L'Oreal - A Case of Global Brand

7/31/2019 L'Oreal - A Case of Global Brand

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LOreal The Case of A Global Brand

Dr. Sue Bridgewater - International

Marketing

3/15/2012

Author: Thanh Vu


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LOreal

Why is LOreal a Global Brand?

In 1909, a French chemist established a small company that retailed one sole hair dye product but a

century later, LOreal has developed into one of the biggest players in the beauty and personal care

industry, operating in 130 countries and owning 32 brands. LOreal covers 3 business branches

including cosmetics, the Body Shop and dermatology brands (LOreal International Website, 2012).

The scope of this paper will focus on the core business of LOreal, the cosmetics branch. The

cosmetic s branch consists of consumer, professional, luxury products, and active cosmetics

(Appendix 0). This paper uses a number of frameworks to assess the extent of LOreals global brand

and later discusses its implications on the degree of standardization and adaptation of its marketing

mix in India. Lastly, the paper will also assess how the current marketing strategy may need to

evolve due to the challenges that LOreal will face in the Indias market in the next 5 years.

A Global BrandDespite the liberal use of the term global brand, the lack of consensus in its definition leads to

difficulties in assessing how global LOreal is as a brand. Outside the world of academia,

BusinessWeek ranked LOreal at No. 44 in Top 100 Global Brand in 2009. To be qualified for such

ranking, a brand must derive at least a third of its earnings outside of its home country and the

brand must be recognisable outside of its customer base (BusinessWeek, 2009). This definition of a

global brand used by marketing practitioners is a loose derivation of Ohmaes broad triad markets of

NAFTA, the EU and Asia (Rugman, 2003). Under Ohmaes board triad markets, a brand must obtains

at least 20% of its sales in each part of the triad to be qualified as global. It must also have equal

sales representation in all three regions of the triad to be considered a triad power (Ohmae, 1985).

In this stricter sense, LOreal is a near miss, having only 17.6% of sales from Asia Pacific but almost40% of sales from Western Europe (Appendix A).

Furthermore, to truly be a global company or a triad power, a corporation must fulfil Ohmaes

(1985) two criteria: (1) equal penetration and exploitation capabilities, and (2) no blind spots, in

each of the triad regions. Although LOreal does not strictly meet the first criteria, it eliminates the

blind spots by establishing consortia, joint ventures and wholly-owned subsidiaries. Japan, China and

India were such examples (Appendix B). Over 100 years, LOreals strategic approaches to

internationalisation were diverse. In this case, the company generally followed the phases of the

internationalisation process described by the Uppsalas model (Banerjee, 2012). In Israel and Brazil,

it introduced the products via exporting, manufacturing and finally created wholly-owned subsidiary(Appendix B). Hence, it is appropriate to assess the extent of LOreals global brand by its

international marketing orientation and its exploitation of Levitts global convergence to benefit

from lower cost and more market knowledge (Cateora, 2000) in order to serve the increasingly

homogenised customers needs (Levitt, 1983). These bases for assessment are similar to the

regiocentric or geocentric philosophy (Douglas, 1973) where companies are global if they seek

standardization of certain elements and adaptation of others in the marketing mix (Perlmutter,

1969). A number of LOreals locally-acquired brands have been made global and standardized,

including Matrix (US), Maybelline (US), Shu Uemura (Japan) (Euromonitor International, 2011). The

US was accounted for 90% of Matrix s sales at the time of acquisition. Now it is established as a

high-end product sold all over in Brazil, Russia, India, Mexico and China (EI, 2011).


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Determinants of LOreals degree of standardization and adaptation in the

India market

Why India is an important market?

India has risen to become one of the top strategic markets for LOreal along with China and the US

(Neff, 2011). LOreal placed its sixth global R&D centre in Mumbai in 2011 in addition to the existing

manufacturing plant in Pune (Kasabe, 2011). Although sales from India only accounted for 1% of

LOreals cosmetic sales in 2011, India had the highest like-for-like growth among other emerging

markets at 24.5% (LOreal Finance, 2012). Furthermore, Indias large and young population, GDP

growth averaging at 8% (EI, 2011) and low-risk profile (Coface, 2012) (Appendix C) are favourable

factors that promise a key strategic market in the near future for beauty and personal care products.

Currently, all four product groups of LOreal (consumer/mass-market/colour cosmetics, professional,

luxury and active cosmetics) are present in the Indian beauty and personal care industry. However,

since the consumer product group yield the main revenue stream for LOreal and the presence of

the higher-end products are still limited (EI, 2011), this paper will limit the scope of LOreals

marketing mix in India to the former group. The next section will examine the level of adaptation

and standardisation of elements in the marketing mix, relative to other competitors in the market

(EI, 2011) (Appendix D). As cultural dimensions are important determinants of the consumers wants

and behaviours (Kotler, 1999), LOreals practice will be looked at under Hofstedes cultural

framework (Appendix E).

LOreal Marketing Mix in India:

Like many other global brand, LOreal faces the issue ofadaptation or standardization in its

marketing mix to achieve cost efficiency and recapture innovation cost (Ohmae, 1983), especially in

a price-conscious market like India (Bhattacharya, 2007). Both Perlmutters EPRG scheme (1969) and

Riesenbecks (1991) survey (Appendix J) of successful global brands suggest that firms can benefit

from a standardized, geocentric brand name. In the case of LOreal Paris, the companys flagship

brand, this can be true due to a positive country-of-origin effect that a French name can give to

beauty products (Cateora, 2000). However, the two frameworks differ in other elements of the mix.

Products:

In terms of products, most of LOreal products in India are standardized as they are also available in

other markets with the same name, quality, packing and design (LOreal 2012). However, the

preference for fair looks and darker skin tones in India requires LOreal to offer a different product

mix including whitening products (Appendix F) which means the company must adopt a regiocentric

orientation for this particular element, as suggested by the EPRG framework (Appendix G). In

contrast, its biggest competitor, Hindustand Uniliver has taken a polycentric philosophy in the Indian

beauty and personal care market. It is a public company and a subsidiary of Uniliver in India. It caters

to the market with Fair & Lovely, Lakme and other brands that it has developed specifically for the

Indian market. Fair & Lovely is also the countrys number one skin-lightening cream for women.

Hindustand Unilivers colour cosmetics has a value share of 28.6%, far exceeding LOreals 13.9%

(LOreal, 2012).


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Price:

The pricing scheme for LOreal products are more or less standardized across markets as suggested

by Riesenbeck (1983). Although LOreal consumer products are at the lowest spectrum of its product

lines, the lower average disposable income in India means that LOreal products are still considered

expensive. Its rival, Hindustan Uniliver, has adopted a polycentric approach in pricing and Unilivers

products are priced lower. It was able to do so because it possesses a much more extensive

manufacturing network. It has over 40 manufacturing units and ties to a network of 150 third party

manufacturers. Hindustand Uniliver is also able to export products in home care to other Uniliver

companies all over the world (EI, 2011).

Place:

While LOreal sticks to its standardised distribution channels and utilised mostly Westernised stores

and retailers, Hindustand Uniliver has a much more extensive distribution network including a direct

selling marketing initiative to reach the rural areas (Rao, 2010). Taking into the consideration of

Indias collectivistic culture and long-term orientation (Appendix E), a higher level of adaptation in

LOreals distribution channel may increase the companys success. A direct selling marketing

initiative can create benefits because the Indian collectivistic culture means that consumers may

enjoy establishing relationships with the marketers. Members of a collectivistic culture expect to be

well-taken care of by their in-group members (Hofstede, 2012). Furthermore, the long-term

orientation tends to create high propensity to save and preference for thriftiness (Hofstede, 2012).

This means that direct selling in rural areas may be appeal to the average citizens than selling

through distributors or retailers in modern shopping malls. Although LOreal may not fulfil the high

level of adaptation as Riesenbeck (1973) suggested for this particular element of the marketing mix,

it is congruent with the EPRG framework. By selling in modern stores and through reputable

retailers, its ethnocentric approach conveys prestige and higher quality.

Promotion:

LOreal takes a geocentric approach to sales and promotion consistent with Perlmutters framework,

which contradicts Riesenbecks suggested practice of high level of adaptation in regards to this

marketing element (Appendix J). LOreal Because Were Worth It is a standardized advertising

campaign that uses the celebrities such as Eva Longoria, Jennifer Lopez and Beyonce Knowles and a

few local ambassadors to promote LOreal products. The same practice is also used in Brazil, China

and other markets. LOreals ambassador also includes Aishawa Rai, the famous former Miss

Universe and Bollywood actress (LOreal, 2012). Hindustand Uniliver also uses the same approach

and hires a number of ambassadors to promote its brand (EI, 2011). In addition, LOreal has alsostandardized most of its websites for different markets with identical elements such as forums for

LOreal consumers to connect and create feedback about the products.

Challenges in the next 5 years in the Indian Beauty and Personal Care Market

Although Levitts suggestion (1983) of exploiting homogenised consumer needs with more product

standardisation to achieve efficiency from economies of scale, the idea is hardly viable in practice.

Moojis study concludes that divergence in consumption at country-level behaviour exist due to

cultural variables, which can be explained by Hofstedes model (Appendix E). In another word,

LOreal needs to enhance its level of adaptation in relevant elements of the marketing mix, taking

cultural factors into consideration.


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Colour cosmetics have been growing at a steady rate of more than 30% annually between the period

of 2002 and 2007 (Bhattacharya, 2007) and it is expected to experience total growth of 114.8% and

46.6% in premium cosmetics and mass cosmetics respectively during 2010 and 2015 (Appendix H).

The collectivism in the Indian culture translates into group conformity which means once

innovators in the society start using a new product, other groups of consumers quickly follow suit to

avoid the discomfort of being left out (Bhattacharya, 2003). The result of such behaviour is higher

product diffusion rate. In addition, there is an increasing number of women in the age group of 22 to

45 who are becoming more independent with more disposable income and decision-making power.

The implication for LOreal, therefore, is a need to invest heavily on promotion and advertising to

capture the anticipated demand growth and to combat increase in illegal distribution channel

encouraged by high import tariffs (Appendix I). It must enhance its distribution channel, produce

focused promotion and events catering specifically toward this group of customers.

Practically, LOreal needs to take advantage of more malls opening in big cities such as Delhi,

Mumbai, Hyderabad, Chennai and Kolkata. This can also mean increasing floor area in shop-in-shop

concept and establishing more stand-alone branded beauty stores to accommodate the growing

appetite for leading global brands. LOreal may also want to diversify its channel to maximise

product accessibility and increase its consumer base at all income levels (Bhattacharya, 2007).

LOreals promotional strategy in India can benefit from higher level of adaptation as the majority of

the Indian population can identify with Indian singers and film actors than American celebrities

(Bhattacharya, 2003).

To learn from its biggest rival in the Indian market, LOreal will also need to focus on adapting

product innovation to cultural differences in order to capture more shares in the market.

Competition in the skin whitening products will continue to remain fierce since it will remain a

reliable source of revenue due to cultural factors. The high power distance in the culture means

status plays a very important role in India and people often associate fair complexion not only with

beauty, but also a symbol of higher social class. Demand for skin whitening products is high among

men and women of all ages. Indian men believe lighter complexion make them look smarter and can

increase their chances in succeeding in a job interview. Product innovation in skin whitening

products is necessary to succeed in this market. The increasing trend toward natural beauty and

personal care in the emerging markets poses a valuable opportunity here (EI, 2011). Hence,

establishing an R&D centre in India is a prudent decision for LOreal to stay ahead of the competition

with product innovation in the foreseeable future.

Conclusion

While the validity of Levitts global convergence of consumer needs and wants may not apply in the

cosmetics world in India, LOreal still benefits from adaptation and standardization in certain

elements of the marketing mix. The optimal strategy must take into consideration the uniqueness of

the Indian culture and its cultural dimensions to achieve an optimal market mix. India has various

qualities which indicate a significant strategic market so it is part of LOreals priority to establish a

strong market presence in the country. It will face many challenges in the foreseeable future with

the considerable presence of Hindustand Uniliver in the market. However, by adjusting its level of

adaptation in certain marketing mix elements to align with the cultural needs of the Indian

consumers, LOreal will succeed in this strategic market.


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APPENDIX

Appendix 0LOreal Product Groups

Consumer Products

(Mass-market)

LOreal Paris

GarnierMaybelline New York

Professional Products LOreal Professionnel

Kratase

Matrix

Kraskin Esthetics

Luxury Products Lancome

Giorgio Armani

Ralph Lauren

Diesel

Kiehls

Active Cosmetics VichyLa Roche Posay

Source: LOreal India Website

Appendix ALOreal Sales by Region

Appendix BLOreal Global Emergence

France Founded in

1909

US 1956 Moved into the North America after 3 years of market research

Brazil 1959 Had present in Brazil since the 1930s but built 2 plants in Rio and Sao Paulo

to establish direct present

Japan - 1963 Created a partnership with Kose Corp in 1963 and in 1996, formed a wholly-owned subsidiary under the name of Nihon LOreal (Hamada, 2011). In


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1983, it established Japanese Research Centre to customise products to this

Asian market

Israel 1994 Had a presence in the market since 1983 with a plant and in 1994, created a

subsidiary

India 1994 Was the first international cosmetic group that received permission to

establish wholly-owned subsidiaryChina 1996 Strengthened its presence in Chinas market by partnering with Sozhou

University to create a joint venture named Sozhou LOreal Products and

constructed a plant in the same province

Africa 2000 With the acquisition of Carson, a hair product customised for African

ethnics, LOreal hoped to strengthen its position in Africa

Source: LOreal Website

Appendix C: Coface India Risk Assessment A3

Appendix D: Largest competitors in the Beauty and Personal Care Company shares by NBO 2006-

2010 (% of retail value rsp)

Competitors 2006 2007 2008 2009 2010

Hindustan Unilever Ltd - 34.6 34.7 33.5 32.9

Colgate-Palmolive India Ltd 6.6 6.8 6.8 6.9 6.8

Dabur India Ltd 4.8 4.9 5.0 5.0 4.9

Godrei Consumer Products Ltd 4.0 4.1 4.2 4.4 4.7

LOreal India Pvt Ltd 2.2 2.5 2.8 3.1 3.4

Source: Euromonitor International


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Appendix E: Geert Hofstedes Cultural Dimensions Comparison between India and France

Source: Geert Hofstedes Website

Appendix FLOreal Paris Product Types, Lines and Ranges in India

Skincare Face UV Protection Cleanser Men Skincare

Hydrafresh

For Normal to Dry

Skin

Lip Balm

Instant Freshness

For Normal to

Combination Skin

UV Perfect

Anti-Dullness Purple

Tint

Transparent Skin

Non-Tinted

Hydrafresh

Foaming Cream For

Normal to Dry Skin

Toning Water For

Normal to

Combination Skin

Men Expert Hydra

Energetic

Foaming Cleaning Gel

Anti-Irritation Caring

Shave Gel

Anti-Fatigue

Moisturising Lotion

Hydrating Boost Post-Shave Balm

Pearl Perfect

Day Cream

Night Cream

Pearl Perfect

Scrub

Men Expert Vita

Lift

Anti-sagging

Moisturising Cream

Revitalift White Revitalift Men Expert

White Activ


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Day SPF18

White Essence

Milky Foam

Aqua Milky TonerBrightening Foam

Moisturing Fluid SPF

20 PA+++

Youth Code Youth Code Range

Day Cream

Night Cream

Eye Cream

Concentrate

Revitalift Rejuvenating Home Facial

Day Cream SPF18

Anti-Wrinkle and Firming Night Cream

Day Cream SPF18


Day Cream SPF18


Cosmetics Face Eyes Lips Nails

True Match

Powder

Liquid Foundation

Roll on

Super Blendable

ConcealorTrue Match Minerals

Extra Volume

Collagene

Waterproof Black

Color Riche

Color Riche Crme

Color Riche Star

Secrets

Colour Rich Made for

Me

Colour Riche Made

for Me Intense...

Resist & Shine

Titanium

Pure Transparent

Pearlescent Rose

Misty Pink

Antique Rose

Boise En Rose

Matte Morphose

Rose Ivory

Golden Ivory

Beige Natural

Rosy Sance

Apricot Beige

Amber

Volume Millions

Lashes

Black

Glam Shine

H6

Reflexion

Double Extension

Renewable Serum

Inside Mascara

Contour Parfait

HoneyPlum

Black Brown

Toffee

Coppered Plum

Black Red

Contour Khol

Dark Chocolate

Jet Black

Golden Brown

Super Liner

Ebony

Paris Blue


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Cocoa

Expresso

Pencil Perfect Self

Advancing

Eyeliner

Ebony

Paris Blue

Cocoa

Expresso

Hair Colour

Casting Crme Gloss

Maghony

Plum

Medium Brown

Dark Brown

Praline

Excellence Crme

Natursl Black

Natural DarkestBrown

Burgendy

Natural Dark Brown

Deep Plum

Hair Care

Colour Perfect

Shampoo

Conditioner

Nutri-Gloss

Shampoo

Conditioner

Smooth Intense

Shampoo

Conditioner

Instant Smooth

Serum

Total Repair 5

Shampoo

Conditioner

Masque

Source: LOreal Paris India Website

Appendix G: EPRG Framework


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Source: Douglas, Perlmutte &Wind. Guidelines for Developing International Marketing Strategy


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Appendix H: Forecast Sales of Premium & Mass Cosmetics in India: % Value Growth 2010-2015

Source: EI

Appendix J: Successful Global Brands Marketing Mix Elements Survey


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Source: Riesenbeck & Freeling. How Global are Global Brands? The Mackinsey Quarterly 1991 Number 3

Appendix I: LOreal India SWOT

Strengths Weaknesses

First mover advantage when LOrealestablished the first wholly-owned

subsidiary in 1994

Increasing company shares which seemsto be taken away from Hindustan

Unilever

R&D centre located in Mumbai andmanufacturing plant in Pune

Establishing head of marketing for theregion (Middle East and Indian

subcontinent)

Has yet to achieve further efficiency incost by exporting products to LOreal

companies in other locations

Brand diversity leading to brandcannibalism with lack of consumer

education

Opportunities Threats Potential growth for premium and

higher-end products with Indias steady

strong economic growth1

Robust forecast sales growth in theindustry (2010-15): Premium Cosmetic s

at 16.5% and mass cosmetics at 7.9%

CAGR2

High rate of import duty encourages theillegal distribution channel in India which

requires extra effort to promote

products3

High market growth attracts morecompetition in the high-end product

group such as Chanel, Estee Lauder,

MAC, Versace4

Appendix K: LOreal Competitive Position in India 2010

1Euromonitor Beauty and Personal Care in India

2

Euromonitor BPC in India Table 143Bhattacharya

4Bhattacharya


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Appendix L Sales and Market Growth by Region

Reference:

Books:

Cateora, P. Ghauri, P., 2000. International Marketing. European Edition. Berkshire: McGraw-Hill.

Kotler, P.,1999. Marketing Management. New Dehli: Prentice Hall

Ohmae, K., 1985. Triad Power: The Coming Shape of Global Competition. New York: Free Press.

Lectures:

Banerjee, S. 2012. International Promotion, International Marketing IB3880. Warwick Business

School, unpublished.

News Articles accessed via Websites:

Kasabe, N., 2011. LOreal plans R&D Centre in Mumbai. The Financial Express, [online] 1 Jul 2011.

Available at: http://www.financialexpress.com/news/L-Oreal-plans-R-D-centre-in-Mumbai/811139/

[23 Feb 2012]

Neff, J. 2011. 2011 MARKETER A-LIST: LOREAL. Advertising Age, [online] 7 Nov 2011. Available at:

http://adage.com/article/special-report-marketer-alist/marketer-a-list-l-oreal-focuses-u-s-market-

beautiful-effect/230833/ [22 Feb 2012]

Journals accessed through Databases:

Author, Initials., Year. Title of article. Full Title of Journal, [type of medium] Volume number

(Issue/Part number), Page numbers if availalble. Available through: name of database [Accessed

date]

11.2%

4.1%

17.5%

8.1%

1.7% 4.1%5.4%

2.4%

13.1%

4.1%

0.8%

5.7%

0%

5%

10%

15%

20%

Asia

Pacific

North

America

Latin

America

Eastern

Europe

Western

Europe

Africa &

Middle

East

Sales Growth

Market Growth


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Bhattacharyya, S., Rahman, Z., 2003. Sources of first mover advantages in emerging markets - an

Indian perspective. European Business Review;15, 6. pg. 361. Available through: ABI/INFORM Global

[3 March 2012]

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Strategy. The Journal of Marketing [pdf], Vol. 37, No. 2, pp. 14-23

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Available through: ProQuest [28 February 2012]

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[Accessed 23 January, 2012]

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Beyond the BRICs. [online] US: Euromonitor.

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[Accessed 20 January 2012]

Hamada, K., Shimbun, Y., 2011.A STUDY OF BRANDS / L'Oreal success not skin-deep. [online]

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L'Oreal - A Case of Global Brand

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