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Contents
Introduction
L’Oreal is a great example of how global branding strategy can be used to generate new growth opportunities when all other companies were not going great guns .In the late 90’s and early 2000’s when the Asian and Latin American economies were shaky and doing poorly ,and numerous international brands struggled, L’Oreal surged ahead. How did it happen? The answer lies in their beautifully framed mission statement as it elaborates their understanding of the marketability of their product and the need of marketing it globally -At L’ORÉAL; we believe that everyone aspires to beauty. Our mission is to help men and women around the world realize that aspiration, and express their individual personalities to the full. This is what gives meaning and value to our business, and to the working lives of our employees. We are proud of our work. (Source: L’Oreal website, www. loreal.com) 1
According to its annual report 2010 L’Oreal announces strong growth in sales and profits With a net earnings per share increase of +17.2% and a dividend increase of +20%
. 2Operating profitability and consolidated profit and loss account
(Source: www.loreal .com, annual results 2010)
2009
2010
€m
% sales
€m
% sales
Sales
17,473
100%
19,496
100%
Cost of sales
-5,162
29.5%
-5,697
29.2%
Gross profit
12,311
70.5%
13,799
70.8%
Research and development expenses
-609
3.5%
-665
3.4%
Advertising and promotion expenses
-5,389
30.8%
-6,029
30.9%
Selling, general and administrative expenses
-3,736
21.4%
-4,049
20.8%
Operating profit
2,578
14.8%
3,057
15.7%
In 2005, the $18.89 billion L’Oreal group was the most successful cosmetics brand .According to the business week survey 2004 L’Oreal was ranked 49th. L’Oreal marketed beauty products e.g. Makeup, perfume, and skincare and hair products to both women and men in approximately 150 countries .The L’Oreal group reported its 19th consecutive year of double digit growth in December 2005. Since 1989, L’Oreal’s sales had grown at a compounded annual rate of 12% to 1.7 billion. Analyzing the kind of growth story it has written an analyst has rightly described it as the United Nations of beauty .the kind of global presence L’Oreal has it can only be compared to the United Nations.
L’Oreal’s global branding strategy that’s doing wonders has been actively spearheaded by Owen Jones himself. Lindsey Owen Jones has been the CEO of L’Oreal for nearly two decades and a chairman now, and under his leadership L’Oreal has really fine tuned its global branding strategy. Interestingly some press reports tell us that he has been seen roaming around streets in foreign markets to understand the new and existing trends. And without any doubts his interesting work style seems to work wonders. The branding strategy of L’Oreal has such an impact that L’Oreal seems to be the only global leader in every segment of the cosmetics industry, right positioning of its products seems to be the key .whatever its trying to sell the French elegance or street smartness of America; is getting good response throughout the world .and L’Oreal has been able to reach its consumers across the national and cultural boundaries.
Owen Jones says: We have this great strategy back in the head office of how we are going to do it worldwide. But when you go out and look at what is happening, is there a big gap between your projections and the reality of what you see and hear? It is so important to have a world vision because otherwise decentralized consumer goods companies with many brands can fracture into as many little parts if somebody isn’t pulling it back the other way the whole time with a central vision.” 3 This really explains why he prefers roaming in the streets for his strategy making rather than sitting in the boardroom. And even better this seems to be supported by data as well:
Table I
L’Oreal: Summarized Profit and Loss Account
(Figures in million Euros)
2007
2008
2009
Sales
17,063
17,542
17,473
Gross Profit
2,896
2,788
2,749
Net profit
2,827
2,725
2,578
Net Profit Margin (Percent)
16.5
15.5
14.75
(Source: L’Oreal website, www. loreal.com)4
This data seems to be fine but if we consider the overall global presence as well this becomes impressive, at least that’s what this table shows us:
Table II
L’Oreal: Geographic Segment Information
(Sales for 2009)
Million Euros
%of market share
Western Europe
7,037
20.7
North America
3,802
15.8
Southern America
1,138
10.5
Africa ,orient, pacific
920
12.8
Source: (L’Oreal website, www. loreal.com)5
Having said all that its quiet evident that the global branding strategy of L’Oreal has paid huge dividends to the company overall .In order to understand this splendid growth story we need to see how exactly L’Oreal applied their strategy to the countries that were entirely distinct as far as the lifestyle, spending pattern and culture is concerned .L’Oreal was started in France, has a good brand value in the united states of America, is reaping good dividends from India and has a remarkable presence in Japan . These are different complex societies with different needs, so how exactly L’Oreal managed to be equally successful in all these places? This question needs some fact finding to be done on the basis of country specific products and strategies adopted by the cosmetics conglomerate .That’s what exactly we will try doing in the next section of this case study.
L’Oreal in India :wooing the great Indian middle class
=======================================
Even before we choose a product to see how that was made a part of the great Indian middle class dream, looking at some facts and figure would really prove to be good insight.
In India 4 billion 7.5 ml sachets are sold every year and that’s a staggering 66% of total shampoo consumption in India. Most of the urban Indian women (96%) use shampoo, however only 46% use foundation. for hair care a huge 74% population of Indian women still rely on home remedies, 42% use henna and 94%use hair oil, as far as the L’Oreal’s sale per person in India is concerned is just 10 cents compared to 28 Euros per person in France. In India skin lightening creams (fairness creams) constitute more than 50% of skincare market people seem to be crazy for getting for getting fairer. (Source: L’Oreal, Nielsen) 6
These facts are self explanatory about the nature of Indian market and it’s clearly stating that the strategy used in USA or any other European countries is not going to work in India. USA is a mature market as far as cosmetics consumption is concerned India is an emerging economy with most of the population below 35 years of age and a huge aspiring middle class. The cosmetics market is growing approximately at an annual rate of 16% in India, still a long way to go. The youth in urban centers is very concerned about the image but the larger section is still off the fashion map. Interestingly even after the success story of corporate India , apparently it’s still a country that is very much community oriented .The great Indian middle class is aspiring but still has the community driven cultural values intact.
L’Oreal has taken this fact very much into consideration while preparing the marketing strategy for India. A very good example would be the launch of garnier fructis shampoo in India. The concept was to rely on idea rather than relying on advertising a brand .The idea of getting five times stronger hair was the central point that created the hype, through “word of mouth” or network marketing .Initially it was positioned as product for young and teenagers .once the product was established in the market it tried to change or rather increase the target base by shifting gears. In a recent advertisement of garnier hair color a daughter is shown advising her mother to try the garnier product and explaining the benefits .Again it relies on the concept of idea getting spread by “word of mouth” to another customer segment. This is the best example of marketing in a closed &community driven society. There is one more remarkable thing about this entire campaign the catch line “take care”. It shifts the focus from the product to the core value of Indian society “caring about others” and the entire advertisement becomes more of a good advice rather than publicity.
L’Oreal in china: Taming the dragon
=============================
China is the world’s most populated country in the world and that makes it very clear that it has the potential of being the biggest consumer market. These days Chinese women are spending on an average 10 to 15% of their income on cosmetics products, an urban Chinese lady would use 2.2 cosmetics products on an average every morning. Evidently most of them want to be fashionable and the L’Oreal punch line -if you want to be fashionable, just choose Maybelline-, really seems to work. Masses are made to believe that this is something that represents America and it ought to be trendy. Maybelline is the product line for the masses and L’Oreal really uses the tendency of masses to look towards the USA .that’s why the Maybelline products are displayed against the backdrop of shiny skyline of New York City Chinese women prefer skincare and beauty products. According to a research by L’Oreal in china women are concerned about the radiance of their skin and prefer skin nourishing lotions that protect their skin from skin-drying winters. Unlike us customers most Chinese women like skin whiteners rather than tanning products. It’s a sign of beauty for Chinese women. Also, the texture of Chinese hair is thicker and more course than typical US Caucasian hair. This requires different product, and really a different skill set to effectively sell and get these products moving in China. L’Oreal has dedicated research facilities for these and other issues, and followed up with more innovations to suit the needs and preferences of Chinese consumers. There is one more very interesting fact about Chinese cosmetics industry; Chinese women are very concerned about the ingesting of lipsticks. This is the most interesting food attitude about Chinese women .Now following its global strategy L’Oreal even took this into consideration and developed lipsticks containing vitamins; as soon as this was told to the women they were more comfortable in using the product.
L’Oreal in Europe : “You are worth it”
=============================
European countries are mostly developed, here L’Oreal has the liberty of publicizing the brand value rather than focusing on pricing .the benefit to L’Oreal in these markets is that it is already well established and the brand is well known so it can concentrate on grabbing the attention of individualistic feminist women. Pricing is not a concern in these markets so L’Oreal can afford to have punch lines like-“I am worth it” because these punch lines justify the high pricing of the products and fulfill the feeling of exclusivity of high end clientele.
Now lets take another example from the European and us markets, L’Oreal brands in these markets are quiet well established .L’Oreal products have been used there for few generations now; once young consumer of the L’Oreal brand has started aging and the same street smart products could not be positioned to them .they have started becoming the mature citizens; now their priorities have changed. A recent market report suggests that the new target segment in the cosmetics industry is 40 plus women who once used the teenage cosmetics products. The thrust is on anti aging products because it not only adds the new customer base but retains the once teenage customer also. Customer from the baby boom generation reaches the retirement age and tries to maintain healthy and youthful look and finds out that their favorite cosmetics brand is still making products for them. L’Oreal capitalized on their desire to look youthful and started marketing it anti aging products .it has signed sixty year-old Diane Keaton to represent the Age Perfect Pro-Calcium skin care line. Also L’Oreal has signed Scarlett Johansson, Penelope Cruz, Eva Longoria and Beyoncé Knowles to promote specific cosmetics lines according to the age groups. Now this tells us how L’Oreal used the desire of customers to position its products.
L’Oreal in USA: setting the trend
==========================
The French conglomerate believes that only two different cultures as far as fashion is concerned ,are dominant, represented by two flagship brands L’Oreal Paris and Maybelline new York .L’Oreal has been projected as a French origin with elegance ,high end presentation and obviously high pricing. Whereas the Maybelline product line represents the street smart American babe who is looking for the value of the money.
America seems to be the growth engine of the world, in the cosmetics industry as well. L’Oreal has understood this and they made a strategy based on the trends in the USA and that’s how Maybelline came into existence. Maybelline currently is the second largest brand in share of unit sales of cosmetics products and number one in makeup brands. It claims to be totally consistent with today’s confident woman .Maybelline products targets three customer segments; youngster (16 to 25), office lady (26-35) and career women (35 plus). Marketing mix for Maybelline line of products consists of two main strategies: foreign consumer cultural positioning and symbolic New York City imagery that women can relate to everywhere. Maybelline promotion include different way of grabbing attention including promotional coupons, online advertising, sponsorship of fashion shows, signing fashion icons as spokesperson of the product ,free make up consultancy and providing scholarships etc. we can see as American cosmetic market is a mature market so L’Oreal tries to rely on mature marketing tactics.
In the early 20th century, even American society was not very much open to makeup and skin care products .people thought that only sinful women should wear makeup but eventually with the economic independence that the American women gained; makeup and cosmetics started coming into mainstream .cosmetics apparently became the symbol of new self belief that the American women was beaming with; and remember even Maybelline claims to be totally consistent with today’s women .there are several other punch lines like maybe she’s born with it ,maybe it’s Maybelline ;all the punch lines keep the self confidence of women in centre as if its not the make up but its the attitude that has to be worn .that’s why women of every nationality and culture started identifying herself with the product and this became the symbol of the 21st century woman .
The role of cultural differences in global strategy making: reference to L’Oreal cosmetics
We always say that the world has turned into a small village. Production houses are becoming more and more global. But same can’t be said about the consumers as they would still be using the products because of their own reasons. Someone in the USA can use a product just to feel exclusive however the same product could be used in the UK for health reasons. So the companies need to identify the demands of a specific market to effectively satisfy the demand while planning the globalised marketing strategy.
Therefore the challenge posed to the companies is whether they should just keep changing their strategy according to the culture or can they consider every customer as a global customer with all common needs .That’s the irony we are supposed to work with these days; on one hand companies are on a global platform more than any other point of time in history however they have to adapt to the mindset and lifestyle of the customer as well.
The mindset and the lifestyle of the customer are heavily impacted by the culture. Culture is defined by different norms, values, interactions, language and others personal components shared by groups of people across the world. It is a social phenomenon which defines people’s interests, thoughts and other behaviors they may exhibit in the social life. From one country to another, humans have evolved and developed different types of expressions, beliefs and behavior which can be difficult to understand for someone who does not belong to the same culture. culture is the way how the members of a particular group interact with each other on the sharing of the available means, now that determines what is going to be the need for a particular product in that society, that also decides whether a particular advertising strategy will work or not and how exactly that will be interpreted by the target customers. In different markets consumer requirements and consumer behavior may vary. Cultural aspects deeply impact the consumer behavior; the impact may be direct or indirect. The culture distinction creates the consumer behavior difference, as it can be noticed between the Asian and European continent where the culture and the behaviors are very different.
Being a global organization L’Oreal certainly needs to understand the cultural differences and position its products accordingly otherwise the results may be far more different than they are at this moment. The thrust has to be on hitting the right customer with the right product. This can be possible only if one has a deep knowledge of local culture and beliefs .A very interesting example would be of lipstick use in china; according to a research only 3% women use lipstick for makeup. The reason that was supposed to be behind this low percentage of lipstick use is even weirder; women in china have concerns about ingesting lipstick .L’Oreal conducted a survey to see whether this is just an age old saying or it holds some truth, based on the findings it came up with a lipstick that had vitamins in it and in turn the demand for L’Oreal vitamin lipsticks increased.
Another example could be real handy; in India long hair is considered necessary for a woman to be considered beautiful .L’Oreal considered this fact while launching its shampoo product in India and it focused on publicizing the fact that using the garnier fructis shampoo helps in getting long and strong hair. This strategy made the product very popular in India.
In china or India people like to have fair complexion. In Asia, women take special care of their skin. People want radiant skins and lotions that can nourish their skin against sun .whereas in the United States people would rather buy tanning cream. On basis of this knowledge L’Oreal can position their whitening creams in India and the interesting part is the way the advertisements could be interpreted .the way the advertisements for the fairness creams are made in Asian countries these can be interpreted as racial advertisements in the USA but in Asian countries that seems to be quiet usual .Now that’s where the knowledge of the culture and beliefs comes handy and helps avoiding unnecessary problems. From a business point of view, companies have to adapt themselves to the culture of each country in which they want to have business in. for example,
Because of the differences of culture between countries, companies need to adjust their products and services according to the local demands. This will help them to create and develop a brand image across the globe that is based on a large number of globally recognized products.
Based on these examples we can say that L’Oreal was able to be successful in these markets because it adapted to ground realities of the particular market yet it followed a standardized strategy. If we study the marketing mix of Maybelline, it has two pronged strategy -one for the foreign markets another is the global street-smart image of the American chic.
The global street smart image of New York chick can be admired in almost all the urban centers, be it India, china or Brazil. However there has to be a right mix of local flavor as well.
The most important part of the L’Oreal’s strategic plan is opportunity hunting or the marketing of their products worldwide. From the initial days it already started catering to the demands of women worldwide. In order to do that efficiently they were expected to be well aware of the diversities of women across the globe .once they knew the diversities their job was to come up with different line of products suitable to the women from all parts of the world .Innovation has been the keyword for L’Oreal and this was made possible through constant research and development over the years .the group has already covered most parts of the world and still striving to cover more. In order to do so L’Oreal group has to keep respecting other peoples identity ,ideas and culture .L’Oreal has to keep valuing different cultures and nationalities to get their brand value up and it seems that they have been doing it really well.
The success story can continue further because even today products of L’Oreal touches the cultural values instilled in potential customers mind .L’Oreal just doesn’t sell the product it makes the customer buy the idea of dreaming big but still remaining rooted to the core cultural values .it has carefully devised its global marketing strategy and customized it to the local needs, and that’s the reason people from Africa to Europe and America to Australia are using the L’Oreal products.
L’Oreal has been doing pretty well in terms of global presence and monetary growth. The mission today is to understand consumers’ needs and expectations so as to meet them as effectively as possible along with widening the scope of global line of products.
