Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

Strategic Situation Analysis

In 1992, the L'Oreal Group was one of the largest cosmetics manufacturers in the world. Headquartered in Paris, it had subsidiaries in over 100 countries. L'Oreal believed that innovation was its critical success factor. It thus invested heavily in R&D to be able to compete in the global industry. L'Oreal tried to introduce its products worldwide to offset with the high R&D costs. However, international subsidiaries, as in the case Director of the Netherlands subsidiary, could make decisions by themselves whether to introduce those new products in their country. Any new products introduced, had to be financed by that countrys operations. With the limited resources in Netherlands operation, the products will have to be marketed with the same sales force. L'Oreal presently offers the following products in the Netherlands: Plenitude and Recital under the L'Oreal brand name and Ambre Solaire under the Garnier Institute brand name. L'Oreal Nederland director has been considering whether to introduce the Synergie skin care line and Belle Couleur hair colorants line into the Netherlands. Synergie and Belle Couleur are marketed under the Garnier Institute name in France. The critical issue is that Dutch consumers had little awareness of Garnier brand and thus no brand image. In order to succeed in the Dutch market, the products needed to offer the unique, differential competitive advantages. Without which, they will likely fail and will also be the cause of creating the negative image for the Garnier family name. Thus, it will destroy the future prospects of the Garnier lines introduction to Netherlands market.

Problem Definition
Under the Garnier family brand name, LOreal has successfully launched both the Synergie skin care and Belle Couleur permanent hair coloring lines in France. While the Garnier brand name is familiar to the French, Dutch consumers have little or no awareness or knowledge of the Garnier brand and had not formed a brand image. The Garnier sunscreen was a new product and few Dutch women knew of the brand. It was, therefore, very important that any new Garnier products launched in the Netherlands have a strong concept and high market potential. To accomplish this the products needed to offer unique, desired, and identifiable differential advantages to Dutch consumers. LOreals main problem in this case is deciding whether they should try to launch a product line in a market with little brand awareness. Although this is their main problem, other difficulties are likely to arise, such as overcoming brand loyalty and defining a positioning statement that appeals to the female Dutch consumer. Introducing a new product line successfully into the Dutch market is vital for Garnier because it can determine the success of the brand as it expands into new markets. One of the goals of introducing a new product line, to a market with little brand awareness, is to create a positive association and/or experience with the Garnier family name. To create a positive brand image and high brand awareness new products must have a strong concept, high market potential and great positioning with consumers.

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

Cosmetic consumers tend to be brand loyal in fear that they will have experience negative results when attempting to use a new or different brand. This is another obstacle Garnier must overcome in addition to launching a product line to a market with little brand awareness. Dutch consumers will continue to purchase products that they know, use and trust, because they have had positive outcomes after product usage. It is known that attachment to a certain product only becomes stronger with age, so its imperative that a new product line reach the young consumer who will only grow increasingly loyal as they grow older. Cosmetic consumers research products to become familiar with the items that they want to buy, therefore, both product packaging and advertising of the new product lines needs to be informative, to ensure the cosmetic consumer understand that the Garnier brand will fulfill their wants and needs. THE EXTERNAL ENVIRONMENT Scanning of the external environment is executed at two levels. General/Macro Environment Industrial Environment General / Macro Environment Factor Data/Facts Total population of Netherlands is 15 million (EU population 350 million). In the late 1980s, 40 percent of the Dutch population was under 25 years old. Population The Dutch population was aging and the fastestSize growing population segments were the 25-or-older groups in 1992. Women population 5 million out of 15 million total population. The Dutch population was aging and the fastestAge structure growing population segments were the 25-or-older in Netherlands groups in 1992. In the European Union (EU), the Netherlands ranked fourth in per capita income. It ranked sixth in per capita spending on cosmetics and Income and toiletries. spending Dutch per capita spending on personal care products was only 60 percent of the amount spent per capita in France or Germany. Sub-Factors

Demographic

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

Economic

Working Women Disposable income

Increasing number of Dutch women was working outside the home. The labor force participation rate of women in the Netherlands was 29 percent and the number of women working outside the home was increasing faster in the Netherlands than it was in other EU countries. Women had more disposable income, and more of them were using it to buy cosmetics for use on a daily basis. Dutch women were also delaying childbirth. Despite their rising incomes, Dutch women still shopped for value, especially in cosmetics and toiletries. Dutch market accounted for only 4 percent of total EU sales of cosmetics and toiletries.

Social Market

Dutch Women delaying childbirth Market size and influences

Industry Environment Factors Threat of new Entrants Data/Facts Any innovative products or new product variations in a line could be quickly copied. Retailers could develop and introduce their own private labels in four months; manufacturers could develop a competing product and advertising campaign in six months.

Threat of Substitute No information about substitute products is given in the case. Product Bargaining Power of No such information in the case. Supplier The distribution channel does have some bargaining power. Dutch women have specific demands and expectations from Bargaining Power of cosmetics and shop for value. Their emphasis is on Natural Buyer ingredients in skin care products and on warm colors in hair colorants. Rivalry among There are numerous competitors. Oil of Olaz, Plenitude, Dr. vd Hoog Competing Firms and Rocher in the skin care market. After careful examination of the data and facts collected from external environment, we develop Opportunity and the threats of the proposed project through EFE Matrix

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

External Factor Evaluation (EFE) Matrix Key External Factor S.No Opportunity 1. 5 million Dutch women between the ages of 15 and 65 2. Rising labor force participation rate on women in the Netherlands 3. Dutch women having more disposable income and many of them using it to buy cosmetics for use on a daily basis 4. Skin care market was the second largest sector of the Dutch cosmetics and toiletries market 5. For the past five quarters unit volume had been growing at an annual rate of 12 percent and dollar sales at a rate of 16 percent. Threat 1 Retailers can develop and introduce their own private labels in four months 2 Manufacturers can develop a competing product and advertising campaign in six months 3 Consumers loyal to their existing brands 4 Possible allergic reaction to a new product by the company Weight 0.1 0.1 0.1 0.1 0.15 Rating 3 3 4 3 3 Weighted Score 0.3 0.3 0.4 0.3 0.45

0.15 0.1 0.1 0.1 1.0

3 3 2 2

0.45 0.3 0.16 0.12 2.78

THE INTERNAL ENVIRONMENT The internal environment is based on the Strengths and Weaknesses of the firm and the products that are under consideration to be launched. Internal Factor Evaluation (IFE) Matrix Key Internal Factor Weight Rating 3 3 3 Weighted Score 0.30 0.33 0.30

S.No Strength 1. Strong brand name in the EU countries 0.10 2. Synergie skin care products were made with natural 0.11 ingredients 3. Synergie skin care products had advertising slogan 0.10 The alliance of science and nature to prolong the youth of your skin

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

4. 5.

Complete line of products Market research information suggests that participants reacted positively to Synergie concept brands containing the positioning statement and the terminology associated with the total product line scoring 4.94 on a seven-point scale. 39% of the participants said they would certainly buy after they used it knowing the price. Weakness Cannibalization of existing products (Plenitude and Recital) Small Netherlands operations will have to spend a lot of money to promote Garnier brands and also to defend the existing brands Results of test market not satisfactory specially for Belle Couleur too dark color and didnt cover gray and high price and less value of money for synergie Lots of shelf space required for both the products

0.07 0.06

3 3

0.21 0.18

6.

0.04

0.12

7. 8. 9. 10.

0.18 0.14 0.13 0.07 1.0

4 3 3 2

0.72 0.42 0.39 0.14 3.11

ROLE OF DISTRIBUTORS Distributors acceptance of the two product lines was critical for LOreals successful launch of both Synergie and Belle Couleur. At one time, manufacturers had more control in the channel of distribution than did retailers. Retailers, however had been gaining power as a result of the increasing size of retailers, the development of chains with their central buying offices, and the proliferation of new brands with little differentiation from brands currently on the market. Retailers had also increasingly been offering their own private-label products, since they earned a higher percentage profit margin on their own brands. The retailers used to evaluate new products based on the following criteria, listed in order of importance (3 being the most important): 1 2 3 4 5 Evidence of consumer acceptance Manufacturer advertising and promotion Introductory monetary allowances Rationale for product development Merchandising recommendations 2.5 2.2 2.0 1.9 1.8

Positive here is that LOreals goal for developing new products was to introduce only products that had a differential advantage with evidence of consumer acceptance. Break down of distribution channels for current LOreal products in Netherlands

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

1 2 3

Independent drug stores Drug Chains Food Stores (Supermarkets)

35% 40% 25%

L'Oreal has a positive image with Dutch retailers and they need to make sure that any new products they offer provide high quality and innovative, while showing consumer acceptance. We do not think that either of the potential lines offers what distributors expect from L'Oreal. Therefore if they decide to launch the new line-ups there may be some risk of losing current L'Oreal distribution as the Garnier lines will be shipped with L'Oreal in order to gain distribution quickly. When discussing possible solutions, it is necessary to come to a recommendation that will create the most brand awareness and result in a positive association for the brand. The more familiar a consumer is with the brand, the more they will be willing and able to relate to a concept presented by that brand. Hopefully this will lead to reduced perceived consumer risk, trial of the product, and finally increasing brand and family loyalty Launching Belle Couleur Launching Belle Couleur aligns with LOreals mission statement of helping men and women around the world aspire to be beautiful and to express their individual personalities through cosmetics. In the Netherlands, there are 5 million women in the market of which 46% used hair coloring. Of this 46%, 73% used permanent hair coloring, this totals to a market size of about 1.7 million users. With a proposed selling price of 12.95 guilders (7.2 USD) and an average use of 4 times per year the total revenue market potential is 48 million USD in year one. Belle Couleur has a strong positioning statement, natural colors, covers all gray which resonates with Dutch consumers as over 60% of research participants stated that they used hair color to cover gray. No competitors currently have a clear positioning statement; therefore, Belle Couleur has a great opportunity to clearly position itself. LOreals current hair coloring offering, Recital, is the leader in hair care market. Recitals market share is declining as the Dutch women are trending towards warmer shades, and competitors appear to be offering warm, red tones. Based on market research, Dutch consumers responded positively to the concepts and the prices of the product line, but after usage participants stating that they probably/certainly will not buy Belle Couleur increased from 13% to 32%, as consumers said that the colorant did not cover gray and was too dark. Dutch consumers tended to use naturally light colours, but the French manufactured Belle Couleur is formulated to give a classical dark blond look and it is L'Oreal's policy to not modify the product for a new market. Since LOreal only offers permanent hair coloring products that target consumer looking to cover gray, this presents a major issue for Belle Couleur and shows that their product results and positioning strategy are not matching up well. Another red flag with the market is that Dutch hair-coloring users are clearly trending towards using semi-permanent hair coloring products, as over the past 4 years permanent users have dropped from 88% to 73%.

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

As a subsidiary of LOreal, Garniers Belle Couleur would be manufactured in France, the headquarters of LOreal; therefore they have the option to either take the product to market unmodified or dont take it to market at all. If Belle Couleur is going to work in the Netherlands, the organization will have to immediately work on a distribution plan, as the Dutch like to buy specific products at specific locations. Management also needs to keep in mind that LOreal already offers Recital under its own brand name and avoid cannibalization. To move into the hair care market Belle Couleur needs to modify its product to cover gray hair, they have a strong positioning statement that resonates with consumers who want color to cover gray hair. Either they need to re-formulate the product to cover the Dutch consumer's gray hair or they need to change the positioning statement and emphasize the lower price offered by Belle Couleur. It is critical that the Garnier product line launch is successful so that they can build a positive brand image, create consumer value and ensure future success of its products in the Netherlands. Marketing Mix (4 P's) Product: The problem is the majority of Dutch market love to have the brighter hair color. It sounds impossible for Belle Couleur will succeed in Netherlands if the product is not modified. Even some people will love to buy Belle Couleur, those people are the Recital's buyers who love L'Oreal product and want to have it at a lower price. Thus, it is also the cannibalization problem. If the L'Oreal is willing to expand the market of the low priced hair color product, they should reposition the Belle Couleur by differentiating its quality or advantages from Recital. For example, let Belle Couleur offer the brighter shades of hair color to compete with other competitors and also satisfy the majority of Dutch market. Price: The mid-price range. There is no one offering this price range. It is quite competitive. Place: Proposed break down of distribution channels for Belle Couleur in Netherlands 1 2 3 Independent drug stores Drug Chains Food Stores (Supermarkets) 32% 43%* 26%*

*As the drug chains and supermarkets are increasing in importance for all manufacturers, their share in the distribution channel has been increased. Promotion: Right now the Recital faced the losing market shares. That's mean its need to spend more on promotion campaign. Thus, to introduce the new lines of hair color in this downturn of the industry. L'Oreal will have to carefully consider implementing the promotion of the

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

introduction of Belle Couleur. Of course, the product is not strongly favorable in the Dutch market. And the France manufactures will not reformulate or customize the product for Dutch market. Budgeting and Forecasting
Budg eted F orecas ts for:
Avera g e Price 12.95 Guilders 12.95/1.8= 7.194= 7.20 USD

B elleC ouleur-'covering graywith natural colors '

Given: Number of women between ages 15 and 65 Percentage of hair color users (both permanent and semi-permanent) Permanent hair color users in 1992 T ota l users(T a rg et Ma rket) Average uses per year T ota l purcha ses Actual Price Potentia lS a lesof Yea r1 5000000 5m illion 4 6 % 7 3 % 1 ,6 7 9 ,0 0 0 4 6 ,7 1 6 ,0 0 0 7 .2 0 4 8 ,3 5 5 ,2 0 0 2,300,000 No. Units USD USD

Unit Hair coloring market Permanent %of mkt Permanent Hair color users Average purchases per year Total Sales Volume Actual Price Gross Revenue All Costs for Belle Couleur Net Profit No. of users No. of users Units

1 9 9 2 2 ,3 0 0 ,0 0 0 7 3 % 1 ,6 7 9 ,0 0 0 4 6 ,7 1 6 ,0 0 0 7 .2 0 48 -45 3

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

2 ,6 4 5 ,0 0 0 3 ,0 4 1 ,7 5 0 3 ,4 9 8 ,0 1 3 4 ,0 2 2 ,7 1 4 4 ,6 2 6 ,1 2 2 6 9 % 6 5 % 6 1 % 5 7 % 5 3 % 1 ,8 2 5 ,0 5 0 1 ,9 7 7 ,1 3 8 2 ,1 3 3 ,7 8 8 2 ,2 9 2 ,9 4 7 2 ,4 5 1 ,8 4 4 4 4 4 4 4 7 ,3 0 0 ,2 0 0 7 ,9 0 8 ,5 5 0 8 ,5 3 5 ,1 5 1 9 ,1 7 1 ,7 8 9 9 ,8 0 7 ,3 7 8 7 .2 7 .2 7 .2 7 .2 7 .2 AMOUNT SINUS DMIL L IONS 53 57 61 66 71 -49 -53 -58 -62 -66 3 4 4 4 4

Assum ptions: 1) Assumed the market for hair coloring was growing@ 15%per year, as have been the case over the past four years. 2) Assumed Permanent was losing4%per year to semi-permanent, as have been the case over the past four years { (88% -73% )/4} . 2) L'Oreal's profit/sales is 6.13%(based on L'Oreal net profits $0.417 billion / $6.8 billion) 4) Weighted average: Calculated that 25%of users use it every 6 weeks, 47%use it about every 2.5months and the remainder use it once per year Purchase Annual We ighte d Weig htag e e ve ry Purchase s Ave rage

1.5 2.5 12.0

8.0 4.8 1.0

0.3 0.5 0.3

2.0 2.3 0.3 4.5

Conse rvative lytake nas4purchase spe r ye ar.

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

Launching Synergie The launch of Synergie is supported by the fact that the Dutch market is growing more than 12% annually. When looking at demographic trends (the aging population, increasing disposable income for women, value focused consumers) along with a growing market, the launch of Synergie appears to have a lot of potential. Financially the projected total revenue potential for the skin care market in year one is 33 million US Dollars. In addition, the Dutch consumer has shown increased interest in products with natural ingredients, which is part of Synergies positioning statement The alliance of science and nature to prolong the youth of your skin. If Synergie can break into the market, consumers are very loyal and they link their self concept with the brand image. Within the skin care market competition seems to be very stiff at the middle price range especially from LOreals own offering, Plentitude. The Synergie product line is going to have to find a way to differentiate itself to create consumer value. Synergie will also have to find a way to familiarize the Dutch consumer with the technical product descriptions and terms that make Synergie unique. Lastly, one of the most significant problems with the introduction of the Synergie line comes back to the product. According to market research, after knowing the price those who used the product for a week were less likely to purchase the product than those who just used it once. This seems to show that the product is not as good as others in its price range. At the same time private labels entry is a viable threat as they can copy competition fairly quickly. Marketing Mix (4 P's) Product: The differential advantage is natural ingredients Price: It is offered in the mid-price range. Synergie will be able to compete with the outside competitors. However, it has to compete within L'Oreal brands (Plenitude). Place: Proposed break down of distribution channels for Synergie in Netherlands 1 2 3 Independent drug stores Drug Chains Food Stores (Supermarkets) 35% 43%* 22%*

*As the drug chains and supermarkets are increasing in importance for all manufacturers, their share in the distribution channel has been increased.

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

Promotion: As mentioned earlier, the main problem is cannibalization. L'Oreal needs to concentrate on the positioning of each product. The Synergie line would have to be highly promoted and advertising would stress on it having natural ingredients. This would help in distinguishing it in the target market who are mainly interested in natural ingredients (Synergie) and who are mainly interested in anti-aging cream (Plenitude). Budgeting and Forecasting
B udg eted F orecas ts for:
Avera g e Price (11.95+ 21.95)/2= 16.95 Guilders 16.95/1.8= 9.42= 9.45 USD Given: Number of women between ages 15 and 65 (Total Users) Given: Percent of women usingday cream T ota l users(T arg et Ma rket) Average Purchases per year T ota l purcha ses Average Price Potentia lS a lesof Yea r1 5000000 5m illion 4 6 % 2 ,3 0 0 ,0 0 0 1 .5 3 ,4 5 0 ,0 0 0 Units 9 .4 5 USD 3 2 ,6 0 2 ,5 0 0 USD

S ynergie- lineof facial s kin careproducts

(1+ 2)/2= 1.5

Given: Once or twice a year

Gross Revenue All Costs for Synergie Net Profit

1 9 9 2 33 -31 2

1 9 9 3 38 -35 2

1 9 9 4 44 -41 3

1 9 9 5 51 -48 3

AMOUNTS IN USDMILLIONS 1 9 9 6 1 9 9 7 59 68 -55 -64 4 4

Assum ptions: 1) Assumed that the dollar sales will grow at the rate of 16%per year as have been the case for past five quarters. 2) L'Oreal's profit/sales is 6.13%(based on L'Oreal net profits $0.417 billion / $6.8 billion)

ISSUES If the Netherlands operations decide to introduce the Garnier lines of products, there are some issues that need to be considered/ addressed, these are; 1. Limited resources: there is a limited sales force. It is stated that Netherlands division will use the same sales force for both L'Oreal existing product and Garnier new product lines. This might lead to ineffective work. L'Oreal would need to come up with solutions such as the compensation, incentives, etc. to improve motivation.

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

2. L'Oreal existing products: Due to less time and money to maintain the lines, this might lead to sales drop or ineffective management of the currently lines. Also, L'Oreal would need to develop a strategy for the Plenitude and Recital to defend their position against the competition. 3. Recital's losing market share: this line now requires attention from the managements.

Recommendation Based on the current positioning statements and market research for each line-up, the data simply does not support strong consumer acceptance. Something would have to be done to improve the consumer perception of the brands, such as a stronger positioning statement, a focused marketing plan, or a better product in general. Also, since the subsidiary is responsible for the introduction of the product, there is a possibility that the L'Oreal sales force becomes overwhelmed by having to sell in both products at once, while maintaining the current L'Oreal offerings. L'Oreal would also have to lobby for a lot of shelf space in both drugstores and supermarkets. They cannot rely on the retailers just handing them the shelf space, especially since they do not have an established brand name in the Netherlands The decision that the Netherlands LOreal subsidiary faces is very difficult, especially in a smaller market with multiple competitors and an aging population that tends to be very brand loyal. We recommend that LOreal launch neither Synergie nor Belle Couleur until they can come up with a concept and product that differentiates itself from competitors and provides clear evidence of consumer acceptance. Obviously this is not going to be an easy decision for management to accept, but based on what we know about the Dutch market and the importance of introducing the Garnier name with a successful product line launch, we believe that the target market and product positioning needs to be more clearly understood. Furthermore, cosmetic life cycles are very short; therefore, if we offer a new product in the Dutch market we need it to be breakthrough innovation. Finally, in an established market such as the Netherlands, a new product line would have to be financed by the current operations within that country and LOreal already markets both skin care and hair coloring product lines in the Netherlands. So not only would Garnier be competing against LOreal in a smaller market, but the Dutch LOreal sales force would have to sell both product lines. Dutch consumers have very little awareness of Garnier and they have not formed a brand image; this makes it very difficult to break into a market where consumers tend to be brand loyal. Although Dutch women have more disposable income, the fastest growing segment is women 25+ who shop for value and only purchase skin care products 1 to 2 times per year, making it very difficult to establish a new brand in the skin care market. The Dutch research department conducted research on the Synergie products and the results were fairly similar to competing brands including LOreals current offering, Plentitude. An especially fast growing category consists of anti-aging creams and yet the research results declined after participants used the Synergie anti-aging cream. Dutch women are increasingly interested in products with natural ingredients, but they arent familiar with technical product descriptions, which is part of the current position statement that Synergie provides (The alliance of science and nature to prolong the youth of your skin).

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Case Analysis: L'Oreal Nederland B.V.

Garnier and LOreal Product Lines

The trend over the past 4 years has been towards the semi-permanent colorant, yet nearly 73% of Dutch women us permanent hair coloring. There is a lot of potential in this market, but there are strong competitors. As mentioned, LOreal has an offering in this category and smaller brands have entered the market over the past few years as well. Currently none of the competitors have a clear positioning statement describing customer benefits; therefore Belle Couleur appears to have a competitive advantage with its current positioning as natural colors, covers all gray. But there are two major problems with the Belle Couleur line. First, the market research conducted revealed that after use participants who probably would not or certainly would not buy the product increased from 13% to 32%, with many women saying that their hair was too dark and the color didnt cover the gray. Secondly, Dutch consumers tended to use naturally light colors, but the French manufactured Belle Couleur is formulated to give a classical dark blond look and it is LOreals policy to not modify the product for a new market. In terms of distribution, LOreal has a positive image with Dutch retailers and they need to make sure that any new products they offer provide high quality and innovative, while showing consumer acceptance. We do not think that either of the potential lines offers what distributors expect from LOreal. Therefore if they decide to launch the new line-ups there may be some risk of losing current LOreal distribution as the Garnier lines will be shipped with LOreal in order to gain distribution quickly. LOreal headquarters wants to introduce more Garnier products in other areas including the Netherlands over the next few years. There is potential to move into both skin care and hair coloring markets as the annual volume growth rate is 12% and 15% respectively, but more work needs to be done to understand the target market and to come up with a concept and value that resonates with the Dutch consumer. In order to move into the skin care market, Garnier needs to position the Synergie line as a natural moisturizer that is sold at a reasonable price, and then they have to retest this concept and using a lower price to determine if there is a potential target market for a new brand line up. They also need to be prepared to spend a lot of money upfront on advertising in order to gain market share. To move into the hair care market Belle Couleur needs to modify its product to cover gray hair, they have a strong positioning statement that resonates with consumers who want color to cover gray hair. Either they need to re-formulate the product to cover the Dutch consumers gray hair or they need to change the positioning statement and emphasize the lower price offered by Belle Couleur. It is critical that the Garnier product line launch is successful so that they can build a positive brand image, create consumer value and ensure future success of its products in the Netherlands.

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