L'Oreal Netherlands - Promotion of Its Product Lines with the Help of Garnier Name - Case Study Example

L’Oréal Netherlands Case Analysis Introduction: In 1997, a chemist named Eugene Schueller founded a company named French Harmless Hair Colouring. As early as 1912, Schueller was exploring his hair colour products across borders to Holland, Australia and Italy. Eventually this revolutionary hair care business evolved into L’Oréal. Lindsay Owen Jones then served as chairman and CEO Since 1988, and the company experienced double-digit profit growth during his tenure. With more than 17 diverse product global brands, L’Oréal has emerged as one of the world’s leading cosmetics companies – its compelling market presence in 130 countries. That is not surprising considering that L’Oréal is the only cosmetic group available in every distribution channel. Mass-market retailers, department stores, hair salons, mail-order channels, and pharmacies all carry L’Oréal products. Founded 100 years ago, L’Oréal is s leading manufacturer, developer, and distributer of hair care products, cosmetics, fragrances worldwide. The company owned 23 products in the year 1999, which generated 17 billion Euros in sales, and employed over 70, 000 staff in its different businesses spread across 130 countries (Hatum 2010). The group’s major global brands allow L’Oréal to provide consumers with a portfolio of products with diver’s cultural origins that satisfy all around the globe. Some L’Oréal major brand includes; Consumer products: L’Oréal Paris, Garnier, Maybelline, Soft Sheen- Carson. Professional products: Kerastase, L’Oréal, Pureology, Mizani, and Redken. Active cosmetics: inneov, Sanoflore, Dermablend, La Roche-Posay, Vichy, and Skinceuticals. Luxury products: Giorgio Armani, Lancome, Biotherm, Paloma Picaso, Guy Laroche, Lancome, Viktor & Rolf, Helena Rubinstein, YSL Beaute, Kiehl’s, Diesel, Shu Uemura, and Cacharel. The Body Shop: Acquired by L’Oréal in the year 2006, the firm founded by Anita Rodick allows L’Oréal to operate a market of naturally inspired cosmetics (Clow & Baack 2011). L’Oréal staffing as a business strategy: The company’s slogan ‘to build beauty, we need talent’ conveys the strategic importance of staffing to the firm. Indeed, as the executive Vice president of Human Resources, observes, ‘The fundamental challenge is to be able to engender the next generation of people who will produce working tenures in our company. And that, because we are now on a global scale, is complex. We need to attract the best professionals who are passionate about this business. To meet its staffing objectives, L’Oréal has developed a staffing model with six recruitment dimensions that helps the firm ensure a successful hiring outcome (Guidice, Peruda & Carayan 2011). The different dimensions of the staffing model, which is known as ‘the wheel’, are presented as shown below: Six recruitment dimensions: Attracting the candidates Sourcing them actively Select the best candidates Being sure of a solid integration Building strong relationships, internally and externally Anticipate changes The L’Oréal Brand Portfolio: In the beauty and cosmetics industry, we do see the emergence of innovative new industry leaders. Even in an old economy industry like this, innovation can be a very driver of success. In other industries, it is the innovators who are the industry leaders. The French company L’Oréal is a global leader in many segments of the cosmetics industry. As of 2002, it had sustained 17 years of double-digit sales and earnings growth, a unique achievement in a fast moving consumer goods environment. It is a company characterized by a passion for developing innovative products. L’Oreal’s a success is driven by its investment in research, developing literally hundreds of new products each year. And, unlike other innovative companies, such as Nike, it also manufactures its own products in France, to guarantee the quality standards it desires. Mooij (2010) strongly believed that L’Oreal’s business was very much about brand management. In fact, four brands accounted 80% of its business in the Netherlands. These brand were segmented by price, and consequently, by distribution channel. Out of the fourteen brands sold in 2000, Biotherm, the six PCI (a French abbreviation standing for prestige and Collection International) brands, kerastase, Helena Rubinstein and Lancôme covered the very high end of the market: L’Oreal Paris and L’Oreal Professional, the high end; and Maybelline and Garnier were more mass market. Consequently, distribution of Helena Rubinstein was restricted to six major department stores, Lancôme to thirty four; L’Oreal Paris was distributed in 1,200 outlets. Biotherm offered skin care products exclusively, Kerastase only hair care, and PCI only fragrances and ancillary products. Helena Rubinstein and Lancôme both offered care and make-up products. This last category included foundations, lipsticks, eye and nail colouring. L’Oreal Paris covered four categories: Hair colouring with the L’Oreal excellence and L’Oreal Feria brands; skin care with the L’Oreal Plenitude brand; L’Oreal make-up; and crowded category called Hair care products, which included shampoos, and styling aids. However this last category was becoming increasingly commoditized by the competition (Mooij 2010). And since the company believed in the critical success of the innovation, it therefore prompted them to heavily invest in the research and development so as to recover their investment through the introduction of their new products. The research activities were all conducted in the company headquarters which is in France. The finished products were then developed and offered subsidiaries around the globe. L’Oreal initiated a plan where one or more products were to be introduced per year in each of their marketing branches around the world due the short life cycle of brands. The international subsidiaries do not generally have direct input into the R & D process and they could make a go/no go decision on products. Netherlands is one of the L’Oreal’s established markets and thus if any of the new product lines had to be introduced then it will have to be financed by the current operations in that same country other than the headquarters. As we have seen in the case, L’Oreal not only tended to market its products under its own name but also under other quite a number of other family and individual names. Products like Anais Anais perfume, L’Oreal brand hair care products and the L’Oreal high end Lancôme line of product were marketed under its own name. L’Oreal acquired the Laboratories Garnier in the 1970s which of course was one of its largest divisions. L’Oreal’s Netherlands market is quite smaller with about 15 million people in population, and the L’Oreal and Garnier products has to be marketed by the same sales power. L’Oreal’s skin care product market was the second largest sector of the Dutch toiletries and cosmetics market. It has been growing at an annual rate of 12% for the past five quarter’s unit volume, and the dollar sold at the rate of 16% concurrently. All-purpose creams, body lotions and facial products are all included in this category. These products were classified by product type and their prices. The skin care products targeted for the high end market were produced by the institutes such as Shisedo and Estee Lauder. The lines were sold through personal service perfumeries that specialized in custom sales of toiletries and cosmetics. Mass-market products such as ponds were sold in supermarkets and drug stores at the other end of the price scale. L’Oreal, among other companies, had begun to offer products in the mid-price range in the last couple of years. The skin care products could also be divided into cleansing and care products, in which care products consisted of day and night creams; cleansing products were tonics and milk (Murphy & Willmott 2010). The industry’s current trends was intended to be stretched in the lines of adding specific products of the skin type targets, such as greasy, dry and sensitive. The fast growing line of category consisted of the anti-aging and anti-wrinkles creams, which were complimented on scientific development and natural ingredients. The shares of Andrelons’s and Guhl’s increased between 1986 and 1989, and which also reflected the general trend towards the use of warmer shades, resulting in the perception that the two brands helped achieved quality red tones. Guhl changed its distribution strategy in the late 1980s and begun selling its brands through drug chains. And in the 1987, the sales through drug outlets were less than one percent, and in the first quarter of 1990, the dug outlets reached almost 12%. The shares of Guhl climbed from 16-24% over the same period through large independents due to is aggressiveness in terms of its marketing initiatives. Both the leaders and the smaller brands’ shares sparked a 60% increase in advertising in 1989 for all hair colouring brands. L’Oreal strategic marketing issues: Like many other French companies, L’Oreal Paris, ranked 415 in the top 500, capitalizes on its country’s reputation for fin luxury beauty products. 68% of L’Oreal’s 50, 000 employees work outside France. L’Oreal is a big regional company with 49% of its sales in Western Europe. The North American market is an additional 30%. Operation in Japan, Eastern Europe, Latin America, and other Asian countries account for less than 20% of the company’s revenues. Much of the firm’s expansion into international markets, as well as its movement into niche markets at home and abroad, was the result of acquisition of already established brands, in 1996, L’Oreal purchased US cosmetic giant Maybelline, and in 2001purchased both japans’ Shu Uemura and Kiehl’s of the united states. L’Oreal also owns Cacharel, Garnier, Helena Rubinstein, Lancôme, and Vichy, among others (Jones 2010). The bi-regional nature of L’Oreal’s operations make government regulations in the United States and the EU very significant, and the company might get caught up in the cross fire. In 2001, the EU proposed a ban on all new products that were developed using animal experiments, which L’Oreal performs, even if the animal testing was not done in EU (Dewanand 2010). This negatively threatened the firm’s CSAs in its two main regions. It meant that it may not be able to develop new products involving a normal testing to be sold in its home region. It also meant that if United States decided to retaliate against this extra-territorial regulation, L’Oreal could see its ability to import and export freely from its two main regions jeopardised. As a western company, L’Oreal sought to enter the growing Chinese market. This could potentially lead to a global scope. Today, the cosmetics company manufactures locally and has made Maybelline, a traditionally US product, and China’s top seller make up line. Sales in china are growing at about 25% per year: a combination of several factors, including the opening up of young urban population and the company’s ability to adapt on the local market. Not all products are created alike. In marketing, L’Oreal signed-up Zhang Ziyi, from the movie Crouching tiger, hidden Dragon to model Maybelline lipstick, a move that helped the company achieve 3% of the Chinese lipstick market. Marketing decisions are made under the philosophy that no one knows a target group better than the target group itself. Only eight of L’Oreal’s 3000 employees in china are foreigners. The average age of the employees is twenty eight years, the same age as the customers the company is trying to attract. Entering Chinese market has not been an easy task for L’Oreal, and the country is unlikely to become an easy win (Hit et al 2007). L’Oreal and other western companies are under deep pressure from Chinese start-ups who have shown an incredible ability to become a competitive in a very short span of time. Another problem facing foreign companies in China is the wide range of counterfeit products sold under their name. This has several implications, including the loss of product and the loss of reputation that may come from under-performing clones. While the Chinese market offers much promise to L’Oreal, the company’s operations there are insignificant. L’Oreal’s operations in the Netherlands were hurt by stagnant markets for mass retail products, and aggressive attempts by local and international competitors to win market share. Key issues for the business included; Import duties and taxes were among the highest in the world for beauty products, ranging from 20% to 70% The government tended to be more protective of local companies. The food and drug administration regulation of cosmetics, which was quite bureaucratic and inflexible (i.e. advertising and packaging claims were still highly regulated). Among the marketing issues that are depicted in the Netherlands market are that the Holland consumers had very limited knowledge or awareness of Garnier and had not yet formed a brand image (Daft 2007). A Garnier product such as the sunscreen was little known by the Dutch women due to the fact that it was a new product in the market. In that case, it prompted the significance of any of the new products to be launched to have a high market potential and strong acceptance by the Dutch people before it had to be launched. This could be achieved by designing unique and desired products and particular discrepancy merits to Netherlands clients. The products that lacked such kind of the competitive advantages were most likely to fail and even capable of creating negative association with Garnier name. This could eventually trigger problems future introductions of new company products (Daft 2007). Apart from the problems encountered by the company in its product promotions, the L’Oreal Dutch market still had quite a number of other issues to deal with. This comprised among other issues such as the market competitors dealing with the same products. L’Oreal faces a large number of competitors, with some product lines such as the United States’ oil of Olaz by Procter & Gamble and L’Oreal’s Plenitude being offered by big multinational organizations. A number of companies offered complete line, and others offered one or several products such as Oil of Olaz. The main competitive brands in the Dutch market are Plenitude and Olaz, and the rule of thumb is to share the voice of brand in this particular industry. This is the percentage of the overall advertisement spent by the company in this industry to be precise. So this narrows us to the figures that the company with a 10% market share will have its advertising expenditures and approximately 10% of the overall industry advertising expenses. L’Oreal on the other hand has to undergo high expenditure to develop its brand preferences and awareness. Another issue was that all the product variations and innovative products were quickly copied, and the retailers could introduce and develop their own private labels within four months. The manufacturers also developed their competitor’s products and then organized an advertising campaign within a period of six months. The manufacturers transferred the product positioning strategy or concepts across the national boarders after sourcing for new product ideas from various countries. And since the market test lasted for approximately nine months, the competitor had the easy time to introduce a product way before the completion of market test. Four out of 10 brands accounted for the 80% of permanent hair colour sales in the Netherlands compared to the two brands in France, and on the other hand, none of them had a clarified advertising statement positioning client description benefits. Belle Couleur then had to be positioned as “covering gray with natural colours.” the hair salons notwithstanding were also competitors in the market of hair colouring. The current L’Oreal’s market entry (Recital) was then the leading seller, and which was also experiencing a decline on its shares (Dewanand 2010). The Dutch consumers alleged that the L’Oreal’s hair colour was a technical product and believed that it was a risky venture to use it in first place. This kind of consumer behaviours formed a setback on L’Oreal’s products because the consumers maintained their loyalty to the previous products they were using before the entrance of L’Oreal’s hair products. Products such as Belle Couleur did not do so well in the market because it was not liked by many consumers, many of them being women. Their main reason was that the product darkened their hair too much after its usage, and also that it did not cover gray hair. This was however expected from them, since it was formulated that way in France specifically for the France consumers, so as to give them a lightening effect, and was not customized for the tests in the Netherlands. L’Oreal’s competitors on the other hand formulated their hair products to give lightening effects contrary to theirs which gave darker shades specifically designed for the French consumers. This in turn resulted in the negative evaluations of the Belle Couleur L’Oreal’s product. L’Oreal’s 35% of the current products came from the independent drug stores, 25% of them from the food stores, and 40% of them from the drug chains. Both the supermarkets and the drug chains were vital for the manufacturers, in all these stores needed a brand with customer awareness as the most significant thing together with the brand preference. There were no sales assistance, and therefore this called for a brand with high customer awareness for these stores so as to enhance their performance. There was also a greater need for a retail shelf space while introducing a line of products rather than just a product. Even though the new brands and competing products for the retail shelf space appeared frequently in some other times, there was also a limited resource (Joep & Cornelissen 2008). L’Oreal had previously addressed these kinds of issues in regard to Belle Coleur, by reducing the number of Belle Coluer colorants it had previously scheduled to offer in the Netherlands. L’Oreal also reduced the line to 15 variations in Netherlands out of the 22 in total available in France. This kind of step resulted in the occupation of 1.5 meters, which is about 5 linear feet of the retail shelf space they wanted to display the very 15 shades of Belle Colour. Alternatively, a half of this space was required by Synergie. Recommendations: As summarized by Ms. Van der zande in regard to the L’Oreal’s strategic marketing issues and consumer behaviour after the completion of the marketing information on the two major product lines, L’Oreal Netherlands could now be able to leverage on the promotion of its two product lines at once with the help of advertising of the Garnier name. This will enable the consumers to see the Garnier name more than once. This will also result in giving the Dutch consumers the opportunity of seeing Garnier as a major supplier of cosmetics and toiletries. Ms. Van Der zande is however reluctant about the sale of L’Oreal brands existing in the Dutch market and also introducing more than one brand name at the same time to the new name product lines. L’Oreal Netherlands sales force will then have to handle both of the family brands, as much of the lower market potential of the Dutch market is not able to support the separate Garnier sales force, as in the case in France. Since the retailer reaction to a sales pitch for the two product lines is also a matter of concern, L’Oreal is then faced with the three critical decision areas. The first one being that they should decide if they should introduce one or both product lines, and it is a decision to be made knowing that L’Oreal could not reformulate the products just for the Netherlands market. The second decision is to decide to introduce either one or both of the product lines needed for market development program. This decision meant that Ms. Van Der zande has to decide on the decision of product promotion lines to both the retailers and the consumers, not forgetting the distribution and pricing of the lines. And the third one is that Ms. Van Der zande needs a tactical marketing plan for the product’s introduction of the product line so as not to have a negative effect on the current product lines sales. Since L’Oréal believes in the importance of research, in which it invests 3.3% of its consolidated sales (over 560 million Euros); it is one of the most technologically advanced companies in the world and produces and supplies approximately 4.6 billion units to the whole world every year. L’Oréal management should ensure and emphasize on its innovative operations, high powered, challenging and diverse, and should also offer the possibility of cross-functional careers in the manufacturing, supply chain and operational product development. L’Oréal operations should engage in a continuous improvement, safety, people, quality and sustainability. The company has strong brands which are part of a unique and diverse portfolio, which responds to various consumer needs and helps create well-recognized products. It should therefore ensure the potential of every single brand is maximized by each division of its product line. This should build up every day and initiate a stronger and intimate relationship between L’Oreal’s other 25 national brands and an always increasing number of consumers with different needs. The company should thus operate in a strongly high charged, competitive and multicultural environment, in which personality and passion are fundamental. The key ides is to be first to market in order to beat competitors and this aim will only be achieved by identifying and analyzing new consumer trends, focusing on the single brand and its competitors, and above all, elaborating a strategic vision so as to achieve the specific goals for the brand. Information systems and technology are also fundamental for L’Oreal’s decision making process and are essential for its operational and strategic performance. Information Systems and Information Technology managers and their team’s are burdened with the task of understanding business needs and translating hem into a day-to-day technology, in order to sustain L’Oreal’s growth. The company should engage itself in many diverse international projects, such as development of web-based and e-business activities, ERP implementation for their business units and factories and advanced technology designing solutions for the next coming more advanced technology innovative, and highly competitive market environment. L’Oreal should also adopt the e-leaning system. The e-learning program can then be conceived to offer a personalized online learning space and optimize the learning experience wherever the employees are located. It is based on several innovative learning tools and methods, such as traditional classroom workshops, on-the-job and online learning expectations of all the employees (Murphy & Willmott 2010). Thus, every employee will follow hi/her own learning tracks which will be developed on the basis of the technical and managerial competencies suitable for his/her position. Hence, every employee acquires the knowledge and skills he/she needs to operate with success in hi/her position and can look at the future with optimistic advancement perspective. This encourages knowledge transfer within the company, and helps the employees orient themselves and allow information to be rapidly and thoroughly spread among employees (Silzer & Dowell 2010). References: Hatum A. 2010 Next generation Talent management: Talent Management to Survive turmoil, Palgrave MacMillan, New York. Clow KE., & Baack D. 2011 Cases in Marketing management, SAGE Publications, Inc., Thousand Oaks, California. 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Silzer RF & Dowell BE 2010 Strategy-Driven Talent Management: A leadership Imperative, John Wiley & Sons, Inc. Market street, San Francisco, CA. Read More