L'Oreal - 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'Oreal's Global Makeover, August 12, 2002.
L’Oreal Makes Waves
In November 2002, L'Oreal, 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'Oreal's management team.
In the same month, L'Oreal'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 Jone’s outstanding achievements in transforming L'Oreal from a French company into a global powerhouse. 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'Oreal 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’Oreal's key financials). L'Oreal, which had operations in 130 countries in the world, posted a turnover of € 13.7 billion in 2001. The company recorded a 19.6% and 26% growth in profit in 2001 and 2002 (half-yearly results), respectively. Commenting on L'Oreal's performance, Jones said, "At L’Oreal, we are 50,000 people who share the same desire; because it is not just about business but about a dream we have to realize, perfection."
Known for its diverse mix of brands (from Europe, America, and Asia), like L'Oreal Paris, Maybelline, Garnier, Soft Sheen Carson, Matfix, Redken, L'Oreal Professionnel, Vichy, La Roche-Posay, Lancome, Helena Rubinstein, Biotherm, Kiehl's, Shu Uemura, Armani, Cacharel, and Ralph Lauren, L'Oreal 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 C.8.2 for a note on the global cosmetics industry).
Background
In 1907, Eugene Schueller (Schueller), a French chemist, developed an innovative hair colour formula. 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'Oreal, which was an adaptation of one of the brands 'L' Aureole' (the halo).
In 1957, after Schueller's death, Francois DaIle (DaIle), Shueller's deputy, took over as the company'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'Oreal's 'Amber Solaire' (sun care cream) with the tagline, "Just as it was before the war, Amber Solaire is back". 1
In 1963, L'Oreal became a publicly traded company. This posed a threat to its existence as it could easily come under the state's control,2 which in turn could affect its international growth plans. Dalle, therefore, began taking steps to internationalize L'Oreal's ownership structure to prevent it from coming 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 Nestle, 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 promote 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'Oreal'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 differentiation 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 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'Oreal 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 U.S., South America, Russia, and the Far East. L'Oreal 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 1 for product launches till the mid-1990s and Table 2 for a segment wise break-up of sales for the year 2002).
On The Road To Fame
By the 1970s, L'Oreal'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'Oreal's Italian business. Due to his exceptional performance, Jones was given the responsibility of looking after L'Oreal'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 European 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 DaIle as L'Oreal's Chairman in 1988. He was aware that DaIle had begun the work of internationalizing L'Oreal to prevent it from remaining as 'just a French cosmetics company'. As he tried to continue Dalle's work, he realized that he had to tackle the situation created by L'Oreal's image.
During the late 1980s and early 1990s, almost 75% of the company's sales were in Europe, mainly in France. L'Oreal'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'Oreal a globally recognized brand and the leading cosmetics company in the world. In what proved to be a major advantage 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'Oreal 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 Wale, 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' Maybelline
One of the first brands that L'Oreal bought in line with the above strategy was the Memphis (US) based Maybelline.3 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'Oreal 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'Oreal did was to move Maybelline's headquarters to New York, a city known for 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'Oreal aggressiveness 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 colours like yellow and green. This gave the brand a new look and targeted it at spirited and lively teenagers 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'Oreal acquired the Maybelline brand in Japan from Kose Corporation, the brand’s Japanese distributor, thus gaining world rights to Maybelline.
L'Oreal 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'Oreal'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 article stated, "L'Oreal achieved sales growth of nearly 20% by 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 Formula
Maynelline'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 Peyrelongue, head of Maybelline, Cosmair Inc., 4 US Division, said, "It is a cross-fertilization." L'Oreal followed 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 (skincare and cosmetics), Helena Rubenstein (luxury cosmetics), and Kheil's (skin care) (refer Table 3).
L'Oreal acquired the above relatively unknown brands, gave them a face lift, 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 revenues in 2002 from outside the US, most of it from South Africa.
L'Oreal 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'Oreal 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'Oreal promoted Maybelline, and for those who preferred 'French' products, the L'Oreal 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'Oreal 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'Oreal's Preference line of hair care products. Analysts were skeptical of this move as they thought introducing new brands in the same category would cannibalize L'Oreal'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'Oreal, teams had ample freedom to innovate and develop better products. This kind of competitive spirit from within allowed L'Oreal to beat competition 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'Oreal operated two research centres - one in Paris and the other in New York. These centres helped Jones maintain L'Oreal'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'Oreal employed 2700 researchers from all over the world and had 493 patents registered in its name in 2001, the largest ever for any cosmetic company in one year.
L'Oreal 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'Oreal's most radical experiments was the makeover and re-launch of the Helena Rubinstein 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'Oreal 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 Spa 5 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'Oreal also made use of 'dramatic' advertisements to promote the brand. In one of its advertisements, 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 observers 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'Oreal 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'Oreal 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'Oreal'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, Catherine Deneuve, Noemie Lenoir, Jessica Alba, Beyonce Knowles, and Natalie Imbruglia.
L'Oreal’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 Prospects
L'Oreal's efforts paid off handsomely. The company posted a profit of € 1464 million for the financial year 2002, as against € 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'Oreal was much ahead of its competitors in terms of profitability and growth rate. L'Oreal'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'Oreal'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 Beiersdmf (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'Oreal's combination of 'strong brands, global reach, and narrow product focus'.
In March 2003, L'Oreal ventured into new businesses that were closely related to its core activities. One such initiative was Laboratoires Inneov, L'Oreal's joint venture with Nestle. Through Inneov, L'Oreal entered the market of cosmetic nutritional supplements. Analysts observed that this would mark the beginning of 'neutraceutical6 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'Oreal 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'Oreal has the good fortune of being involved in a business that is a bit less sensitive than others to economic cycles. When, the economic 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'Oreal 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.
REFERENCES
1. Initially launched in 1936, Amber Solaire was withdrawn from the market during the war period due to production hitches. It was relaunched in 1957.
2. The French people were attached to the notion of having a special identity called the 'I' exception francaise', which was nurtured by 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, managing, and directing the ways in which France's publicly owned businesses were managed, L'Oreal being a publicly traded company was easily susceptible to come under the state's influence.
3. Maybelline was established in 1915 in the US by T.L. Williams. After beginning with the hugely successful mascara (a cosmetic to darken 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'Oreal in 1996.
4. L'Oreal's wholly-owned US subsidiary.
5. The 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).
6. The term 'neutraceutical' is derived by combining two words 'nutritional' and 'pharmaceutical' and refers to foods that acts as medicines. Neutraceuticals act as a source of specific food that provides essential nutrients to users.
Established in 1946 in New York, US, Estee Lauder competed with L'Oreal in the luxury segment with brands like Estee Lauder, Aramis, Cliniaje, Prescriptives, Origins, MAC, 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'Oreal in the mass-market segment with skincare, haircare and bodycare products. Some of P&G's well-known brands include Biactol, Camay, Cover Girl, Ellen Betrix, lnfasil, 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'Oreal in the mass-market segment with brands like Charlie, Colorsilk, Colorsay, Fire&lce and Skinlights. Other companies like Avon, Kose, Coty, and Siseido competed globally in the mass-market segment. L'Oreal remained the overall industry leader, as it was the only company that competed in all four segments.
The cosmetics industry has always been characterized by & intensive 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 cosmetics owing to growing awareness among consumers about the harmful effects that harsh chemicals (generally 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 ingredients by companies like L'Oreal 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.
"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'Oreal's Global Makeover, August 12, 2002.
L’Oreal Makes Waves
In November 2002, L'Oreal, 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'Oreal's management team.
In the same month, L'Oreal'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 Jone’s outstanding achievements in transforming L'Oreal from a French company into a global powerhouse. 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'Oreal 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’Oreal's key financials). L'Oreal, which had operations in 130 countries in the world, posted a turnover of € 13.7 billion in 2001. The company recorded a 19.6% and 26% growth in profit in 2001 and 2002 (half-yearly results), respectively. Commenting on L'Oreal's performance, Jones said, "At L’Oreal, we are 50,000 people who share the same desire; because it is not just about business but about a dream we have to realize, perfection."
Known for its diverse mix of brands (from Europe, America, and Asia), like L'Oreal Paris, Maybelline, Garnier, Soft Sheen Carson, Matfix, Redken, L'Oreal Professionnel, Vichy, La Roche-Posay, Lancome, Helena Rubinstein, Biotherm, Kiehl's, Shu Uemura, Armani, Cacharel, and Ralph Lauren, L'Oreal 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 C.8.2 for a note on the global cosmetics industry).
Background
In 1907, Eugene Schueller (Schueller), a French chemist, developed an innovative hair colour formula. 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'Oreal, which was an adaptation of one of the brands 'L' Aureole' (the halo).
In 1957, after Schueller's death, Francois DaIle (DaIle), Shueller's deputy, took over as the company'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'Oreal's 'Amber Solaire' (sun care cream) with the tagline, "Just as it was before the war, Amber Solaire is back". 1
In 1963, L'Oreal became a publicly traded company. This posed a threat to its existence as it could easily come under the state's control,2 which in turn could affect its international growth plans. Dalle, therefore, began taking steps to internationalize L'Oreal's ownership structure to prevent it from coming 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 Nestle, 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 promote 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'Oreal'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 differentiation 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 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'Oreal 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 U.S., South America, Russia, and the Far East. L'Oreal 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 1 for product launches till the mid-1990s and Table 2 for a segment wise break-up of sales for the year 2002).
On The Road To Fame
By the 1970s, L'Oreal'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'Oreal's Italian business. Due to his exceptional performance, Jones was given the responsibility of looking after L'Oreal'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 European 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 DaIle as L'Oreal's Chairman in 1988. He was aware that DaIle had begun the work of internationalizing L'Oreal to prevent it from remaining as 'just a French cosmetics company'. As he tried to continue Dalle's work, he realized that he had to tackle the situation created by L'Oreal's image.
During the late 1980s and early 1990s, almost 75% of the company's sales were in Europe, mainly in France. L'Oreal'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'Oreal a globally recognized brand and the leading cosmetics company in the world. In what proved to be a major advantage 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'Oreal 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 Wale, 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' Maybelline
One of the first brands that L'Oreal bought in line with the above strategy was the Memphis (US) based Maybelline.3 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'Oreal 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'Oreal did was to move Maybelline's headquarters to New York, a city known for 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'Oreal aggressiveness 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 colours like yellow and green. This gave the brand a new look and targeted it at spirited and lively teenagers 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'Oreal acquired the Maybelline brand in Japan from Kose Corporation, the brand’s Japanese distributor, thus gaining world rights to Maybelline.
L'Oreal 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'Oreal'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 article stated, "L'Oreal achieved sales growth of nearly 20% by 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 Formula
Maynelline'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 Peyrelongue, head of Maybelline, Cosmair Inc., 4 US Division, said, "It is a cross-fertilization." L'Oreal followed 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 (skincare and cosmetics), Helena Rubenstein (luxury cosmetics), and Kheil's (skin care) (refer Table 3).
L'Oreal acquired the above relatively unknown brands, gave them a face lift, 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 revenues in 2002 from outside the US, most of it from South Africa.
L'Oreal 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'Oreal 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'Oreal promoted Maybelline, and for those who preferred 'French' products, the L'Oreal 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'Oreal 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'Oreal's Preference line of hair care products. Analysts were skeptical of this move as they thought introducing new brands in the same category would cannibalize L'Oreal'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'Oreal, teams had ample freedom to innovate and develop better products. This kind of competitive spirit from within allowed L'Oreal to beat competition 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'Oreal operated two research centres - one in Paris and the other in New York. These centres helped Jones maintain L'Oreal'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'Oreal employed 2700 researchers from all over the world and had 493 patents registered in its name in 2001, the largest ever for any cosmetic company in one year.
L'Oreal 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'Oreal's most radical experiments was the makeover and re-launch of the Helena Rubinstein 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'Oreal 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 Spa 5 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'Oreal also made use of 'dramatic' advertisements to promote the brand. In one of its advertisements, 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 observers 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'Oreal 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'Oreal 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'Oreal'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, Catherine Deneuve, Noemie Lenoir, Jessica Alba, Beyonce Knowles, and Natalie Imbruglia.
L'Oreal’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 Prospects
L'Oreal's efforts paid off handsomely. The company posted a profit of € 1464 million for the financial year 2002, as against € 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'Oreal was much ahead of its competitors in terms of profitability and growth rate. L'Oreal'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'Oreal'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 Beiersdmf (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'Oreal's combination of 'strong brands, global reach, and narrow product focus'.
In March 2003, L'Oreal ventured into new businesses that were closely related to its core activities. One such initiative was Laboratoires Inneov, L'Oreal's joint venture with Nestle. Through Inneov, L'Oreal entered the market of cosmetic nutritional supplements. Analysts observed that this would mark the beginning of 'neutraceutical6 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'Oreal 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'Oreal has the good fortune of being involved in a business that is a bit less sensitive than others to economic cycles. When, the economic 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'Oreal 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.
REFERENCES
1. Initially launched in 1936, Amber Solaire was withdrawn from the market during the war period due to production hitches. It was relaunched in 1957.
2. The French people were attached to the notion of having a special identity called the 'I' exception francaise', which was nurtured by 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, managing, and directing the ways in which France's publicly owned businesses were managed, L'Oreal being a publicly traded company was easily susceptible to come under the state's influence.
3. Maybelline was established in 1915 in the US by T.L. Williams. After beginning with the hugely successful mascara (a cosmetic to darken 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'Oreal in 1996.
4. L'Oreal's wholly-owned US subsidiary.
5. The 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).
6. The term 'neutraceutical' is derived by combining two words 'nutritional' and 'pharmaceutical' and refers to foods that acts as medicines. Neutraceuticals act as a source of specific food that provides essential nutrients to users.
Established in 1946 in New York, US, Estee Lauder competed with L'Oreal in the luxury segment with brands like Estee Lauder, Aramis, Cliniaje, Prescriptives, Origins, MAC, 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'Oreal in the mass-market segment with skincare, haircare and bodycare products. Some of P&G's well-known brands include Biactol, Camay, Cover Girl, Ellen Betrix, lnfasil, 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'Oreal in the mass-market segment with brands like Charlie, Colorsilk, Colorsay, Fire&lce and Skinlights. Other companies like Avon, Kose, Coty, and Siseido competed globally in the mass-market segment. L'Oreal remained the overall industry leader, as it was the only company that competed in all four segments.
The cosmetics industry has always been characterized by & intensive 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 cosmetics owing to growing awareness among consumers about the harmful effects that harsh chemicals (generally 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 ingredients by companies like L'Oreal 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.
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