30 Oct 2000  Research & Ideas

Building a Powerful Prestige Brand

Leveraging ambition, customer input, intuition, and a keen commercial imagination, a daughter of immigrant shopkeepers created a leader in the global prestige cosmetics market. HBS professor Nancy Koehn examines the genius of Estée Lauder.

 
photo of Estée Lauder
Estée Lauder in 1930. Photograph courtesy of Estée Lauder Companies.

The daughter of immigrant merchants in Queens, New York, Estée Lauder, born Josephine Esther Mentzer, began selling skin cream to women in New York City beauty parlors in the late 1920s. In 1946, she and her husband, Joseph Lauder, founded Estée Lauder Cosmetics. By the time she retired from public life in the mid-1990s, this company had become one of the largest cosmetics manufacturers in the world and was recognized as one of the leading players in the global market for prestige beauty products.

When Estée and Joe Lauder started their business, their product line enjoyed little consumer awareness outside New York City. But the couple was determined to build a large market for premium cosmetics. One of the earliest and most important decisions that the Lauders made about the brand concerned its distribution. Estée believed that where her products were sold would have significant consequences for the brand's future and the company's larger prospects. She ruled out drugstores, supermarkets, and five-and-tens as being at odds with the upscale image that she had already created and to which she was strongly committed. Even if they had wanted to sell in chain stores, the Lauders could not afford the large sales force necessary to service such outlets. 1

Because she wanted to reach women who did not necessarily have much experience with makeup, Estée believed she could not confine the Lauder line to beauty shops and other outlets that sold only cosmetics. Equally important, she thought most women would rather learn to make themselves more beautiful than pay expensive beauticians to do this. She thus eschewed the early selling strategies of Elizabeth Arden, Helena Rubinstein, and other manufacturers that distributed their products through company-owned salons.

Estée decided to focus her efforts on premium department stores. Estée had spent most of her adult life marketing directly to consumers. But in the late 1940s she and her husband began to envision the family business as a wholesale manufacturing operation with a compelling reputation.

Several issues were critical in the Lauders' thinking. First, they wanted to reach large numbers of middle-class and wealthy consumers, women with sufficient means to buy premium-priced products associated with sophistication and elegance. They also hoped to locate their goods in high-traffic locations, where consumers felt free to make on-the-spot "impulse" purchases. This meant the surroundings must be beautiful, exclusive, and comfortable for consumers. Department stores were destinations that transcended the routine stops that most women made each week to the grocery store, druggist, or dry cleaners. The Lauders hoped to use the novelty and leisurely enjoyment that women connected with upscale department stores to demonstrate their products and stimulate impulse buying.

In the late 1940s, department stores had another important advantage. Most of these retailers allowed consumers to buy on credit. Many, such as Marshall Field's, issued a store charge card to good customers.2 Charge cards and other possibilities for buying cosmetics on credit were particularly attractive to Estée Lauder. At the beauty salon or drugstore counter, consumers had to pay for merchandise with cash. This, the entrepreneur believed, precluded a consumer from making a spontaneous purchase.3 In the late 1940s, banks did not usually provide loans for consumer purchases other than housing. There were no universal bank credit cards such as MasterCard, Visa, American Express, or Diners Club.4 Estée therefore targeted a small number of fine department stores that sold merchandise on credit, including Saks Fifth Avenue, Neiman-Marcus, and Bloomingdale's.

She was not particularly interested in middle-market department stores that competed on low prices. Her objective of working with retailers known for carrying high-quality, premium-priced merchandise probably owed something to the social aspiration that drove her. Her interest in such stores was also strategic. Estée suspected that her young brand would benefit most from association with established, prestigious retailers.

Breaking into Department Stores

How was this young, little-known company, without a large advertising budget, to break into specific prestigious stores and thereby use their appeal to help build its brand? Beginning in the mid-1940s, Estée visited scores of department store buyers. She was a determined, talented saleswoman, whose methods and commercial imagination can be illustrated by the case of Saks Fifth Avenue. That store's buyer for cosmetics in the late 1940s, Robert Fiske, was not initially interested in Lauder's products. At the time, the store already carried a number of established brands, such as Charles of the Ritz. When Estée told the buyer that Saks shoppers wanted her line, he responded that he and store salespeople had seen no evidence of this. "In the absence of that demand," Fiske said, "we're not going to give any further consideration to your product." 5

Estée set out to prove him wrong, telling Fiske that she would demonstrate Saks customers' interest in her products at a charity luncheon at which she was speaking. The event was held at the Starlight Roof of the Waldorf-Astoria Hotel. At the same time, she donated over 80 of her lipsticks to the luncheon as table gifts. Unlike most lipsticks at the time, these were housed in metal cases. Lunch guests noticed the unusual packaging and the lipstick's color and texture. As the event broke up, Fiske recalled, "there formed a line of people across Park Avenue and across 50th Street into Saks asking for these lipsticks, one after another. This convinced us," he continued, "that there was a demand for the Lauder product."6 Saks placed an initial order for $800 worth of cosmetics.7

Cosmetic Counter
Estée Lauder's personal appearances at her cosmetics counters drew large crowds of shoppers who came to see the entrepreneur, have a makeover, and sample her products. She had learned early on that touching her customers was a very effective way of establishing a connection with them. Photograph courtesy of Estée Lauder Companies.

The entrepreneur designed and opened the Estée Lauder counter at Saks herself. She was determined to make each sales point for the brand "a tiny, shining spa" that whispered elegance and enjoyment for female consumers.8 Her signature blue color was everywhere. She chose the lighting and mirror placement carefully so they would flatter rather than intimidate women. Constructing and maintaining a cosmetics counter in a department store was expensive, as were hiring and training sales representatives, buying advertising space, creating window displays, and running regular promotions. In exchange for purchasing a given beauty line and allocating selling space to it, department stores usually expected manufacturers to bear the bulk of these expenses.9

Over the next decade, Estée crisscrossed the United States talking to department store buyers. She hired an experienced saleswoman, Elizabeth Patterson, to work closely with her as she opened counters, made women up, and trained sales representatives. The work was frequently very hard, the days long, and the separation from her family painful. "One year," Leonard Lauder remembered, "my mother was away twenty-five weeks."10

Estée was obsessed with building the business. "I was unstoppable, so great was my faith in what I sold," she said, describing her weeks on the road.11 By the early 1950s, Estée Lauder Cosmetics was distributing products through Saks, Neiman Marcus, Bonwit Teller, and other nationally known retailers. The company also targeted department stores with a strong regional presence, such as I. Magnin in California, Himmelhoch's in Detroit, and Sakowitz in Houston. Estée quickly developed a routine at each new store. First, she tracked consumers' movements in the store. For example, she "stood at the door of Saks Fifth Avenue for one whole week and watched women enter. Nine times out of ten, the first place their eyes would wander would be to the right. Not to the left. Not straight ahead." Next, Estée tried to obtain the best possible space on the retailer's cosmetics sales floor. This meant placing the Lauder counter close to and to the right of the entrance to keep the brand in consumers' line of vision.12

She spent a week at each store in which her line was introduced, devoting most of this time to working behind the counter. This included overseeing the sales representatives, tweaking the merchandise layout, and especially, talking with and touching potential consumers. "I'd make up every woman who stopped to look," Lauder remembered. "I would show her that a three-minute makeup could change her life." She also tried to create awareness of her brand outside the cosmetics department. She introduced herself to clerks who sold dresses, hats, and shoes, hoping to increase the likelihood of salespeople recommending Lauder products. She gave each saleswoman a sample of makeup or cream.13

Promotion and Advertising

To draw women into a store, the entrepreneur generally worked with the advertising managers. In its early years, the cosmetics company could not afford a large, mass media campaign. Instead, Estée and department store managers sent mailings to targeted local consumers. When Lauder first began selling her products at Saks, for example, all the store's charge-account customers received a small, white printed card with gold lettering that read: "Saks Fifth Avenue is proud to present the Estée Lauder line of cosmetics: now available at our cosmetics department."14 Introducing her brand in Neiman Marcus, she told Texas listeners in a radio interview, "Start the [new] year with a new face."15 This slogan was so successful that Estée Lauder and the retailer used it for decades as part of their annual New Year's campaign.

By the late 1950s, the Estée Lauder brand was a recognized name among department store shoppers. The company was becoming, according to Saks manager Robert Fiske, "a very dominant factor on the cosmetics scene." The Lauder line, he added, "was probably the number-three treatment line" behind those of Helena Rubinstein and Elizabeth Arden.16 Thousands of women understood the appeal of the Estée Lauder brand—its combination of tangible products and intangible associations such as elegance and consumer control. Estée now had momentum toward building one of America's leading beauty companies.

Giving Away the Business

One of the Lauders' most innovative marketing strategies involved giving the company's products away. Ever since she had offered beauty parlor customers a dollop of free cream in wax paper in the 1920s and 1930s, Estée had believed that distributing samples was "the most honest way to do business." She was confident that it would do more than motivate women to buy her products. It would also encourage consumers to tell others about the Estée Lauder brand. The entrepreneur had seen firsthand how powerful customers' word-of-mouth endorsements had been in enhancing her reputation in Manhattan beauty salons.17

The decision to initiate sampling on a broad scale was hastened by a problem with the young company's advertising budget. By the early 1950s, Estée and Joe Lauder had earmarked $50,000 from company profits for advertising and began talking with individual ad agencies. They were quickly rebuffed. A representative from BBDO, which handled accounts for Revlon, Campbell's Soup, and Lucky Strike, told the Lauders that $50,000 was far too little to finance an effective advertising campaign.18 Estée and Joe Lauder decided to plow the money into samples. This, they reasoned, might prove to be a better investment in the brand than a traditional ad campaign. The couple hoped sampling would create a more direct and personal connection with consumers. They ordered huge quantities of cosmetics packaged in small sizes: lipstick, rouge, eye shadow, and creams. They also had mailers printed to inform potential customers that a gift awaited them at the Estée Lauder counter at a specific department store. Most of these gifts were distributed to potential customers, to charge-account holders at major department stores, and to women who had already purchased the company's products.

In the early 1950s, distributing large quantities of cosmetics samples was a completely novel idea. Some beauty executives scoffed at the female entrepreneur's efforts. "She'll never get ahead," said a manager from Charles of the Ritz observing a Lauder giveaway at Lord & Taylor. "She's giving away the whole business."19 But the entrepreneur's sampling techniques were very successful. Women visited Estée Lauder counters to receive a free gift, learn more about the brand's products, and purchase what they needed. The giveaways and the later gift-with-purchase that Estée pioneered created an opportunity to exercise Lauder's sales approach, encourage spontaneous buying, and increase customer loyalty. "People trooped in to get the free sample," explained Leonard Lauder, "liked it and bought it again."20 Competitors began to copy the innovation. By the late 1960s, most major cosmetics firms regularly used the gift-with-purchase to drive traffic to their counters, and this practice remains an important tool today in marketing beauty products.

Footnotes:

1. John N. Ingham and Lynne B. Feldman, Contemporary American Business Leaders (New York: Greenwood, 1990), p. 331.

2. On the early twentieth-century history of consumer debt, see Martha Olney, Buy Now, Pay Later: Advertising, Credit, and Consumer Durables in the 1920s (Chapel Hill, NC: University of North Carolina, 1991), pp. 95, 98.

3. Estée Lauder, Estée: A Success Story (New York: Random House, 1985), pp. 43-44.

4. Diners Club was founded in 1949. For many years, it was used primarily by salesmen who charged meals with clients or while on the road. American Express entered the universal credit card business in 1958, as did Bank of America, which issued the BankAmericard (later renamed Visa). In 1966, a bank consortium called Interbank issued Master Charge (later MasterCard). Lewis Mandell, The Credit Card: A History (Boston: Twayne, 1990), pp. xiv, 22-51.

5. Quoted in Lee Israel, Estée Lauder: Beyond the Magic, (New York, Macmillan, 1985), p. 30.

6. Quoted in Ibid., p. 31.

7. Lauder, Estée: A Success Story, p. 44.

8. Ibid., p. 52.

9. S. L. Mayham, Marketing Cosmetics: A Guide for the Manufacturer in Placing His Products before the Stores and the Public (New York: McGraw-Hill, 1938), pp. 65-73. Retailers and cosmetics companies often jointly financed newspaper and radio advertising expenditures.

10. Lauder, Estée: A Success Story, pp. 61-62. Leonard Lauder quoted in Marylin Bender, "Estée Lauder: A Family Affair," in At The Top (Garden City, NY: Doubleday, 1975), p. 219.

11. Lauder, Estée: A Success Story, p. 65.

12. Ibid., p. 161. On consumer movements through stores, see also Paco Underhill, Why We Buy: The Science of Shopping (New York: Simon & Schuster, 1999), pp. 43-91 and Malcolm Gladwell, "The Science of Shopping," The New Yorker (November 4, 1996), pp. 66-75.

13. Lauder, Estée: A Success Story, p. 60.

14. Ibid., p. 45.

15. Kennedy Fraser, "As Gorgeous As It Gets," The New Yorker (Sept. 15, 1986), p. 71.

16. Quoted in Israel, Estée Lauder: Beyond the Magic, p. 42.

17. Lauder, Estée: A Success Story, p. 52. On the significance of consumer endorsements in expanding market share, see Thomas O. Jones and Earl Sasser, "Why Satisfied Customers Defect," Harvard Business Review 73 (November/December 1995), pp. 88-99.

18. "Estée Lauder Inc.," in International Directory of Company Histories, edited by Paula Kepos (Detroit: St. James Press, 1997), vol. 9, p. 201. See also Lauder, Estée: A Success Story, p. 52; Israel, Estée Lauder: Beyond the Magic, p. 36. On Revlon's advertising expenditures, see Richard S. Tedlow, "Charles Revson and Revlon," working paper 00-032, Harvard Business School, Boston, MA, 1999, Tedlow, "Charles Revson and Revlon," p. 33.

19. Quoted in Lauder, Estée: A Success Story, p. 53.

20. Quoted in Marylin Bender, "The Beautiful World of Estée Lauder," New York Times (January 14, 1973), S3, p. 5.

Excerpted and adapted from "Estée Lauder: Self Definition and the Modern Cosmetics Market" in Beauty and Business, edited by Philip Scranton, forthcoming from Routledge, December 2000.

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