This report looks at how did L’Oreal, a multinational corporation, managed its already portfolio as well as its newly acquired local brand when entering on a new market: China. L’Oreal, a french company founded in 1907, decided at the end of 2003 to acquire two local chinese brands in order to enter the national market: Mininurse and Yu-sai. While this merging seems to be a «win-win» deal, we will look at several issues L’Oreal was confronted with: how did the brand managed its newly acquired brand, as well as what were the opportunities of growth for the corporation. Recommendations will also be given on how would we have manage L’Oreal’s already existing very diversified portfolio in this new market.
2.Background to the Company
Founded in 1907, L’Oreal is now managing a very diversified portfolio including cosmetics, skin and hair care products as well as high end fashion brands such as Ralph Lauren. This diversified portfolio reflects the brand’s strategy to be as important as possible on the market and occupy every segment, in order to avoid competition as much as possible, reinforce their reputation world widely and convey through their different brands’ images several cultures. For instance, Ralph Lauren will convey a very american «preppy» sense of fashion, while Lancôme will convey a very «glamorous parisian» image of cosmetics.
Research&Development is a major investment for the company, as it enables the company to launch innovative product on different markets, as well as protecting its product from copying thought its patents. Furthermore, innovation aimed at high end product is diffused to consumer products, which enable the brand to lower the total cost of R&D. The brand has organised its portfolio using a pyramid, classifying ever of its brands at one stage depending on the targeted market.
To develop on the Chinese Market, L’Oreal acquired two local brands. China is potentially the largest market in the world, with increasing life standards, a growing interest for fashion and a new group of people forming a middle class willing to pay for cosmetic products. Chinese market can be divided into three main consumers groups, depending on criteria such as their location, their interest in cosmetics, their willingness to pay for foreign products…(see exhibit 1).
This growing interest for fashion among China’s inhabitants, the very large number of potential customers as well as the increasing disposable income among chinese people constitute opportunities for l’Oreal to expend on the local market.
GroupLocationCharacteristics High-Income Earners. Aged young to middle-aged.Large/medium sized cities all around China.Willing to pay for high end luxury products imported from France, United States, Japan…. Medium income earners. Middle aged to older women.Large/medium sized cities all around China.Preference for well established domestic brands. Migrant women labourers. Mainly aged 18-30Large/medium sized cities all around China.Do have disposable incomes. Poor knowledge of cosmetics, their purchases are price-driven. Very large and yet untapped customer base.
How would you see L’Oreal manage the chinese brand without their chinese founders?
This question leads to a key point of this case. Why did L’Oreal acquire those two brands? The main argument people could answer is that L’Oreal wanted, according to their global strategy, to occupy the market as much as possible. However, could L’Oreal be really bothered by those two competitors? Indeed, at one point, the Case states that the total revenues of domestic brands were less important than L’Oreal on his own. L’Oreal may have wanted this merging in order to use the already existing facilities of both brands for it’s own products.
For instance Mininurse, with its extensive distribution channel made of 280 000 corners and points of sale all across China, represents a already established and widely spread distribution channel for L’Oreal to launch any of their products. Furthermore, the knowledge Yu-sai developed regarding Chinese’s use of cosmetic would help the brand to adapt each of its product to the chinese market, which is very different from the western market. Both brands have very high consumers recognition, with for instance Mininurse having a 90% recognition rate among chinese customers, this recognition rate being even higher among under twenty customers.
This could help L’Oreal to gain customer recognition for their own brands quite easily. We can see this merging is not only about just acquiring new brands to saturate the market, but it is about using two well established brands to launch the company’s products, avoiding constraints such as establishing a distribution channel, use of marketing to increase brand recognition….
Therefore, what I think L’Oreal will do, is use Mininurse to launch their mass market product: Garnier using Mininurse’s high brand recognition and massive distribution network. The brand will use their knowledge and technology to improve Mininurse’s products at a low cost. Progressively, L’Oreal will probably change Mininurse into Garnier. This would enable L’Oreal to use Mininurse’s high brand recognition and target consumers would are more likely to pay for local brands, such as the untapped «labourer migrant women market». (see exhibit 1 for an overview of the chinese market).
How would you manage L’Oreal’s Portfolio in China with the newly acquired brands?
I think using Mininurse’s distribution channel for it’s own products is a really good idea as it enables L’Oréal to skip a very long step companies usually to go through when entering a new market. However, following L’Oréal’s global branding strategy, L’Oréal has got no interest in keeping Mininurse as the products are similar to Garnier’s products. In that way, I would indeed progressively substitute Mininurse with Garnier.
Regarding Yue-sai, I think L’Oréal should keep it going regarding the good financial results of the brands during the past few years (11% of the country’s total market share) as well as the very particular brand’s identity. L’Oréal can use the knowledge Yue-sai Kan has been generating for the past twenty years as well as the research facility opened in Pudon and apply the knowledge to it’s products on the chinese market. I do think L’Oreal should reconsider their decision to exclude Yue-sai Kan from the company.
L’Oreal could use her as a marketing figure, as she seems to be very important in the chinese cosmetic market regarding the fact that she is the person that popularised cosmetics thought her different books, TV shows…. As stated in the Case, Yue-Sai’s product were created only for chinese woman. Regarding the high number of chinese people all around the world, L’Oreal could start exporting this local brand using the brand’s very local chinese identity. This could reflect L’Oreal strategy to convey different cultures through its diversified portfolio.
L’Oréal needs to keep in mind that Chinese market is very different from the Western’s market. The market is different by the consumer’s needs, with for instance chinese women using as much as 18 cosmetics products daily, as well as by the consumers products, with for instance beauty criteria being totally different than in western countries.
How would you see L’Oréal continue to grow in China?
I think L’Oréal in China should mainly focus on the domestic market, as it is the market with the more potential customers. A quick look at exhibit 1 shows us that a large part of the chinese market is yet untapped. This market, made of young labourers migrating to big cities, has got disposable income but is mainly price-driven and prefer local brands. L’Oréal could easily use Mininurse to target this market by offering them the local aspect of the brand, and as said previously progressively substitute Mininurse to Garnier to this market. Using Mininurse to launch Garnier would enable L’Oréal to use Mininurse’s high brand recognition among young people ( which is one of the characteristics of this market ), with a brand recognition rate of over 96%, and then take new market shares.
Courtney from Study Moose
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