l’oréabuil— lding a global cosmetic...

L’OréaL—BuiLding a gLOBaL COsmetiC Brand*

“It is a strategy based on buying local cosmetics brands, giving them a facelift and exporting them around the world.”.

—One Brand at a Time: The Secret of L’Oréal’s Global Makeover, www.fortune.com, August 12, 2002

L’Oréal Makes WavesIn November 2002, L’Oréal, the France-based leading global cosmetics major, received the ‘Global Corporate Achievement Award 2002’, for Europe by ‘The Economist Group’. Awarded by the publisher of the world’s leading weekly business and current affairs journal The Economist, the honour was given in appreciation and recognition of the ‘depth, breadth, and diversity of L’oréal’s management team’. In the same month, L’Oréal’s Chairman and CEO, Lindsey Owen Jones (Jones) was honoured with the ‘Best Manager of the Last 20 Years’ title by the French Minister of Finance and Economy, Francis Mer. This award instituted by the leading French business publication, Challenges, was in recognition of Jones’ outstanding achievements in transforming L’Oréal from a French company into a global pow-erhouse. Jones also received the prestigious ‘Manager of the Year 2002’ award from the French Prime Minister, Jean-Pierre Raffarin. Jones was the first foreign head of any French company to receive this award, which was sponsored by the leading French business publication, Le Nouvel Economiste. These honours were not just a ‘cosmetic’ eulogy; L’Oréal deserved them, for it was the only company in its industry to post a double-digit profit for 18 consecutive years (refer Exhibit 1 for L’Oréal’s key financials). L’Oréal, which had operations in 130 countries in the world, posted a turnover of €13.7 bil-lion1 in 2001. The company recorded a 19.6% and 26% growth in profit in 2001 and 2002 (half-yearly results), respectively. Commenting on L’Oréal’s performance, Jones said, “At L’Oréal, we are 50,000 people who share the same desire; because it is not just about business but about a dream we have to realise, perfection.” Known for its diverse mix of brands (from Europe, America, and Asia), like L’Oréal Paris, May-belline, Gamier, Soft Sheen Carson, Matfix, Redken, L’Oréal Professionnel, Vichy, La Roche-Posay, Lancome, Helena Rubinstein, Biotherm, Kiehl’s, Shu Uemura, Armani, Cacharel, and Ralph Lauren, L’Oréal was the only cosmetics company in the world to own more than one brand franchise and have a presence in all the distribution channels of the industry (refer Exhibit 2 for a note on the global cos-metics industry).

Written by V. Sarvani, under the direction of A. Mukund, ICFAI Centre for Management Research (ICMR). It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. © 2003, ICFAI Centre for Management Research.

1April 2003 exchange rate: S1.08569 = 1€

Case

MarMan5eOLC-Case_06.indd 1 10/16/2015 4:13:01 PM

2 Marketing Management

(In € million)

2002 2001 2000 (2) 1999 (1) (2) 1998 (1) 1998 1997

Results Of OpeRatiOns

Consolidated sales

14,288 13,740 12,671 10,751 9,588 11,498 10,537

Pre-tax profit of fully consolidated companies

1,698 1,502 1,322 1,125 979 1,339 1,183

As a % of consolidated sales

11.9 10.9 10.4 10.5 10.2 11.6 11.2

Corporate tax 580 536 488 429 375 488 422

Net profit before capital gains and losses and minority interests

1,464 1,236 1,033 833 722 807 722

As a % of consolidated sales

10.2 9 8.2 7.7 7.5 7 6.9

Net profit before capital gains and losses and after minority interest

1,456 1,229 1,028 827 719 719 641

Total dividend 433 365 297 230 191 191 165

Balance sheets

Fixed assets 8,130 8,140 7,605 5,198 5,299 5,590 5,346

Current assets

6,843 6,724 6,256 5,139 4,229 4,937 4,512

Cash and short-term investments

2,216 1,954 1,588 1,080 762 903 825

Shareholder’s equity (3)

7,434 7,210 6,179 5,470 5,123 5,428 5,015

Loans and debt

2,646 2,939 3,424 1,914 1,718 1,748 1,767

Exhibit 1 L’Oréal—Consolidated Financial Statements (1997–2002)


L’Oréal—Building A Global Cosmetic Brand 3

peR shaRe Data (nOtes 4 tO 7)

Net profit before capital gains and losses and after minority interests per share (8) (9) (10)

2.15 1.82 1.52 1.22 1.06 1.06 0.95

Net dividend per share (11) (12)

0.64 0.54 0.44 0.34 0.28 0.28 0.24

Tax credit 0.32 0.27 0.22 0.17 0.14 0.14 0.12

Share price as of 31st December (11)

72.55 80.9 91.3 79.65 61.59 61.59 35.9

Weighted average number of shares outstanding

675,990,516 676,062,100 676,062,160 676,062,160 676,062,160 676,062160 676,062,160

Source: www.loreal-finance.com

(1) For purposes of comparability, the figures include: — in 1998, the pro forma impact of the change in the consolidation method for Synthélabo, following its

merger with Sanofi in May 1999. — the impact in 1998 and 1999 of .the application of CRC Regulation no.99.02 from 1st January 2000 onwards.

This involves the inclusion of all deferred tax liabilities, evaluated using the balance sheet approach and the extended concept, the activation of financial leasing contracts considered to be material, and the reclassification of profit sharing under ‘Personal costs’.

(2) The figures for 1999 and 2000 also include the impact on the balance sheet of adopting the preferential method for the recording of employee retirement obligation and related benefits from 1st January 2001 onwards. How-ever, the new method had no material impact on the profit and loss account of the years concerned.

(3) Plus minority interests. (4) Including investment certificates issued in 1986 and bonus share issues. Public Exchange Offers were made for

investment certificates and voting right certificates on the date of the Annual General Meeting on 25th May 1993. The certificates were reconstituted as shares following the Special General Meeting on 29th March 1999 and the Extraordinary General Meeting on 1st June 1999.

(5) Restated to reflect the ten-for-one share split decided at the Extraordinary General Meeting of 14th June 1990. (6) Figures restated to reflect the one-for-ten bonus share allocation decided by the Board of Directors as of 23rd

May 1996. (7) Ten-for-one share split (Annual General Meeting of 30th May 2000). (8) Net earnings per share are based on the weighted average number of shares outstanding in accordance with the

accounting standards. (9) In order to provide data that arc genuinely recurrent, L’Oréal calculates and publishes net earnings per share

based on net profit before capital gains and losses and after minority interests, before allowing for the provision for depreciation of treasury shares, capital gains and losses on fixed assets, restructuring costs, and the amortiza-tion of goodwill.

(10) No financial instruments have been issued which could result in the creation of new L’Oréal shares. (11) The L’Oréal share has been listed in euros on the Paris Bourse since 4th January 1999, where it was listed in

1963.



The share capital was fixed at € 135,212,432 at the Annual General Meeting of 1st June 1999: the par value of one share is now € 0.2.

(12) The dividend fixed in euros since the annual General Meeting of 30th May 2000.

The term ‘Cosmetics industry’ usually refers to the ‘cosmetics, toiletry, and perfumery’ industry. Cos-metic products perform six functions: they clean, perfume, protect, change the appearance, correct body odours, and keep the body in good condition. Cosmetics, toiletries, and perfumes have become an important part of every individual’s daily life and they have come to be regarded as equally important as health related (pharmaceutical) products. On the basis of product usage, the cosmetics industry can be divided into four segments: Luxury, Consumer or Mass-Markets, Professional, and Pharmaceu-

ticals. Globally, the European cosmetics industry has maintained its position as the leader (since the 1980s) in the industry. In 2000 the European cosmet-ics industry generated almost € 50 billion in sales, which was twice the sales volume of the Japanese cosmetics industry and one-third more than that of the US cosmetics industry. L’Oréal has remained the global leader in the industry with a 16.8% market share, followed by Estee Lauder with a 105% market share, and Proctor & Gamble with a 9.3% market share (Refer Table C.8.1 for the top ten companies).

Exhibit 2 A Brief Note on the Global Cosmetics Industry

Table 1 Ten Companies in the Global Cosmetics Industry

Company Market Share

L’Oréal (France) 16.8%

Estee Lauder Companies Inc (US) 10.9%

Proctor & Gamble (US) 9.3%

Revlon Inc (US) 7.1%

Avon Products Inc (US) 4.7%

Shiseido Company Ltd (Japan) 4.2%

Coty Inc (France) 3.3%

Kanebo Ltd (Japan) 2.1%

Kose Company Ltd (Japan) 2.0%

Chapel SA 1.7%Source: www.web.new.ufl.edu

Established in 1946 in New York, US, Estee Laud-er competed with L’Oréal in the luxury segment with brands like Estee Lauder, Aramis, Cliniaje, Pre-scriptives, Origins, M.A.C, Bobbi Brown Essentials, Tommy Hilfiger, Jac, Donna Karan, Aveda, La Mer, Stila, and Jo Malone. Proctor and Gamble, the US based FMCG manufacturer, competed with L’Oréal in the mass-market segment with skincare, hair-care and bodycare products. Some of P&G’s well-known brands include Biactol, Camay, Cover Girl, Ellen Betrix, Infasil, Max Factor skincare), Herbal

Essences, Loving Care, Natural Instincts, Nice n’ Easy, Panteen Pro-V, Rejoice, Vidal Sassoon, Wash & Go (haircare), Laura Biagiotti, Hugo Boss, and Helmut Lang (perfumes). The US based Revlon Inc also competed with L’Oréal in the mass-market segment with brands like Charlie, Colorsilk, Color-say, Fire&Ice and Skinlights. Other companies like Avon, Kose, Coty, and Siseido competed globally in the mass-market segment. L’Oréal remained the oveall industry leader, as it was the only company that competed in all four segments.



The cosmetics industry has always been char-acterized by extensive research and innovation by companies to introduce newer and better products. Since the 1990s, the industry has witnessed many changes in terms of the manufacture of cosmet-ics owing to growing awareness among consumers about the harmful effects that harsh chemicals (gen-erally used in cosmetics) may cause to their body (skin and hair). This was one of the reasons for the

manufacture of products with natural or herbal in-gredients by companies like L’Oréal and P&G. Due to the increased focus on ‘wellness’, the industry as a whole is now moving towards ‘cosmecuticals’ and ‘neutraceuticals’, that is, products that combine the qualities of nutrients and beauty aids. Industry analysts speculate that the market for these products would rise sharply in the 21st century.Source: Compiled from various sources.

Background NoteIn 1907, Eugene Schueller (Schueller), a French chemist, developed an innovative hair colour for-mula. The uniqueness of this formula, named Aureole, was that it did not damage hair while colouring it, unlike other hair colour products that used relatively harsh chemicals. Schueller formulated and manufactured his products on his own and sold them to Parisian hairdressers. Two years later, in 1909, Schueller set up a company and named it ‘Societe Francaise de Teintures inoffensives pour Cheveux’. From the very beginning, Schueller gave a lot of importance to research and innovation to develop new and better beauty care products. By 1920, the company employed three in-house chemists and made brisk business selling hair colour in various countries like Holland, Austria, and Italy. Schueller used advertising in a major way to market his products. He used promotional posters made by famous graphic artists like Paul Colin, Charles Loupot, and Raymond Savignac to promote his company’s products. In 1933, Schueller, created and launched a beauty magazine for women named, Votre Beaute. In 1937, he started the ‘clean children’ campaign and created a jingle ‘Be nice and clean, smell good’ for Dop shampoo, which went on to become one of the most famous jingles in France. In the early 1940s, the company’s name was changed to L’Oréal, which was an adaptation of one of the brands ‘L’Aureole’ (the halo). In 1957, after Schueller’s death, Francois Dalle (Dalle), Shueller’s deputy, took over as the compa-ny’s Chairman and CEO. During the 1950s, the company pioneered the concept of advertising products through film commercials screened at movie theaters. The first movie advertisement was for L’Oréal’s ‘Amber Solaire’ (sun care cream) with the tagline, “Just as it was before the war, Amber Solaire is back”.2 In 1963, L’Oréal became a publicly traded company. This posed a threat to its existence as it could easily come under the state’s control,3 which in turn could affect its international growth plans. Dalle, therefore, began taking steps to internationalise L’Oréal’s ownership structure to prevent it from coming

2Initially launched in 1936, Amber Solaire was withdrawn from the market during the war period due to production hitches. It was re-launched in 1957.3The French people were attached to the notion of having a special identity called the ‘I’ exception francaise’, which was nurtured by all French politicians. It was rooted in two beliefs: the threat from the outside world (global trade and Anglo-Saxon economics) and the role of the French state in preventing such threat. The French political system was attached to the idea of a strong French state, which could provide security to the French community and its trade. Therefore, the French state played a central role in subsidizing, manag-ing, and directing the ways in which France’s publicly owned businesses were managed. L’Oréal being a publicly traded company was easily susceptible to come under the state’s influence.



under the control of the government. His efforts bore fruit a decade later in 1973, when he persuaded Liliane Bettencourt (Bettencourt), Schueller’s daughter and the company’s main shareholder, to dilute her majority stake. Later, half of L’Oreal’s stock was sold to Gesparal, a France-based manufacturer of personal care products, while the other half was publicly traded. Later, 49% of Gesparal’s stock was sold to Nestlé, the Swiss food products giant, while the remaining 51% was held by Bettencourt. In 1972, the company launched the legendry advertisement campaign ‘Because I’m worth it’ to pro-mote the ‘Preference’ line of hair colour. The slogan summed up the company’s philosophy of providing the most innovative, high-quality, and advanced products at an affordable price. The campaign was considered as brilliant by many marketing gurus. The slogan seemed to cleverly differentiate L’Oréal’s products from others and proved to be a ‘winning’ factor. In the cosmetics business, profit margins tend to be generally low as there was not much differentia-tion between the products offered by various companies. L’Oreal’s decision to differentiate its products by attaching an emotional quality to its brands thus worked very well. The emotional pitch, “Because I’m worth it”, indirectly conveyed the message that “I’m willing to pay more”. According to a www.republic.org article, it conveyed that, “ I will prove that I value myself by paying more than I have to.” This translated directly into profits for the company. Commenting on the campaign, an analyst stated, “The extra 50% L’Oréal charges for nothing other than your warm glow of self-satisfaction, goes from your pocket right to theirs, and everyone’s happy. Genius.” Over the next few years, the company’s business expanded considerably. It started distributing its products through agents and consignments to the US, South America, Russia, and the Far East. L’Oréal soon emerged as the only cosmetics brand in the world that had products in all segments of the industry, that is, Consumer, Luxury, Professional, and Pharmaceutical. Although the company started as a hair colour manufacturer, over the decades it had branched out into a wide range of beauty products such as permanents, styling aids, body and skincare cosmetics, and cleansers and fragrances over the decades (refer Table 2 for product launches till the mid-1990s and Table 3 for a segment-wise break-up of sales for the year 2002).

Table 2 L’Oréal—Product Launches

Year Product (Segment) Year Product (Segment)

1929 Immedia (Professional) 1977 Eau Jeune (Luxury)

1934 Dop (Consumer) 1978 Anais Anais (Luxury)

1936 Ambre Solaire (Consumer) 1982 Drakker Noire (Luxury)

1940 Oreol (Pharmaceuticals) 1983 Plentitude (Consumer)

1960 Elnett (Consumer) 1985 Studio Line (Professional)

1964 Dercos (Luxury) 1986 Nisome (Luxury)

1966 Maquimat, Recital (Consumer) 1990 Tresor (Luxury)

1967 Mini Vogue (Consumer) 1993 Capitol Soleil (Pharmaceutical)

1972 Elseve (Consumer)Source: www.loreal.com



Table 3 L’Oréal—Segment-wise Sales Break-up (2002)

Division Products % of sales (2002)

consumer products Garnier, Le Club des Createurs de Beaute L’Oréal Paris, Maybelline, Soft Sheen/Carson

56

luxury Biotherm, Cacharel, Giorgio Armani, Guy Laroche, Helena Rubinstein, Kiehl’s, Lancome, Paloma Picasso, Ralph Lauren, Shu Uemura

24

professional Kerastase Paris, L’Oréal Professionnel, Matrix Redken

14

Pharmaceuticals La Roche-Posay, Vichy Laboratories 6

Adapted from ‘L’Oréal’s Global MakeOver,’ .www.fortune.com.

On The Road To FameBy the 1970s, L’Oréal’s products had become quite popular in many countries outside France. Jones’ entry in the late-1970s marked the beginning of a new era of growth for the company. During 1978–81, Jones functioned as the head of L’Oréal’s Italian business. Due to his exceptional performance, Jones was given the responsibility of looking after L’Oréal’s US operations (the company’s most important overseas operation) during 1981–4. Managing the company’s US operations was not an easy task. Jones’ colleagues argued that Euro-pean brands such as Lancome (in the luxury cosmetics segment) could never compete with established American brands like Estee Lauder and Revlon. In spite of their doubts and the reluctance of retailers to carry European brands, Jones persuaded Macy’s, one of the leading retail stores in the US, to give Lancome the same shelf space that it gave to Estee Lauder. Not surprisingly, Lancome’s sales increased by 25% in the US in 1983. Jones, a company insider with good management skills, succeeded Dalle as L’Oréal’s Chairman in 1988. He was aware that Dalle had begun the work of internationalising L’Oréal to prevent it from remaining as ‘just a French cosmetics company’. As he tried to continue Dalle’s work, he realised that he had to tackle the situation created by L’Oréal’s image. During the late 1980s and early 1990s, almost 75% of the company’s sales were in Europe, mainly in France. L’Oréal’s image was so closely tied to Parisian sophistication, it was difficult to market its brands internationally. Jones thus decided to take a series of concrete steps to make L’Oréal a globally recognized brand and the leading cosmetics company in the world. In what proved to be a major ad-vantage later on, he decided to acquire brands of different origins. In the cosmetics industry, companies did not acquire diverse brands; they generally homogenized their brands to make them acceptable across different cultures. By choosing to work with brands from different cultures, Jones deliberately took L’Oréal down a different road. Commenting on his decision, Jones said, “We have made a conscious effort to diversify the cultural origins of our brands.” The rationale for the above decision was to ‘make the brands embody their country of origin’. The reason Jones had so much conviction in this philosophy was his own multicultural background (he was born in Wales, studied at Oxford and Paris, married an Italian, and had a French-born daughter). Many analysts



were of the opinion that Jones had turned what many marketing gurus had considered a ‘narrowing factor’ into a ‘marketing virtue’.

May Be? No, It ‘Is’ MaybellineOne of the first brands that L’Oréal bought in line with the above strategy was the Memphis (US) based Maybelline.4 The company acquired Maybelline in 1996 for $ 758 million. Buying Maybelline was a risky decision because the brand was well known for bringing out ordinary, staid colour lipsticks and nail polishes. In 1996, Maybelline had a 3% share in the US nail enamel market. Maybelline was not a well-known brand outside the US. In 1995–6, only 7% of its revenues ($350 million) came from outside the US. L’Oréal decided to overcome this problem by giving Maybelline a complete makeover and turning it into a global mass-market brand while retaining its American image. The first thing that L’Oréal did was to move Maybelline’s headquarters to New York, a city known for its fast and sophisticated lifestyles. Commenting on this decision, Jones said, “Memphis just did not quite fit the sort of profile for finding some of the key people we needed.” Then L’Oréal aggres-sively promoted the US origins of Maybelline by attaching the tagline ‘Urban American Chic’ to it. The company also attached ‘New York’ to the brand name in order to associate Maybelline with ‘American street smart’. In 1997, the company launched Maybelline’s new make-up line called ‘Miami Chill’ with bold col-ours like yellow and green. This gave the brand a new look and targeted it at spirited and lively teenag-ers and middle-aged women. It also renamed Maybelline’s ‘Great Finish’ line of nail polish ‘Express Finish,’ because the nail enamel dried within one minute of application. The company positioned it as a product used by the ‘urban woman on the go’. This revamp was very successful: Maybelline’s market share in the US increased to 15% in 1997 from just 3% in 1996. In addition, Maybelline’s sales rose steeply from just over $320 million in 1996 to $ 600 million in 1999. In 1999, buoyed by the success of Maybelline in the US, L’Oréal acquired the Maybelline brand in Japan from Kose Corporation, the brand’s Japanese distributor, thus gaining world rights to Maybelline. L’Oréal introduced its new line of Maybelline lipsticks and nail polishes in the Japanese market. However, Maybelline’s ‘Moisture Whip’ (a wet look lipstick) did not do well in Japanese markets as it dried quickly after application. L’Oreal gave the lipstick a makeover by adding more moisturizers to it. The new Japanese version of ‘Moisture Whip’ was given a new name —‘Water Shine Diamond’. Water Shine Diamonds became a runaway success in Japan. Commenting on the success of the brand, Yoshitsugu Kaketa, L’Oréal’s Consumer-Products General Manager (Japan), said, “It was so successful in Japan that we started to sell Water Shine in Asia and then around the world.” By the end of 1999, Maybelline was being sold in more than 70 countries around the world. While in 1999 50% of the brand’s total revenues came from outside the US, by 2000 the figure increased to 56%. Maybelline became the leading brand in the medium priced makeup segment in Western Europe with a 20% market share. Commenting on the company’s superior brand management framework, an August 2000 www.industryweek.com article stated, “L’Oréal achieved sales growth of nearly 20% by

4Maybelline was established in 1915 in the US by T.L. Williams. After beginning with the hugely successful mascara (a cosmetic to darken the eyelashes), Maybelline expanded its product portfolio to include other cosmetics and built up a sizeable brand equity. Till 1967, it was under the control of the Williams family. It was sold to Plough Inc. (later Schering-Plough Corp.) in 1971, to Wasserstein Perella & Co. in 1990, and finally to L’Oréal in 1996.



developing new products, expanding into key international markets, and investing in new facilities, all the while concentrating on increasing the reach of the group’s top 10 brands.”

Cashing in on the Maybelline FormulaMaybelline’s success proved Jones’ philosophy of creating successful cosmetic brands by embracing two different yet prominent beauty cultures (French and American). Commenting on this, Guy Peyre-longue, head of Maybelline, Cosmair Inc.,5 US Division, said, “It is a cross-fertilization.” L’Oréal fol-lowed this strategy for the other brands it acquired over the years, such as Redken (hair care). Ralph Lauren (fragrances), Caron (skin care and cosmetics), SoftSheen (skin care and cosmetics), Helena Rubenstein (luxury cosmetics), and Kheil’s (skin care) (refer Table 4).

Table 4 Origins of Some L’Oréal Brands

Origin Brands

european L’Oréal Paris, Garnier, Vichy, La Roche-Posay, Lancome, Giorgio Armani, Cacharel, Biotherm, L’Oréal Professional Paris.

us Kiehl’s, Ralph Lauren, Matrix, Redken, Softsheen-Carson, Maybelline, Helena Rubinstein.

asian Shu Uemura.

Source: www.loreal-finance.com.

L’Oréal acquired the above relatively unknown brands, gave them a facelift, and repackaged and marketed them aggressively. The US-based hair care firms Soft Sheen and Carson were acquired in 1998 and 2000 respectively. Both these brands catered to African-American women. Jones merged these two brands as SoftSheen-Carson and used them as a launch pad to aggressively promote itself outside the US—specifically Africa. As a result, the brand derived over 30% of its $ 200 million rev-enues in 2002 from outside the US, most of it from South Africa. L’Oréal firmly believed in the strategy of promoting all its brands in different nations. Even though it had brands originating in different cultures, it sold all its different lines in all countries. However, L’Oréal promoted only one brand aggressively in a country. The brand to be promoted was selected on the basis of the local culture. Thus, for people who preferred ‘American’ products, L’Oréal promoted Maybelline, and for those who preferred ‘French’ products, the L’Oréal brand was promoted. Similarly, the company promoted Asian and Italian brands for customers who preferred them. Jones also encouraged competition between the different brands of the company. For instance, L’Oréal acquired Redken, a US-based hair care brand in 1998, and introduced it in the French market, where it would have to compete with L’Oréal’s Preference line of hair care products. Analysts were skeptical of this move as they thought introducing new brands in the same category would cannibalise L’Oréal’s own, established brands. However, Jones took a different point of view; he argued that the competition would inspire both the Redken and Preference marketing teams to work harder. Since self-competition was encouraged at L’Oréal, teams had ample freedom to innovate and de-velop better products. This kind of competitive spirit from within allowed L’Oréal to beat competition

5L’Oréal’s wholly-owned US subsidiary.



from other players in the market. Commenting on this, Jones said, “The only way to favour creativity in large corporations is to favour multiple brands in different places which compete with each other.” To encourage competition and nurture creativity, L’Oréal operated two research centres—one in Paris and the other in New York. These centres helped Jones maintain L’Oréal’s image as the ‘scientific’ beauty company. The company spent around 3% of its revenues on research every year, which was more than the industry average of less than 2%. L’Oréal employed 2700 researchers from all over the world and had 493 patents registered in its name in 2001, the largest ever for any cosmetics company in one year. L’Oréal made sure that each of its brands had its own image and took care that the image of one product did not overlap with the image of another product. A cosmetics industry analyst, Marlene Eskin, said, “That is a big challenge for this company—to add brands, yet keep the differentiation.” One of L’Oréal’s most radical experiments was the makeover and re-launch of the Helena Rubin-stein skin care and cosmetics brand. Originally positioned in the luxury segment, Helena Rubinstein had the image of a product used by middle aged-women. In 1999, L’Oréal relaunched the brand and targeted it at a much younger and trendier audience than the brand’s typical luxury customers (middle-aged women). Now, the target users were women aged between 20–30 years, living in urban centres like London, Paris, New York, and Tokyo. The company also opened a Spa6 in New York to promote the brand (the first instance of a company attempting to run a retail operation as part of a promotional package). L’Oréal also made use of ‘dramatic’ advertisements to promote the brand. In one of its advertise-ments, the model sported a green lipstick and white eye shadow. Many analysts even thought that such advertising for a traditional luxury brand was incoherent. However, Jones argued that industry observ-ers who held this opinion had not taken into account how fast the market was changing. He said, “Is it incoherent for younger people to buy luxury cosmetics? Why? Perhaps it was 10 years ago when luxury was equated to the middle-aged customer. But sorry, the biggest luxury consumers in all of Asia, which is one of the strongest luxury markets in the world, are between 20 and 25. This is why the Guccis and Pradas have taken the luxury-goods market by storm.” Jones also said, “The worldwide luxury consumer no longer equates to a middle-aged lady. She can be. But she can also be young and trendy. So the whole idea that it is incongruous for Helena Rubinstein to be cutting edge in terms of image and makeup is out of date by about 10 years. On the contrary, it is very good, original positioning for Helena Rubinstein to be the coolest of the traditional luxury brands.” Thus, L’Oréal cleverly positioned Helena Rubinstein as a luxury brand for a younger audience without overlapping its image with that of other luxury brands like Biotherm, Lancome, and Shu Umeura. L’Oréal attached a tinge of glamour to its brands to make them more appealing to customers. The company liberally used celebrities from various fields of life, from all parts of the world, for promoting its brands. Some of the well-known personalities featured in L’Oréal’s promotional campaigns included Claudia Schiffer, Gong Li, Kate Moss, Jennifer Aniston, Heather Locklear, Vanessa Williams. Milla Jovovich, Diana Hayden, Dayle Haddon, Andie MacDowell, Laeticia Casta, Virginie Ledoyen, Cath-erine Deneuve, Noémie Lenoir, Jessica Alba, Beyoncé Knowles, and Natalie Imbruglia.

6The word spa (originally name of famous mineral springs in Spa, Belgium) refers to any place/resort that has one or more of the following facilities: therapeutic baths, massages, mineral springs, health improvement, beauty treatment, exercise, relaxation, and meditation (not an exhaustive list).



L’Oréal’s brand management strategists believed that good brand management was all about hitting the right audience with the right product Commenting on the company’s brand portfolio management strategies, Jones said, “It is a very carefully crafted portfolio. Each brand is positioned on a very precise segment, which overlaps as little as possible with the others.”

Future ProspectsL’Oréal’s efforts paid off handsomely. The company posted a profit of € 1464 million for the financial year 2002, as aginst € 1236 million for the financial year 2001. Its overall sales grew by 10% in 2002, and much of this increase was attributed to impressive growth rates achieved in emerging markets like Asia (of the 21% increase in sales volume, China contributed 61%), Latin America (sales grew by 22% with sales in Brazil increasing to 50%), and Eastern Europe (sales grew by 30% with sales in Russia increasing by 61%). Industry observers noted that L’Oréal was much ahead of its competitors in terms of profitability and growth rate. L’Oréal’s rival in the luxury segment, Estee Lauder, had reportedly posted a 22% drop in profits in August 2002. The company had also announced a cost-cutting programme. Even Revlon, L’Oréal’s competitor in the mass-market segment, had posted nine consecutive quarterly losses since late-2001. Not all competitors were in such bad shape though; rival companies like Beiersdorf (a Germany-based company that owns the globally popular brand Nivea), Avon, and Procter & Gamble had been performing quite well. However, industry analysts agreed that no other cosmetics player matched L’Oréal’s combination of ‘strong brands, global reach, and narrow product focus’. In March 2003, L’Oréal ventured into new businesses that were closely related to its core activities. One such initiative was Laboratoires Innéov, L’Oréal’s joint venture with Nestlé. Through Inneov, L’Oréal entered the market of cosmetic nutritional supplements. Analysts observed that this would mark the beginning of ‘neutraceutical’7 development. A research analyst at Frost and Sullivan (US-based leading provider of strategic market and technical information), commented, “The Inneov business will draw on both the growing demand for skin products designed to retain youthfulness and the growing market for dietary supplements.” L’Oréal expected the cosmetics market to grow at 4–5% per annum in the future. Looking at the future with optimism, Jones said, “No other consumer products group has grown as quickly as we have. The prospects for the next three to four years seem promising to me. L’Oréal has the good fortune of being involved in a business that is a bit less sensitive than others to economic cycles. When the eco-nomic climate is bleak, you might put off buying a new car, but you will still buy a tube of lipstick that lets you ‘take a different sort of trip’ for a much smaller price.” In March 2003, the company entered the prestigious list of the world’s fifty most admired companies compiled by leading business magazine, Fortune, for the first time. This was yet another indicator of the fact that L’Oréal seemed to be going from strength to strength each year. If the strategists at the helm of affairs continued focusing on enhancing stakeholder value year after year, the future would continue to be rosy for the company that sold millions of women the dream of living a ‘beautiful’ life.

7The term ‘neutraceutical’ is derived by combining two words ‘nutritional’ and ‘pharmaceutical’ and refers to foods that acts as medi-cines. Neutraceuticals act as a source of specific food that provides essential nutrients to users.



QuesTIONs FOR DIsCussION

1. Critically comment on L’Oréal’s global brand management strategies. Do you think L’Oréal’s strategies were primarily responsible for its impressive financial performance? What other factors helped the company remain profitable since over two decades?

2. With specific reference to Maybelline, critically comment on Jones’ strategy of acquiring relatively unknown brands of different cultural origins, giving them a makeover and market-ing them globally. What are the merits and demerits of acquiring an existing brand vis-à-vis creating a new brand?

3. L’Oréal maintained a large portfolio of brands and was present in all the four segments of the cosmetics market. What positioning strategy did the company follow to ensure that the image of its brands did not overlap? How and why did L’Oréal encourage competition among its brands in a particular segment and at the same time prevent the brands from cannibalising each other?


l’oréabuil— lding a global cosmetic...

Documents