Amore Pacific’s Successful Cosmetic

Brand - sss

KIM Donghwan 20080887CHA Myunghun 20071136

TANG Thierry 49001538JANG Hyukmin 20051261

Contents

• Company Overview• About Sulwhasoo• Types of Innovation• Timing of Entry• Internal, External Analysis• Summarization• Suggestion

Company Overview

• Leading Chemical and Cosmetics Company• Revenue 1,531,337 Million KRW (2008)• 35% of Korean Cosmetic MarketCosmeticsAMOREPACIFICHERASulwhasooLIRIKOSLaneigeIOPEMAMONDEPrimeraLolita LempickaOdysseyMIRAEPAINNISFREEÉTUDEEspoir

Personal careMise-en-ScèneRyoeHappy BathDantrolMedianSongyeum

Health careO'SullocVB ProgramOgardenNatural Beauty Food™Ketotop

Company Overview

* According to the AmorePacific.com

Company Overview

* According to the AmorePacific.com

Korean Costemics Market

- Market Size is gradually increasing (About 10% every year)

- 2011 : 9 thousand billion KRW (9 billion USD)

• Severe Competition

• Low Market Barrier

• According to the newspaper article, 2012 년 국내 화장품 시장규모 ‘ 9 조 7000 억원’ 예측 , 고희정 , 메디컬투데이

591Local

Company

MoreGlobal

Company

• According to the webpage of 식품의약품안전청

2008 2009 20100

20000

40000

60000

80000

100000

120000

Market Size(KRW)

Sulwhasoo

- Cosmetic brand using Ko-rean herb, launched ‘97

- Revenue 690 Billion KRW (2010)

- Total sales over 4 Trillion KRW (2010)

- Revenue is keep growing(About 9% every year)

• According to the blog article, 한방화장품 시장 ‘빅뱅’ • , 경제플러스리스보아카지노

2008 2009 20100

1000

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3000

4000

5000

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7000

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Revenue(KRW)

Sulwhasoo

Harmony & Balance- Persuasion of oriental Beauty

- Inner Beauty & Physical

Beauty

- Tradition and Science• According to the webpage, Sulwhasoo.com

• Concept of Brand

- Interaction between ingre-dients

- Balance of Yin and Yang(음과 양 ) for glowing skin

- Identify root causes of a single symptom

• Concepts of Technology

Sulwhasoo- Basic Principle : Yin and Yang- They found that the early signs of aging, such as dryness and

dullness begins at the age of 35, and the graying of hair and fur-thers the skin’s aging start from the age of 42, with their research.

- Oriental medicine says that these symptoms are originated from imbalance of Yin and Yang in the body.

- Jaeumdan and Jaeunboweedan are the core component of Sulwhasoo, supplementing and protecting Yin energy in skin.

Various Ingredients

Treatment with AmoreParific’s Unique ‘Poje’ Technology

Core Component

Final Product(Sulwhasoo)

Sulwhasoo

• Korean herbal cosmetic brand Market

Rank Company BrandMarket Share

1 52.20%

2 13.50%

3 10.20%

4 6.80%

5 4.10%

Market Share

12345Others

Sulwhasoo

Earliest Launching + Biggest Market Share

First Mover of Korean Herbal Cosmetics?

Rank Company BrandLaunching

Year

1 1997

2 2003

3 2003

4 2007

5 2004

Types of Innovation

• Brand new cosmetics with oriental medicine

Product Innovation vs. Process Innovation

• AMORE PACIFIC researched on oriental medicine for a long time

Incremental Innovation vs. Radical Innova-tion

• It attempts to share existing market

Competence Enhancing vs. Competence De-stroying

Timing of Entry• High Competition

of Cosmetic Market

Timing of Entry

Distribution Channel

Long History of R&D

Patents Complimen-tary Goods

No Marketing with Celebri-

ties

Timing of Entry

• Success Factor 1 : Distribution Channel

26% 32% 21%Multi-Store Door-to-Door SalesShop in Department Store

of Whole Revenue

* According to the Amore Pacific’s Report of 2006

Door-to-Door SalesTiming of Entry

Role

His-tory

Now

• Walking from the door to door

• Trying to sell a product or services to the general public

* According to the Wkiepedia

• Founder of the AmorePacific made this system

• Since ‘64

• 20% of whole Korean cosmetics market(‘2008)

SalesPerson

Door-to-Door Sales

• Salespeople offer total services for customers

Timing of Entry

- Example 1 Salesperson A help making kimchi for her VIP customers. Kimjang, kimchi making process, is time and labor con-suming activity, so she could make a lot of conversation and make their relationship better.

- Example 2 Salesperson B sometimes takes care of her cus-tomer’s children. In some cases, she goes their gradua-tion instead of her customers. It means that their customers consider the salesperson as their relatives.

• Salespeople is a TACIT Resource of AMOREPACIFIC !

* According to the newspaper Article, 이정연 , 불황에도 잘나가는 ‘방문판매’의 힘 , 2008, 한겨레

History of SulwhasooTiming of Entry

• Success Factor 2 : Long History of R&D for Korean Herb

Starting Research & DevelopmentWith Korean ginseng

- Launching ‘Ginseng SAMMI’- Export to U.S.

-- Starting R&D with 500 Oriental Herb- Launching ‘Sulwha’

Highly Path Dependent* According to the webpage in Sulwhasoo.com

Protecting Innovation

• Patents to protect their assets of R&D• Patent Searching with ‘WIPS’

- Keyword(((( 아모레 or 태평양 ) and ( 한방 or 인삼 ) and ( 화장표 or 피부 )) or 설화수 ) or 자음단 )

equivalent to ((((Amore or Pacific) and (herb or ginseng) and (cosmetics or skin)) or sulwhasoo) or Jaeumdan)

• Success Factor 3 : A lot of Patents

Timing of Entry

Protecting Innovation• Success Factor 3 : A lot of Patents

Timing of Entry

Protecting Innovation• Success Factor 4 : Complimentary Goods

Timing of Entry

Sulwhasoo SPA- Premium space for VIP- Making brand image luxury- Promoting new products- Place for networking among

customers

Haircare Line(Ryeo)- AmorePacific’s herb tech-

nologies are applied- Premium Haircare line- # 1 in Korean Herb Sham-

poo

* According to the webpage in AmorePacific.com

Protecting Innovation• Success Factor 5 : Low level cost of Marketing

Timing of Entry

* According to the webpage in AmorePacific.com

No Celebrities Reduces Marketing

Cost Higher Profit

BCG Matrix Analysis

Relative Position (Market Share)

Bu

sin

ess G

row

th (

Mark

et

Gro

wth

) The world’s first Korean herbal cosmetic making com-

pany

Increasing international inter-est in Korean herbal cosmet-

ics with the Korean Wave

Continuous investments,170 billion won for new facul-

ties,for the global top 10

Entering the overseas mar-kets

(Japan, China, and etc.)

The market leader of premium cosmetic market in the world

Internal, External Analysis

SWOTStrength Weakness

- High reliability of customers on the brand and the company

- 98 patents related to oriental medicine (35 international patents), 90 papers (59 interna-tional paper)

- High quality and luxury brand im-age

- Korean style design

- Oriental medicine is not popular among young people

- Limited product lines

Opportunity Threat

- Increasing number of free interna-tional trades

- Increasing interest in oriental medicine in China

- Korean Wave

- Imitation cosmetic products are prosper - Portion of international cosmetic brands in market is increasing

Internal, External Analysis

TOWSInternal Strength

1. High reliability on brand2. Lots of patents3. Luxury brand image

Internal Weakness

1. Low popularity of oriental medicine for young people2. Limited product line

External Opportunity

1. International trade is increasing2. Interest interest in oriental medicine in China3. Korean wave

SO

1. Develop and produce cosmetics specialized for Chinese market2. Put emphasis on high quality and luxury brand image

WO

1. Advertise products with idol for young image2. Develop multiple prod-uct lines for each countries

External Threats

1. Imitation cosmetics2. International cos-metic brands

ST

1. Put emphasis on espe-cialness of oriental medicine

WT

1. Pioneer new market where oriental medicine is unknown

Internal, External Analysis

5 Forces Analysis

Threats ofNew En-trants

Rivalry among

Existing Competi-

tors

Threats ofSubstitutes

Bargain-ing Power

ofBuyers

Bargain-ing Power

of Sup-pliers

1. Internal Rivalry- Most major companies(in Korea) already produce herbal cosmetics. And Sulwhasoo is competing with international cosmetics brands.

2. New Entrants- Many firms including Woongjin, KT&G have prepared for launching new herbal cosmet-ics.

3. Suppliers- There are many suppliers interchangeable, so the bargaining power of suppliers is rela-tively weak

4. Buyers- This is customer-driven industry, so they have strong power. However, except per-sonal buyers, there is no threatening buyer.

5. Substitutes- Substitutes for cosmetics is not meaning-ful.

High

Moderate

Weak

Weak Strong

Internal, External Analysis

Summarization

- A successful cosmetic brand using Korean herb.

- First Mover of Korean herbal cosmetic market.

- 5 Factors in being Suc-cess First Mover1. Distribution Channel2. Long History of R&D3. Patents4. Complimentary Goods5. Low marketing expenses

- Threat by competitors

Suggestion

- Market Size increasing is high(About 20-30% every year)

- 2010 : 9 billion USD- Similar Market Size with Korea!- 1.5 billion of population

• According to the newspaper article, 2012 년 국내 화장품 시장규모 ‘ 9 조 7000 억원’ 예측 , 고희정 , 메디컬투데이

Cosmetic Market in China

First Mover Advan-tage

in China OneMore Time!

Q&A