The Estée Lauder Companies is one of the biggest names in the beauty industry, and today, the proud owner of more than 20 brands. The company is a master of selling products in different markets: makeup, skincare, perfumes, and haircare — at very different price points — from affordable to avert-your-eyes expensive. But Estée Lauder wasn’t always good at this game. After finding initial success with the original, Lauder brand, the second brand they ever launched, Clinique, almost bankrupted them. This is the story of that launch — and how the brand’s slow crawl to success taught Estée Lauder’s leadership a number of rather expensive lessons in brand positioning and cash management.
A modern Clinique ad. (Source)
Before diving into how Clinique was created, it’s important to understand how beauty products were distributed in the 1960s. Direct to consumer sales did not exist. Instead, cosmetics companies sold their products through department stores which “specialised” in apparel and accessories. “Buyers”, from the cosmetics company’s perspective, represented a specialty store that agreed to purchase and display their products to end consumers.
In the 60s, Estée Lauder limited distribution of their products to prestige specialty and department stores that catered to the elite classes of society. They often hired saleswomen to be present at the counter where their products were displayed, to entice customers and offer beauty advice. The Estée Lauder company was on good terms with most of these buyers because the brand’s products increased the stores’ revenue by over 100 percent. By 1965, it was the fastest-growing beauty company in the United States of America.
However, as the decade progressed, Estée Lauder faced a new problem: the rate at which their business was growing was starting to level off. The numbers indicated that the company was no longer meeting the high expectations of buyers. One reason was the emergence of Revlon, a rival prestige skincare brand. Estée Lauder was forced to accept that Revlon was here to stay — and in order to gain an edge over them, the Lauders needed to do something different. Revlon was a fierce copycat, so Estèe Lauder had to come up with something that Revlon would not be able to predict, much less copy.
Leonard Lauder, Estèe’s son, was then the recently-appointed chairman of the company. He tasked himself to find a solution to these mounting problems. By then, Lauder had already decided that if there was a brand-new concept that could compete with the Estée Lauder brand, he wanted his company to introduce it. This strategy harkened back to his experience in the Navy, where he observed that different boats of the same naval squadron protected each other. Lauder thought to himself: “Instead of waiting to see what our rivals might dream up and then respond, wouldn't it be better for us to leapfrog them and create our own competitor first?”
Lauder didn’t have to look very hard to decide what this new product could be. Around this time, a new trend was emerging among women, where “it seemed that the more money women had to spend, the more conscious they were of their skin's sensitivity.” A word was coined to describe products that catered to this: hypoallergenic. However, at that time, the market for sensitive skin products was still relatively small, and none of the products on the market had Estée Lauder's quality and prestige. There was a vacuum in the market, and Lauder believed he knew just how to fill it.
Estée Lauder was going to be the very first prestige brand to launch a high-quality allergy-tested line for prestige stores. In the face of such an opportunity, the company knew that (in Lauder’s words) “startlingly new and effective ideas were called for”: they had to go big or go home.
Dr Norman Orentreich (source)
Clinique's appeal hinged on being the first hypoallergenic line to be dermatologist-driven and approved. The company did their research, and chose dermatologist Dr. Norman Orentreich, who rose to fame for his innovative three-step system of skincare which involved cleaning, exfoliating, and moisturising. Dr. Orentreich, together with in-house chemists, worked to medically test and develop a new line. They came up with an entirely new way of thinking about beauty. Every cosmetic brand of the time endorsed a “one size fits all” approach — it was unheard of to offer a range of products that would cater to different types of skin or hair. But Lauder’s new brand would be built around this idea. For the first time ever, it introduced the concept of different skin types and offered different products to care for them. Clinique's beauty advisors would first help the customer discover which skin type they had, and then guide them to the Clinique products best-suited to said type.
The brand’s approach also called for a novel promotion strategy that emphasised futurism and technology. Clinique sales women wore white lab coats, and each sales counter was fitted with “diagnostic” lamps and computers. These computers served as a brand differentiator, at a time when such technology wasn't the norm. The computers asked customers questions that a skin specialist would use to analyse skin types, and sorted them into one of four skin types. Previously, the sales persons simply chose for the customer, but now, the computer took each and every customer's individual differences into consideration.
Clinique’s launch strategy was unique in one other way. In the beauty industry, companies typically introduced a single product, gauged customer responses, and then took the decision to either expand the line or cut back from there. However, Clinique was planned as a full-line launch, consisting of distinct but complementary skincare and makeup lines. A full-line launch was enormously risky, but at the time, Estée Lauder was confident enough to make the gamble.
In September 1968, Clinique launched with a whopping 117 items at Saks Fifth Avenue. It launched to an enthusiastic (if rather curious) crowd. Although it seemed like the brand was off to a good start, it wasn't long before problems started to emerge.
Clinique products sold decently well, but they seemed to attract a very specific category of customers — and Estée Lauder was confident that the brand could appeal to a wider audience. Estée herself pointed out, “We had launched what was considered an interesting and very special part of the industry, but not a line with a very broad appeal. That was the market's appraisal. Ours was somewhat different.” They expected the same “instant success” they had experienced with previous Estée Lauder products, but this didn’t come to fruition. Instead, a curious phenomenon occurred — in places where Clinique did well, Estée Lauder didn't, and in places where Clinique lagged behind, Estée Lauder excelled. But it was still early, and Estée refused to give up. Leonard recalls, “We were pumping money into Clinique across the board, not realising that in certain markets we might as well be pouring it into the sea.”
And money soon became the prime issue at hand.
Estée Lauder had never launched an entire line at once, and so they hadn't done a good job with cash flow projections. Clinique also demanded more money than their previous endeavours: it was a full-line launch, and it included expensive collaterals such as the computers. By early 1969, Estée Lauder found themselves short on both cash and inventory. Instead of their usual stockpile of $8m to $10m, the company had barely $900,000 to spare.
The cash flow problem hit a crucial point by April 1969, when Revlon launched Etherea, a hypoallergenic line intended as a response to Clinique. The Estée Lauder Company needed to take things up a notch, but they no longer had the financial resources to do so. It was then that the company knew they could no longer prolong the issue — they needed to slash their overhead.
That year, Estée Lauder ended up cutting 10 percent of staff in a process that Leonard Lauder described as “heartbreaking”. The company also opened another factory exclusively devoted to Clinique, to reduce pressure on their single factory in Melville. Gradually, the team realised that their approach to Clinique had to change. Instead of comparing the two brands in sales numbers and locations and trying to force parity between the two, the team pivoted to focusing their efforts on specific locations that Clinique was already doing well in.
Lauder writes:
We already knew the markets where Estée Lauder succeeded: cities and countries where fashion was celebrated and women made a conscious effort to be stylish. These were places like Los Angeles and New York. To our bewilderment, Clinique had a very hard time in those fashion-focused markets. But it did extremely well in Chicago and Philadelphia’s Main Line, and when we went international a few years later, it quickly became the number one brand in Canada and Scandinavia.
It took us a while to figure out what was going on: why some markets would warmly embrace the concept of Clinique and others would cause us trouble. When we did, it was a lightbulb moment: Despite our insistence that Clinique wasn’t an Estée Lauder brand, we’d still been thinking of it as an offshoot of Estée Lauder. Now we realized there were two completely different groups of customers who embraced these two lines in completely different ways. If was as if we’d been speaking Finnish to a group of Frenchwomen. No wonder there was confusion.
The distinctions were clear. Both brands were efficacious in their own way. But the Estée Lauder brand had an aura of glamour; it embodied aspiration. Clinique was more democratic; it was less about aspiration and more about everyday pragmatism. Estée Lauder was for the ageless consumer, Clinique for younger women. Estée Lauder was about artfulness; Clinique was about simplicity. Estée Lauder, though it stood out from the competition, was familiar; Clinique was unique.
(Clinique also did very well in Germany and Switzerland, two countries known for their down-to-earth, unadorned approach to beauty.)
(...) It took a few years—and a few million dollars—for the lightbulb to click on. We took a bath before Clinique started paying off. But Carol Phillips and I had faith that the brand would ultimately succeed. Finally, about five years in, our commitment was rewarded.
Once I realized what was happening, I felt as though I’d inadvertently let the genie out of the bottle—and I couldn’t have been happier. This was far, far bigger than my initial vision of competing brands. The Estée Lauder and Clinique brands combined became a dominant factor in the U.S. market.
In the long term, Clinique proved to be a success, becoming the fastest-growing cosmetic brand in the US in the mid-1970s. One way of reading Lauder’s experience is that this was an early lesson in market segmentation. Writing years later, Lauder concludes:
The launch of Clinique was a classic case of leveraging market segmentation. Looking back, this was probably the most important lesson I learned in my entire career: if you understood market segmentation, you understood everything.
If you believe in market segmentation, you know that one marketing campaign cannot cover the globe. There have to be many campaigns, customized to different countries and cultures. To be sure, we used many of the same brand-building techniques for Clinique that we had learned from Estée Lauder, such as generous sampling and Gift-with-Purchase. But targeting the right customers with the right message: that comes down to market segmentation. And that’s what Clinique taught us to do.
We were fortunate that I learned this lesson early. Clinique was my on-the-job training for the ultimate success of our rollouts with other brands around the world.
The company's experience with Clinique taught Lauder’s team valuable lessons in expansion, lessons they would lean on as they gradually shifted to acquiring other brands.
But there were many other lessons to learn as Estée Lauder evolved its way to become a ‘squadron’ of brands.
Sources
The Company I Keep by Leonard A. Lauder. Published 2020.
Estée: A Success Story by Estée Lauder. Published 1985.