Loreal Case Study
L’Oreal needs to sustain high growth to be able to achieve a target of 2 billion customers by 2012. The recommendation put forth is for the company to focus on parallel efforts in continuing to build upon its previous and current success as well as implement a forward looking strategy to extend outreach to areas of high potential. Understanding customer demand in various regions and socio-economic classes will be vital in adapting the business to suit a larger audience. Younger consumers will make up the big chunk of the customer base by 2020. L’Oreal needs to reach out to these groups of consumers to help them make the right decision for their beauty care needs. The recommendations have been broken into various segments to provide clarification for what actions and steps will be required to implement.
L’Oreal has an existing presence in mature markets. Much success has been achieved in North America and Western Europe. These regions have shown high uptake for cosmetics and L’Oreal’s strategy to rebrand labels such as Maybelline have shown great success. Here, Loreal should try to move a large portion of customers upstream from base brands “masstige” brand, and from “masstige brands” to luxury brands like Lancome. The key sustainable competitive advantage for Loreal has been innovation. R&D teams need to work intensely in the lab to create products that deliver the “science of beauty in a jar” to its customers since the demographics are not only affluent, but well educated. Marketing efforts will not work if there is not real science and a real-life difference to back the products up. Profit here will be a function of margin, since these buyers are willing to pay a premium for innovation. Growth in these regions will be achieved not so much by attracting new segments but more by converting existing customers to sophisticated customer than are willing to pay more for quality. The key in mature markets is to maintain a competitive edge over competitors and gain a larger slice of the pie.
L’Oreal has observed large growth in areas labeled as new markets, as seen in Exhibits 2 (a,b,c,d). For L’Oreal, these markets are emerging geographical areas that carry high potential for cosmetic consumption. From Exhibit 1, we see that there is a high correlation between GDP per capita and per capital cosmetics spending. From what we can see, for China, India, the UK and the US, the per capita spending is higher per capita GDP, which represents a mature customer base with higher spending. However, countries such as Spain, Japan, and Brazil spend less on cosmetic consumption than GDP growth. More aggressive marketing in these markets can shift consumers to adopt similar habits as higher cosmetic consumption countries that can yield large growth. L’Oreal can attain volume growth of sales through targeting these new markets. As the company grows (through product line extension, geographic expansion