L'oreal Case Study

L'Oreal

Introduction

L'Oreal is the largest cosmetics company in the world. It shouldn't be a surprise that L'Oreal doesn't sell all of its product lines in every market in which it sells, and the market in the Netherlands is no exception. Upper management of the Netherlands' L'Oreal subsidiary have to make decisions on which product lines will succeed in their respective market and which ones will falter. In this particular case, L'Oreal needs to decide if it would like to introduce Garneir product lines such as the Synergie skin care line and the Belle Couleur permanent hair colorants line into the Netherlands market. The basic problem is whether or not to introduce these lines into the Dutch market.

Situation Audit

In the Netherlands, unlike in France, L'Oreal and Garneir are both sold under the same sales force. This must be taken into consideration considering that L'Oreal has products in both hair colorants (Recital) and in skin care (Plenitude). Fortunately, the Dutch market maybe able to handle both of these product lines from L'Oreal and Garneir if it is felt that they could both be profitable.

When looking at the Dutch market, the most surprising thing is the youth of population. 40% of the population is under the age of 25. This is an important demographic stat because a lot of younger women are the ones who use cosmetics, but it is important to note that the fastest growing populations are those of age 25 and older which might be important to the market of hair colorants. Another interesting trend is the number of Dutch women who work outside the home with a labor force rate of 29% and it is increasing more rapidly than those of other countries like the United States and the United Kingdom. This is very interesting because these women will have more money, independence, and self-confidence. In these terms, these women will more than likely use more cosmetics because of the increase in time that they spend outside of the home. A final insight into the Dutch market shows that Dutch women tend to shop for value, especially in cosmetics, which needs to be taken into account. The overall Dutch market looks somewhat promising to the introduction of Synergie and Belle Couleur lines, but other factors must also be looked at.

While the overall Dutch market is important in the analysis, the product markets might give a better indication of how these products might do. For both of these lines, their markets seem to originate over the prices of the products being sold, from the upper end, to the middle, and farther down to the low end of the price scale. In the skin care market, which is the second largest sector of the Dutch cosmetics market, unit volume has grown at 12% annually in the last five quarters while dollar sales has risen at 16% annually. Also, 50% of Dutch women between 15 and 65 use traditional skin care products. The forecast is also good considering by the year 2000, sales in the cosmetic industry in the Netherlands is to reach around $145 million, with an annual growth rate in the 3% range (Datamonitor, Makeup). For the hair coloring market, almost 75% of Dutch women use permanent colorant instead of semi permanent colorants, relating well considering Belle Couleur is a permanent colorant. During the past four years the volume growth has been 15% annually. The hair care market value, which includes hair colorants, is expected to reach around $320 million by the year 2000, once again growing around 3% a year (Datamonitor, Haircare). Its easy to see that both of these markets look profitable in the future and that if these lines are introduce they will have the ability to become successful in the markets.

Another important determinate is the competition in these respected markets and the behavior of consumers. In the skin care market there are many competitors that include L'Oreal's Plenitude. Some of these competitors offer only partial lines while other offer complete skin care lines. It is also important to note that new entrants usually spend a lot more money on advertising that compared to their market share. For example, Ponds spends roughly 2.5% of the industries ad expenditure while it holds 9% market share. On the other hand, Plenitude owns 5% market share but spends 13% of the industries ad expenditure. This is important because if and when the Synergie line is introduced into the Dutch market, it can be expected that it would need far more money for advertising to establish itself and the brand than what is needed by our competitors. Another worry about the market is that consumers tend to be loyal with users feeling an emotional attachment with a particular brand image. So even though these consumers are loyal, a good advertising campaign maybe able to swing users to Synergie with the correct self-concept that appeals to the masses. The hair coloring market also has many competitors even though four of them make up around 80% of the market share. Once again though, L'Oreal has its own product in this market, and even worse this product, Recital, is the leading seller. Even though there are indirect competitors in the market like hair salon, it is believed more women will use home coloring, as it was more convenient for the workingwomen. An important competitor to look at in this market would have to be Guhl. Guhl has increased its share from 9% in 1987 to 14% in 1989 using warmer shades, using drug chains, and using better marketing to increase its sales in large independents. Another important note is that advertising has increased dramatically with the higher intensity of competition. As with the skin care industry, consumers tend to be brand loyal. These consumers bought their products in drugstores and also asked store personnel for advice. Another insightful thing of consumers is that in a study, 33% wanted a warmer/red tone, 17% wanted to lighten their hair, and another 29% wanted to hide gray. Obviously, the hair coloring sector seems a little more complex and maybe even a little more risky to consider for the Belle Couleur line to enter.

Luckily, market research information has been collected for both product lines, which will show how the sample market has responded to our product lines and hopefully it can give insight into how our products will do in the real market. For Synergie, the positioning statement and terminology associated with the total product line was received positively according to the research. On a seven-point scale, Synergie received a 4.94 while products Plenitude and Dr. vd Hoog received a 4.97 and a 4.88, respectively. While this is good, a trial and use phase of the anti-aging day cream and the moisturizing cream showed overwhelmingly