company - Estee Lauder

According to a recent survey from Bain, 65% of Australian consumers were not prepared to pay any premium to buy locally and will turn to overseas websites to find the cheapest price. The survey found that 24% of responding consumers were prepared to pay 5% more to support local retailers but only 1% would pay a 15% premium.

Business model

Global companies have previously argued that geographic price differentials reflect the small size of market and local distribution and marketing costs. Yet critics claim that the differentials are far too large and that Estée Lauder should change its price policy. As part of the review, Bain will also assess whether or not Estée Lauder should retain its Australian distribution division or move to a direct importing model to reduce costs.

Pricing strategy

Estée Lauder’s pricing has come under increased pressure over the past years from both retailers and consumers. Estée Lauder’s major rival, L’Oréal, has been reducing prices on brands such as Kiehl’s and Lancôme by 20% to 40% to reduce the leakage of sales from department stores to online retailers. However, Estée Lauder has so far resisted pressure to reduce prices in Australia and as a result its sales have been impacted.

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