What Have Been LOrals Key Success Factors in China to Date - Assignment Example

Running Head: Case Study Case Study Name Institution Professor Course Date Summary of case L’Oreal is a global leader in cosmetic industry with headquarters in Paris, France. The company has over the years been successful in selling, developing and distributing products in the fields such as in hair color, cosmetics, sun protection, skincare, hair care, perfume and make-up. Additionally, L’Oreal is also active in the pharmaceuticals and dermatological fields. The group is a family business founded back in 1909 but by then it was referred to as Société Française des Teintures Inoffensives pour Cheveux (L’Oréal, 2016). The company has its operations in 130 countries and has a total of 66, 600 employees in a total of 66 countries and it also have some notable and large brands, for example, the Garnier and Maybelline New York, Lancôme, Kiehls and Yves Saint Laurent Beauté. L’Oreal sells their products to professional stylists and business and also to the non-professional consumers. L’Oreal distributes their products through a wide range of chemists to the departmental stores in addition to the use of their own boutiques. As of the year 2010, the sales of L’Oreal sales increased by approximately 11.6% (L’Oréal, 2016). Despite having a global presence, majority of the company sales are from the Western Europe and also from North America. Their international distribution and presence is also increasing as the years goes by as the new wealth in areas such as in Asia enables the consumers to have a high spending power and this includes their consumption of cosmetics products and thus the need of an effective distribution network. Question 1: What have been L’Oréal’s key success factors in China to date? Success of companies in certain markets is mainly attributed to certain factors but these factors tend to be unique and different from one company to another (INSEAD, 2014). A key success factor of L’Oréal’s in China to date is based on the Research and development activities initiated by the company. L’Oréal has developed the L’Oréal Research & Innovation Centre in Shanghai and their decision of establishing the R &D centre have a great impact of the distribution decisions of the company since location seems to be an essential factor and mostly when developing hair care products and developing cosmetics that are designed more than ever for the Chinese market. Additionally, through the research centre which was opened in 2006 in Shanghai, L’Oréal was able to analyze and know in details the manner in which men and women wash their faces and also how they apply cosmetics as well as the diameter of their hair follicles. This plays an essential role in that they will come up with products that are well suited for their target audience (INSEAD, 2014).Another major success factor in the Chinese beauty and cosmetic market is the company diversity in terms of branding, products as well as in their sales distribution methods. Distribution of products play an essential role in ensuring the success of products and this is based on the notion that the consumers have ease of access to the products. When products are not distributed in the most effective manner, consumers are likely to turn to other substitute brands that are easily available. L’Oréal was aware of this and thus the adoption of a good distribution system for their products in all countries that they have their presence in. To further their distribution the L’Oréal Group acquired Mininurse which is also a Chinese skincare brand in the year 2004. The main aim of purchasing Mininurse was based on the idea that it would be able to reach the group of consumers that the other brands in the company failed to reach. This aligned with the long term strategy of the firm. Another success factor in China was the company focus on the rapidly growing men’s skincare market in China and thus did this by ensuring that they targeted their distribution towards these new and emerging consumers. When compared to the women’s market, the distribution strategy applied when marketing to men seems to be totally different and more so in regard to the western market (L’Oréal, 2016). The company success at the present can be attributed to the fact that some of the products manufactured by the company such as Lancôme, Yves Saint Laurent, Garnier and L’Oréal tend to have high level of recognition among the consumers. Question 2: How do L’Oréal’s distribution tactics enable it to target the men’s skincare market in China? The mode of distribution as well as the tactics used in distribution plays an essential role in the success of a business in that the products are made available to the consumers through the use of the most effective distribution tactics. For instance, there are those products that are marketed well through direct distribution by the manufacturers and there are those which seem to be effective when intermediaries are used (Kotler, Keller & Burton, 2009). L’Oréal has a unique and immense distribution tactics. The beauty and hygiene markets seems to divided into three major types based on the players and the three players are the pure players, diverse businesses which have industrial presence in various sectors of the economy as well as those who tend to prioritize on the large scale distribution and the luxury businesses. At a glance a great number of people view L’Oréal as a pure player but in reality the group seems to be somehow different from the other players in the same category and this is based on the fact that L’Oréal operated across all the available distribution channels that is the supermarkets, pharmacies, independent stores, hypermarkets and also in the hair salons. This unique distribution tactics that L’Oréal has adopted places their business in a better position and more so when compared to their direct competitors in the industry. Through the tactics, L’Oréal is able to boost the diversity of their brands, distribution chain by applying the above mentioned distribution tactics L’Oréal is able to meet the needs of the men in the country since they seem to e a major target group and L’Oréal seeks to meet the needs of the men’s skincare market in China in the most effective ways (Unger & Fuchs, 2005). Question 3: Has L’Oreal adapted its distribution strategy? L’Oréal entry into the Chinese market was a sound decision, the Chinese market potential for growth seems to be undeniable and this can be attributed to the economic development as well as the size of the Chinese population. Despite these, the Chinese market seems to have some notable differences with the western markets. Some of the differences include the cultural distance as well as the physiological differences, for instance, the skin type of the Chinese people which seems to e totally different when compared to other markets, for example, the western market. Over some period of time L’Oréal have been and is been viewed as an ethnocentric company but currently it seems to be making a turn or changes through its entry into the Chinese market (INSEAD, 2014). In this regard, L’Oréal seems to have adapted though not totally to its strategy and more so in entering the Chinese market and this argument is greatly supported by the fact that the move was a successful one. L’Oréal has been able to position themselves in a better position aimed at embracing all the available segments that are available in the Chinese market and they have achieving this by diversifying their EPG as well as their marketing mix (INSEAD, 2014). In respect to these, L’Oréal was able to keep the company’s international brands with their global products the distribution and communication campaigns that L’Oréal engaged in allowed them to offer various kind of products, for example, the high-end urban segment of gods that tend to rely heavily on the promotion of western life style that this group embraces highly. Additionally, in the lower portion of their pyramid of brands, L’Oréal seems to have adapted considerable in the local Chinese market and this they have attained this by their involvement in local acquisitions so as to tap the various segments of consumers that are available in the Chinese market (INSEAD, 2014). Question 4: In a meeting with the CEO of L’Oréal China, you have been asked to outline the possible threats of selling their products online. Explain some of the issues that L’Oréal might be likely to encounter in online distribution. With time a great number of companies selling products are changing and implementing a system to sell their products online. Despite the various advantages that L’Oréal may benefit from by selling their products online at the same time they are likely to face a number of threats. A major threat relates to the legal issues. L’Oréal needs to get some grips when it comes to e-commerce and the law since this aspects have over time been proved to the a challenge and therefore the CEO of L’Oréal needs to be aware of it and make plans of coping with it as well as a recognition of the various rights that consumers have when it comes to online sales. Another threat that L’Oréal is likely to face is the building up of consumer trust (Laudon & Guercio, 2014). Due to the advancement in technology a great number of people tend to have low levels of confidence with the aspect of online business. This is greatly attributed to the fact that there have been several instances when their credit cards have been hacked and they have been extorted and deceived as they make online payments. In this regard, L’Oréal needs to assure the consumers that their online purchases are free from being hacked. In this regard it would be effective to come up with a customer service system and this should be coupled with the online offering so as to boost the sales and achieve the best results from the online system. Another threat relates to the high advertising costs since though online marketing and selling tends to be effective in attaining the right group of consumers for ones products, it has numerous demands and this can be the case with L’Oréal since it operates in a market which is crowded and have common key words (Chaudhury & Kuilboer, 2002). Question 5: Explain how and why distribution channels, such as those of L’Oréal China, are affected when the economic stage of development of a country such as China advances The distribution channels such as those that are been applied by L’Oréal China are affected in instances when the economic stage of development of a country such as China advances in that new mode and methods of distribution will be implemented so as to deal with the increase in population that have the ability as well as the means of purchasing the luxury products such as the ones being sold by L’Oréal China. New methods will also e need to move and appeal people on the various segments since some of them are likely to shift their brands as they climb the social ladder (Weil, 2008). Additionally, there is a creation of a new and untapped market that L’Oréal China may wish to target in the near future and thus the need of new, modern and effective distribution channels. Additionally, when the economic stage of development of a country changes there may be an increase in the target market and this will eventually cause an upturn in the demand for the products and this may have adverse effects ion the supply chain of the company. Additionally, the advance may be so huge that the already existing intermediaries and wholesalers may fail to deal and meet the high demands of products and this may lead to delays due to the fact that the product may be scarce also the warehouses may be overstocked as the company tries to meet the demands (Vladimir, 2011). Conclusion In conclusion, L’Oréal is seen as a leader in the beauty and cosmetic industry. A major success factor in the Chinese beauty and cosmetic market is the company diversity in terms of branding, products as well as in their sales distribution methods and the great focus and attention that the company has placed on Research & Innovation and this has enabled them to meet the needs of the customers and adopt to the changing needs of the consumers. Additionally L’Oréal have also focused on the rapidly growing men’s skincare market in China and thus did this by ensuring that they targeted their distribution towards these new and emerging consumers. L’Oréal has a unique and immense distribution tactics and this has helped them in targeting the target the men’s skincare market in China. L’Oréal seems to have adapted though not totally to its strategy and more so in entering the Chinese market and this argument is greatly supported by the fact that the move was a successful one. L’Oréal also needs to address the various online selling and purchase threats for them to succeed in online selling. The economic development of China is likely to lead to an increase in demand for products and this may cause a strain in the supply chain. References Chaudhury, A., & Kuilboer, J. (2002). E-Business and e-Commerce Infrastructure. McGraw-New York: Hill. INSEAD (2014). L’Oréal in China: Marketing Strategies for Turning around Chinese Luxury Cosmetic Brand Yue S. Retrieved May 16, 2016, from http://cases.insead.edu/loreal-china/documents/5960-LOreal_China-CS-EN-3-05-2014-award-w.pdf Kotler, P., Keller, L., & Burton, S. (2009). Marketing Management. Pearson Education Australia: French’s Forest. L’Oréal (2016). Finance, ‘China - L’Oréal’s number three market,’ 2010. Retrieved May 16, 2016, from http://magazine.loreal-finance.com/china-l-oreal-s-number-three-market-/id/132. L’Oréal Official Website (2016). History. Retrieved May 16, 2016, from http://www.lorealparis.ca/the-brand/history.aspx. Laudon, K., & Guercio T. (2014). E-commerce. Business Technology Society. New Jersey: Pearson Unger, F. & Fuchs, W. (2005). Management of marketing communication. Berlin: Heidelberg: Springer. Vladimir N. (2011). Econodynamics: The Theory of Social Production. Berlin: Springer. Weil, D. (2008). Economic Growth. Boston: Addison Wesley. Read More