Strategic Challenges L'oreal - Company Term Paper

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In other words, the higher the price, the higher the status they confer.

The active products are developed for customers interested in the products' medical properties.

In conclusion, L'Oreal's target customers are sophisticated, educated, beauty oriented people, with medium to high incomes, that appreciate the company's products' quality.

Regarding the company's earnings, 54.8% of the cosmetics sales come from consumer products, 25.1% come from luxury products, 13.9% come from professional products, and 5.5% come from active products. More than half of the company's sales incomes, 52.7% come from Western Europe, 27.6% come from North America, and 19.7% come from the rest of the world.

Even if L'Oreal is the worldwide leader in the cosmetics industry, competition is very harsh in this line of business. L'Oreal's most important competitors are Procter & Gamble's Max Factor International, Clinique, Estee Lauder, but also "niche players such as Los Angeles-based cosmetics maker Stila."

All of these competitors are strong international companies, that offer products of similar quality as L'Oreal does. They follow L'Oreal's footsteps by developing similar products, by offering similar advantages, and by promoting their products in a similar way. For example, in the TV ads, L'Oreal's products are advertised by celebrities, most of them well-known actresses, like Andie McDowell, Penelope Cruz, Milla Jovovich and others, in order to create a connection between the customers and these celebrities through L'Oreal products. Max Factor, one of the competitors, followed the same scenario, creating a link between their products and recent movies and the celebrities starring in them. Also, Avon Cosmetics' products are advertised by another celebrity, Salma Hayek.

It is not easy for a new entrant to make its way in this industry, especially with players like L'Oreal. New entrants cannot threaten this company's position on the market, as it is impossible for a new company to compete with L'Oreal's tradition in this industry.

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When it comes to the company's unique capabilities, it is hard to settle on a single aspect, as L'Oreal's strength resides in its marketing approach and also in the research and development activity.

L'Oreal's marketing activity is completely opposite to other companies': instead of homogenizing their brands, in order to make them suitable to any culture, L'Oreal's products "embody their country of origin." For example, when L'Oreal acquired the American cosmetics company Maybelline in 1996, instead of sticking the L'Oreal label on it, the company's professionals started a complete makeover of the Maybelline brand, and the promotional campaign was based on promoting the products' U.S. origins. Also, the company's products are distributed through all distribution channels, including direct mail, which has a positive impact on the company's sales, since the company's products can reach any environment.

Regarding research and development, the company has five worldwide centers: one in the United States in Clark, New Jersey, two in France, one in Japan, and another one in China.

The company, as the worldwide leader, establishes the market's coordinates.

One of L'Oreal's strategic challenges is the 2006 takeover of the Body Shop cosmetics company. This acquisition, much like other previous acquisitions like Maybelline New York in 1996, is meant to consolidate even more L'Oreal's position on the market for the next years.

Another opportunity for the company are the new research and development centers in Japan (Kawasaki, Kanagava) and China (Shanghai) established in 2005, that can improve the company's position on the Asian market.

Also, the spa that L'Oreal opened in New York is intended to increase the company's sales and to create "a younger and trendier" target market.

These strategy moves should attain their objectives in the next five years.

Reference List

L'Oreal (2007). Wikipedia, the free encyclopedia. Retrieved February 18, 2007 at http://en.wikipedia.org/wiki/L%27Oreal.

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