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The Times 100: The Best Companies In California : The Bottom Line : Neutrogena Cleans Up

April 24, 1988|DOUGLAS FRANTZ | Times Staff Writer

If Lloyd E. Cotsen had gotten there a couple of years earlier, Neutrogena's phenomenal corporate success story might never have taken place.

"I was right out of Harvard Business School and I knew you didn't go into the soap business," said Cotsen, who started at the company in 1957 after marrying the founder's daughter.

Then called Natone Products, the firm made lip brushes and other consumer products out of a small Los Angeles plant. A few years before Cotsen's arrival, his father-in-law had committed the company to marketing a transparent soap invented by a Belgian doctor.

Today, Cotsen is president and chief executive of Neutrogena. That seemingly oddball product, coupled with his keen marketing, created one of the most profitable companies in California.

Consider the numbers: Average growth of 28% a year for the past five years; a 93% jump in stock value in the past 15 months; zero corporate debt, and an average return on equity of 41% for the past two years, strong enough for third place on The Times 100 list.

Those figures are usually reserved for high-tech wonders. But Neutrogena doesn't make any product that doesn't belong in the same display case as its premium-priced soap. And its products tend to be cheap to produce, which helps account for the impressive return on equity.

At the heart of the success is the nice-smelling, amber-colored soap that sells for $2 to $3 a bar. Early on, Cotsen hit on the novel notion of using doctors to promote the soap. He handed out free samples, and the doctors passed Neutrogena along to customers. It was an inexpensive innovation with enough built-in credibility to help Neutrogena win almost half of the specialty-soap market, tops in the field.

As soap became the company's biggest seller, Cotsen slowly developed a line of skin-care and shampoo products that played off its quality image.

For instance, when its new shampoo was slow to take off in 1980, the company switched to marketing it as a product that rinsed so well it only had to be used every two weeks to clean out residue from other brands. Sales tripled in 18 months, and last year hair-care products brought in 34% of the company's $135 million in sales, eclipsing soap's 30%.

"For many years, our problem was how to get more business," said Cotsen. "Now the wave is rolling in, and the problem is how do we ride the wave."

It is a problem that most CEOs would love to confront, particularly if they owned 45% of the company, as Cotsen and his managers do.

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