L'oreal Case Study Case Study

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L'Oreal Nederland B.V.

Situation Analysis

Identification of Alternative Solutions

Decision Criteria

Recommendation and Implementation

Exhibit 1. Alternatives Analysis

The managers of the Dutch subsidiary of the L'Oreal Group wrestled with a decision about whether to introduce additional products into the Netherlands market. L'Oreal, headquartered in Paris, was the largest cosmetics manufacturer in the world. With a heavy corporate investment in research and development, Paris expected each of the 100 country subsidiaries to distribute the new products; but the country managers were required to take the decision on whether to introduce each product based on the particular situation in their country. The French labs made unilateral decisions about all new product developments and the country managers had no input into the R&D process. Any new product line introduction had to be financed by the current operations of each subsidiary.

Some years earlier, L'Oreal had acquired a rival French company called Laboratoires Garnier. In France, with a population of 60 million people, Garnier operated as an independent company in direct competition with the L'Oreal products. However, in smaller markets such as Holland, with a population of 15 million people, the Garnier products would be marketed by the regular L'Oreal sales force, competing for their time and attention. Madame Yolanda van der Zande, director of the Netherlands subsidiary, and her marketing manager, Mike Rourke, were considering the introduction of two Garnier product lines into the Dutch market: the Synergie skin care line and the Belle Couleur permanent hair colorants. Synergie was a new line -- recently introduced in France -- made with all natural ingredients, which was a new trend in Holland. Belle Couleur had been on the French market for 20 years, but had no presence in Holland. Madame van der Zande gave Rourke two weeks to come up with a marketing plan to decide which if any of the new Garnier products to embrace in Holland and how to preserve the existing L'Oreal products that might be impacted by the introduction.

Rourke had been in the business long enough to know that any new product launched in the Dutch market would have to present a strong concept and high market potential. Therefore, the products had to offer unique, desired and identifiable differential advantages to Dutch consumers in order to overcome the customers' natural loyalty to their existing brands. Rourke was aware that without that edge new products would be at a competitive disadvantage and would not only fail, but would tarnish the Garnier name and poison the well for future Garnier products introductions.

At the time of this decision, 40% of the Dutch population was under 25 years old, but the population as a whole was aging; the fastest growing segments were those over 25 years old. The population surveys also revealed that Dutch women were getting out of the house in growing numbers. Twenty nine percent of the women had entered the labor force and there was reason to believe that percentage would rise. The percentage of working women in the United States and the United Kingdom was over 50%, but the Dutch working women segment was growing faster than those countries. Dutch women were also delaying the decision to have children, exhibiting greater self-reliance and independence. These women also had more disposable income and could afford to buy more cosmetics for daily use. These statistical observations led Rourke to believe that the market was right for products that promised to delay the aging process.

Even though the Dutch women had more money to spend, they continued to exhibit their long-held habits of shopping for value, especially for cosmetics. European Union surveys showed that while the Netherlands ranked fourth in per capita income, they were sixth in spending on personal care products. Dutch per capita spending on personal care products was only 60% of the amounts spent in France or Germany, therefore, the Dutch market for cosmetics was only four percent of the total European Union sales.

The Dutch market for cosmetics and toiletries was led by the skin care segment, which was growing at an annual rate of 12% on a unit basis and 16% on a value basis. This segment included hand creams, body lotions, all-purpose creams and facial products. Skin care products were often divided by retailers into the care and cleansing products. Care products were further categorized into day and night creams; cleansing products included milks and tonics. Noticeable as a faster growing segment was the anti-aging and anti-wrinkling creams.

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A corollary to that trend was the keen awareness of natural ingredients and the attention paid to claims of scientific formulations.

The competitive landscape for skin care products was well defined by large and well-known brands. Shiseido and Estee Lauder were firmly ensconced at the high value end of the market, while the economy segment was occupied by mass marketers such as Ponds, sold in drug store chains and supermarkets. In the middle were several products such as Oil of Olaz by Procter & Gamble and Plenitude (one of the existing L'Oreal product lines that had to be protected in Rourke's new marketing plan.)

As Rourke turned to the available research on the hair coloring product market, he found that there were some particular trends that he had to carefully consider. There were two types of colorants: semipermanent and permanent. The semipermanent washed out after five or six shampoos. The permanent color stayed until the hair grew out from the roots. While 73% of Dutch women, who colored their hair, used a permanent product, the four-year trend was toward semipermanent coloring, which increased from 12% to 27%. The sales of both varieties increased by 15% per year.

The competitive landscape was dominated by a small handful of products, including Recital, the existing L'Oreal product in the market. Recital was the market leader, but its market share had declined from 35% to 33% over that previous three years. Rourke also had to contend with hair salons, but he came to believe that the trend toward more women working outside the home favored the home coloring option, because of its convenience.

Rourke discovered that consumers thought of permanent hair colorants as technical products and were leery of new brands because of the risk of hair damage. He found that buying a new brand entailed reading the full description on the package and asking store clerks for advice and counsel. Traditionally, the use of hair colorants had been associated with the desire to cover graying hair. However, a recent trend had been toward using coloring as a fashion statement -- partially accounting for the rising popularity of semipermanent products. One study cited one reason for coloring was to achieve warm/red tones (33percent) and 17% wanted to lighten their hair color, the remaining 29% wanted to cover their gray.

Rourke had recently conducted specific market research studies of the two Garnier lines with Dutch consumers. The panel of users gave the Synergie line higher favorable marks than did the Belle Couleur panel. Market research also confirmed a strong product loyalty factor among Dutch women, with concerns about possible allergic reactions to unfamiliar products cited as a reason. Rourke learned in his research that the older the woman, the stronger the loyalty factor. This was especially important since Dutch women tended to buy facial creams only once or twice a year, so they naturally gravitated to the label on the container in their medicine cabinet.

Rourke found that facial care products were heavily advertised and sold on the basis of brand image. New products tended to have trouble gaining traction in the Dutch market. The advertising agency Rourke typically used advised that the "share of voice" (percent of total industry advertising) should be about the same as the expected "share of market." This rule of thumb didn't work for all categories. At the high end, the successful companies tended to spend much more as a share of total advertising budget than they achieved in market share. For instance, Rourke spent 13% of the total on advertising for Plenitude, but was only able to capture a five percent market share.

Situation Analysis

Strengths

L'Oreal had a strong worldwide market presence and favorable brand image.

The company invested heavily in research and development, producing one or two new product introductions each year.

Synergie was made with all natural ingredients, following a fast growing market trend.

Dutch retailers perceived L'Oreal as offering high-quality, innovative products supported with good in-store merchandising.

Weaknesses

Dutch consumers had very little awareness of the Garnier brand.

The Belle Couleur hair colorant was a "permanent" product (reapply only when the hair grows out.) The market trend was toward semi-permanent products (that wash out after five or six washings,) which had increased from 12 per cent to 27 per cent of the market.

L'Oreal had a competing hair colorant (Recital) on the Dutch market. Its market share was declining.

The Belle Couleur hair colorant was formulated.....

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