I am the CEO of L'oreal, a global personal care products company. We provide our customers with cosmetics, beauty and perfumes.
Although we are in the cosmetics business now for 97 years, we are having difficulties with our shampoo line, which represents one-half of our annual sales in a normal year. But in 2005 it proofed to become our only product that didn't work out the way we planned.
Our shampoos are now in a declining phase and this affects our sales intensively. This is why we were looking for a strategy to maintain our existing level of operating income although our difficulties in the shampoo sector.
Our strategy implies a few steps:
PRICING, PROMOTION and PLACEMENT
Contract Shampoo Line
We will not produce new shampoos anymore for the next 6 months. We will try to liquidate our remaining stock.
Our liquidation method consists of adding one shampoo to every new eye cream. We will then elevate the price of the eye cream a little bit. We are able to do this because this is a new and innovative product that does not have competition from outside companies. We have exclusivity on this special eye cream with nutrients and minerals from the Dead Sea. So we could afford to sell a little more expensive and add a shampoo to each eye cream to liquidate our stock. With the price of such a package (eye cream and shampoo) we cover the shampoo's cost price. So we don't even intend to lose money or whatsoever with our "declining" shampoo line.
Furthermore, this is a great promotion stunt for the new eye cream. Our customers will love this promotional package and we will benefit from the outcome.
After having this promotion running for 6 months our left over shampoos should be depleted. If it turns out that we are wrong, we will put the last shampoos on the French market. The reason for it is simple. Our market in France is enormous, because this is L'Oreal's native country. We have less competition there because...
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