Shampoo Industry – Report 1

Lacey Prasad - 300279457

 Executive Summary

When doing this report we found that there is a lot that goes into the steps from
creating, producing and evaluating the end product to ensure that the final product is up
to customer and manufacturer standards. This report also shows the relationship
between exporting raw material, and the positive aspects to that country as well. This
report also shows the “Green” technology that is coming into play in today’s society.
That in order for shampoo brands to target everyone on an individual scale, it will have
to alter and modify their products to become more environmental and organic.

We show that there are distribution barriers that arise when producing product which
may make it hard to make the revenue you may need. Not only do some of the barriers
come from distribution, but it also comes from the shampoo too. Know that it may be
harmful and have negative health affects can cause harm to customers. And that is why
it is very beneficial for any shampoo company to come up with more natural products
like coconut oil and Aloe Vera that are natural resources.

We also show the relationship between business to business for the shampoo industry.
The relation between business to business includes hair saloons and saloon supplier
stores. The stores carry what customers want and need for their hair. Businesses have
to stand by what they sell.

Not only is business to business important, but business to customers is the main idea.
If a customer Is not satisfies or have dangerous and harmful reaction to the shampoo
that can cause a company to maybe have to close and the money that will need to be
spent to fix the problem can be in the millions. This is just some of the main points that
stated in this report.

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 Table of Contents

1. Introduction…………………………………………………………………………….4
2. STEEP
Analysis…………………………………………………………………………………5
a. Social…………………..……………………………………………………………5
b. Technological……………………………………………………………………….5
c. Economic…………………………………………………..………………………10
3. Porter’s Five
Forces…………………………………………………………………………………..12
4. a. Threat of New Entrants/Barriers to Entry …………………………..……………12
5. b. Power of Suppliers……………………………………………………………..…..13
6. c. Power of buyers……………………………………………………………………..14
7. d. Threat substitutes………………………………………………………………...15
8. [Link] Rivalry………………………………………………………………….16
9. Conclusions………………………………………...…………………………………..17
10. Appendix

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 1. Introduction

The industry this report will refer to is the Shampoo Industry. The market for this industry is very
open because shampoos now are considered one of the articles that are indispensable in a
household. However, because there are lots of competitors, the rivalry is very high. Competitors
that will be mentioned trough all the report are P&G – Pantene, Alberto Culver Co- Tresemme
and Hindustar Univeler. There finds of profits and revenues of all this organizations and also, of
the industry in general.

The purpose of this report is to show what opportunities existing competitors have, and at the
same time to show how new entrants can have a positive development in this industry.

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2. STEEP Analysis

a. Social

Europe – Remains one of the top Countries that contribute to the shampoo
industry with 38% which is an increase from the previous yeah with 36%.

Asia Pacific –Asia comes in as the second with 27% of product launches.

Latin America - Latin America though did not increase this year, but maintained a
23% share of the market.

North America – In forth, North America produces 10% which is down 2% from
last year in the shampoo industry.

Middle East & Africa - The region maintained a marginal 2% share of launches.

b. Technological

People normally used soap for personal care instead of shampoo. However,
soap had the distinct disadvantages of being irritating to the eyes and unsuited
with hard water, which can leave a residue in the hair. In the 1930s, the first
detergent shampoo was introduced. The 1960s is where the technology took off
in the shampoo industry. .

Raw Materials

Shampoos are initially created in a chemist laboratory. The chemist must decide
on visual features like how thick it should be, what color it will be, and what it will
smell like. They also consider performance attributes, such as how well it cleans,
what the foam looks like, and how irritating it will be. Consumer testing when the
marketing department is often introducing a new product into society. Customer
testing often helps determine what these characteristics should be.

Once all the visual components are known, a formula is created in the laboratory.
This is all trial and error at this point. Batches are made in small amounts so not

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waste is made if alterations are needed. In the personal care industry, nearly all
of the ingredients that can be used are classified by the Cosmetic, Toiletry, and
Fragrance Association (CTFA) in the governmentally approved collection known
as the International Nomenclature of Cosmetic Ingredients (INCI), which states
what can and can’t be in shampoo to help the people that are using it not be
harmed. The more common ingredients in shampoo formulas are water,
detergents to ensure the hair gets clean, foam boosters to help apply it to your
hair, thickeners so its pliable, conditioning agents to moisten the hair, modifiers
for specific specialty shampoo ex: anti-dandruff, and special additives and
importantly preservatives to ensure that the shampoo is kept sterile and free from
bacteria and other harmful ingredience. Some of these ingredience that they use
are used in shampoos are DMDM hydantoin and methylparaben.

The Manufacturing Process

After a shampoo formula is developed, it is tested to make sure that it will stay
and look the same over time. This type of testing, is called stability testing is
primarily used to detect physical changes in things as color, odor, and thickness.
This testing is done to ensure that the bottle of shampoo that is on the store
shelves will perform just like the bottle created in the laboratory.

The manufacturing process can be broken down into two steps. First a large
batch of shampoo is made, and then the batch is packaged in individual bottles.
According to [Link], this is how the manufacturing process takes place:

Step 1: Making the product

Large batches of shampoo are made in a designated area of the manufacturing

plant. Here workers, known as compounders, follow the formula instructions to
make batches that can be 3,000 gal (11,000 1) or more. Raw materials, which
are typically provided in drums as large as 55 gal (200 1) or in 50-lb (23-kg)
bags, are delivered to the compounding area via forklift trucks. They are poured
into the batch tank and thoroughly mixed.

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Depending on the formula, these batches can be heated and cooled as
necessary to help the raw materials combine more quickly. Some raw materials
such as water or the primary detergents are pumped and metered directly into
the batch tank. These materials are added simply by pressing a button on
computerized controls. These controls also regulate the mixing speeds and the
heating and cooling rates. Depending on the size and type of shampoo, making a
3,000-gal (11,000-1) batch can take anywhere from one to four hours.

Step 2: Quality control check

After all the ingredients are added to the batch, a sample is taken to the Quality
Control (QC) lab for testing. Physical characteristics are checked to make sure
the batch adheres to the specifications outlined in the formula instructions. The
QC group runs tests such as pH determination, viscosity checks, and
appearance and odor evaluations. They can also check the amount of detergent
that is in the formula and whether there is enough preservative. If the batch is
found to be "out of spec," adjustments can be made. For instance, acids or bases
can be added to adjust the pH, or salt can be added to modify the viscosity.
Colors can also be adjusted by adding more dye.

After a batch is approved by QC, it is pumped out of the main batch tank into a
holding tank where it can be stored until the filling lines are ready. From the
holding tank it gets pumped into the filler, which is made up of a carousel of
piston filling heads.

Step 3: Filling the bottles

At the start of the filling line, empty bottles are put in a large bin called a hopper.
Here, the bottles are physically manipulated until they are correctly oriented and
standing upright. They are then moved along a conveyor belt to the filling
carousel, which holds the shampoo.

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The filling carousel is made up of a series of piston filling heads that are
calibrated to deliver exactly the correct amount of shampoo into the bottles. As
the bottles move through this section of the filling line, they are filled with
shampoo.

From here the bottles move to the capping machine. Much like the bin that holds
the empty bottles, the caps are also put in a hopper and then correctly aligned.
As the bottles move by the caps are put on and twisted tight.

After the caps are put on, the bottles move to the labeling machines (if
necessary). Depending on the type of labels, they can either be stuck on using
adhesives or heat pressed. Labels are stuck to the bottles as they pass by.

From the labeling area, the bottles move to the boxing area, where they are put
into boxes, typically a dozen at a time. These boxes are then stacked onto pallets
and hauled away in large trucks to distributors. Production lines like this can
move at speeds of about 200 bottles a minute or more.

Quality Control

In addition to the initial checks to make sure the product meets specifications,
other quality control checks are made. For example, line inspectors watch the
bottles at specific points on the filling line to make sure everything looks right.
They notice things like fill levels, label placement, and whether the cap is on
correctly. The product is also routinely checked to see if there has been any
microbial contamination. Additionally, the packaging is also checked to see if it
meets specifications. Things such as bottle thickness, appearance, and bottle
weight are all checked.

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The Future

Consumer product corporations will continue to manufacture new types of

shampoos. These new formulas will be driven by ever-changing consumer
desires and developing chemical technology. Currently, consumers like multi-
functional shampoos, such as 2-in-I shampoos, which provide cleansing and
conditioning in one step, or shampoos that aid in styling. New shampoos will
likely provide improved conditioning, styling, and coloring while cleaning the hair.

Shampoo technology will also improve as new ingredients are developed by raw
material suppliers. Some important advances are being made in the development
of compounds such as polymers, silicones, and surfactants. These materials will
be less irritating, less expensive, more environmentally friendly, and also provide
greater functionality and performance

c. Economic

China is one of the world’s leading manufacturers for raw material for other
country’s to import material for shampoo. The manufacturing company that
makes Amphoteric Imidazonline which is a raw detergent used in shampoo. One
of the many distributors is Shanghai Fine Chemical Co which has between 11 –
50 employees that are working there. They distribute their product to North
America, South America, and majority of their sales comes from Eastern Europe,
Southeast Asia, and Western Europe. Their export is from 11% - 20% from the
various exporting countries. There are over 4,000 suppliers in China that
manufactures key components to making shampoo, which brings in jobs and
revenue to the country that has over 1 Billion residences.

Aside from China, India is another country that plays a vital role for the
development of shampoo. They also export raw material to other countries like
North America and Europe. One out of the 43 manufacturers in India is
Transchem Agritech Ltd which also makes detergents for the use of shampoo.

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This company has employed locals to work in the factory about 51 – 100 people
and exports between 71%- 80% of their products. They are in direct competition
between China. Prices and deep negotiations between both the manufacturer
and government for the best price are open because the competition not only in
the same country, but also in others likes China too. Both countries that have
access to ship to all those countries. FOB will be added but not more than $3,000
which when buying cheap it doesn’t seem to be that much. In 2002, 83.07 million
people were employed in manufacturing businesses and at least half were
manufacturing chemical that are needed in order to make and sell shampoo.

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3. Porter’s Five Forces Analysis

a. Threat of New Entrants/Barriers to Entry

Distribution networks are usually made from scratch which constitutes a barrier.
Some companies which have been in the market for a long time and have stretch
ties with retailers and its extensive production over the years are barriers. Like
with HLL, Hindustan Lever in India.

The only way to succeed and ignore barriers like this is to focus on segments in
which the big companies do not have any presence.

Customer perceptions or the companies and brand names can constitute a

barrier. In some situations the chemical on the shampoo are hazardous and can
generate an impact in customers; health.

Not being the product expected for customers can constitute a barrier also.
People from different ages are expecting different products whit different
characteristics. If the team of a certain company is not available to look at
customer wants and needs

And offer them products they are asking for, they will not be able to enter the
market

Example: A group that hair care marketers have found difficult to reach, over-
55s, will continue to increase as a percentage of the total population. To take
advantage of this group, marketers will need to find a way to generate interest in
the category among older adults

b. Power of Suppliers

As there are many suppliers, their power is really low. There is a lot of
competition and prices need to be similar in some way in order to stay in the
market. If a supplier has higher prices than other; the probabilities are that
companies are going to change for a cheaper supplier. It is important to keep in
mind, that most companies are their own suppliers; so to make their products
they do not need to depend on anyone else.

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The only threat could be when a supplier that usually provide their services to
more than one company, emerge with one of their clients; living their other
customers without a supplier. This would mean all the other firms would have to
look for a new provider which could take a long time.

Having the possibility to produce their own surfactants give firms the option to
reduce costs by using technology and market information.

Now that surfactant‘s manufacturers have already been analyzed, the next step
is bottle manufacturers. The final product needs to be offer to the public in a
package, in this case, for shampoos are bottles. There are lots of plastic
suppliers in the market, so once again the power of suppliers is low.

c. Power of Buyers

There is presence of business to business buyers and also business-to-

customers.

The relation business to business includes hair saloons and saloon supplier
stores. Products are selected according with customers’ wants and needs.
“Along product manufacturers have responded with products and services aimed
at very specific problems, special interests and aspirations” [ CITATION GCI06 \l
4105 ]. Saloons might struggle because many brands are producing treatments
and shampoos that can generate the same effects as the one produce at the
hairstylist. “Salon-only products are expected to struggle as women continue to
cut back on their salon visits. Conditioner is likely to suffer given its non-essential
status with money-strapped consumers scrapping it altogether or turning to
alternative products such as 2-in-1 shampoos.”[ CITATION Str11 \l 4105 ]

The relation business-customers have even more products for sale; for different
lifestyles, prices, ingredients, etc. People are looking especially for natural
ingredients not only because they work better on the hair but also because the
trend in the actuality is towards helping the environment. In general, around 60%
of the market look for natural products in all continents

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In conclusion, power of buyers is high because there are a lot of similar products
and competition in the market.

d. Threat of Substitutes

There are a lot of similar products in the market, shampoos with similar
characteristics and also products than can be use for the same functions that
shampoos do.

Some substitutes for shampoos are body washers that can be use also as
shampoos, especially for men. Some other people make use of natural products
like coconut oil. It is natural, economical and safe. Some people consider it is a
better option than shampoo, especially when consumer are trying to be aware of
the kind of products and chemical that must not be use when they treat their hair

However”, No other hair care product can achieve the cleansing function of
shampoo and its penetration is very high. Moreover, many shampoos are now
claimed to do more, such as: preserve color or straighten hair - meaning some
competition with hair styling and hair colorants”. [ CITATION Str11 \l 4105 ]

The competition between shampoos is very high. Many different companies offer
similar products so for a customer is very easy to change to one brand to
another. On the other hand, similar products as mention before, do not end up
having the same functions that shampoo do, so they can be consider a threat
only in a low level

e. Rivalry among existing competitors

The result of competition among shampoos is the hundreds of products that

customers see on the shelves of supermarkets and drugstores every day.
Different brands try to keep their frequent customers and gain new market by
clamming new ingredients and formulations. Under the same brand names there

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are products with different characteristics for different segments of the market;
women, men, children, blondes, brunetts,etc.

The biggest rivalry is among the huge competitor in the market. For example in
India, there a big competition between P&G with Pantene and Hindustar Univeler
and HUL. Both have produce big advertising campaigns to launch their new
products, even named themselves the number one shampoo in the country.

“In the last one year, Pantene’s market share has gone down by 60 basis points,
and HULʹs Dove has gained over 130 basis points during the same period. So,
P&G is now trying to regain the lost ground and market leader HUL is not in the
mood to give away any of their market share. Thus comes out an aggressive

Marketing campaign.” [ CITATION Gha10 \l 4105 ]

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The result from the Porter’s Five Forces Analysis can be divide in two parts; the point of
views of existing competition and new entrants. For both, the five forces can result on
threat and opportunities, however, everything depend on the way companies and
brands work in the market and the impact they can have in people.

For competitors, it is easier to evolve and have good result in the market, because they
are already on it. However, they can reduce their revenue and profits if for example a
bad movement leave them with less customers that the ones they have previously. The
intensity of the rivalry among them its really high so an advantage they have is they
already know the competition and how they work.

On the other hand, new entrants can have more barriers and it might be more difficult
for them to see opportunities in the market. If not chosen the right product with the right
characteristics for the right segment, everything can end up in millions of dollar wasted.
The only way new entrance can have succeed is if they choose a part of the market that
is not being work by the e competition; but in the shampoo industry whit thousand of
products in the market; I believe all the market is covered already.

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 BIBLIOGRAPHY

 B, Arshid. «Scribd.» Marketing Plan for an Herbal Shampoo to be launched in India . 27

february 2011 <[Link]

 GCImagazine. «Saloon Product Strategies.» March 2006. Global Cosmetic Industry. 15

February 2011 <[Link]
5335-44ed-88b0-526f2d905e38%40sessionmgr113&vid=13>.

 «Ghalla Bhansali Stock Brokers Pvt. Ltd.» 30 July 2010. G&B Vision. 20 February 2011
<[Link]

 Stratus Beauty. «Trend Report.» 22 February 2011

<[Link]
reports/TrendReport_BTY_Shampoo_and_Conditioner.pdf>.

 The HINDU group of publications. «Business Line's Investment World.» 21 January

2001. Shampoos: Putting money where the lather is. 25 February 2011
<[Link]

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Force High or Low? Opportunity or threat for existing Opportunity or threat for new
competitors? entrant to the industry?

Barriers to High Threat if existing competitors don’t It can be both according to the
Entry/Threat of have an strategy and new products to segment of the population choose and
New Entrants keep their customers satisfy the product offer

Power of Low Is prices are cost are not manage in If it’s harder for an existing supplier to
Suppliers the correct way the probabilities of stay in the market, it can be even more
being in the market are very small complicated for new ones.

Power of Buyers High Opportunity. Customer have variety of The fact that people are looking for
preferences that the industry and good prices and also a product that fit
brands can take advantage of them and that not all consumer s have
the same type of hair; open the door
for new entrants.

Threat of High There are thousands of products in the Threat

Substitutes market with same functions but
different brand

Intensity of High Existing competitor don’t want to lose Threat, especially if they are competing
Rivalry Among the market they have already gain. For with companies that are bigger than
Existing that reason, when they star loosing it them
Competitors they generate strategies to compete
and gain their market back

[Link]
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