Part I: Situation Analysis
A. Analysis of the firm
The firm’s mission is “to offer all women and men worldwide the best of cosmetics innovation in terms of quality, efficacy and safety”. It targets a wide variety of customers by closely following their needs and relying on the strategy of diversification and innovation. As the goal of the company is to universalize beauty, L’Oreal aims to expand its brand worldwide by adapting them to the needs of the diverse consumer groups, but preserving the essence of product positioning.
The marketing mix for L’Oreal in terms of the 4 Ps should be defined for all business and divisions of the company.
Since L’Oreal Group operates 27 different brands, its product offering is quite diverse. Consumer Products Division offers innovative, easy to use and relatively affordable products that can be found in many shops. They address the needs of the widest customer group and aim to make beauty “accessible to every woman and man”. The brands that belong to this division are L’Oreal Paris, Garnier, Maybelline New York, Softsheen. Carson and Le Club des Createurs (L'Oreal Group).
The Professional Products Division develops its products using the most advanced technology and caters to the needs of the professional users, such as hairdressers. The brand portfolio of the Professional Products Division includes: L’Oreal Professional, Redken, Kerastase, Matrix, Pureology, Shu Uemura Art of Hair, Mizani and Keraskin Esthetics (L'Oreal Group). Professional products of L’Oreal Group are related to hair colorants and care with the exception of Keraskin Esthetics, which is a brand focused on professional skincare . The development of new products for this division is conducted in close collaboration with hair professionals in order to create products that fit exactly the needs of the customers.
Luxury products division is represented by perfume and prestige cosmetics brands, such as Lancôme, Giorgio Armani, YSL Beauté, Biotherm, Kiehl’s, Ralph Lauren, Shu Uemura, Cacharel, Helena Rubinstein, Diesel, Viktor & Rolf, Stella McCartney and Maison Margiela (L'Oreal Group).
The Active Division incorporates several brands of dermatological products and cosmetics such of as Vichy, La Roche Posay, Skinceuticals, Inneov, Roger&Gallet, Sanoflore. These products aim to achieve beauty by improving skin health and to fit even the most sensitive skin, therefore they are often recommended by dermatologists and pharmacists.
The last division of L’Oreal Group is the Body Shop, which has been acquired by the Group in 2006. It offers products related to skin care, body, make-up, hair care, and fragrances, which are created from high quality naturally grown ingredients and combine herbal remedies with the innovative scientific research.
Consumer Products Division offers its products at low/medium prices in order to capture as many customers as possible and to promote the belief that beauty should be accessible to everyone. Luxury, Professional and Active Products divisions charge high prices due to the specialized nature of the products and high value of the brand (Hitt, Ireland, and Hoskisson 158-165). The Body Shops sells its products at low / medium prices in order to make them affordable for many customers, however the environmental initiatives of the company create an emotional connection and customer loyalty, thus allowing the Body Shop to charge premium prices.
L’Oreal Group’s promotion strategies are created globally, however they are adjusted to the specific needs of the local markets. Traditionally, the company heavily invests in advertising its products and often uses supermodels, who become the faces of various brands. However, marketing communication that accompany brands differ depending on the nature of the product. Thus, for consumer brands most of the information is conveyed by the packaging and adverts, while luxury, professional and active divisions rely more on experts and point of sales promotions to deliver information to the potential clients (Fill 200). Unlike other divisions in L’Oreal Group, The Body Shop does not use advertising and promotes its products through own website, by using PR (since numerous environmental initiatives of the Body Shop generate high level of publicity) and prime store location.
The company places its products according to the division. Consumer products, such as make-up, hair care and perfume items are distributed through retail channels in order to target a wide customer audience. Professional products, which mostly include hair products, are offered through salon professionals, for example through hairdressers. Since Luxury Products Division offers only prestige perfume and cosmetics, most of the articles in this segment are distributed through department stores, specialized perfumeries and own boutiques, where highly trained assistants could help customers with their purchase. The Active Division distributes its products through beauty and health outlets, specialized stores and pharmacies. The Body Shop sells its products only through own stores that are placed in prime locations and promote the environmentally friendly image by its decor and specially trained staff (Hitt, Ireland, and Hoskisson 158-165).
B. SWOT Analysis
L’Oreal Group is largely affected by the macro environment of the markets it operates in. Thus, the current market trends open numerous possibilities for the company. Firstly, there are vast opportunities for growth in the emerging markets and in the cosmetics for men. Increasing welfare worldwide and population ageing in the traditional L’Oreal markets imply that the number of consumers is likely to increase in the future.
However, external environment also presents a number of threats. Thus, L’Oreal products have high price elasticity and therefore they are vulnerable to the economic crises. Competition in the market is fierce and L’Oreal has to compete not only with its direct global rivals, such as P&G, but also with the smaller local producers and non-beauty companies in the fragrances business, such as Gucci.
L’Oreal Group’s strategic position should be assessed not only by considering the external macro environment, but also by investigating internal strengths and weaknesses of the company. Thus, L’Oreal has extensive experience in the area of beauty products, research capabilities and a vast product and brand portfolio to acquire market share, cater to the needs of all customers and to derive synergies. Moreover, the acquisition of local brands allows the company to successfully apply global strategy while considering the local needs. The group brands and the company culture allow achieving flexibility and high responsiveness to the demand. However, there several weaknesses that L’Oreal should address in order to be successful in the market. Thus, high degree of decentralization within the matrix structure makes it hard to coordinate activities across regions and brands. In addition to that, globalized approach to marketing products may be not universally effective. The current strategy of acquiring local brands also does not guarantee success, especially in the emerging markets, where there are no well-established brands to acquire.
C. Analysis of Industry Demand & Competition
Although beauty industry in general is mature, with relatively low growth rate and high competition, L’Oreal continuously succeeds in finding opportunities for expansion. Firstly, market growth is expected due to the increasing interest in beauty products in emerging markets and due to the population ageing in the traditional markets. Moreover, the company constantly seeks for new opportunities in new segments. Thus, L’Oreal Active Division uses cutting-edge scientific developments for their products, which are positioned as dermatological remedies rather than cosmetics. The Body Shop also addresses the needs of the growing audience of customers, who are interested in natural and environmentally friendly products. Both divisions have high potential for profitability, since they are still in the growing phase and operate in less competitive market niches.
L’Oreal is by far the biggest cosmetics producers in the world with the 15.8% market share in the U.S. market and the revenue of €17.5 billion in 2009 (L'Oreal Group). According to Hoover’s, L’Oreal currently has 21 major competitors (Hoover's), where Revlon and Procter & Gamble Company are the largest ones. However, it is hardly possible to list all the rivals due to the variety of businesses the group is involved in and the complexity of the competitive landscape. Thus, the company competes with the major global corporations, such as P&G, as well as with the local players. While the former can take advantage of scale economies, brand recognition and diversified portfolio that helps to derive synergies among businesses, the latter possess extensive local market knowledge. However, global competitors usually do not have L’Oreal’s expertise in the beauty industry, while small players are not able to compete effectively due to small scale of operations and limited opportunities in terms of R&D and marketing. Moreover, in the luxury segment and in particular in the fragrances business L’Oreal has to compete not only with the traditional rivals, such as LVMH and Estee Lauder, but also with non-beauty companies, such as Cartier and Gucci. In this area the major strength of the competitors is the value of their brands, however, they lack expertise and experience in the beauty sector.
Part II: Problem or Opportunity
Marketing managers of L’Oreal currently face the problem of expanding the geography of the group by entering regional markets. However, the key challenge in this task is to preserve the brand image created globally, but to adapt to the needs of the local customers. This task is associated with careful evaluation of the market environment and competitive landscape, which are specific to each region.
Part III: Development of Alternative
The current L’Oreal strategy is designed in a way to address most of the threats in the external environment and to capture the opportunities that are presented. The highly diversified portfolio helps to derive synergies among businesses, to reduce risk and to offset low growth rates in the mature sectors by the growth in the younger ones. Internationalization strategy of L’Oreal has also proven to be successful. While the group emphasizes internal growth, it expands its operations into some regions by acquiring local players. Such strategy allows gaining quick access to the market, obtaining shelf-space and benefitting from the local knowledge of the acquired company.
Despite L’Oreal’s high profitability and current market leadership, its internationalization strategy still possesses some weakness that may eventually become detrimental for the future success. Thus, the number of brands and divisions within the group is becoming dangerously large. Additional complexity makes it hard to coordinate activities of the group and to react to the market demands effectively. Moreover, it is possible to relax the strict policy of globalizing all the brands within the company, since the more markets L’Oreal penetrates, the more heterogeneous the demand patterns of the customers become. Therefore, it will be more and more difficult for the company to make sure that one product fits all consumers in all parts of the world. Hence, L’Oreal could introduce several regional brands that could be sold in macro geographic areas and could be designed with consideration of the customer needs in the particular region.
Part V: Selection and Implementation
Selection and implementation of the suggestions described above do not require extensive resources and major organizational changes. In fact, limiting the number of brands and division consolidation could potentially reduce operational cost and improve coordination. In particular, Active Products Division and the Body Shop need to be integrated into the overall company operations.
The use of regional brands would require extensive cost-benefit analysis and planning. This strategy can be implemented in two different ways. Firstly, L’Oreal may acquire successful local brands without changing their names and/or their essence, but by integrating them into own portfolio. This method is relatively cheap and does not entail much risk. Secondly, it is possible to enter new markets with own new brands, however, such strategy is very risky and is unlikely to be effective in most markets.
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