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Problem :

In 1995, LUSH was founded by two English entrepreneurs with the vision to produce natural beauty products. With a company philosophy that advocates animal, human, and environmental rights, the company produces and sells a variety of ethically sourced products ranging from soaps and shampoos to scrubs and masks. Today, LUSH operates 269 shops in North America and more than 950 stores worldwide.Products can be purchased via its own retail outlets as well as the company's own website. Although prices vary across different product categories and product types, the prices of LUSH products tend to be 2~3 times more expensive than The Body Shop products.

Ethical Business and Sustainability

LUSH adopted a clear vision of fighting against animal testing and developed a strict and transparent ethical buying policy to ensure that no supplier tests on animals, and that all ingredients are ethically produced from start to finish. These practices enable LUSH to bring fresh, vegetable-based products to its customers. All products are made using vegetable-based ingredients. LUSH also emphasizes the need for environment protection by using biodegradable products and re-usable bottles.

LUSH maintains six product lines - bath, shower, hair, face, body, and fragrances. Each product line includes different types of products with a variety of flavours and aromas. For example, under the hair product line, LUSH offers shampoo bars, shampoos, and conditioners, and each product type comes in a variety of flavours and shapes. LUSH is also known for its innovative products, such as bath bombs, solid shampoo bars, and massage bars.

LUSH is known for its no-advertising policy - where TV and magazine campaigns or celebrity endorsements are strongly discouraged, while social media, content marketing, online influencers, and word of mouth are promoted as ways of communicating with consumers. Consistent with its business philosophy, LUSH aims to have its messages grow organically and come from an authentic source and consumer engagement rather than paid advertising.

Beauty and Personal Care Industry

Although cosmetics manufacturing is dominated by a small number of multinational corporations, the distribution and sales of cosmetics is spread out among a wide range of retailers. Cosmetics products may be distributed in many different store formats, such as beauty stores, department stores, pharmacies, kiosks in shopping centers, grocery stores, and in similar types of online stores or the online presence of these types of physical stores.

According to Passport GMID, the market for a beauty and personal care category was 98 billion USD in North America in 2020, which represents 1.9% CAGR (Compound Annual Growth Rate) over five years. In particular, in Canada, retail value sales of the overall beauty and personal care sector are estimated to grow by 1.3% in 2021.

LUSH's main competitor in North America is The Body Shop, which is owned by a Brazilian cosmetics company, Natura. This company had been owned by L'Oral between 2006 and 2017 and was sold to Natura in 2017. The Body Shop is known as the first mainstream retailer to emphasize natural ingredients that are ethically sourced and not tested on animals. The Body Shop and LUSH are comparable in many aspects, with similar product offerings and business philosophies based on ethical sourcing. The Body Shop surpasses LUSH in terms of size and scale, such as the number of stores and market shares. However, the acquisition of The Body Shop by L'Oral in 2006 created media controversy due to L'Oral's use of animal testing. Consequently, its "Against Animal Testing" positioning was tarnished by this acquisition. As of 2020, in the overall beauty and personal care sector, LUSH has about 0.1% of the market share, whereas The Body Shop has approximately 0.3% of the market share.

Question :

There are three major pricing strategies: customer value-based, cost-based, and competition-based pricing strategies. How would you apply each of the three pricing strategies to determine the price of LUSH products? Which specific strategy or which combination of strategies would you recommend for LUSH? Why?

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