Caso 3 L Oreal

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    Neeraj Kumar SinghSrikanth GIC PA I U niversity P ress, B usiness School C aseD evelop ment C entreThe success of new products, the international breakthroughsmade by our brands and our spectacular progress in theemerging markets have enabled L'Oreal to achieve anotheryear of strong sales growth. This momentum, combinedl withthe tight control of costs, led to an important improvement inprofitability, despite an exceptionally unfavourable economicand monetary environment.'

    - Lindsay Owen-Jones, Chairman and Chief ExecutiveOfficer of L'Oreal Group

    I.NTRODucnONFounded in 1909, L'Oreal had become the world leaderill the cosmetics market by 2003. Providing a varietyof beauty products, it has transformed from a Frenchcompany in the early 1900s to a global titan in the200,os. Its product range included makeup, perfume,and hair and skin care products, which were tailoredaccording to the consumer needs. The companybelieved in the strategy of innovation and diversifica-tion. L'Oreal's growth depended on the global brand,which helped in sustaining the mature consumer-producrs market even in times when global marketsthemselves were shaky. High profile, celebrity-drivenmarketing campaigns and Web-enabled informationand customization sites as well as aggressive expansionand acquisition enhanced its global braad image. Thecosmetic market as a whole had! been. slightly on thedecline since the late 1990s. But the L'Oreal productswere becoming popular due to dneir uniqueness andcatering to the beauty needs of different ethnic groups

    and gender. In 2003, the group was number one inU.S. cosmetic market, but it faced tough competitiofrom Estee Lauder and Procter & Gamble. This mthe group refocus its business strategies.

    BACKGROUNDL'Oreal, the world's largest cosmetic company,established in 1909 by a French chemist, EugSchueller. After manufacturing and selIing the cosmeproducts in Paris for a few years, Schueller starexporting to other European countries like HollanAustria, and Italy. Gradually the L'Oreal products wdistributed to the United States, South America, Rusand the Far East. By 2003, the L'Oreal groupentered 130 countries, through its 290 subsidiariesaround a hundred agents. More than 80 percentgroup sales were generated outside France, with opetions in every major territory.

    In the 1970s, it acquired Laboratories GarnierParis, and this group became one of L'Oreal's largdivisions. The heart of L'Oreal's strategy was themetic and dermatological research department,group earmarked 3 percent of its turnover (sales)the research and development work. Since the 19~he group had particularty focused its attentionNorth America with a series of smart launches, cleacquisitions, arid dynamic marketing causing problefor domestic rivals.

    Since its establishment, the L'Oreal groupmarketed over 500 brands, consisting of more t2,000 products. m t provided products for all sectors

    L'Orea'I'sBusiness Strategy by Neeraj IKumar Stnqh, under the direction of Sri tkantih G.

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    beauty business, such as hair color, permanents,styling aid, body care and skincare, cleansers, and fra-grances.? Its general cosmetics portfolio containedmany of the world's biggest beauty products. It ownednumerous brands, including Kerastase, Garnier, May-belline, Helena Rubenstein, Giorgio Armani, Vichy,and La Roche Posay.

    The company believed that diversification andinnovation were its critical success factors. L'Oreal'sconcern for offering products that were adaptable tothe demands of its clients showed its passion for inno-vations. Thus, it invested heavily in research anddevelopment and recovered its investment by globallylaunching its new products. All research was centeredin France. As finished products were developed, theywere offered to subsidiaries across the world. Becausebrand life cycles for cosmetics could be very short,L'Oreal tried to introduce one or two new productsevery year in each of its worldwide markets. L'Orealmarketed products under its own name as well asunder a number of other individual and family brandnames. For example, it marketed Anais Anais perfume,the high-end Lancorne line of cosmetics, and L'Orealbrand haircare products.

    L'Oreal's strategy was to trickle down technologyover time from high-end outlets like department storesto mass markets, such as drugstores. The mass-marketbrand Plenitude had become the market leader inFrance, but sales in the United States had not beenpromising. With innovations and diversifying strate-gies L'Oreal overcame all these hurdles to an extent. In

    2001, the Group, headed by CEO Lindsay Owen-Jones,had a turnover (sales) of 13. 7 billion. In 2003, L'Orealwas the world's largest skin care company, with rev-enues of US$17 billion, and employed 50,000 people."

    PRODUCT CATEGORIESSince its beginning, the L'Oreal Group had developedproducts in the field of cosmetics. It had four productcategories: consumer, luxury, professional, and active(Exhibit 1). These products catered to the needs ofhair, skin, makeup, and so on. The consumer productsencompassed all the brands distributed through mass-market channels, ensuring that L'Oreal quality wasavailable to the maximum number of consumers. Theconsumer division accounted for more than half of thesales in 2003. The luxury division offered a range ofprestigious international brands selectively distributedthrough perfumeries, department stores, and duty-freeshops. The professional division, the market leader inits sector, offered specific hair care products for use byprofessional hairdressers and products sold exclusivelythrough hair salons. The active division created andmarketed brands of cosmetics and dermatologicalproducts for selective distribution through pharmaciesand specialty health and beauty outlets. The majorbrands in these divisions were L'Oreal Paris, Biotherm,Giorgio Arrnani, Lancorne, Shu Uernura, Polo RalphLauren Blue, and L'Oreal Professional.

    Innovations from the research laboratories and alarge number of initiatives ensured growth for the

    Breakdown of 2003 Consolidated Cosmetics Sales by Division

    '0 54.80% Consumer Productso 25.10% Luxury Productso 13.90% Professional Productso 5.50% Active CosmeticsSource: www.loreal.com.

    http://www.loreal.com./http://www.loreal.com./
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    180

    group's core brands. The company achieved majormarket share in all of its product divisions. TheProfessional Products Division achieved 8.8 percentgrowth in the first half of 2003. The division took newinitiatives in all business segments, particularly incolorants with the launch of Luo (a new translucidcolorant) and Equa (a formula developed specificallyfor the needs of the Japanese market). The ConsumerProducts Division achieved 9.3 percent growth for thefirst half of 2003 over that of the previous year, whichwas well ahead of the growth rate for mass-marketproducts. This growth could be attributed in particularto the launch of innovative products such as CouleurExperte colorants and Double Extension mascara. TheLuxury Products Division, operating in markets thatwere more sensitive to the economic slowdown and thereduction in air travel, managed to maintain growth of0.2 percent. This performance came from the successof new products such as the Resolution facial skin carefrom Lancorne, a brand that at the end of 2002 becamethe world's number one in the selective retailingchannel. In perfumes, the successful European launchof Polo Blue by Ralph Lauren confirmed the excellentresults achieved in the United States. The ActiveCosmetics Department continued its internationalrollout, while improving its market shares in Europe.It thus achieved a growth rate of 10.9 percent, in linewith the figure for the first half of 2002. This wasboosted especially by the successful Myokine facialskin care from Vichy and the skin redensifier InneovFerrnete, launched in five European countries, herald-ing the group's first move into the cosmetic nutritional

    supplement market. Dermatology achieved sales of139 million, representing like-for-like growth of 7 per-cent. Galderma performed well on the acne anirosacea markets. In geographic terms, Galderma COIl-tinued to achieve sustained growth in North Americaand made strong advances in Latin America (growthin Brazil was 8 percent and in Mexico 22 percent) anr'Asia (growth in South Korea was 23 percent).

    NEW W ORLDW IDE M ARKETSL'Oreal was surging in markets from China to Mexico(Exhibit 2). Its secret was conveying the allure of dif-ferent cultures through its products. Whether it wa~selling Italian elegance, New York street smarts, 0;French beauty through its brands, L'Oreal was reachinzout to more people across a bigger range of incomesand cultures than just about any other beauty-product,company in the world."

    The success of L'Oreal cosmetics had been buii;on the promotion of different brands in differennations, the choice of which was based on views of i r . : . .local culture. For people interested in finding the mosAmerican product possible, the French company \1>::_the name Maybelline. Those preferring the mooFrench were given the L'Oreal brand. All the differe=lines were sold in all of the markets, but only one \ _excessively promoted, depending on the market.

    L'Oreal was number one in the cosmetic indust+but competition in the U.S. market as well as interns-tiorial markets such as Japan, China, etc., was gro\\ir:..:.In the United States, L'Oreal and Estee Lauder \\.~~_

    Breakdown of 2003 Consolidated Cosmetics Salesby Geographic Zone

    D 27.60% North AmericaD 52.70% Western EuropeD 19.70% Rest of the WorldSource: www.loreal.com.

    http://www.loreal.com./http://www.loreal.com./
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    head to head and Procter & Gamb