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L´Oréal Business Strategy



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    1. Introduction Once Yves Saint Laurent said: “The most beautiful make-up of a woman is passio, but cosmetics are easier to buy. ” L? Oreal is one of the best known French companies in the world and the leading provider of beauty. Since its establishment, in 1909, the company could demonstrate the huge potential and the power of beauty. According to its past successes and improvements the main ambition of L? Oreal is to double the size of its consumers and to attract one billion new consumers by 2020.

    The central question of this business paper is oriented on possibility of this target achievement with special regard to historical background, company? s mission, the strengths and weaknesses of its business strategy as well as the most significant market opportunities and threats. 1 2. Company profile 2. Company profile 2. 1 Historical background The story of L? Oreal started in 1907. Aureole, an innovative hair color formula developed by a young French chemist and pharmacist Eugene Schueller laid the foundation for future L? Oreal.

    Within two years, in 1909, he founded his own company Societe Francaise desTeintures Inoffensives pour Cheveux. So, he could find investors to manufacture his own products and sell them to Parisian hairdressers. From the outset the company demonstrated its international potential by crossing of national frontiers and offering the hair products by latest 1913 in Italy, Austria, Netherlands, UK, United States, Canada and Brazil. But the real breakthrough came by the end of the 1920s. Following to the change of consumer behavior and new trends in the market the company launched innovative hair coloration Imedia.

    The true competitive advantage was also the new packaging solution. L? Oreal was the first company that offered its products in individual small doses to enhance safety and comfort for consumers. Affected by numerous innovations and strengthening of its competitive pioneer position the company became very successful in the next years and changed its name to L? Oreal in 1939. The next two decades, up to 1956, are not only characterized by a few firsts such as L? Oreal Blanc bleaching powder, Dopal soap-free shampoo, Ambre Solaire protective suntan oil etc.

    , but also by evaluation of an unique commercial strategy by using all possible promotion channels such as media, sponsoring, street marketing, product placement, print advertisement etc. 1 1 L? Oreal Homepage (n. d. ), History 2 2. Company profile Figure 2: History of L? Oreal step-by-step2 According to the illustration above which shows the historical development of L? Oreal step-by-step, the next years, in the time period from 1957 to 1983, were significant to become the Number One in the beauty industry.

    “On the road to Grand L? Oreal” is marked by the ambition to seize new opportunities and includes primary tapping new markets such as skin care, color cosmetics and fragrances through numerous acquisitions 3, geographical expansions by formation of subsidiaries and establishment of first company owned laboratories and research centers worldwide to satisfy the growing demand for beauty products. In 1963 the strong and successful growth of the company was appreciated by stock exchange listing.

    These new financial opportunities were used in the third historical step, from 1984 to 2000, for huge investments in research and development, further acquisitions or license agreements and marketing to strengthen the brand image. A decisive part in L? Oreal? s success played the vision of CEO Sir Lindsay Owen-Jones who changed the business performance of the Group from French cosmetics provider to a global player. The conquest of the U. S. market, transformation and diversification into several business segments be- 2 3 Own illustration on the basis of L? Oreal Homepage (n. d. ), History L? Oreal Homepage (n. d. ), History: e. g.

    1964 Lancome, 1965 Garnier, 1970 Biotherm etc. 3 2. Company profile yond hair care, optimization of distribution strategy and the concentration on cultural diversity to fulfill all ethnical needs are the fruits of his work. Since 2001 L? Oreal follows this strategy and put the focus on diversity of the beauty worldwide. The company has made sizeable investments in recent years in expansion of its portfolio and in research and development to boost the product and process innovations. 4 2. 2 The mission of Beauty The historical background of L? Oreal shows that since its creation the business of the company was focused on beauty.

    The guiding principle from the beginning was research and innovation in the interest of beauty. L? Oreal itself explains beauty as a “business rich in meaning”. First of all the beauty is language that helps individuals to show and to express their personality. Beauty gives people the opportunity to change their appearance, to feel comfortable and to gain self-confidence. Beauty is the other way to communicate. Beauty is universal and L? Oreal? s offer does not distinguish between men or women or any age groups. The goal is to fit everyone? s needs and desires with beauty products and to fill people worldwide with

    enthusiasm for beauty. For L? Oreal beauty means also a science and continuous inspiration for further innovations by exploring new territories and cultural diversity. More than this, the business of beauty is associated with a lot of challenges such as to act responsibly and to ensure environmentally sustainability which require commitment. 5 To summarize, the mission of L? Oreal is offering beauty for all what exactly means offering beauty for each individual. 6 4 L? Oreal Homepage (n. d. ), History L? Oreal (2012), p. 6 6 L? Oreal (2012) 5 4 2. Company profile 2. 3 Key figures and financial highlights

    Today L? Oreal is the leading company in the beauty industry worldwide. The Group is present on five continents, in more than 130 countries with 17 Evaluation centers, 22 Research and Innovation centers, 42 factories and more than 498,000 distribution points worldwide. 7 5. 8 billion products were manufactured in 2012, and unusually for the cosmetics industry, 87. 1% of L? Oreal branded products are still manufactured internally. 8 Figure 2: L? Oreal around the world9 By employing 72,600 people of 126 different nationalities L? Oreal could increase the number of employees by 19% to the year 2006.

    10 The Group pays a lot of attention to operate as a multicultural company and to use internal di- 7 L? Oreal (2012), p. 22; p. 90 L? Oreal Homepage (n. d. ), Our activities 9 L? Oreal Homepage (n. d. ), Our activities 10 L? Oreal (2006), p. 44 8 5 2. Company profile versity to better understand cultural variety of needs and to be as close as possible to its consumers. According to Laurent Attal, Executive Vice President of Research and Innovation, “The research has always been at the heart of L? Oreal? s growth, with three major drivers of innovation: active ingredients, formulation, evaluation.

    ”11 Alone in the last year L? Oreal spent about 790 million Euros on research, 3. 5% of sales, and registered 611 patents. With a portfolio of 27 iconic cosmetic brands, with annual sales of more than 50 million Euros, L? Oreal Group achieved with 22. 5 billion Euros an impressive growth record in 2012. In comparison to the average growth rate of cosmetic market by +4. 3%, the increase of L? Oreal amounts to 10. 4% to 2011. The following illustrations demonstrate not only the continuous growth of the company with the exception of the crisis year 2009 but also highlight

    the most important business segments and geographical zone in 2012. 11 L? Oreal Homepage (n. d. ), Our innovation model 6 2. Company profile Figure 3: L? Oreal sales growth 2006 – 201212 L? Oreal sales by business segment in 2012 4,6% 9,7% 29,1% Skincare 14,1% Make-up Haircare Hair colourants Perfumes Others 21,0% 21,5% Figure 4: L? Oreal sales by business segment in 201213 L? Oreal sales by geographic zone in 2012 39,4% 35,6% Western Europe 52. 3% Asia Pacific 22. 3% Latin America 17. 1% Eastern Europe 8. 3% Africa, Middle East North America New Markets 25,0% Figure 5: L? Oreal sales by geographic zone in 201214

    12 13 Own illustration on the basis of annual report data; L? Oreal (2012), p. 92 Own illustration on the basis of annual report data; L? Oreal (2012), p. 85 7 3. Business strategy 3. Business strategy 3. 1 Strong brand portfolio through acquisitions Since the first acquisition in 192815 L? Oreal continuous followed the strategy to build up a strong portfolio of unique international brands. L’Oreal’s century long expansion to new markets and new business segments is marked with successes. Today the Group possesses a brand portfolio which is characterized by its diversity that covers more or less all cosmetic lines

    and encompasses all distribution channels to respond to different needs and aspirations of beauty consumers. The goal of L? Oreal is to increase the annual growth, to gain market shares, to entry new markets and to reinforce its competitive position through future profitable acquisitions. Figure 6: Overview of target acquisition16 14 Own illustration on the basis of annual report data; L? Oreal (2012), p. 85 L? Oreal Homepage (n. d. ), History 16 L? Oreal (2013), p. 26 15 8 3. Business strategy 3. 2 Diversity of products by pricing and distribution strategy Generally the main business segments of L?

    Oreal can be classified into five divisions: luxury products, mass market products, professional products, active cosmetics and The Body Shop. Figure 7: L? Oreal? s brand portfolio by division17 17 Own illustration on the basis of L? Oreal Homepage (n. d. ), Brands 9 3. Business strategy L? Oreal Luxe: The set of the most prestigious brands, such as Lancome, Yves Saint Laurent, Giorgio Armani etc. , belong to this division and operate in three major segments, skincare, make-up and perfumes. The luxury products are characterized by very high price-performance ratio and fulfill primarily extrinsic needs of customers.

    The retail channels are strictly maintained for these brands so as not to dilute brand image. The selective distribution channels are department stores, perfumeries, travel retail outlets, own stores and e-commerce. Consumer products are represented by very well known brands Garnier, L? Oreal Paris, Maybelline New York etc. According to the offer of high quality products to lower accessible prices in all mass-market retail channels worldwide, it? s the strongest business division with 51. 5% of total Group? s revenue. 10 3. Business strategy Professional products are hair cosmetics such as coloration, hair care, hair styling etc.

    whose main distribution channel are hair salons. The prices depend on the salon services and are variable. Active cosmetics are for the main part skin care products distributed in pharmacies, drugstores or medispas. The brands like Vichy, La Roche Possay and others are specialized in health-beauty and are placed into middle price segment. The products of active cosmetics offer a good value for money, more reasonable than luxury products but more expensive than consumer products. In the last years L? Oreal decided to broaden the product portfolio through some line extensions and offer now also make-up products in this segment.

    The Body Shop joined L? Oreal bby an acquisition in 2006 and built up its own division, the smallest one. With a low share, 4%, of ? Oreal? s revenue in 2012 The Body Shop is presented in 65 countries and offer products with natural ingredients, primarily in segment skincare and body care. The products are sold in exclusive owned stores, travel stores or in internet. 18 3. 3 Business globalization The worldwide cosmetics industry represents market volume of near 180 billion Euros. To strengthen its presence in the beauty market, to capture additional opportunities and to tap the market potential L?

    Oreal is strong driven by business globalization and continuous geographical expansion. On the way to achieve its goal L? Oreal turns its attention primarily to Emerging Markets or also called New Markets. 18 L? Oreal (2012), p. 8 11 3. Business strategy The global expansion does not only mean offering the same products worldwide but also opening new manufacturing plants to use the synergies, to found Research and Innovation centers in different areas to better analyze and recognize details of cultural needs of potential customers and to diversify its range of products according to these needs.

    In the past three years the company opened four new plants in BRIMC, in the last five years L? Oreal set up nine new subsidiaries19. Regarding to the revenue of 2012, the New Markets already outperformed Western Europe. Dynamic growth and steadily increasing demand for beauty products made the New Markets to the first business zone. In Russia and Mexico L? Oreal could enlarge its strategic position to Number One in the market. Following by China, India and Brazil L? Oreal belongs to the top performer. 20 3. 4 Investment in business From the start L?

    Oreal pursued the strategy of investment in its business to increase the long-term success. There are two main categories of investment by L? Oreal on today? s date, marketing followed by research and innovations. Operating in the high competitive market, L? Oreal can gain new market shares only by heighten brand awareness and by improve the image of its brands. In 2012 the Group spent a huge budget and became third largest advertiser worldwide. The share of marketing investment in 2012, including point-of-sale advertising materials, amounts to 44% of all expenses.

    The importance of well organized and financial supported marketing strategy can be 19 20 Kenya, Nigeria, Egypt, Pakistan, Vietnam, Bulgaria, Panama, Kazakhstan, Saudi Arabia L? Oreal (2013), p. 42; p. 44 12 3. Business strategy explained by optimal presence of brands in the market and in point of sale, by unique strong brand image and by creating international competitive ability. The increased expenses for advertising and promotion by 7. 7% are a corollary of a numerous brands in L? Oreal? s portfolio. The expenses for research demonstrate as well a strong growth by 9.

    7% to 2011. This is essential to ensure not only the high quality of sell products but also the harmlessness and effectiveness of products, to optimize the processes and to fix L? Oreal? s unique innovator position. 21 3. 5 Evaluation of business strategy To draw the conclusion and to evaluate the business strategy of L`Oreal: The brands are distinctly segmented across pricing tiers and target audience. Furthermore, using all distribution channels makes it possible to meet the aspirations of all consumers whatever their origins, beauty habits or revenue levels are.

    L? Oreal itself describes its business strategy as “Universalisation” what means “Globalising while respecting differences”22. In according to “Universalisation” L? Oreal already adapted a range of products to the local conditions such as climate, culture or traditions. 23 L? Oreal puts strong focus on continuous expansion, geographical and categorical, as well as on future development in all business activities. 21 L? Oreal (2012), p. 20 L? Oreal (2013), p. 17 23 L? Oreal Homepage (n. d. ), Research & Innovation 22 13 4. SWOT analysis 4. SWOT analysis

    The following SWOT analysis is primarily oriented to the central question of this paper and will identify the internal and external factors that are favorable or unfavorable to achieve L? Oreal? s ambition to gain one billion new consumers. Figure 8: SWOT analysis24 The obvious strength of L? Oreal which is favorable to achieve the goal is first of all its strong image and high brand awareness worldwide. L’Oreal has very well-balanced portfolio with a range of strong international brands which lend L? Oreal the flexibility to reach diverse consumer groups across the world, in developed and emerging markets.

    The diversity of offered products, the wide pricing spectrum and different distribution channels help not only to be pre- 24 Own illustration 14 4. SWOT analysis sented in all beauty markets but also to drive and ensure growth. L? Oreal? s continuous invests in its Research and Innovation had a significant effect for its sustainable development and help to improve efficacy and safety of its products by respecting environmental conditions and all ethnical and ethical diversities. A 100-year long know-how and expertise in making beauty business make L?

    Oreal to a formidable force in the industry with strong negotiation power. Above-mentioned strengths can be use to capture additional market opportunities such as unexploited potential of beauty market. The truly opportunity is the beauty business itself. All the over the world the people will buy cosmetics because beauty is an timeless, essential and universal need. Due to the emergence of middle classes in New Markets and increasing demand for beauty products the experts forecast strong future growth of cosmetic market up to 50% in the next 20 years.

    Although the consumption of cosmetics in New Markets is still one-fifth of those in Mature Markets25, 53% of all cosmetics sales are made in BRIC. According to Jean Paul Agon, L? Oreal? s Chairman and Chief Executive, “’Chinese consumers are at the heart of L’Oreal’s focus and energies. A potential 250 million new Chinese consumers will be using L’Oreal’s products in the next 10 to 15 years, making China the number one contributor to our ambition of winning 1 billion new consumers and to our strategy of universalization.

    A significant portion of these consumers will be recruited by our Luxe brands, the segment where L’Oreal has historically led the market and where it will continue to influence the shape of its future. ”26 25 26 L? Oreal (2013), p. 6 Finanznachrichten. de (2013) 15 4. SWOT analysis Regarding to portfolio of numerous brands which are active in the same segments and have similar brand image or target audience, the weakness of the company that may have effect on target achievement is brand cannibalization, brand confusion or Badwill transfer.

    The global brand performance related to print advertisement, testimonials or essential brand identity can fall foul of diverse cultural moralities. So, e. g. public image and brand philosophy of Yves Saint Laurent can be too provocative for e. g. the Middle East. Even if L? Oreal is still the leading provider in color cosmetics worldwide, in the past years the company put the focus on skin care to gain additional market share but neglected the hair care segment, where it lost market share, and didn? t realize the growing potential of natural/organic cosmetics segment, in which L?

    Oreal has only limited presence. Typical external factors that may have unfavorable effect on attracting one billion new consumers are primarily all the environmental, political, economical and legal risks. Not only L? Oreal realize the potential of New Markets and try to strengthen its position and to maximize its profit but also other beauty provider work active to completely enter the Emerging Markets. Considering that there are well-establish local player, the intensity of competitiveness would increase rapidly.

    L? Oreal can lose market share and its competitiveness in natural/organic cosmetics segment. Especially in China the demand for these products shows positive growth. Last but not least, cosmetics are Fast Moving Consumer Goods and require permanent market observation regarding to changes in the consumer behavior and new trends. 16 5. Conclusion and recommendations 5. Conclusion and recommendations Based on the previous finding L? Oreal? s ambition to attract one billion new consumers by 2020 is an achievable goal.

    The company should match its strengths to opportunities and try to minimize or avoid its weaknesses. The company is strong and experienced enough to know how to handle with possible threats and to convert its weaknesses to strengths. L? Oreal successful entered Emerging Markets and demonstrates continuous growth of its performance. L? Oreal future operations in New Markets depend on the specific market conditions. So, e. g. in China the company is trying to increase penetration through luxury and consumer products while in India? s demand for beauty is concentrated on men? s skincare and mass brands.

    In Russia the Group could attract new consumers with its portfolio of unique and prestigious brands. On the way to target achievement L? Oreal should put the main focus on cultural diversity. It is important not only to adapt to business, but also to a country’s culture, psychology, consumption habits, and its sensibilities. That accentuates the basic necessity of further competitive analysis and market observation. More than that L? Oreal shoul use its negotiation power to build up a strong relationship to suppliers and distributors in the New Markets and so to maximize the presence of its brands.

    Creation and realization of clear positioning strategy would long-term avoid the brand cannibalization and attract new brand followers who can identify with brand personality. To meet the demand for natural/organic cosmetics and to achieve the number of young consumers L? oreal decided to acquire U. S. skincare brand Clarisonic and color cosmetics brand Urban Decay. 17 5. Conclusion and recommendations Furthermore the company needs a greater penetration in natural/organic cosmetics segments which could be possible by expansion of The Body Shop.

    L´Oréal Business Strategy. (2016, Jul 13). Retrieved from

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