L’oreal Marketing Essay Example

their international presence remained limited due to the perception that Parisian products were expensive.

In 1954, L'Oreal entered the American market through a licensing agreement with Commissar Inc., allowing them to distribute their products to U.S. salons. This move helped increase their global reach; however, each brand was managed individually at that time. Without a license agreement, it would have been challenging for L'Oreal to enter the market since American consumers were unfamiliar with their product. Nonetheless, this allowed L'Oreal to gain insight into the American market and understand buyer behavior and competition levels.

However, according to Bartlett and Shoal (1989), depending on licensees for revenue generation can be a drawback of this approach as it makes L'Oreal reliant on their skills and resources. Carbon (2000) argues that in 1994, L'Oreal further strategized its presence in the American market by acquiring Commissar Inc.
In 1996, L'Oreal acquired Amiability, America's third largest cosmetics company. Amiability sold products primarily in supermarkets, cosmetic specialist stores, and mass market discount stores. L'Oreal believed that by improving Amiability's products, marketing, and brand image, they would unlock significant international potential.

This acquisition allowed L'Oreal to reach a younger consumer base in America and expand beyond its affluent European consumer base due to Amiability's strong American brand image. Amiability was known for its affordability, extensive distribution network, and diverse product range which appealed to a wide range of ethnic consumers both domestically and internationally.

As a result of this acquisition, L'Oreal experienced a 50% growth in sales from Amiability outside of the United States. This strategic move also helped L'Oreal gain a seventeen percent share of the $2 billion U.S. Cosmetics industry in 1995.

L'Oreal adopted strategic acquisitions

as part of their growth and internationalization strategy. This approach allows them to mitigate risks and reduce competition by acquiring rivals. It also enables them to achieve greater market share through horizontal integration, allowing for higher prices on their products according to Bartlett and Shoal (1989).Bartlett and Shoal (1989) argue that this entry mode can lead to clashes between corporate cultures. L'Oreal (2010) states that in the 1980s, they bought stakes in two American companies, Helena Rubberiest and Ralph Lauren Fragrances, eventually fully acquiring them in 1988 and 1990. Well (2006) argues that despite losing appeal among US consumers, L'Oreal believed effective marketing and relaunching would lead to success. This was due to Helena Rubberiest's strong reputation in Europe and Asia as an upscale brand. Acquiring Ralph Lauren Fragrances aimed at strengthening L'Oreal's luxury products division while gaining access to a younger consumer market through established brand image and distribution networks like Asks Fifth Avenue.

Another important acquisition for expanding global presence was the purchase of Skill's by L'Oreal in 2000. Skill's added a diverse range of specialized products for high-end customers such as perfumes, skincare, body care, and hair care to L'Oreal's luxury product division. It allowed L'Oreal to broaden its product range and increase influence on American society.L'Oreal's growth was fueled by heavy investments in expensive advertising campaigns. However, Skills' exclusive products and recognition among celebrities eliminated the need for such advertising. L'Oreal's revenue increased annually, thanks to acquisitions of major U.S companies that expanded its global presence and allowed entry into emerging markets. The company successfully organized itself into Consumer Products, Professional Products, and Luxury Products divisions. Around 20-25% of L'Oreal's annual revenue

is generated from the United States. Their acquisition of Redken in 1993 enhanced their hair product division through leveraging Redken's distribution networks. Consequently, L'Oreal shifted its focus to selling hair products to salons and hairdressers in the U.S., while luxury hair products were sold in European department stores. This shift led to higher profitability as salon sales had a greater profit margin than mass market hair products. The professional hair care division accounted for one-third of the overall sales in this category for the company. In order to penetrate the ethnic hair care market, L'Oreal strategically acquired Soft Sheen in 1998 and Carson in 2000 respectively according to Morals (2000). It should be noted that Soft Sheen was a leading American ethnic hair care product while Carson held an impressive 82% share of the U.S ethnic hair care market (Rhea, 1997).L'Oreal's acquisition of Carson helped them enter the South African market, which had a value of one billion Lars. The company recognized the importance of entering the American market due to the significant population of African Americans, who accounted for 12.85% of the total population and represented 30% of hair care expenditure in 1997 ($1.2 billion) (Morals, 2000). Acquiring these companies allowed L'Oreal to expand its distribution channels, with a majority of sales coming from wholesalers like Cost and beauty shops. Advertising and promotion were not heavily relied upon in this fragmented market, as it was responsive to word-of-mouth recommendations (Morals, 2000).

L'Oreal's internationalization process aligns with the Pascal Model, which consists of four stages. In stage one, L'Oreal aimed to establish a presence in the American market through a licensee with Commissar instead of making

a large foreign direct investment. This approach allowed L'Oreal to gain market knowledge and control international expansion effectively. This method is in line with Foreseen's suggestion that businesses should enter new markets with minimal resource commitment initially and then gradually expand their operations. By doing so, L'Oreal was able to manage risk and increase resource commitment over time.

In the second stage, they exported their products through independent representatives and regional middlemen while expanding their reach internationally.

Note: The original text contains some spelling errors ("Lars" should likely be "Rands", "Cost" should likely be "Cosco", "Commissar" may refer to "Carson"), but I have retained these errors for accurate as requested by youThe third stage involved the establishment of a sales subsidiary by Helena Rubinstein and Ralph Lauren Fragrances. This provided L'Oreal with valuable information about market conditions, including factors such as language, culture, and political systems. In the fourth stage, L'Oreal established a foreign production facility in the American market. Despite high competition in the cosmetic industry, L'Oreal's strategic international strategy enabled them to become the industry leader.

L'Oreal has achieved its success by developing brands in different market segments and establishing wide distribution channels in various sectors such as mass market, hair salons, pharmacies, and department stores (L'Oreal: 2009). However, this expansion into different markets has brought numerous challenges for L'Oreal from its competitors.

According to Drier (2004), L'Oreal faces tough competition from major players like Proctor & Gamble, Revlon, and Maybelline in the consumer cosmetics division. Proctor & Gamble is particularly strong due to its acquisitions of Claire in 2001, Gillette in 2005, and majority stake in Well hair care brand in 2003. In fact, Proctor

& Gamble holds a significant seventy percent market share for its hair color brand Claire (Drier: 2004), making it a significant competitor for L'Oreal especially in the United States.L'Oreal's globalization strategy involved entering the specialized hair salon market through its acquisition of Redken, unlike Proctor & Gamble's mass-market approach. Milliner has also adopted similar strategies to L'Oreal and Proctor & Gamble in order to streamline its brand portfolio and gain a competitive advantage by identifying potential acquisitions. In their pursuit of becoming a global leader in personal care and cosmetics, L'Oreal purchased American business Cheeseburger-pond. Their marketing strategy focuses on positioning themselves above drug store cosmetic brands like Revolve, establishing a prestigious brand name, and charging high prices. Packaging and advertising campaigns featuring celebrity models have contributed to L'Oreal's elegant brand image. Furthermore, their commitment to research and development has allowed them to develop a comparative advantage by investing $612 million in research in 2005, resulting in reduced production costs and purchasing costs (La Ruche-Poss.: 2005).According to Morass (2000), L'Oreal's purchasing cost of goods represents only nineteen percent of sales, while Well's cost is twenty-five percent. L'Oreal adopts a competitive strategy known as Porter's Differentiation strategy. This involves high research and development costs and acquiring other companies. The aim is to create unique products that meet specific consumer needs, establishing a prestigious brand image. Consequently, L'Oreal can charge higher prices than its competitors, reducing price sensitivity among loyal customers and creating barriers for new firms entering the market. While this strategy can generate higher revenue by making it challenging for new businesses to compete, there may be lower sales volume and no guarantee of increased

profits. Kim et al (2005) argue that relying solely on Porter's competition-based strategy is insufficient for sustaining high business performance. Instead, firms should focus on value innovation by discovering untapped market areas and generating new demand through innovation. In terms of organizational structure, L'Oreal follows a matrix approach where the CEO oversees regional leaders from France. Division executives are responsible for brand strategy, profitability, sales, and marketing management.The responsibility of Region Managers is to oversee sales in their specific region and implement sales strategies. Within their respective regions, Brand teams develop strategies and closely collaborate with division executives. Managers also maintain communication with general managers to address country-specific needs. General managers are responsible for providing marketing strategies and working together with the Research & Development department.

According to Osama (2009), implementing a matrix structure in an international context can be challenging due to language, culture, and time differences. However, L'Oreal has successfully avoided these problems by maintaining strong central oversight over division executives. This approach allows L'Oreal to assess the effectiveness of each executive in managing their divisions and regional managers while preventing redundancy and conflicting interests. By implementing the matrix structure, L'Oreal has been able to reduce costs by minimizing the number of required personnel through effective information sharing between projects. This resource sharing not only saves costs but also enables employees to share relevant information efficiently.

Appendix 3 illustrates that L'Oreal executives work on multiple projects simultaneously while ensuring a regular flow of information across different departments, promoting collaboration within the organization.

Nevertheless, L'Oreal has encountered cultural challenges while striving to become a global brand. These challenges became apparent during their decision-making process for expanding into

the American market in 1954 due to cultural differences faced by the company at that time.In contrast to the situation in Europe, L'Oreal faced challenges distributing their products to salons in the United States as they had to rely on local middlemen instead of national distributors. This was complicated by L'Oreal's limited presence in the U.S. market, making it difficult for them to establish these relationships. Moreover, American salons were unfamiliar with the quality of L'Oreal products and were hesitant to sell them. To tackle this issue, L'Oreal aimed to expand globally through strategic international expansion efforts and by going public in 1963. As stated by Sahara (2010), L'Oreal's strategy involved utilizing various distribution channels to sell cosmetics, which had a significant impact on their overall sales at a macroeconomic level.