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.
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.
Rural area39 054 townships around China.Potential market of 780M inhabitants. Government policies to help development in those regions.
Exhibit 1: Overall view of the chinese market
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...