L'Oreal case study

Nova School of Business and Economics

International BusinessProfessor: Violetta Gerasymenko

L’Oréal and the Globalization of American Beauty

Alessio GennariDiana HenriquesAna Rita AmaralJorge DuarteAlessandro TaddeiMichele GalloGrabriele Beccu

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Question 7. How did L'Oreal become the world’s largest beauty company?

a) What is the role of acquisitions in this process?

Question 8. What are the international opportunities for Kiehl’s?

a) Should Kiehl’s follow a multi-domestic or a global strategy?

How did L'Oreal become the world’s largest beauty company?

Several successful, smart and well designed strategically steps transformed L’Oreal from the world’s first synthetic hair-color producer, to its actual largest beauty company condition.

L'Oreal is a French based multinational founded in 1907 by the chemist Eugene Schueller. Currently, it is the world's largest cosmetics and beauty company.


o Fast grow and success in European Market;

o In 1953 entered the U.S. market by a licensee with Cosmair Inc.

o Unlike the perfumes, French prestige did not help selling hair-coloring products in the U.S.

Initial Problems:

- Different distribution channels that require a relationship

- Resistance to the products due to the lack of brand awareness


Introduction of a new concept by François Dalle:

Be present on several channels of distribution, each of which corresponded to different:

Economic levels Psychographic levels Psychological levels Purchasing habits

Reaching and serving effectively each of these market was necessary to gain a significant presence on the market.


To build its presence in these channels: Acquisitions of several French brands

Lancôme (1964)

Garnier (1964)

Pharmaceutical company - Synthélabo (1973) - majority stake (53%)


Introduction of campaign:

Through the advertising campaign, L'Oreal created a reputation of quality among U.S. consumers, gaining the possibility to have higher margins on its products.


Become no. 1 in the US market

L’Oreal managers agreed on the consideration that becoming the largest beauty products firm in the United States was a necessary step to be internationally competitive.

Strategy:

Successful L’Oreal’s European brands compete against established American brands.


A series of well planned and strategically timed acquisitions:



Between 1998 and 2000: SoftSheen-Carsom• At that time the leading U.S. producer of ethnic hair-care products;

• African-American well-known brand• African Americans (13% U.S. population) spent 2 to 3 times more per

capita on hair care than any other U.S. ethnic group;

• Many distribution channels;

• There were no national chains that served this market;

• It was very fragmented and difficult to serve market;


In 2010, the company was in 1st place in rank of the World’s 10 largest Cosmetics Companies


L’Oréal’s continuous commitment to research and development is considered the firm’s most distinctive value, and a comparative advantage over competitors.

L’Oréal promoted close relationships between R&D and international brand teams.

Research and Development


The result was a company that covers all aspects of beauty, and is able to reach different needs and preferences by its wide distributions channels and products.



The expansion of L’Oreal has been characterized by mass acquisitions, the possibility of reaching new channels through gaining economies of scales and scopes, and by the ability of learning ways of doing business from the acquired companies.

From each company L’Oreal acquired, it gained : The brand value (given by brand awareness, brand recognition and brand reputation); The channel positioning, and consequently the market share and penetration; The organizational, productive and selling skills (peculiar of each company);



• Despite acquisitions have been a key factor in L’Oreal expansion, basically they were only a strategic or tactical tool, required just to satisfy stringent growth and profitability requirements:

- Strategic acquisitions had a global potential;

- Tactical acquisitions generally complemented product portfolios, it could be local;

• Acquisitions have played a relevant role: the strategic ability of rolling up small local brands into larger global brands within the L’Oréal’s continuously expanding product portfolio;



Besides acquisitions, another important succeeding, factor stated by an American L’Oreal manager, is:

“At L’Oreal there is a great degree of continuity within the management. This means that the strategies are well understood and potential opportunities can be evaluated efficiently. Similarly, the teams executing the transactions and integrating the acquired brands are practiced and are therefore able to work quickly and communicate well together.”

What are the international opportunities for Kiehl’s?

• Through L’Oréal’s recognition and brand name, Kiehl’s can:

- Have a better access to a wider number of customers;- Improve their brand awareness;- Achieve a larger volume of sales and, increase the number of visits

on their website;

• Take advantage of economies of scale, scope and learning;

• With L’Oréal business ‘know how’ they can easily expand to new markets;

• Be able to meet increasing demand thanks to L’Oreal supply possibilities, both locally and internationally.

• Identify an appropriate location: first stores outside US opened in cities characterized by international-based culture (eg. London, Hong Kong);


• L’Oreal has a matrix structure, which highlights also the differences among different markets in the world. The single regions will have an appropriate knowledge of local segmentation, and this can be used to:

- Differentiate it from other luxury brands, usually standardized around the world, thanks to adaptive positioning in every region (every store has the same hardware, but different software), and by focusing on the feeling communication (which is unique around the globe);

- Initiate Kiehl’s to advertising – maybe not through the mainstream, but using particular, region-specific tools, in order to reach enough customer base without diluting the brand sense of élite;

• Since Kiehl’s is mostly based on owned stores, L’Oreal has the cash power to easily finance new stores opening (even if we consider debt financing, huge companies have definitely better loan conditions)


Problems with Internationalization:

• When associated to L’Oreal, Kiehl’s may lose its status:

- People tend to associate L’Oreal with medium-low quality cosmetic products due to its strong presence in supermarkets and grocery stores;

- How is it possible to communicate the brand’s simplicity and integrity if these values change around the world?

• Find a compromise between Kiehl’s organizational structure and how L’Oreal has been expanding brands from previous acquisitions (eg. by association to the Maybelline brand)



Global Strategy

“Is an organization's strategic guide to globalization. A global strategy may be

appropriate in industries where firms are faced with strong pressures for cost

reduction but with weak pressures for local responsiveness.”

In order to “Globalize American Beauty”, Khiel’s should not change too much. The goal should be to sell the brand as - more than an American

brand - a New Yorker one, thus consumers would be supposed to perceive the brand’s identity this way.

For this to happen, a global strategy is more effective than a multi-domestic one, since the local adaptations, inherently to this last one, would make harder for the consumers to perceive Keihl’s as a New

Yorker.


a) Should Kiehl’s follow a multi-domestic or a global strategic?



Why global strategy?

• Products remain with the same composition, formula and packaging: differences between countries are not huge, concerning the beauty industry and its consumers needs, so it does not require big transformations;

• Stores resemble the New York’s one in order to keep the brand’s identity, only small differences are allowed in the store’s environment according to each store location (to connect with the local communities);

• Kiehl’s has global competitors so a global strategy will be more efficient to compete in the market place;

A Global Strategy as a way of acquiring a competitive advantage:

• Reputation and brand awareness on a worldwide scale (also to L’Oreal);

• Learning opportunities in each market that can be shared and applied uniformly throughout the organization;

• Centralized control in the US brings coordination advantages – little decision-making authority on the local level assures that Kiehl’s is the same everywhere and do not loose its New York personality;

• Cost advantages since there is no need to duplication across countries and financial control;

• Enables faster product development than the multi-domestic strategy and a quicker entrance in the market since the whole adaptation is less;





Problems with Global Strategy

• Preservation of the brand’s integrity when take it worldwide is harder;

• Difficulties in order to replicate the ‘grass-roots neighborhood culture’ at a global level;

• Reproducing the essence of the New York store and at the same time creating a sense that is connected with store’s location;

• Might lose its sincerity and authenticity;

L'Oreal case study

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