L'Oréal Brandstorm 2015:

Lancôme in Travel Retail

Chiara Cozzolino - 1596758

Pierandrea Miglietta - 1590553

Anastasia Yarkina - 1578533

20171 STRATEGIC MARKETING & MARKETING PLAN

INDEX

Executive summary – slides 3.

Introduction – slide 4

History – slides 5.

Company Overview – slides 6-8.

Customer Profile – slides 9-11.

Demand trends and Structure –

slides 11-12.

Lancôme's Competitive

Environment – slide 13.

Lancôme's Competitive Analysis

– slides 14-17.

Relationship with suppliers and

buyers – 18.

Lancôme's Internal Analysis –

slides 19-31.

S.W.O.T Analysis – slide 32.

Strategy Goals and Objectives –

33-34.

Our Strategy – 35-38.

Strategy Implementation – 39-42.

Budget – 43-44

Conclusions - 45

Executive SummaryThe proposed strategy is based on the research conducted that incorporated a large

number of different sources. Apart of articles, publications and scientific newspapers, we

also applied several tools in order to deeper understand the current strategy and

positioning of Lancôme in the luxury beauty segment:

1) Online survey with more than 150 people participated;

2) Consultations with and insights from people currently employed in beauty industry

3) Observation of company’s customer profile

4) Visits of the points – of – sale (laRinascente, etc.)

Moreover, we also analyzed and evaluated the official web-site of Lancôme in order to

investigate the the product, price and promotional strategy of the company. Discovered

data was used for the marketing plan and budget estimations, as well as for overall goal

evaluation of the new strategy. The final result of the developed strategy is promising an

boost of US$70B additional revenues, around 2% rise of ROS and 11% of ROMI

indexes.

Company:

L’Oréal in 2014

Brand: Lancôme - leading company in the Premium Cosmetics Industry.

Revenue model: Skincare is its business segment best seller, followed by fragrances and

make-up.

Challenge: Create new strategy to anticipate the increasing profitability of Travel Retail,

keeping the leading position on the market by providing a unique shopping experience.

Introduction

1st

Cosmetic Group

World Wide

Distributed in 130

countries with 28

international brands

77.400employees around the

world of 156

different nationalities

€ 22.98 billions of

revenues in 2013

6,3 billions of units

produced worldwide

L’Oréal – Brief History • The company was founded in 1909 by Eugène Schueller – a graduated chemical

engineer – under the name of Société Française des Teintures Inoffensives pour

Cheveux. Schueller’s first hair dye formulae was created in 1907 and it was named

Oréal.

• In 1931 the company enhanced a great success by an innovative packaging solution:

individual doses to guarantee safety and comfort for hair stylists and end-customers.

Schueller invested also a lot in developing promotional events and in designing new

advertising campaigns

• On 4th April 1939, the company officially changed its name to L’Oréal

• In 1940 Schueller created a school for hair stylists providing technical training,

business development assistance, customer-loyalty tips and more. Schueller’s aim was

to create a long-lasting partnership with the profession confirming its position as the

preferred brand for hair stylists.

• In 1964 the group bought Lancôme, funded in 1935. Originally it was only a

fragrances house.

• In 2001 L'Oréal joined the "World Business Council for Sustainable Development”,

an international association for the exchange of expertise in environmental, economic

and social matters

L'Oréal – Company OverviewL'Oréal has five different divisions in order to accomplish the mission “beauty foreveryone”:

1. L’Oréal Luxe has three major specializations: skin care, make-up and perfume.These products are available at department stores, cosmetics stores, travel retail, butalso own-brand boutiques and dedicated e-commerce websites. Lancôme, GiorgioArmani Beauty and Yves Saint Laurent are the leading L’Oréal Luxe division brands.

2. Active Cosmetics Division meets a range of different skin care needs. Its brands canbe found in pharmacies, drugstores, and medi-spas. The division is world leader indermo-cosmetics.

3. L’Oreal Consumers Product Division aims to make L’Oréal products available to thegreatest number of people. Its brands are distributed in mass retailing channels andthey offer a wide range of colouring products, hair care, makeup and skin care.

4. The Body Shop products are all natural, distinctive and socially engaged.

5. Professional Products Division is a privileged partner for hairdressers. It distributesits products in salons worldwide. The division can meet the needs of different haircare salons, for colour, shampoos and general hair care needs.

L’Oréal Revenues in 2013Professional Products: channel is affected by declining

salon visits in the mature markets, but remains dynamic

in the new markets. Kérastase is the first brand in terms

of growth contribution; hair care continues to grow

strongly.

Consumers Products: the division is outperforming the

global market and winning market share. All division’s

brands grow faster than the market. Growth of L’Oréal

Paris is accelerating and the brand is strengthening its

worldwide leadership, thanks to a strong performance

in haircare. Garnier recorded double-digit growth in

hair colorants.

Active Cosmetic: the division is strengthening its

position as the world leader in the derma-cosmetics

market. The New Markets are proving highly

dynamics, while division’s trends in Western Europe

are growing twice as fast as the market.

The Body Shop: the strategic body, skincare and

makeup categories grow driven by iconic ranges and

innovations. The division has a multi-channel strategy.

Focus on L’Oréal Luxe sales of 2013

• In 2013, L’Oréal Luxe significantly outperformed outperformed the market in every

geographic zone, as well as in Travel Retail. For example, Giorgio Armani is establishing itself

as a luxury brand thanks to the success of its women’s fragrance “Si”. It is already in the

European top 5 fragrances sold worldwide. Furthermore Armani Beauty line made a real

breakthrough in 2013.

Customers’ profile (1)Lancôme Main Target Market is “women with heart and mind”.

In the Travel Retail market the target is global shoppers:

• There has been a recent change in the customers’ profile: global shoppers are not only

businessmen travelling for work, but also fashion addicted passengers coming from

emerging countries – mainly Brazil, Russia, China and South Korea.

• The main characteristic of global shoppers is that they shop everywhere: where they live,

while they are travelling and at their final destination.

• The main need of these customers is to feel at home whenever and wherever they are.

On the other hand, they tend to spend more time in airports where the environment is

more sophisticated.

• In order to engage with them, Lancôme has developed a tailored approach:

1. Hire beauty consultants who speak different languages and offer services coherent

with the customers’ nationalities.

2. Create specific products lineup which satisfy customers’ needs.

3. Provide multilingual materials.

4. Celebrate key global cultural events (I.e. Lancôme wishes a happy New Chinese Year).

Customers’ profile (2)Most important benefits for customers that come as a result of purchasing at the airports are:

1. Cheaper prices – buying at duty free.

2. Guaranteed good quality.

3. Limited editions and exclusive products

Buy a gift.

Browse the store and pass the time.

Take advantage of prices.

It’s what I always do when I travel.

To treat myself.

To buy a product for someone else.

To buy products for use when I’m away.

According to the customers, the main purposes for visiting a duty free shop are:

Customers’ Purchase PreferencesFrom a market research conducted by “LuxurySociety.com”, it emerged that:

– 82% of Chinese travelers agree that shopping is a priority while travelling.

– 56% of Middle eastern and 48% of Russians feel the same.

– 60% of Chinese travelers purchase at duty free.

Even though Chinese customers of cosmetic goods are “only” 97 million, it is still the population with the highest

level of expenditures. They spend around US$128 billion out of $ 1.159 billion total expenditure.

Am

on

g th

e in

terv

iew

ed:

96% say they enjoy shopping while travelling.

83% say that shopping is very important for them while travelling.

68% choose their destination according to the brands available locally.

For

wh

at c

on

cern

s th

e p

urc

has

e ch

ann

el:

75% of the travelers buy at duty free and 78% of them buy on the trip back home.

70% buy in Department Stores (i.e. “La Rinascente” in Milan).

65% buy in Exclusive Beauty Shops (i.e. “Sephora”).

In 2013, 1.087 billion people– which represent the 15% of the global population – travelled, contributing for about $ 1159

B to local economies. The most preferred destination is Europe – attracting 52% of the total travelers. The number of

travelers is expected to reach 1.4 billion in 2020. Most visited countries are:

- France, with 83 million international arrivals.

- United States, with 70 million international

arrivals

- Spain, with 60.7 million international arrivals.

- China, with 55.7 million international arrivals.

- Italy, with 47.4 million international arrivals.

Demand Structure and Trends (1)

Demand Structure and Trends (2)The Travel Retail market has grown tremendously after 2000. In 2013 it was worth US$60 billion,

but, according to forecasts, it’s going to double its value in the next 6 years, reaching US$110 billion

in 2020. The most important product category is beauty, which accounts for 30%.

Lancôme has a market share in the premium beauty market of 4,5%, with US$4,5 B in revenues.

L’Oréal market share for the beauty market in TR is about 20%.

• 2013 Primary demand of Travel Retail = US$60 B

• 2013 Primary demand for Beauty Goods in Travel Retail = 30% x US$60 B =US$18 B

• 2013 L’Oréal Group secondary demand for the beauty market = US$22,9 B

• Lancôme accounts for the 20% of L’Oréal group sales: US$4,5B / US$22,9B

• We suppose that the Lancôme weight of L’Oréal (20%) will remain the same also in TR market.

• 2013 L’Oréal secondary demand in the beauty market in TR = 20% (MS) x US$18 B = US$3,6

B

• 2013 Lancôme Secondary demand in the TR beauty market = 20% (weight of Lancôme for

L’Oréal group) x US$3,6 B = US$0,72 B

• Lancôme's MS in the beauty market in TR = US$0,72 B / US$18 B = 4%.

• Potential demand for fragrances in 2013 = 2,09 billion bottles of perfumes (50 ml)

• Potential demand for mascara in 2013 = 1,91 billion units

• Potential demand for lipstick in 2013 = 2,24 billion units.

• Potential demand for eye shadow in 2013 = 0,93 billion units.

See appendix 1 for further explanation of the calculations

L’Oréal Competitive Environment

Bargaining power of customers:

•Large number of customers

•Weak bargaining

power

Bargaining Power of Suppliers:

• Large number of substitute inputs

• High competition between suppliers

Bargaining power of customers:

• Large number of customers

• High number of competitors in the beauty/cosmetic industry

• No bargaining power

Threat of substitutes:

• High number of competitors

• Product differentiation is not always perceivable by customers

• Low brand loyalty

Intensity of Existing Rivalry:

• Fast industry growth rate

• Large industry size

Threat of new competitors: High entry barriers The industry requires specific technologies, large capital n investments & strongly established distribution network Patents limit competition Strong brand name is fundamental

Lancôme’s Competitors (1)On the market there are four types of product lines:

1. Saloon products, manufactured by firms such as Aveda or Paul Mitchell.

2. Professional products, manufactured by firms like L’Oréal Professionnel and Kérastase.

3. Consumer products, manufactured by firms like Garnier, L’Oréal Paris, Maybelline New York.

4. Luxury products, manufactured by firms like Lancôme, Clinique, Estee Lauder etc.

COMPETITIVE ARENA FOR LUXURY PRODUCTS

L’Oréal Group

Lancôme’s Competitors (2)Lancôme faces competition from international premium cosmetics manufacturers. The

rivalry is concentrated on a limited number of key categories by implying a product

innovation.

“Premium sets/kits is a small but important category that manufacturers use to attract new

customers, and reward, or introduce new products to existing customers. Manufacturers

offering sets/kits also benefit during the gift seasons.” *

*Passport report “STRATEGIES TO SUCCEED IN THE FAST

EVOLVING PREMIUM BEAUTY MARKET”. September 2013

Lancôme’s Competitors (3)The luxury segment is very fragmented and it has a low concentration, since there are many

competitors with a little market share – Lancôme’s market share is 4,5%. They offer similar products

– fragrances, skincare products and makeup – and satisfy the same needs – feeling beautiful,

protecting skin from damage and feel young. Moreover, these product categories are also perceived

as an expression of the social status and provide “sensorial” stimulation.

The main drivers of competition in the luxury market are brand reputation and innovation. However

Lancôme should not worry about potential entrants because the cosmetic industry has high barriers to

entry: there are high costs related to R&D necessary in order to develop a high level of expertise;

moreover customers give a lot of importance to the brand. Finally, due to the limited shelves space,

brands need to have a strong bargaining power in order to negotiate with the buyers. The only threat

might be the entrance of other luxury firms which are not in the beauty market yet.

Since it’s a very competitive industry, in order to avoid price competition, L’Oréal Group invests about €

857 M in R&D in order to introduce on the market very innovative products before its competitors.

Another source of differentiation among competitors is the Brand Reputation and the values that the

Brand represents for its customers. For instance, Lancôme focuses on three pillars:

1. Aspiration of autonomy: self-accomplishment.

2. French factor: woman’s vision of beauty and elegance.

3. Happiness factor: happiness is the primary source of beauty.

Consumers’ Perception of Lancôme

Main competitors according to the MS:

Value offered SuperiorInferior

Inn

ova

tio

nLo

wH

igh

Val

ue

off

ered

Infe

rio

rSu

per

ior

PriceLow High

The perceptual maps are based on the

results obtained through the survey

conducted online among 153 people of

10 diverse nationalities (see appendix 2.

for the survey findings). It appeared that

Lancôme is perceived as a very innovative

brand with a high quality-price ratio. The

main perceived competitors of Lancôme

are Clinique, followed by Estēe Lauder

(value offered) and Dior (level of

innovation).

• Lancôme - 4,5%

• Shiseido - 4,2%

• Clinique - 4,2%

• Estēe Lauder - 3,7%

• Chanel - 3,5%

• Dior - 2,9%

Relationship with

Suppliers and BuyersL’Oréal Group chose to adopt a largely integrated industrial model.

For what concerns the relationship with suppliers, about 85% of L’Oréal’s products are

manufactured in its own plants, in order to guarantee quality, safety and coherence with the

Group’s ethical values. The Groups’ industrial production is organized regionally in 41

plants established on all continents.

L’Oréal Group created a purchasing team in order to guarantee the quality of the suppliers,

but also to have a better management of costs of production. Because of the size of the

group, the suppliers have a very low bargaining power than the group itself.

In order to maintain a high perception of the brand image, Lancôme – like all the

premium brands – ships its products directly to the buyers (retailers or wholesalers) instead

of shipping them indirectly through regional distributors. In this way Lancôme is able to

establish a stronger relationship with the buyers and have a stronger bargaining power.

Moreover Lancôme has an established bargaining power due to the fact that any customer

who purchases through the above mentioned channels expect to find Lancôme products,

and for this reason retailers are weaker.

Lancôme’s StrategyAlthough Lancôme started as a fragrances house, it now offers three categories of

product:

1. Skincare.

2. Fragrances.

3. Makeup.

Concerning the merchandise, Lancôme adopts a line extension strategy because it

constantly introduces innovative products on the market, which are part of the existing

categories. In fact, below you can see the retail and merchandizing of some of the most

important new products in TR channel of Lancôme.

Retail “La Vie est Belle”

• Podiums & Outposts

• Show Window & Perfumeries

• Displays & Tray

• Free Access Perfumery

Merchandising “Lip Lover”

• Display

• Launch Tray

• Merchandizing Staging

Retail“Visionnaire cream”

• Display & Kit New Bar

• Staging Niche – Glorifier & Gondola

• Pos & Show Window

• Podiums

Recent Sales Trend: Beauty Industry

vs TR (Values and Quantity)

Current facts in beauty industry:

• Global expansion of beauty industry.

• Expected 8.5% growth in revenue by 2014.

• Premium skin care is the largest category in value terms, comprising 35% of global premium cosmetics sales in 2012 (+4% increase).

Future evaluation:

• 3.4% growth over next 5 years.

• Skin care sales are expected to grow over US$5 billion in 2012 –2017.

• US$6 billion new sales in premium cosmetics between 2012-2017 just in Asian market.

IN TRAVEL RETAIL:

• The BEAUTY sector is the leading category with 30% of total turnover with estimated growth for 2013 is +7.4%

20

Expected trends to support future expansion and profitability:

The middle class evolvement is characterised by increasing per capita incomes and

leads to a higher access of citizens from developing countries to international global

markets. At the same time, the airports’ business model is changing: “Today airports

are big shopping malls surrounded by boarding gates”.

Lancôme Marketing mix of

Product and Prices: Make up (ITALY)*Make up: Lancôme is positioned as a brand of MODERNITY.

3 main products are: Foundation, Mascara and Lipstick. Differentiation between young

and mature consumers in terms of diverse colour mixes.

Make up Price range

21

27

16,3019,15

17,4

40

56,25

50

29,95

17,4

40

0

10

20

30

40

50

60

Complexion Eyes Makeup Lips Makeup Nail Polish Sun Makeup

min max

* Information is

provided for the

overall beauty

market

Lancôme: Make up (2)Complexion has different 4 product types.

Price range from min 27€ (“Teint Miracle” concealers) to max 56,25€ (“Teint Visionnaire” foundation):

Foundations (11 category products). Most popular line is “Taint Miracle”.

Powders (3 category products).

Blushes and enhancers (3 category products).

Concealers (3 category products).

Eyes Makeup has 4 different product types.

Price range from min 16,30€ (“Le Crayon Miracle” eyeliner) to max 50€ (“Palette Hypnôse” eye shadows):

Mascaras (12 category products). New product line “Grandiose”.

Eye shadows (7 category products).

Eyeliners (8 category products).

Eyebrows (2 category products).

Lips Makeup has 3 different product types.

Price range from min 19,15 € (“Contour Pro” lip liner) to max 29,95 € (“L'Absolu Rouge” lipstick):

Lipsticks (6 category products). Most popular line is “L’Absolu Rouge”.

Gloss (4 category products).

Lip liners (1 category products).

22

Nail Polish has a Vernis in Love line with

the price of 17,40€.

Sun Makeup has a Face & Body line with

3-product category of 40€.

Lancôme: Skin care (1)Lancôme is positioned as a brand of EXPERTISE.

3 main lines are “Gènifique”, “Visionnaire” and “Absolue”. Travel retail aim at basket increase,

targeting global shoppers and offering premium line. In Italy, the cheapest product is “Bocage”

deodorant of 20,90€. The most expansive product is “Absolue L'Extrait” Regenerating Ultimate

Elixir of 330€.

23

Category products overview (Italian market):

Youth Activating Concentrat (6 category products).

Anti-ageing (25 category products). Differentiation among “First fine lines and wrinkles”, “Wrinkles -

Loss of firmness” and “Mature Skin”.

Basic Moisturizer (13 category products). Differentiation among Normal-Combination, Dry and

Oily skin.

Eyes and Lips Care (13 category products). Differentiation among “Makeup removers”, “First fine

lines and wrinkles”, “Wrinkles - Loss of firmness”, “Mature Skin”, “Lips” and “Puffiness”.

Makeup removers (12 category products). Differentiation among Normal-Combination, Dry and

Oily skin.

Masks et Exfoliating scrubs (4 category products). Differentiation between “Exfoliating scrubs”

and “Masks”.

6

25

13

13

12

4

13

11

9 YouthAc va ngConcentrat

An -ageing

BasicMoisturisers

EyesandLipsCare

Makeupremovers

MasksetExfolia ngscrubs

Bodycare

Suncare

Mencare

Lancôme: Skin care (2) Body care (13 category products). Differentiation among “Body Care“, “Bocage Deodorant”, “Haircare”

and “Aroma Experience”.

Sun care (11 category products). Differentiation among “Self-tanners”, “High Protection”, “Protection”

and “After-Sun”.

Men Care (9 category products). Differentiation among “Anti-ageing”, “Moisturisers”, “Cleansers” and

“Shaving”.

24

The focus of the brand is on rose that is considered to be the most feminine flower. Over the time, Lancôme

Perfume House has created 50 fragrances, while latest popular female lines are: “Tresor” and “La vie est belle”.

Lancôme: FragranceLancôme is positioned as a brand of EMOTIONS

25

The most expensive perfume is “La vie est belle” with the price of 55,80€ for 20ml, while the

cheapest is “Ô de Lancôme” that costs 52,70€ for 75ml. As for male, Hypnôse Homme Cologne

(42€ for 100ml) is an affordable version of Hypnôse Homme that costs 57,40€ for 50ml.

Price Range of Lancôme Products*

26

56,25

330

9470

16,3020,9 42,6 42

0

50

100

150

200

250

300

350

MAKE UP SKIN CARE FRAGRANCE FEMALE FRAGRANCE MALE

Travel Retail Specials (1)In Travel Retail the focus is on gifts and desirability.

We know that Travel Retailserve special offers in termsof sizes, colours, quantities aswell as exclusive deals,limited editions and gift kits.For example:

Special size (100ml) &

Special sets (DUOS / TRIOS)

Special kits:

✔ Routine Set

✔ Palettes of Make Up

✔ Miniatures Fragrances

✔ Premium Coffret

*Data of female

fragrance is

based on the on

the 2 most

popular sizes:

30ml (for min

price) and 75 ml

(for max price).

For male, in

fact, 100ml

fragrance is the

cheapest and

75ml is the

more expensive.

Travel Retail Specials (2)TR exclusive Lancôme palettes, lips & mascara sets:

27

• Absolue Au Naturel

• Absolue Voyage Absolue Palettes

• Idéal sculpt

• Idéal glow

• Idéal bronze

Frenzy collection

Juicy Tubes(2 kits)

Rouge in love

Gloss in Love

(3 kits)

MASCARA SETS

Duos Mascara: Doll Eyes &

Hypnose Drama

Mascara and Eye Product:

2 products set

Mascara and EyeProduct:

3 prodcuts set

TR exclusive Lancôme Skincare

28

TR exclusive Lancôme FragrancesDistribution:

Mainly use of indirect multichannel

strategy. Lancôme’s main channels:

Department stores, such as

“La Rinascente”

Exclusive beauty stores, such as

“Sephora”

E-shop

Duty-free shops

TRAVEL RETAIL:

Airports57%

Down-town duty free shops

33%

Airlines6%

Cruises4%

Travel Retail Specials (3) & Distribution

29

• Internet Banners & Registration Page

• Emailing

• Airport Advertising

• Out of Home Advertising

• In-Flight Magazine Advertising

• In-Store Advertising

• Events by nationality

• Billboards

Facebook page:

involves the customers, promotes

events, increase the visibility of

new products.

YouTube channel:videos to

teach customers to

use company’s products;

new commercials

promotion

Lancome on Twitter:

short info on latest news

Weekly newsletter:info about the best -

sellers

Lancôme Virtual

Palette app: make-up

simulation

Digital Marketing of Lancôme

Promotion & Communication Strategy

Market Share: Eventual SalesL'Oréal is leading the beauty segment of the Travel Retail market, with > 20% MS and estimated

growth in 2013 of +1.3 points. Overall sales of the Luxury division in 2013 were US$5,865.2

millions, while operating profit was US$1,174.2 millions.

Lancôme is leading the beauty market with 4.5% market share. “La Vie est Belle” was a top seller

in fragrances, while in skincare dynamic sales due to the innovative “Advanced Génifique” and

“Dreamtone”.

30

Company ExpensesResearch expenses increased strongly at 8.4% and thus increased as a percentage of sales from

3.5% to 3.7%. Advertising and promotion expenses did not change compared to 2012, they came

out at 30% of sales. Selling, general and administrative expenses came out slightly higher than in

2012. Expenses remained stable as a percentage of sales, if not considering acquisitions.

Competitors’ Products

31

Basically, in every segment of beauty industry the two main competitors of Lancôme are Estee Lauder with

3,7% market share (2nd on the market) and Channel with 3,5% market share (3rd on the market). An

increase of competition in the market is expected due to the introduction of cross benefits and functions

products, especially in the skin care segment. An example can be a “2 in 1” combinations of sun protection

for acne prone skin and after-sun with whitening benefits.* A current competitor in this segment is, for

instance, Clarins BB Cream that can be used in conjunction with Clarins Double Serum.

Another competitor mainly in skin care market is organic beauty industry. The main players on the market

are Bare Escentuals, Burt's Bee, The Body Shop, Yves Rocher , Aveda, Origins and The Hain Celestial

Group, some of which belong to the L’Oréal Group. The global demand for organic personal care products

market is expected to reach US$13.2 billion in 2018 growing at a CARG of 9.6%, while the expected

revenues growth rate is forecasted to be 9.9% between 2012-2018.**

The last competition faced is one coming from mass-market products in beauty industry. The graph below

provide a comparison between Premium and Mass Market cosmetics by region between 2012-2017.

*Passport report “STRATEGIES TO SUCCEED IN THE FAST EVOLVING PREMIUM BEAUTY MARKET”. September 2013.**Transparency Market research “Organic Personal Care Products Market for Skin Care, Hair Care, Oral Care and Cosmetics - Global Industry Analysis, Size, Share, Growth, Trends and Forecast, 2012 – 2018”.

Travel Retail

THREATS• New technologies (i.e. online check in)

reduce the time spent at the airport

• Democratization: low costs flights

increase the number of lower-income

travelers -> Increasing competition due

to the higher number of mass brands

retailers’ offers

• Existence of “similar” products offered

by competitors at lower prices

WEAKNESSES• Risk of cannibalization with the

product of the other brands of

the Group

• Premium price not always justified

by higher quality

• Not active in natural/organic

products, which is an emerging

trend on the market

STRENGTHS• Special products available only in

TR channel

• Exclusive services offered to

customers

• High and time-tested quality

• High brand credibility

• Continuous introduction of

innovative products

OPPORTUNITIES• Growing number of international

travelers & increasing demand of

the TR market

• Increasing importance of shopping

while travelling

• Increasing income of the

developing countries population

DESTINATION ROSE

GARDENThe main goal of our strategy is to attract customers into our store and provide them with

a unique and unforgettable shopping experience. Therefore, the aim of the strategy is not

to simply sell a product, but to inspire clients and make them explore the world of

Lancôme: our history, heritage and values.

The main factors that influence our strategy are:

– The change of the TR customer profile

– Growth of the primary demand of the travel retail market

– Customers shop in airports mainly to purchase exclusive products

– Customers purchase while travelling to make gifts

We believe that the proposed strategy will create a sophisticated environment, coherent

with the Lancôme image and the global shoppers’ needs. Therefore we will be able to

attract and engage more customer, thanks to the new implemented services and the new

products offered.

We want to increase the coverage degree, especially thanks to the digital wall strategy,

which will boost customers to buy more products.

Goal Sales Forecast and

Market Share of Lancôme

With the implementation of our strategy we want to achieve a market share of 4,9% -

which is 0,4% higher than the Market Share we expect to achieve without the

implementation of the new strategy (4,53%).

• Secondary demand of Lancôme in the beauty market in TR in 2013 = US$0,72 B

• Primary demand of the TR channel in 2014 = US$70 B

• Primary demand of the beauty market in TR for 2014 = 18B + (18B x 4,12%) =

US$18,75 B * (data of our elaboration).

• Secondary demand goal of Lancôme in the beauty market in TR 2014 = US$18,75B x

4,9% = $ 0,92 B ** (data of our elaboration).

• Without the new strategy, Lancôme’s forecasted sales in 2014 in TR = US$18,75B x

4,53 % = $ 0,85B*** (data of our elaboration).

• 2014 new strategy net impact on revenues = $0,92 B - $0,85 B = US$70 M.

*18B is the primary demand of the beauty market in 2013. 4,12% is the forecasted growth rate for the

beauty market in TR for 2014.

** 4,9% is the market share goal for 2014

*** 4,53% is the forecasted market share for 2014 without any strategy implementation

Let’s start with…

Roses petals path decals on the floor, leading to the store. Our

aim is to take our customers by the

hand from the moment they start their

shopping experience – after the

security gate – till the moment they

reach Lancôme products.

HERE OUR JOURNEY BEGINS

… Once you are in …

Inside the shop you will find an interactive

digital wall, providing different services. On the

top of the wall there are several screens that

display the faces of the current users around the

world.

A face-scan will analyze the customers’ facial

treats, skin and eyes’ colours. The software will

analyze the data and suggest the best makeup and

skincare products according to customers’

personal needs (i.e. the software allows to choose

the occasion of use) and characteristics.

Customers can choose between two options:

1. “Total look”: the software will provide a

selection of the most suitable and available

product from each category (i.e. 1 lipstick, 1

mascara etc.).

2. “Your choice”: customers can select just

one product category they are interested in

and the software will provide the best solution

among the available products.

Customers can also click on the product and

discover all its features.

Another service provided by digital wall is the

possibility to create a personal profile

containing all customers’ information,

including the face-scan, the purchase history,

etc. Thus, every time accessing a Lancôme

shop, they can log-in their profile and the

software will provide a new selection of

products considering the available information

and the local assortment.

… but also …We will develop a specific present’s kit with exclusive

packaging, which differs from airport to airport (i.e. “Idéal

Lancôme Dubai”, “Idéal Lancôme Instanbul” etc.), and

that can be found only there. We will introduce three

version of kit sold in the ten main airports, each

containing products specifically mixed up according to the

main customers’ geographical profile: Asian, European

and South American. At the same time, the packaging will

reflect the local atmosphere and traditions.

Create your fragrance: at the Lancôme shops the

customer will find a fragrances’ expert who will create a

perfume for him/her – “TOI DE LANCÔME” – mixing

the typical flavours of the local country with standard

ones, according to his/her preferences.

We will offer 6 standard fragrances and 3 local ones:

customers can choose up to 3/4 and mix them.

Numbers of the Strategy• US$70 is the average expenditure in the premium beauty market and we assume that this

expenditure is the same in TR .

• In 2013 Lancôme revenues in the beauty market in TR were worth US$1,8 B. So the

number of customers buying from Lancôme was US$1,8 B/ US$70 = 25,7 million. (2,6 % ofthe travelers, who are 1 billion).

• Petal Rose Path: we expect this strategy to increase the foot store traffic by 10% (2,6 milliontravelers more) and it will contribute to the increase in sales of 4% of the additional revenues

(4% x US$70 M) = US$2,8 M. We expect an increased number of customers of (US$2,8M/US$70) 40.000 per year for the ten airports.

• Digital Wall: We believe that the digital wall will increase the foot store traffic of the 30%

(7,71mln passengers more) and 5,9% of them (453.600) will actually purchase. Since the newaverage purchase price is US$100 instead of US$70 - because we expect the wall to incentive

to buy at least one more product - we expect an increase in sales of. US$45,36 (64,8% of theadditional revenues).

• Present Kit: We expect to sell 50 product kits everyday in each airport. So each year weexpect to sell 50 x 10 x 365 = 182.500 present kits. Since the price we set for each unit is

US$60, the goal in terms of revenues is US$10,95 M (182.500 x US$60) (15,6% of the totalrevenues).

• Toi de Lancôme: we expect to sell about 60 bottles per day in each airport (customerspurchase it for themselves and as a gift) at the price of US$50. So quantity goal is 219.000

units. Revenue goal is 219.000 x US$50 = US$10,95 M (15,6% of the total revenues).

Products Pricing Strategy The price of the fragrances and the present kits has been decided taking into account

their belonging to the accessible luxury sector following internal and external factors:

– Production costs

– Evaluation of the Lancôme’s products portfolio prices: the prices of the

introduced products are affected by their exclusivity and compact size. Therefore

we could maintain affordable prices, which also allow us to prevent product

cannibalization: in fact we expect customers to buy the new products along with

already existing ones.

– The effect of expected sales on price: knowing the expected sales volume, we

have set a price which allows us to achieve our market share goal.

– Demand: the price has been set accordingly to the trends of beauty market in

the Travel Retail segment, considering the low price sensitivity of the luxury

products’ customers. The Demand Price Elasticity is low due to uniqueness and

exceptional quality of the products offered.

Given that prices of luxury products in beauty industry are similar, we did not focus on

the competitors’ pricing strategies as one of the main factors affecting our decision. We

use the profit maximizing approach by implementing a premium price strategy. At the

same time, the price of present kits was also affected by the product-bundle strategy.

The New Products and Services

• We implemented a flankering strategy due to the introduction of two new types of

already existing products. For instance, “Toi de Lancôme” has a different size (20 ml)

and flavor, which differs according to the customers’ taste and the location. At the

same time, the exclusive present kit contains a special products’ mix and has an

unique packaging according to the airport.

• We also improved the customers’ shopping experience by increasing the service

level: the introduced digital wall is able to give full information about the available

products and gives individually customized advices.

• The new offering is coherent with the customers’ needs: we offer exclusive products

that can also be purchased as a gift, and we provide a unique service which makes the

shopping experience unforgettable.

Promotion• Our marketing target: we want to stimulate our actual customers to purchase the new products

and to attract a larger number of clients.

• Our communication target is made of potential customers because we want to make Lancôme

more desirable for them.

• The goal of our strategy is to provide customers with unique services in order to create an

unforgettable shopping experience. In this way we establish loyal relations with our clients, that

will make them more willing to purchase in the future.

• We want to communicate to our customers that once inside the shop, they will find products

and services tailor-made for them.

• What makes Lancôme special is the continuous seek for product and service innovation, a

philosophy which is perfectly embodied by our strategy. For example the Digital Wall combines

two existing technologies (the face scan and the led video wall), giving them a whole new

meaning.

• We speak with our clients on both emotional and rational levels:

– The Digital Wall engages customers on a rational basis.

– The Rose Path, “Toi de Lancôme” and the Present Kit engage customers on an emotional

level; the drivers are uniqueness and exclusivity.

• In order to promote our strategy we will place about three banners in each airport at least for

the first implementation year.

Place

We decided to implement our strategy in

already existing Lancôme display stands, in

the most visited airports in 2014, which are:

Istanbul, Doha, Kuala Lumpur, Taipei,

Dubai, Seoul, Honk Kong, Barcelona,

Singapore and Tokyo.

The shops through which the strategy is

implemented are owned by Lancôme itself.

The only cost related to the placement is the

rent of the space, which consists of the yearly

sales’ percentage.

The new products developed – “Toi de

Lancôme ” and “Ideal Lancôme” – are sold

through the same distribution channel. Both

the products reflect the characteristic of the

country in which they are sold.

The first product requires additional assistance because of its high degree of innovation and

customization. Instead, the latter one is an intuitive product, and therefore the standard level of

customer service is adequate.

Budget of Lancôme in TR

Lancôme 2013 2014 (without strategy) 2014 (with strategy)

Lancôme MS in TR Beauty 4% 4,53% 4,90%

Lancôme share of L'Oreal revenues 20%

Revenues of Lancôme $ 720.000.000,00 $849 375 000,00 $ 918.750.000,00

Production Cost $ 208.800.000,00 $209 906 640,00 $ 216.330.640,00

Industrial Margin $ 511.200.000,00 $639 468 360,00 $ 702.419.360,00

Industrial Margin % 71,00% 75,29% 76,45%

Total Channel Costs $ 216.000.000,00 $217 144 800,00 $ 229.272.890,00

Net Marketing Contribution $ 295.200.000,00 $422 323 560,00 $ 473.146.470,00

ROS 41,00% 49,74% 51,5%

ROMI 137% 195% 206%

See the appendix for further information

Budget of Our Strategy

See the appendix for further information

Revenues Petal Rose Path $ 2.800.000

Revenues Digital wall $ 45.360.000

Revenues Present Kit $ 10.950.000

Revenues Toi de Lancôme $ 10.950.000

= Total Revenues goal 2014 with strategy $ 70.060.000 Cost of Present Kit $ 4.562.500

Cost of “Toi de Lancôme” $ 1.861.500

Tot production costs of the new products $ 6.424.000

INDUSTRIAL MARGIN $ 63.636.000

Marketing expenses - cost of digital wall and petal rose path $ 502.090

HR $ 1.020.000

Promotion $ 3.600.000

Channel costs (10% of revenues) $ 7.006.000 Total Channel Costs $ 12.128.090

= Net Marketing Contribution $ 51.507.910 ROMI 425%ROS 74%Total Channel Costs Impact 17%

Final ConclusionWe expect the developed strategy to be successful, since it is coherent with the Lancôme brand and

values. At the same time, it introduces the customers to the world of exclusivity and uniqueness:

they will not just travel and shop, but experience an unforgettable “Lancôme Journey”.

….From now on customers would wish their flight to be late….

To sum up, the results of our proposed strategy turned out to be quite profitable. We expect an

increase in revenues of US$70 millions. In fact, the ROMI index of the strategy alone is 425%,

while ROS index is expected to achieve 74%, which are very beneficial results. We are aware that

the before mentioned outcomes could be too optimistic, since they are based on conjectures.

At the same time, the Present Kit strategy could be adjusted according to the goals, economic

possibilities and financial constraints of L’Oréal Group. For instance, the Present Kit proposed by

us is made up of already existing products. However, it could be composed by new products,

specifically developed for the Travel Retail Market. This new format will increase the exclusiveness

of Lancôme experience, but will also boost the development and production costs.

Talking about the Digital Wall, we decided to place it only in the 10 major airports due to the cost

restrictions. Nevertheless, Lancôme could install them in in-town regular shops. Our suggestion is to

wait till the strategy will be known world–wide and customers will get customized with the new

technology.