Market Analysis of The Honest Company

Baby Care and Consumer goods Company

Competition in the industry

This entails the level of competition in the US market in the context of advertisements, product quality, price competition and differentiation (Magretta, 2012).    In the context of the US baby and consumer goods industry, customers are less likely to switch from the Honest Company to the competing firms like California Baby, Burt’s Bee, Seventh Generation, Pfizer and Johnson & Johnson and Merck and Novartis. This is visible from the market analysis of the company, which reflects that the company’s market share is raised to 2.7 billion over only seven years i.e., 2011 till 2019 (Fromm, 2019). Rivalry in the US market is moderate because customers tend to have brand loyalty for environmentally sustainable products. Moreover, the US market does not have multiple substitutes in the natural and organic baby industry. Analysis also exhibits that the market competition in the US industry is moderate to high for baby products but for the Honest Company due to its substantial product differentiation strategy, the market competition is low to moderate (O’Connor, 2015) However, this is argued by some scholars that with adequate market analysis and following a competitive advantage approach, the rivalries can imitate the products as The Honest Company and can even offer better products to attain competitive advantage in the US market.

Potential of new entrants into the industry

This is proposed by Porter in 2008 that the new entrants can influence the level of revenue and the market attractiveness of the existing company ((Magretta, 2012).    In the context of The Honest Company, the startup cost is high due to the inclusion of organic and natural products free from hazardous chemicals, thus, making weak threat of new entrants into the industry. But those firms that want to continue offering their products by targeting low and middle class parents can posit challenges for those who are already striving in the same competition, for instance, Johnson & Johnson and Babyganics are two eminent examples that targeted low to middle class parents and became global companies in the world in a very short time period.

Power of suppliers

This is described by Porter as the bargaining power of suppliers and stated their abilities to exert pressure and impact competitors to augment their prices leading to revenue at the cost of the supplier’s revenue and competitiveness (Magretta, 2012).   The power of suppliers observed in the US market reflects that Johnson and Johnson, California babies and Babyganics have a chain of suppliers that are spread over the US market, however, in the context of the Honest company, it has lower power of suppliers because of the company’s strong market presence in the past few years due to its environmentally sustainable products. This is argued by some scholars (Fromm, 2019; Wee, 2016) that these suppliers do not want to lose their relationship with The Honest Company. Consequent to these, the Honest Company positioned itself as strongly against its suppliers due to their low bargaining power.

Power of customers

The power of customers is explained by Porter as the ability of the customers/buyers to affect competitors in the market leading to their revenue reductions, improved quality and enhanced services at the cost of competitors (Magretta, 2012).   The baby products manufactures like Johnson &Johnson, Merck and Novartis require customers who are tempted by the rival’s prices, whereas, The honest Company strives for natural, healthy and safe products market and posits moderate to low bargaining power of customers. The customers are low price sensitive and more health oriented, which differentiates the Honest Company from its market rivalries.

Threat of substitute products

Threat of substitutes is described as the products and service that can be easily exchanged with the alternative products in the market (Magretta, 2012).    In the context of The Honest Company, baby products can be substituted with the products offered by California baby, Johnson & Johnson, Merck and Novartis and consumer goods Company like Proctor and Gamble because of the similarities in terms of baby diapers, beauty products and parental items. However, the Honest Company has proved as attractive option for the customers because of its eco-friendly, unique and differentiation strategy with affordable prices. But the research also indicates that as the Honest Company’s customers have low switching cost, thus making the threat of substitute products high in the US market.

Fig 1 Porter five forces for The Honest Company in the US baby care and consumer market

Market segmentation

The market segment includes the group of people or firms that has common attributes that enforces them to have similar products/ services based on their identical needs. The Honest Company consumer market is segmented based on the demographics and the benefits attributes of the products and services that are easily identifiable in the contemporary world of business. Porter & Kramer (2018) viewed market segmentation of the Honest Company as a profound use of advertisement and sales promotion that requires merchandising strategy, which is grounded in the competitive advantage of the company. The deeper analysis of the Honest Company reveals that it applied the multiple segment strategy where it treats exceeding one group of customers and positions itself in the baby and consumer goods market in relation to the competitors for the recognized market. The positioning is carried out based on the differentiation strategy based on the following attributes; i) affordable prices ii) eco-friendly products iii) product features i.e. healthy and organic iv) unique selling options i.e. digital platform and retail shops.

The market segmentation analysis of The Honest Company further reveals that the company determined its target audience based on the following attributes;

• Demographics ( education, social status, occupation, age group)
• Geographic ( urban and rural city)
• Behavioral or social factors ( life-style)

Table-1 Market segmentation of the Honest Company

Market needs

The Honest Company “launch strategy” is primarily based on customer orientation by identifying the major needs of the customers i.e. eco-friendly, natural, healthy and safe products due to emerging needs for sustainable and safe products for babies and consumer goods industry in the US market. Stated by Porter & Kramer (2018) business strategy must always follow the set of practices that are needed to offer better customer value in the market and attain superior performance based on the fulfillment of target audience needs. The Honest Company also identified the needs of the new mother because the company strived to make goods for those who feel good about the ways the goods are used.

Conclusion

The present report provides a detailed market analysis of the baby care and consumer goods products company, the Honest Company based in the US. Nevertheless, the company attained a high status in the baby and consumer goods market in a very short span of time due to its innovative strategy and differentiated product characteristics. In the wake of the rising consumer awareness for healthy, safe and organic products, The Honest Company strives for the sustainable products in the US market, which gives the company a competitive edge due to low bargaining power of suppliers, power of suppliers, competitors in the market, threat of new entrants in the market and low to moderate threat of substitutes.

References

Fromm, J. (2019, October 24). American Express And Honest Company: Living Their Brand Purpose. Retrieved from https://www.forbes.com/sites/jefffromm/2019/10/24/american-express–honest-company-living-their-brand-purpose/#55dce1591a1a

Magretta, J. (2012). Understanding Michael Porter: the essential guide to competition and strategy. Boston, MA: Harvard Business Review Press.

Michaux Stéphanie, Cadiat, A.-C., & Probert, C. (2015). Porters Five Forces. Namur: 50Minutes.com.

O’Connor, C. (2015, September 1). How Jessica Alba Built A $1 Billion Company, And $200 Million Fortune, Selling Parents Peace Of Mind. Retrieved from https://www.forbes.com/sites/clareoconnor/2015/05/27/how-jessica-alba-built-a-1-billion-company-and-200-million-fortune-selling-parents-peace-of-mind/

Porter, M. E., & Kramer, M. R. (2018). Creating Shared Value. Managing Sustainable Business, 327–350. doi:10.1007/978-94-024-1144-7_16

The Honest Company Demographics and Consumer Insights. (2019). Retrieved from https://snapshot.numerator.com/brand/the_honest_company

Wee, C. H. (2016). Think Tank-Beyond the Five Forces Model and Blue Ocean Strategy: An Integrative Perspective FromSun Zi Bingfa. Global Business and Organizational Excellence, 36(2), 34–45. doi:10.1002/joe.21768

Appendix-1

The detailed analysis carried out by the US market is showcased here, which reflects the characteristics of the consumers who frequently purchase products from the Honest Company

Source :The Honest Company Demographics and Consumer Insights. (2019)