anjalicutek
Anjali Khurana
The L'Oreal Group is the world's largest cosmetics and beauty company.[2] With its registered office in Paris and head office in the Paris suburb of Clichy, Hauts-de-Seine, France,[3] it has developed activities in the field of cosmetics. Concentrating on hair colour, skin care, sun protection, make-up, perfumes and hair care, the company is active in the dermatological and pharmaceutical fields and is the top nanotechnology patent-holder in the United States.
L'Oréal is a listed company, but the founder's daughter Liliane Bettencourt and the Swiss food company Nestlé each control over a quarter of the shares and voting rights.
In 1907, Eugène Schueller, a young French chemist, developed a hair dye formula called Auréole. Schueller formulated and manufactured his own products, which he then sold to Parisian hairdressers.
In 1909, Schueller registered his company, the Société Française de Teintures Inoffensives pour Cheveux ("Safe Hair Dye Company of France" literally "French Society for Inoffensive Hair Dyes"), the original L’Oréal. The guiding principles of the company, which eventually became L’Oréal, were research and innovation in the field of beauty.
In 1920, the small company employed three chemists. By 1950, the research teams were 100 strong; that number reached 1,000 by 1984 and is nearly 2,000 today.
L’Oréal got its start in the hair-color business, but the company soon branched out into other cleansing and beauty products. L’Oréal currently markets over 500 brands and many thousands of individual products in all sectors of the beauty business: hair color, permanents, hair styling, body and skin care, cleansers, makeup and fragrances. The company's products are found in a wide variety of distribution channels, from hair salons and perfumeries to hyper - and supermarkets, health/beauty outlets, pharmacies and direct mail.
L’Oréal has five worldwide research and development centers: two in France: Aulnay and Chevilly; one in the U.S.: Clark, New Jersey; one in Japan: Kawasaki, Kanagawa Prefecture; and in 2005, one was established in Shanghai, China. A future facility in the US will be in Berkeley Heights, New Jersey.
From 1988 to 1989, L'Oréal controlled the film company Paravision, whose properties included the Filmation and De Laurentiis libraries. StudioCanal acquired the Paravision properties in 1994.
With 290 subsidiaries, more than 100 distributors off-group and 42 plants, all spread out in about 130 countries, L’Oreal is the leader of the cosmetic industry. The group has begun its internationalisation in 1912 by following three steps:
* first, commercialisation of professional shampoos to hair-dressers via distributors in near Europe (Spain, Italy, Great Britain, Germany and Poland) and in the Americas – “first landing”1;
* second, local firms are taken over for example in the USA (Redken 1993, Maybelline 1996 etc.), in Argentina (Miss Ylang 2000) – “go native";
* third, subsidiaries (production, research and development) are directly created (Greenfield investment) without any first passage via distribution. It is the case in Asia (Japan and Hong Kong) – “globalisation”.
As the cosmetics market holds five particularities2, the group has to face harsh competition and new stakes like diversify its product segments (baby-boomers which become “mammy-boomers”; American, French and Japanese young with specific tastes; and men), exploit new means of distribution (like on line sales) and finally, take advantage before the competitors, of new emerging markets like Asia, India, Latin America, Africa and East European countries.
For our analysis on distribution channel performance, we will focus on the Balkans3 region where the group detains its highest number of distributors as well as no subsidiary4 Furthermore, these countries are future new comers in the European Union and such a particular presence in this region is no doubt linked to L’Oreal internationalisation strategy. Distributors, in this area, buy products directly to the headquarters and are provided thanks to the Hungarian subsidiary.
Performance Evaluation
Several criteria, extracted from the Marketing literature5 enable to evaluate L’Oreal export channel performance. These criteria are divided into four main categories (see schema 1):
* 1. Selection of foreign intermediaries is the first criterion to examine: what has determined the choice of one distributor better than one another? Indeed, if choice is not well considered, performance tends to be altered. “An ineffective foreign distributor can set you back in years; it is almost better to have no distributor than a bad one in a major market”6. In the case of L’Oreal, the choice of a distributor comes from three options: recommendations from business contacts, prospecting or direct requests by the distributor himself. In all cases, a deep audit of the would-be distributor is undertaken7 (financial strengths, commercial force, know-how, etc. ...). Obviously, the chosen distributor does not sell direct rival products nor any other cosmetics products. The distributor seems to have a great interest to cooperate to this rule otherwise they lose the opportunity to sell the famous brand.
* 2. Monitoring: such as reporting, control of selling places, frequency of visits and type of contract, is said to be necessary in order to reduce information asymmetry that undergoes the exporter. All types of monitoring are part of the process control8. In the group, a monitoring system has been set up in order to obtain regular information at a fixed term on sales, prices and selling places. This reporting enables also the group to follow the evolution of the stock levels by its distributors, which are also controlled at a fixed regularity. Such a system is imposed to distributors: they have to adapt, if they want to enter in a long-term relationship with the group.
* 3. Relational Dimension: relationship management is important. Communication is primordial. By L’Oreal, it seems to be permanent concerning the marketing strategy, the objectives definition and problems solving. Shared values sound to be “respect”, “common interest” and “integrity”. These values are the basis of L’Oreal channel distribution good performance and success. This is conveyed by the “win-win relation” between partners. However, in theory, socialization and joint decision are keys to a bilateral governance and thus, to a good performance of the channel. By L’Oreal, we have just seen that the group seems to impose its marketing and commercial vision to distributors.
* 4. Control of the marketing mix, such as price, promotion, distribution and product. According to ARNOLD’s article9, an international group must keep control on its marketing mix. It is an important criterion to evaluate the performance of an export channel. Indeed, wanting to increase its short term sales, the distributor may damage the group’s image. L’Oreal is known for its strong control of promotion, place, price and packaging strategy, which is decided from the headquarters. For these points, only minor product adaptations are made in different countries (such as labels’ languages)10. Overall, in-the-field-controls are very frequent to check if prices and selling places comply with the group marketing strategy.
Schema 1 - Channel Performance criteria, by V. Vinas:
PNG - 71.7 kb
L’Oreal visibility on those markets in terms of adverts, or even physical products presence, is the undeniable proof of its channel distribution success. But does not the weight of the group’s brand image play a major role on such a performance?
Brand Image Influence on Channels Performance
Of course brand image seems to have a noticeable influence on a firm’s channel performance. Indeed, as the article “Seven rules of international distribution” (Harvard Business Review) stresses, a multinational company needs to have power over its marketing strategy in order to supervise the way the distributor reflects the image of the group. This may be at the same time favourable or damaging.
Furthermore, a group notoriety may also facilitate the selection of foreign partner (distributing famous products is always quite an “honour” for a collaborator abroad and the candidates are often numerous.) Finally, the group counts on the “win-win relation” and so, on the involvement of the distributor, that is expected to respect the group’s rules, first for his own interest.
Regarding L’Oreal, on one hand, the group takes advantage of its notoriety in order to impose its own rules to distributors, which have no other choices than accept them; otherwise they might see themselves replaced immediately and without any state of mind. L’Oreal seems to exploit its own image to make the relationship go well and the results optimal.
On the other hand, because of such notoriety, it is undeniable that the group is obliged to edict a strict policy of monitoring, because the distributor may damage easily its reputation.
Brand Image, limits and stakes
To conclude, there is a real power balance between the two partners. First, it seems to be necessary for L’Oreal to maintain its position of leader and take care of its brand image. Then, the distributor has an interest to convey his vision to the one of the group, in order to work as long as possible with it. The clue to the success of its distribution channel management might be found in the principle of the “win-win relation”.
However, the influence of a company’s brand image on its channel distribution management shows some limits or drawbacks. Indeed, by an over-extensive control of the marketing mix strategy, the distributor is not really involved in the creativity. All the more, he is the best to know the market. He could participate in the acculturation of the marketing mix, with a consequence he can transmit to the multinational company some cultural items of his own country. This is called the “joint decision” which we find in a bilateral style of channel management.
Secondly, a distributor might be treated as a long-term partner rather than a temporary “means” to enter in a foreign market. Indeed, the latter could think that the company does not trust in him and this could favour some opportunistic behaviour from his part (non respect of the engagement taken by both parts). This is what we call the “socialisation” of the partner.
The remaining question for L’Oreal future channel management in the Balkans is: will the group go on with its famous “road roller” management style or will it be more flexible with its distributors’ relationship in order to recover its leadership? The leadership position seems indeed currently threatened by rising competitors like Beiersdorf (Nivea) or Procter & Gamble (Head and Shoulders, Pantene, recent takeover of Wella) and by two major uncertainties: an increasing rate of talents’ resignation since 2003 and Lindsey Owen Jones’ succession question11
L'Oréal is a listed company, but the founder's daughter Liliane Bettencourt and the Swiss food company Nestlé each control over a quarter of the shares and voting rights.
In 1907, Eugène Schueller, a young French chemist, developed a hair dye formula called Auréole. Schueller formulated and manufactured his own products, which he then sold to Parisian hairdressers.
In 1909, Schueller registered his company, the Société Française de Teintures Inoffensives pour Cheveux ("Safe Hair Dye Company of France" literally "French Society for Inoffensive Hair Dyes"), the original L’Oréal. The guiding principles of the company, which eventually became L’Oréal, were research and innovation in the field of beauty.
In 1920, the small company employed three chemists. By 1950, the research teams were 100 strong; that number reached 1,000 by 1984 and is nearly 2,000 today.
L’Oréal got its start in the hair-color business, but the company soon branched out into other cleansing and beauty products. L’Oréal currently markets over 500 brands and many thousands of individual products in all sectors of the beauty business: hair color, permanents, hair styling, body and skin care, cleansers, makeup and fragrances. The company's products are found in a wide variety of distribution channels, from hair salons and perfumeries to hyper - and supermarkets, health/beauty outlets, pharmacies and direct mail.
L’Oréal has five worldwide research and development centers: two in France: Aulnay and Chevilly; one in the U.S.: Clark, New Jersey; one in Japan: Kawasaki, Kanagawa Prefecture; and in 2005, one was established in Shanghai, China. A future facility in the US will be in Berkeley Heights, New Jersey.
From 1988 to 1989, L'Oréal controlled the film company Paravision, whose properties included the Filmation and De Laurentiis libraries. StudioCanal acquired the Paravision properties in 1994.
With 290 subsidiaries, more than 100 distributors off-group and 42 plants, all spread out in about 130 countries, L’Oreal is the leader of the cosmetic industry. The group has begun its internationalisation in 1912 by following three steps:
* first, commercialisation of professional shampoos to hair-dressers via distributors in near Europe (Spain, Italy, Great Britain, Germany and Poland) and in the Americas – “first landing”1;
* second, local firms are taken over for example in the USA (Redken 1993, Maybelline 1996 etc.), in Argentina (Miss Ylang 2000) – “go native";
* third, subsidiaries (production, research and development) are directly created (Greenfield investment) without any first passage via distribution. It is the case in Asia (Japan and Hong Kong) – “globalisation”.
As the cosmetics market holds five particularities2, the group has to face harsh competition and new stakes like diversify its product segments (baby-boomers which become “mammy-boomers”; American, French and Japanese young with specific tastes; and men), exploit new means of distribution (like on line sales) and finally, take advantage before the competitors, of new emerging markets like Asia, India, Latin America, Africa and East European countries.
For our analysis on distribution channel performance, we will focus on the Balkans3 region where the group detains its highest number of distributors as well as no subsidiary4 Furthermore, these countries are future new comers in the European Union and such a particular presence in this region is no doubt linked to L’Oreal internationalisation strategy. Distributors, in this area, buy products directly to the headquarters and are provided thanks to the Hungarian subsidiary.
Performance Evaluation
Several criteria, extracted from the Marketing literature5 enable to evaluate L’Oreal export channel performance. These criteria are divided into four main categories (see schema 1):
* 1. Selection of foreign intermediaries is the first criterion to examine: what has determined the choice of one distributor better than one another? Indeed, if choice is not well considered, performance tends to be altered. “An ineffective foreign distributor can set you back in years; it is almost better to have no distributor than a bad one in a major market”6. In the case of L’Oreal, the choice of a distributor comes from three options: recommendations from business contacts, prospecting or direct requests by the distributor himself. In all cases, a deep audit of the would-be distributor is undertaken7 (financial strengths, commercial force, know-how, etc. ...). Obviously, the chosen distributor does not sell direct rival products nor any other cosmetics products. The distributor seems to have a great interest to cooperate to this rule otherwise they lose the opportunity to sell the famous brand.
* 2. Monitoring: such as reporting, control of selling places, frequency of visits and type of contract, is said to be necessary in order to reduce information asymmetry that undergoes the exporter. All types of monitoring are part of the process control8. In the group, a monitoring system has been set up in order to obtain regular information at a fixed term on sales, prices and selling places. This reporting enables also the group to follow the evolution of the stock levels by its distributors, which are also controlled at a fixed regularity. Such a system is imposed to distributors: they have to adapt, if they want to enter in a long-term relationship with the group.
* 3. Relational Dimension: relationship management is important. Communication is primordial. By L’Oreal, it seems to be permanent concerning the marketing strategy, the objectives definition and problems solving. Shared values sound to be “respect”, “common interest” and “integrity”. These values are the basis of L’Oreal channel distribution good performance and success. This is conveyed by the “win-win relation” between partners. However, in theory, socialization and joint decision are keys to a bilateral governance and thus, to a good performance of the channel. By L’Oreal, we have just seen that the group seems to impose its marketing and commercial vision to distributors.
* 4. Control of the marketing mix, such as price, promotion, distribution and product. According to ARNOLD’s article9, an international group must keep control on its marketing mix. It is an important criterion to evaluate the performance of an export channel. Indeed, wanting to increase its short term sales, the distributor may damage the group’s image. L’Oreal is known for its strong control of promotion, place, price and packaging strategy, which is decided from the headquarters. For these points, only minor product adaptations are made in different countries (such as labels’ languages)10. Overall, in-the-field-controls are very frequent to check if prices and selling places comply with the group marketing strategy.
Schema 1 - Channel Performance criteria, by V. Vinas:
PNG - 71.7 kb
L’Oreal visibility on those markets in terms of adverts, or even physical products presence, is the undeniable proof of its channel distribution success. But does not the weight of the group’s brand image play a major role on such a performance?
Brand Image Influence on Channels Performance
Of course brand image seems to have a noticeable influence on a firm’s channel performance. Indeed, as the article “Seven rules of international distribution” (Harvard Business Review) stresses, a multinational company needs to have power over its marketing strategy in order to supervise the way the distributor reflects the image of the group. This may be at the same time favourable or damaging.
Furthermore, a group notoriety may also facilitate the selection of foreign partner (distributing famous products is always quite an “honour” for a collaborator abroad and the candidates are often numerous.) Finally, the group counts on the “win-win relation” and so, on the involvement of the distributor, that is expected to respect the group’s rules, first for his own interest.
Regarding L’Oreal, on one hand, the group takes advantage of its notoriety in order to impose its own rules to distributors, which have no other choices than accept them; otherwise they might see themselves replaced immediately and without any state of mind. L’Oreal seems to exploit its own image to make the relationship go well and the results optimal.
On the other hand, because of such notoriety, it is undeniable that the group is obliged to edict a strict policy of monitoring, because the distributor may damage easily its reputation.
Brand Image, limits and stakes
To conclude, there is a real power balance between the two partners. First, it seems to be necessary for L’Oreal to maintain its position of leader and take care of its brand image. Then, the distributor has an interest to convey his vision to the one of the group, in order to work as long as possible with it. The clue to the success of its distribution channel management might be found in the principle of the “win-win relation”.
However, the influence of a company’s brand image on its channel distribution management shows some limits or drawbacks. Indeed, by an over-extensive control of the marketing mix strategy, the distributor is not really involved in the creativity. All the more, he is the best to know the market. He could participate in the acculturation of the marketing mix, with a consequence he can transmit to the multinational company some cultural items of his own country. This is called the “joint decision” which we find in a bilateral style of channel management.
Secondly, a distributor might be treated as a long-term partner rather than a temporary “means” to enter in a foreign market. Indeed, the latter could think that the company does not trust in him and this could favour some opportunistic behaviour from his part (non respect of the engagement taken by both parts). This is what we call the “socialisation” of the partner.
The remaining question for L’Oreal future channel management in the Balkans is: will the group go on with its famous “road roller” management style or will it be more flexible with its distributors’ relationship in order to recover its leadership? The leadership position seems indeed currently threatened by rising competitors like Beiersdorf (Nivea) or Procter & Gamble (Head and Shoulders, Pantene, recent takeover of Wella) and by two major uncertainties: an increasing rate of talents’ resignation since 2003 and Lindsey Owen Jones’ succession question11
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