Marketing mix for competitive advantage:

Introduction:
The main intention of market research is to analyze the demand of
customers. In fact, consumers are so close with the market research
and product development to their integration into the 4 Ps--that people
might even be called: The fifth "P" of marketing. The four P’s of
effective marketing mix strategy was developed by McCarthy. Focusing
upon customers, company could take right decision for the customers,
according to the right place and distribution outlets, and the proper way
for approaching the products. Marketing is all about creating beliefs to
drive buying. So whether they are focused on the product, price, place,
or promotion, successful marketing strategies and tactics center on
consumer beliefs.

The Four P’s of Effective Marketing:

L’ORÉAL must have to decide how much to adopt their marketing
strategy like Four P’s to local and international conditions of numbers of
decisions on the mix of marketing tools to use. The producer like
L’ORÉAL always tries to maintain the rules of marketing mix since it
operating its business from 1909 and also it is well known about the
four P’s method of marketing mix. Marketing mix decisions are mainly
used to organize a company as well as for the customers.

L’ORÉAL nicely organized the marketing mix four P’s product, price,
promotion and place within the company, like L’ORÉAL design plan to
meet needs of customers to meet the global markets demand.
L’ORÉAL is doing the right thing to implement their marketing strategy.
And it brings success for L’ORÉAL by maintaining competitive
advantage.

Product:
Product is mainly a thing what a company offer to the customers, it is
the important element of the marketing mix which coordinated
decisions on product mixes, product lines brand and packaging and
labeling. Product is one of the important elements of four P’s which has
the ability to satisfy the consumer’s demands. It's anything that can be
offered to satisfy a market's want or need. Successful companies
consider the product's form, functionality, features and benefits from
the consumers' point of view. In the primary stage companies like
L’ORÉAL is maintaining competitive advantage would be product
development, and with the expanding of the product range company is
getting advantage. Quality between local and international standard
may differ. L’ORÉAL also can produce a regional version of its product
such as a western European version and getting a competitive
advantage. Although invention of new product is tougher rather it is
maintain the international market in a competitive advantage to
maintain the international marketing strategy. There is enormous need
in less developed countries for low cost high proteins foods. L’ORÉAL
can offer its consumers a one-stop shop opportunity by providing
majority of the products that they are looking for in one area. So that
they could easily motivate their customers to buy their products. If the
quality of the products bought satisfied the needs and preference of the
consumer then the L’ORÉAL will lead to consumer loyalty and retain
the customers and repeated consumption. Mainly L’ORÉAL finds
success by focusing the product aspect of their marketing mix on what
people need and want.

Price:
Price, another effective element of marketing mix, which deals with the
price of the products or services. And mainly success totally depends
on that company who charged the right price and a competitive price in
the market. Cause price is not fixed for ever for the customers. When
the price maker fixed the price they must have know about the product
cost and the distribution cost as well. Price also communicates to the
company’s intend value positioning of its product or brand. Today
companies like L’ORÉAL for men is wrestling with a number of difficult
pricing tasks.

How to respond to aggressive price cutters?

How to price the same product when it goes through different
channels?
How to price the same product in different countries?
How to price an improved product while still selling the previous
version?
How to price different component of an offering?
When the customer wants to make his own choice of components?
Price are mainly selected with the negotiation between buyers and
sellers although buyers choice are given more priority. A company like
L’ORÉAL uses different types of pricing policy which will meet
consumers desired. Appropriate pricing and promotional techniques is
a good tool to maintain and achieve competitive advantage especially
its competitors do not have the ability to offer a clear pricing hierarchy.
It is often chosen the price depending upon the quality of products.
Price mainly varies depending upon the demand of the product and
has a different impact on company’s marketing objectives. Demand
and price these two are inversely related and L’ORÉAL also uses the
marketing mix rules on it. L’ORÉAL use the customer’s perception of
value is an important determinant of the price charged.

Promotion:
Promotion is such kind of marketing strategy that includes advertising,
selling, public relations, trade shows, direct mail, and other
communication techniques even the messages on packaging. Change
beliefs or increase awareness, knowledge, and purchase intent among
potential buyers makes promotion successful. One of the most
important elements of the marketing mix is promotion. L’ORÉAL
examine both traditional and online forms of these tools, L’ORÉAL
main marketing strategy to attract customers, fulfill its consumers’
wishes and needs with innovations today and it’s the future. This will
give a strong position within the global competitive environment
L’ORÉAL marketing team used research data to forecast market trends
over the next three to five years. This helps them to improve their sell
as well as their brand image. It do not want to just increase their market
share but it also want to keep their brand level as they are now. Global
companies that use a large number of ad agencies located in different
countries and serving different divisions have suffered from
uncoordinated advertising and image diffusion. L’ORÉAL now use only
a few agencies or even one that can supply global advertising, public
relations, sales promotion and web consulting. The result is it increases
their marketing globally and maintained their marketing cost as well.
The media planner of L’ORÉAL has to know the capacity of the major
media types and select the media which is favorable to the company.
Major media types for L’ORÉAL are likely newspapers TV direct mail
Radio magazines internet. Another way of promotion is sales
promotion is a key ingredient in marketing campaigns. Sales
promotions attract consumers to buy their choice able goods. Sale
promotion includes Samples, coupons cash refund offers, price off,
premiums prices, free trails warranties. This is the way to expanding
product market.

Place:
Another "P" of the marketing mix is place, which deals how the product
goes to the customers and who is going to buy. This is often called the
“distribution strategy.” The two basic types of distribution are: Direct
and Indirect. Where the company direct sell to the customers is direct
and indirect is mainly related with the whole seller. They sell the
product to the whole seller and the whole seller deals with the products.
If a company doesn't offer its product or service at the right place and
the right time, fewer customers will buy it. Market of the selling location
must be observed previously. The ultimate goal is to increase the
product distribution place. But many
Placement strategies are specifically designed to limit distribution
outlets.
At the very beginning L’ORÉAL strategy it’s expanded its business
activities in all around the world. L’ORÉAL has a strong marketing
chain all around the world so that through it can easily meet the
customer needs economically and conveniently. L’ORÉAL works
internationally with the local distributors, who lave local knowledge,
invest in them and set up performance goals to which they can agree.
L’ORÉAL expands its marketing channel for some specific reasons.
These are as follows
1. To gather information about potential and current customer
2. Persuasive communications to stimulate purchasing
3. To assume the risks corrected with carrying out channel work.
To achieve the competitive advantage L’ORÉAL has given an attention
to the sub-urban area is its operating places in the globalization age
L’ORÉAL wants to satisfy every customer receiving its service.

MARKETING FOR MANAGERS

MAR601-6
SEMESTER 1
DATE- 16/06/2014
FROM- ADITYA MISHRA
TO- Rosemary Burnley

INDEX
Sr.no | TOPICS | PAGE.NO |
1 | INTRODUCTION |3 |
2 | PRODUCTION AND SELLING CONCEPT |4 |
3 | SOCIETAL MARKETING CONCEPT | 5 |
4 | CONCLUSION |6 |
5 | REFERENCES | 6 |

STUDENT NUMBER | SURNAME | FORENAME | SEMINAR PAPER NUMBER |

1325080 | MISHRA | ADITYA |1 |

Introduction
In today’s world, production marketing as well as societal marketing has a vital impact on
company’s profitability. Production marketing means companies launches new product in time
interval for target consumer. On the other hand, societal marketing means companies launches
new product for long term by looking consumer benefit towards product. Some of the
companies use production marketing whereas some uses societal marketing depends upon the
companies and market situations. For example, cosmetic companies such as L’Oreal, lakme
might launch their new product in every 6 months. However, Anti Smoking companies launch
new product on customer welfare and demand. These rising demands of product companies
come to know by survey and other marketing plans. Societal marketing holds consumers wants
interest and needs for long term. These are moral and ethical concept of marketing. It was
introduced by Philip Kotler,”what consumerism means for marketers” in the Harvard Business
Review Journal. His aim was to “long run consumer interest” ,stressing that the short term wish
might not fulfill consumer long term interest .Whereas production marketing deals with 7P’s of
marketing, which are product, price, place ,promotion ,people ,physical environment and
process. Product market meeting point is product type, consumer wants and geographic areas.
For instance, Boost Company launches a new product then their target market would probably
be the sport person or younger generation. Likewise, cosmetic company would probably not
appeal to men but probably appeal to young girls or women. The main aim of this seminar
paper is to discuss not all companies adopt product marketing concept, let alone societal
marketing concept. However, might some companies still operate under production marketing
and what impact might have on their profitability?

PRODUCTION AND SELLING CONCEPT

Firstly, production oriented companies such as Gillette Company, Sony, Ford and many more.
These companies just believe in production of their product for least quantity of expenditure.
For example, Gillette they are focused on producing the best disposable razor blade in the
world today as well as Ford motor company produced one model in black, no issue what
consumer wants. Yet another example is Sony they focus on creating Walkman series no matter
what consumer wants.
Secondly, there is great demand is banks and hospitals to produce fast food. For instance,
McDonald and Burger King, their management mainly spotlight on achieving operational
efficiency by recovering their food supply chain and training staff to give out the high demand.
Even if in the manufacturing concept the management produce the mass product can make
much of the revenue but they may become narrow in their judgment and forget the customer
fulfilment. Soon after, they may understand that there is a want to redefine the marketing
objectives and plan.
Thirdly, selling concept is one of the methods which companies adopt to produce their product
or new product. This may satisfy half the customer. Moreover, in this concept supplier might be
more than demand. Companies take up marketing mix concept such as sale promotion,
salesmanship, advertising and many more. Companies follows marketing mix concept to
promote their product or new product. The main motive is selling and not to satisfy customers
needs. Although its customer oriented, it cannot construct long-term relationship to get more
revenue from the customer because severe pressure of marketing mix. Companies will just get
short term revenue and no loyal customers because they fail to satisfy customer’s needs and
wants. The general example is the insurance from AIA or Prudential, club-membership such as
hotel and restaurant and Christmas promotion.

SOCIETAL MARKETING CONCEPT

Nevertheless, the marketing idea is so successful to satisfy most of the customer wants. It was
criticized for fine alarm the environmental and social matter. Societal marketing concept was a
reaction to these criticisms and it is the latest marking concept. It might be better to adapt in
currently company’s marketing concept.
Companies should become practical in the community but not only carry out public relations
activity to put on helpful publicity. The organisation should resolve the needs, wants and
interests of target market and distribute the desired satisfaction more efficiently than the
competitors. It can sustain or improve the customer satisfaction and a solution to attain long
term profitability. For example, fast-food restaurant Pizza Hut practice the societal marketing
concept on food packaging and produce foods with more relating to diet. They take on the eco-
friendly wrapping fabric and tissue. They not only produce fresh garlic bread and pizza but also
offer pasta menu and juice for customer to select. They concern about the nowadays customer
health means.
Johnson & Johnson is a global American pharmaceutical, medical policy and consumer
packaged goods maker. Their assure of Health Care reflects their perspectives on their own
behaviour and by working with others and giving it to the community , for example, they
helped UNICEF on wide technical support, training programs to midwives, female health
workers and staff nurses in Madhya Pradesh and Rajasthan. It saves the local mothers and the
baby’s life.

CONCLUSION
Finally, the aim of the origination is only to make revenue and not to satisfy customer needs.
Societal marketing is the latest concept in the market and might satisfy customer by fulfilling
their needs and wants. “THINK LIKE A CUSTOMER”, said by the Paul Gillin. In my point of view,
whatever concept companies adopt but their main motive should be customer’s requirement.
This will definitely profit their organisation and also maintain long term relation with consumer.
In addition, from this practice they will sustain their organisation in market with great revenue
and status.
______________________________________________________________________________
Introduction

L'Oreal is a cosmetic company, which makes some of the world's biggest beauty products.
L'Oreal's success story begins in 1907. It has been the market leader in the cosmetics and
toiletries market since 2001 (Euromonitor 2005). Their products are sold in about one hundred
and thirty countries worldwide. L'Oreal is divided into four categories - consumer products,
professional products, luxury products, active cosmetics. They mainly focus on skin care, make-
up, hair care and fragrance. L'Oreal includes some important brands such as Lancôme Paris,
Garnier, Mabelline, Softsheen Carson, Matrix, and Biotherm. L'Oreal invests heavily into its
research and development which gives them competitive advantage over its competitors.

We as a group are going to produce a strategic marketing plan for L'Oreal.

PART 1A

PEST Analysis for L'Oreal

Political Factors – The political challenge is that L'Oreal should conform to all the different
government leadership styles in various countries it operates within. L'Oreal faced a decline in
the dermatology branch led by its Galderma brand due to new legislations governing drugs
(Euromonitor, 2005). The EU law affects L'Oreal. L'Oreal is restricted in their use of certain kinds
of chemicals, such as Phthalates which is carcinogenic (The Rules Governing Cosmetic Products
in the European Union). L'Oreal is obligated to produce safe products that do not contain any
harmful substances. Also, legislation for advertising is also affecting L'Oreal. L'Oreal has to
follow the rules set by Advertising Standards Authority. For example, advertisements cannot be
misleading that over-exaggerating the functions of a product (The Control of Misleading
Advertisements Regulations 1988).

Economic Factors – L'Oreal should adapt to all the different economic environments and
problems in all countries it operates in. For example in 2004, L'Oreal was affected by the
continued weakness of the dollar and other currencies (L'Oreal Annual Report, 2004). Due to
the factors such as rates of economic growth, there was a sharp and unforeseeable drop in
consumer spending in Europe which affected L'Oreal's result in 2004 (L'Oreal Annual Report,
2004). Inflation in UK due to rise in oil prices could mean that people have less disposable
income to spend on L'Oreal's luxury products. L'Oreal must adapt to the fluctuating exchange
rates as it operates on a global scale. Market structure affects a company's strategy. L'Oreal is
involved in a monopolistic market, where there are many competitors producing similar
products. (Brassington & Pettitt, 2004). Therefore, L'Oreal is affected greatly by its competitors
on pricing, promotion, place and products. L'Oreal has to differentiate itself from competitors
in terms of the 4Ps in order to attract customers. E.g. Vichy offers product that protects hair
against sun-light, this is an innovative product which helps L'Oreal differentiates itself from the
keen competition.

Socio-cultural factors – L'Oreal have to be in line with the changing consumer life styles. L'Oreal
has to be aware of all its customer tastes, beliefs and awareness issues in each of the markets it
operates in so that their advertising will be sensitive to these differences. L'Oreal has to take
into account the religious and cultural factors when advertising in different countries. L'Oreal
should focus more on the changing customer preferences as many customers prefer more
organic and natural products. For example L'Oreal was forced to withdraw its advertising
campaigns in the UK for its cellulite treatment Perfect Slim, because it had a physiological effect
rather than a cosmetic (Soaps, Perfumery and Cosmetics, 2005). L'Oreal is also involved in a
number of charitable and socially aware initiatives around the issues of health and wellbeing,
for example L'Oreal Professional Products signed an agreement with UNESCO with regard to a
joint HIV/AIDS education programme (Euromonitor, 2005).
Technological factors – L'Oreal uses technology to develop new products and also invests
heavily on its research and development (Euromonitor, 2005). It uses e-commerce as a means
to distribute products, such as Lancôme which provides consumers with the benefit of online
shopping (Euromonitor, 2005).

Porter's five forces analysis for L'Oreal

Bargaining power of supplier

The suppliers of L'Oreal will have low power as L'Oreal is an established company and it does
94% of its production in-house (www.loreal.com).

Bargaining power of buyer

Generally the power lies with the buyers, as there are many firms that produce similar
products. The buyers have considerable choice over whom they buy their products from.
Therefore, the switching costs are relatively low, as buyers do not incur any costs for switching
from L'Oreal products to other similar products. For example, customers have the choice of
whether to buy Maybelline mascara or Maxfactor mascara; they will not incur switching costs if
they change their minds about which company to purchase it from (Haberberg and Rieple,
2001). Hence, buyer power can influence the prices that L'Oreal charges for its products (De
Wit and Meyer, 1999).

Threat of new entrants

Barriers to entry are low.

• Differentiation: the position of a product or service regarded by the user as different

from and of higher perceived value that its competitors (Johnson & Scholes, 2002). L'Oreal
invests heavily into its research and development which gives its differentiation and
competitive advantage against its competitors.

• Experience: L'Oreal has been the global market leader in the cosmetics and toiletries
industry since 2001 (Euromonitor, 2005). L'Oreal invests heavily into its research and
development to satisfy its changing consumer demands and lifestyle. L'Oreal has to watch out
for new sector entrant such as Playboy as they are launching a cosmetics range. (Brand
Strategy, 2005).

• Economies of scale: L'Oreal takes advantage of economies of scale by focusing on its

original area of expertise, cosmetics and by concentrating on a limited number brands. It gains
economies of scale in production, packaging and advertising (www.loreal.com)

Competitive Rivalry

L'Oreal competitors have considerable power and they are as follows: (Datamonitor, 2005)

Avon Products Inc.

Kao Corporation
Revlon Inc.
The Estee Lauder Companies Inc.
Shiseido Company Limited
Procter & Gamble

P&G has merged with Gillette which poses a threat to L'Oreal as they do not have the strong
market share in the men's product (Euromonitor, 2005)

Threat of Substitution

The threat of substitution for L'Oreal is medium.

Product for product substitution: Instead of buying cosmetics from L'Oreal consumers could
buy organic beauty products because they will get the same service but in a healthier way. Also
some people prefer to have permanent make up, they could opt for cosmetic surgery or plastic
surgery.

Boston Matrix of L'Oreal and its competitors

Star position

One of the top competitors of L'Oreal is Procter and Gamble. In the BCG matrix it is placed in
the "star position" because Procter and Gamble is one of the global leaders in the cosmetic
industry (www.pg.com). P&G's merger with Gillette shakes up the cosmetic and the toiletries
market. They launched several men's grooming products.The company believes in branded
products and services of superior quality and value that improves the lives of the world's
consumers (www.pg.com). As a result they built strong leadership sales, profits and value
creation, allowing the company to expand properly (www.pg.com). Thus we place this
competitor of L'Oreal in this position because it shows high industry growth rate and high
relative market share.

Cash cow

L'Oreal believes in gaining in depth understanding of the hair and skin care products through its
research and development divison. The reasons for its boom in the cosmetic and toiletries
industry are its wide portfolio. Positive outlook for the cosmetics and personal care products
market helps L'Oreal to aggravate their sales (L'Oreal annual Report). Its key strengths in the
global cosmetic market are its drive to use technology to develop new products and the
resources given to its research and development (www.loreal.com). The launch of its mass
market brands including Garnier, whose Fructis hair care range has enjoyed extensive
geographic growth during the last financial year. Its anti-wrinkle products, eye contour creams
and moisturizers with sun protection were very successful and helped the company to build a
strong position in the cosmetic industry. Thus we can conclude that L'Oreal is placed in the
"cash cow" position in the BCG matrix.

Question mark:
Avon cosmetics as a competitor to L'Oreal is placed in the ‘ question mark' position in the BCG
matrix because the company shows low market shares and they do not generate much cash. As
a result there is large net cash consumption (Porter, 1998). One of the reasons for the lack of
market share and the growth of the company is that, they suffer from a weak inconsistent
image and they have less brand recognition as compared to other multinational brands
(Euromonitor).

PART 1B
Product categories and description

Product Categories Description Brands

Consumer
Products
• Targets the general public
• Includes standard skincare, hair care, make-up and perfumes products with competitive
price.
• Distributed through mass-market retailing channels, e.g. supermarkets
L'Oréal Paris, Garnier, Maybelline New York, Softsheen.Carson and Le Club des Créateurs de
Beauté.
Professional
Products • Targets salon customers
• Includes professional colorants, hair care, texturing and styling products
• High-performance
• Usually distributed through salons
L'Oréal Professionnel, Kérastase, Redken 5th Avenue NYC and Matrix,
Luxury
Products • Targets high-income class
• Includes top of the range products such as premium skincare, perfumes
• High quality
• Prestigious brands
• Distributed through special selected retail outlets (department stores, perfumeries,
travel retail outlets, and the brands own boutiques) Lancôme, Helena Rubinstein,
Biotherm, shu uemura and Kiehl's, Giorgio Armani, Ralph Lauren, Cacharel, Paloma Picasso and
Guy Laroche.
Active
Cosmetics • Targets pharmacies and specialist retailers
• Includes mainly skincare products that proven by advice from pharmacists and
dermatologists to be safe and effective
• Distributed through pharmacies and specialist retailers Vichy, La Roche Posay and
innéov

Source: www.loreal.com

Consumer Products

Consumer Products is positioned on the "cash cow" in the BCG Matrix where market growth is
low.
According to the Perceptual map, the market has reached a mature stage, where growth
slowed down, with heavy competition and everyone who is likely to be interested in the
products should have tried it by now and a stable set of loyal repeat buyers should have
emerged. (Brassington, F. and Pettitt, S. 2005) Also, GE Matrix shows us that the market
attractiveness is not great as the market is too competitive. (P&G and Boots are strong
competitors). It is difficult for L'Oreal to differentiate itself. However, due to L'Oreal's well
established branding and heavy advertising. It is able to maintain a high market share (refers to
BGC Matrix). Besides, its strong R&D unit is able to produce innovative products to attract
customers, so the sales of consumer sector does increase but not significant. Therefore, we
concluded that it is expanding to a small extent.
Professional Products

Though the demand of professional products is relative lower (mainly by salon users) and its
prices are relatively high (refers to the Perceptual Maps), this SBU has a great potential. As we
can see in the BCG Matrix, its market growth is very high and it is positioned at the Growth
stage in the Product Life Cycle because the ageing population leads to an increase of people
who seek for colourants and anti-ageing. Also, more young people would like to follow
celebrities' hairstyles, but it is difficult to achieve it by using home-use hair products, therefore
they visit salons to get professional products. Furthermore, the GE Matrix reveals that this
market is quite attractive, since competition is less tense. According to the Mintel report, sales
of hair salon products have been, growing by 47% since 1999. So we believe that Professional
Products is expanding greatly.

Luxury Products

We think that the Luxury sector is expanding. As we can see that in the BGC Matrix, the Luxury
sector's market growth is quite high, since the sector has particularly benefited from the rising
numbers of ABC1s, the rising discretionary incomes of women, and consumer aspirations and
attitudes (Mintel 2005). Also, the Product Life Cycle reveals that the sector is at the Growth
stage, this is supported by the sales figure published at 31st Dec 2004 by the company, where
the sales of luxury products was increased by 6%.

However, its expansion is just a moderate one, as the GE Matrix shows that Loreal's strength in
term of market share (15%) is smaller than its strong competitors like Lauder Group (35%) and
Clarins (22%). They increase the pressure on the expansion of Loreal's Luxury sector. In addition
the Perceptual Map shows us that the demand for luxury products is relatively low, since it just
targets at the high-income class which is a small population. Therefore, we conclude the
expansion of the Luxury Products is moderate one.
Active Cosmetics

We think the Active Cosmetics is expanding greatly. The BGC Matrix reveals a great market
growth, since people nowadays are more health-conscious, they want safety and effective
products for skin, hair and make up. Active Cosmetic's sales figure has been increased by 14%
compared to 2003(www.loreal.com). That is a great increase. That is why, in the Product Life
Cycle, Active Cosmetics is at the Growth stage.

Also, the GE Matrix reveals that market attractiveness of this sector is quite high because there
are less manufacturers using "Safe for health" as the main selling point for cosmetics. This
surely matches with the health-conscious culture. Besides, Loreal's strength is really strong,
having a huge research and development team which further strengthens consumers
confidence in using their products.
Despite the fact that the demand of the sector is not as great as other sectors and its prices are
quite high (shows in the perceptual map), but we believe the demand will increase in the future
as more and more people are willing to pay a bit more for products that really good for their
health.

BCG Matrix of the 4 SBUs

GE Matrix of the 4 SBUs

High Business Strength Low

Market Attractiveness

Low

Perceptual Mapping

High Demand

Low Demand

Boston Matrix for the luxury product category

Make up is a question mark as it has had problems with harmful ingredients (datamonitor,
2005). However, the product category is growing rapidly within the company (Mintel, 2005) so
it still may be successful and turn into a star.

Skincare is a star as it is in the growth stage of the lifecycle. It holds a high percentage of the
market but does not make the majority of the profit yet (Mintel, 2005).

Fragrance is the cash cow within the luxury sector for L'Oréal as it generates a large amount of
profit for the company and has a high market share (Mintel, 2005). Fragrance also has a slower
growth rate than some of the other products as it has become more stable within the market.

Hair care is a dog as it holds a small percentage of the luxury sectors sales and it also has an
insignificant growth rate.

We selected the Luxury sector and considered its position in the portfolio analyses

Perceptual mapping for luxury product category.

Product Life Cycle of the luxury sectors

Internal Audit
Value Chain Analysis for L'Oreal

Primary activities

Product design and development: L'Oreal biggest strength is its investment into research and
development which gives them competitive advantage over its competitors. It also generates
differentiation advantage.

Supply: L'Oreal manufactures more than 94% of its products (loreal.com). This gives them
differentiation advantage over its competitors as the company has close control of their
products.

Operations: One of the key drivers of growth for L'Oreal is its ability to make strategic
acquisitions to facilitate growth, for example, China Mininurse and Yue Sai (Euromonitor, 2005).
L'Oreal takes advantage of economies of scale by focusing on its original area of expertise,
cosmetics and by concentrating on a limited number brands, which account to 90% of its sales.
The company gains economies of scale in production, packaging and advertising
(swlearning.com).

Distribution: L'Oreal's has a unique distribution strategy. It is linked to the image and value the
company wants to give to each brand (Euromonitor.com). For example, it distributes luxury
products through specially selected stores (large department stores and travel retail outlets),
which aims at adding value and emphasis on customer service (Euromonitor, 2005).

Marketing and Sales: L'Oreal invests heavily in its marketing. L'Oreal's marketing methods relies
on the image the company has designated for its brands. For example, L'Oreal's tagline
‘ L'Oreal, because I am worth it' (Euromonitor,2005)
Support activities
Purchasing: L'Oreal produces 94% of its products in house (www.loreal.com). At the same time,
it maintains continuous contact with its suppliers all over the world to ensure the highest
quality of fats, surfactants, solvents, polymers, plant extracts, propellants, dyes, pigments, UV
filters, active biological ingredients, preservatives and antioxidants (www.loreal.com).

Process Development: L'Oreal develops a wide variety of capabilities and competences through
its research and development unit. The process development is vertical integrated as the
majority of production activities are carried out by in-house team experts (Haberberg & Rieple,
2001).

Human resource management: L'Oreal considers its employees to be core to its activities. It has
a flat organisational structure and involves its employees in its decision making activities.

Finance and planning: L'Oreal reinvests its profits into research and development to produce
more innovative products and maintain its competitive edge.

Luxury products:
L'Oreal's luxury products is in the niche side as they are produced at a much higher cost, since
more advanced technology and better quality ingredients are needed. They are highly
differentiated:

• Skincare:
- Lancôme is a strong brand that has established an extensive range of products for all
types of skins including ageing skins with its Absolute collection, which also covers hand care.
Its website also offers online beauty consultation L'Oreal s as well as a newsletter for members.
- The Helena Rubinstein brand is marketed on its commitment to research, positioned as
skincare at the frontier of medical science and its main skincare ranges can be divided into the
two comprehensive collections – the Skin Perfector and the Age Corrector programmes.
(Mintel: [11-2004] Premium Skincare - UK)
• Fragrance:
- L'Oreal's Luxury Products Division markets a wide range of designer brand name
fragrances under the Prestige & Collections that includes Giorgio Armani, Ralph Lauren, Paloma
Picasso and Cacharel. ([07-2005] Women's Fragrances - UK)
• Make up :
- Shu Uemura launched innovative products which based on natural Japanese ingredients.
- The Helena Rubinstein offers Full Kiss, a gloss cream that re-plumps the lips and
combines make-up and skincare. (L'Oreal Annual Report 2004)

Active Cosmetics:
L'Oreal's Active Cosmetics is in the niche side as they are also produced at high cost and highly
differentiated.

• Skincare: Vichy markets hypoallergenic products formulated with Vichy spa water and
active dermatological ingredients that highly recommended by pharmacists.

• Hair care: Inneov offer special product like Hair Mass that aimed at woman affected by
low hair mass.
(L'Oreal Annual Report 2004)

Mckinsey Seven S Framework

Strategy

According to the L'Oreal annual Report (2004):

• Success of innovations – L'Oreal focused on higher value products such as ReFinish by

L'Oreal Paris, Relflection by Kerastase and Inneov Hair Mass

• Retail channel diversification – The rapid growth of L'Oreal's Professional products

division and Active cosmetics division.

• Business segment strategy – The brands exclusively concecentrate on high value added
product categories, where competing is a matter of innovation, creativity and the ability to
anticipate and respond to changing trends.
• Offensive strategy – Applying the same strategy for 10 years in the United States and
due to which L'Oreal still achieves double digit profits.

• Growth – Record growth rates in China, India and the Russian Federation confirm the
success of L'Oreal's strategy of vigorous expansion in new and emerging markets.

Structure

L'Oreal has a flat organisational structure - They company is driven by people and not by the
book and is very flexible. L'Oreal involves its employees in its decision making processes
(www.siphrd.com).

Systems

L'Oreal has a fine product development system. Firstly, the R&D team comes up with new ideas
for making new products. Then ideas are put forward to the marketing department. After
consulting the marketing department, the R&D unit will start to work out the new formula,
trying a lot tests and investigations. Once the "perfect" formula has been worked out, it has to
undergo various safety tests and bacteriological analysis to ensure consistent quality. Once
these hurdles have been overcome, new products can be manufacture in a factory
(www.loreal.com).

Shared values

Striving For Excellence: L'Oreal is a technologically driven company as its main goal is
perfection. Their strong R&D enables L'Oreal always offer the best innovative products and to
meet the most demanding standards of quality and product safety at all times.
(www.loreal.com)

Staff – L'Oreal considers its employess core to its activities. L'Oreal's website states that ‘ We
are looking for individuals who will be attentive to the needs of all employees, who are
entrepreneurial, creative, able to attract, involve and develop the talent we need today – to
build tomorrow's L'Oreal. They recruit young talented people from different cultural
background with a personality to think outside the box and to creatively develop their
individual talent (www.loreal.com)

Skills - L'Oreal's Research and Development team acquires developed skills to test and measure
product performance and to study new raw materials (www.loreal.com).

Style – L'Oreal is the market leader in the cosmetics and toiletries market. L'Oreal has a good
management style due to which it has been able to achieve double digit profits for the past ten
years (www.loreal.com). It is well known for its creativity and innovation of new products
(L'Oreal Annual Report, 2004).

The Marketing Mix for the Luxury sector

Product
The luxury product division of L'Oreal develops prestige brands offering skin care, fragrances,
make up and hair care. The various brands it offers are Lancôme, Biotherm, Helena Rubinstein,
Giorgio Armani, Ralph Lauren, Cacharel, Kiehl and Shu Uemura. L'Oreal invests heavily into its
research and development, therefore the above brands are known for their innovation,
performance and quality (www.loreal.com). Every product benefits from the ground-breaking
work of the Group's scientific research teams based in France, the USA and Japan
(www.loreal.com). Packaging has become a key development area for L'Oreal as part of its
research and development function, for example, Ralph Cool fragrance from Ralph Lauren uses
bright pink packaging to attract the 15-25 year target market (Euromonitor, 2005). Customers
buy luxury products as it is high quality and offers good service.

Price

The luxury products are in the premium priced category. In order to inspire their customers
that their products are the highest quality, they ensure to use the highest quality raw materials
and offer the best service. The luxury products are high priced and are similar to its
competitors. Although the luxury products sector has not been generating good profits, its
brands such as Biotherm and Lancôme have had good sales (www.loreal.com).

Place

These products are distributed through large department stores and travel retail outlets, their
main aim is to add value and with great prominence on customer service (Euromonitor, 2005).
They are placed more exclusively in order to make the customers feel they are differentiating
themselves from mass retailing products. L'Oreal also uses e-commerce to distribute its
products such as Lancôme which presents the customers with the benefit of online shopping
(Euromonitor, 2005).

Promotion

These products are promoted through advertising, public relations and sponsorships. L'Oreal
invests heavily in marketing. Brands such as Biotherm, Lancôme, Ralph Lauren advertises
through magazines such as Glamour, Marie Claire etc where testers of skin cream and
perfumes are attached free of charge. They also advertise through television. In large
department stores, luxury products such as Lancôme's Aquafusion - free testers are given to
the customers to promote their products. For example, for Lancome's PR campaign, Lancôme
taxis were used to give celebrities free lifts to the after show party of the Colour awards in
London (www.clearchannel.co.uk).

People

L'Oreal recruits talented individuals with a difference (www.loreal.com). They provide

professional training for their staffs. In the large department stores where L'Oreal markets the
luxury products, high qualified staffs are employed to give professional advices to customers,
aiming at building rapport between service provider and customers and maintaining customer
loyalty.

Process
The well trained staff offer one to one services, for example care to the consumer's individual
needs. Further, the ability to purchase L'Oreal's luxury products via internet reduces queues at
physical locations.

Physical evidence

This is with regard to ambience of the retail stores and boutiques where L'Oreal sells their
luxury products. For example, Lancôme boutiques are well designed with easy access to all the
products and well qualified staff at every counter to help with any customer queries and also to
provide professional advice. Also their boutiques are decorated with bright and eye-catching
posters of the various products ranges. The staffs are smartly dressed and have a friendly
manner and are enthusiastic, polite and helpful.

Capabilities and Competences

From the analysis of the Mckinsey Seven S Framework, Porter's Value Chain and Porter's
Generic Strategies, we have outlined the capabilities and competences of L'Oreal.

• Strong Research & Development

• Good brand image and reputation
• High employees involvement due to its flat organisational structure
• Economies of scale due to packaging, production and advertising

PART 2

SWOT analysis for L'Oreal

Swot analysis for the Luxury sector

Strength

Weaknesses

• High market profile strategies

• E- Commerce

• Growth of premium brands

• Distribution

• Target market

• Dependant on Western Europe

• Sales

Strengths
High market profile strategies: One of the strengths of the luxury category is that they have
high profile marketing strategies which help them to reach the targeted audience
(Euromonitor, 2005).

E- Commerce: Investment into e- commerce has benefited its luxury product such as Lancôme
e-shop and Le Club des Createurs de Beaute (Euro monitor, 2005).

Growth of premium brands: Despite economic uncertainty in many markets, the growth of
luxury products is stable (Euromonitor, 2005).

Weaknesses

Distribution: One of the weaknesses of the luxury product is that they sell through smaller and
more exclusive channel such as large departmental stores as compared to the other sector
(Euromonitor, 2005).

Target market: Another drawback of the luxury division is that they mainly produce products
targeting the female sector.

Dependant on Western Europe: According to L'Oreal's annual report its sales is too dependent
on Western Europe and North America with weak market share in dynamic and emerging
market.

Sales: L'Oreal's luxury products division had good sales in skin care, make-up, but the sales of
perfumes were not satisfactory as compared to Clarins (Euromonitor, 2005)

Opportunity and Threats for L'Oreal

Opportunity Threats

• Successful launch of new products.

• Expansion into merger markets.

• Market segmentation.

• Market for mature women.

• Urbanisation.

• Men's grooming products.

• Chinese ban on direct sale.

• Harmful ingredients in cosmetics

• P&G and Nivea

• Government regulation.
Opportunity

Successful launch of new products: L'Oreal has made several acquisitions in 2004, such as
Japanese brand Shu Uemura and China's Mininurse and Yue Sai. This provide an opportunity to
gain access into Asia Pacific as well as development of products produced specifically for the
South East Asian Skin (Euromonitor, 2005)

Expansion into emerging markets: L'Oreal has been expanding its operations into Eastern
Europe, Asia pacific, Africa, China and India. For example the acquisition of Soft Sheen and
Carson which is mainly targets all ethnic groups, particularly of non white skin and has been
successful in US and South African markets. (Euromonitor, 2005)

Market Segmentation: L'Oreal targets new groups such men as it has launched its new men
grooming products. (Euromonitor, 2005)

Market for mature woman: L'Oreal continues to benefit from the world's changing
demographic as the number of mature woman grows with nourishers/anti-agers products
becoming increasingly popular (Euromonitor, 2005)

Urbanisation: L'Oreal benefits from the growing global urbanisation and drives demands for
product in the mass market for products such as Garnier (Euromonitor, 2005)

Men's grooming products: L'Oreal has launched various products specially targeting the men
category. They have launched products such as Redken for men and L'Oreal's Paris men expert
to compete with Procter and Gamble's merger with Gillette.

Threats

Chinese ban on direct sale: Chinese market is considered to be one of the biggest markets for
L'Oreal in the future, but the ban imposed by the government on direct sale due to the scandals
from "pyramid selling" lost a lot of market share. Even though the ban has been removed the
authorities and the government still discourages direct sale. (Datamonitor, 2005)

Harmful ingredients in cosmetics: L'Oreal uses many harmful ingredients in their products. For
example alpha-hydroxyl acid which is used in different moistures and tones can cause skin
cancer (Data monitor, 2005). Due to the fact that the L'Oreal brand is very technological driven
and consumers being aware of the health risks, more people prefer products containing more
natural and organic ingredients (Brand strategy, 2005)

Competition:
Procter and Gamble: Procter and gamble's merger with Gillette is one of the threats to its
global share due to the fact that L'Oreal does not have an involvement in oral hygiene and is
trying to increase its presence in men's grooming products (Euro monitor, 2005).

Nivea Threatens L'Oreal: Global competitor brands like Nivea threatens L'Oreal's skin care
products as L'Oreal needs to emphasis more on its advertising campaigns in order to create
awareness and maintain the interest of its consumers over the time. (Euromonitor, 2005).
Government regulations: L'Oreal is at risk of bending government regulations regarding
packaging of its products. Failure to abide these regulations could have serious consequence
for its growth in the future (Euromonitor, 2005).

PART 3
Ansoff Matrix
Existing Product New
Existing

Market Penetration Product Development

L'Oreal Luxury Sector

Market Development

L'Oreal Luxury Sector Diversification

Market

New

We have positioned L'Oreal Luxury sector in the ‘ Product Development' and ‘ Market
Development' of the Ansoff Matrix.

‘ Product Development' is where organisations deliver modified or new products to existing

market (Johnson, Scholes & Whittington, 2005)

The first issue of L'Oreal, which we have derived from the weaknesses of the SWOT, is that; it
mainly targets the female sector, which we identified in the SWOT analysis under weaknesses.
L'Oreal should develop new products in order to target the men's sector.

The second issue is that L'Oreal's luxury division sells their products such as perfumes and skin
care through smaller and more exclusive channel such as large department store (for example,
Selfridges in London) as compared to other sectors. L'Oreal should open up retail shops to offer
customers more personalised service and increase its product awareness.

The third issue of the luxury product division has good sales in skin care and make-up as
compared to that of the sales of perfumes. They should launch different products in the
fragrances category. They can create more product awareness by different channels of
advertising.

‘ Market Development' is where existing products are offered in new market. (Johnson, Scholes
& Whittington, 2005)

The fourth issue is that L'Oreal's sale of luxury products is very much dependent on Western
Europe and North America with weak market share in dynamic and emerging market. (L'Oreal
Annual Report, 2004). L'Oreal L'Oreal should try to launch more their existing products in the
emerging markets such as Asia, Asia Pacific, Africa and Russian Federation.
Part 4

We are selecting Lancôme as our brand. Lancôme is a prestige brand established in 1935 with
its fragrances division. It is diversified into skin care, make up and hair care.

Target market for Lancôme

Lancôme is a premium class brand. They target upper class people who are fashion conscious
and have a desire for high quality and service.

Target market profile for Lancôme

Demographic Age: 20-34

Gender: Female
Family cycle: Young, single & young married without children
Income: 15k-20k
Behavioural Purchase occasion: Regular
Benefits sought: Quality, service, value, style & design
Geographic Area type: Metropolitan area
Area density: Urban
Psychographic Social class: Working middle class
Fashion orientation: Leader and independent.

Identify a selection of competitors:

Competitors Description:
Clarins

• An independent French company founded in 1954 by Jacques Courtin-Clarins.

• Products are sold in more than 150 countries
(Euromonitor, 2005)
Clinique

• A successful brand under Estee Lauder

• Established in 1968 to offer the best in pure allergy-tested and fragrance-free formulae
to address all skin types including the most sensitive
(Mintel: Premium Skin, 2004)
Elizabeth Arden

• Founded by Elizabeth Arden who first started to experiment with creating skincare
formulations over a century ago and set up her first salon, clearly identifiable by a red entrance
door, in 1910.
(Mintel: Premium Skin, 2004)

The reasons for selecting them as Lancôme's competitors:

1. They are all producing premium cosmetics and toiletries

2. They have comparable market shares. According to the Mintel report, Premium Skincare
2004, they are the 4 biggest companies who got the highest market shares.
3. They are targeting the same group of people, upper working class, fashion leader
4. They all retail their products through special selected retail outlets

Identify a competitive advantage

We think Lancôme's biggest competitive advantage is its strong strength in R&D unit as it is part
of the L'Oreal portfolio, which is famous for its huge investment in R&D. According to
Euromonitor, 2005, L'Oreal's spending on R&D reached 507 million euros or 3.5% of net sales.
Although, only a part of the budget comes to Lancôme, research resource, techniques and
outcomes gained within L'Oreal can be shared among all sectors. The strong point in R&D
enables Lancôme to produce innovative products every year. For example, in 2004, Resurface
Peel was launched. It is the first skin peeling kit designed for home use (L'Oreal Annual Report,
2004).

Clarins strength in R&D is not as great as Lancôme, with reference to its annual report, 2004; it
stated that Clarins is just devoting on average 3% of skin care net sales to research each year,
which is just 20 million euros. With a small scale of R&D, we find Clarins products are less
innovative. For example, the latest product launched is a new formulated anti-ageing cream,
which is more or less the same kind of anti-ageing cream offered by competitors.
(http://uk.clarins.com/)

Clinique- Estee Lauder's annual report reveals that they just invest on average 55 million euros
for its R&D each year, while this sum of budget is shared among all sectors within it, so the a
amount received by Clinique would be much lesser, which means its scale and strength in R&D
is much lower comparing to that of Lancôme. For product innovation, Clinique does launch
some new products every year, but we are not impressed in terms of innovation. Take the
latest products, Repairwear collection as an example; it is an anti-wrinkles product that is
similar to those by its competitors. (http://www.clinique.co.uk/) Thus in the perpetual map, its
level of innovation is lower than that of Lancôme.

Elizabeth Arden's investment in R&D is also not as great as Lancôme's due to the fact that the
company is now independent from the ownership of Unilever since 2000 (Elizabeth Arden
Annual Report, 2004). Therefore, less resources and budget is available for Elizabeth Arden's
R&D. With the limited scale of R&D, its product innovation is not really impressive. We when
look at the newest products it launched like Gardenia Elizabeth Taylor (perfume). We do not
find anything special in the ingredients and formula. They do put a lot effort in packing, making
their products as nice as possible, but we doubt its effort on inventing products with new
ingredients and functions

Short term marketing strategy for Lancôme

We propose the following marketing strategy to be effective for an estimate of three years
based on the marketing mix.
Product

Hair care & Perfumery: Lancôme offers a variety of successful products such as skin care
(Resurface Peel, Aquafusion), and make – up (Lancôme Hypnose, Juicy tubes). But its fragrances
and hair care products are not doing well compared to its skincare and make-up (Euromonitor).
We suggest that in order to further enhance their product category; they should focus more on
the declining sectors like the hair care and fragrances.

Men's grooming products: Lancôme mainly target the women's market. The men's market has
a lot of potential, as its competitors like Clarins, has launched products in the men's market
(www.clarins.com). Lancôme should revamp its men's product brands by emphasising on the
promotional activities.

Price

Value for money: Lancôme's products are charged at a premium price and in order to convince
their customers, they should always emphasis on the value for money.

Place

Lancôme should have more boutiques opened so that the products are easily accessible and
the awareness of the declining products like hair care be increased.

Promotion

Lancôme use billboard advertising, personal selling and public relations. It should give more
emphasis on its declining product categories like hair care and fragrances.

Advertising for hair care and perfumery – It should use newspapers as a tool to make the
customers aware of their new product launches. Send direct mails and newsletters to loyal
customers as a means to increase new product awareness. (Mintel, 2004)

Public relations- Lancôme should sponsor more fashion shows and get involved during the
fashion weeks held in different countries so as to enhance its brand and improve its product
awareness.