Loreal Resources And Capabilities
Title：Case Study about Global Strategic Management of L’Oréal
Author(s): 王玉寶、高水玲、吳采芝、阮坤輝、康新慧
Class: 1st year of Department of International Business
Student ID: M0458689、M0414490、M0427674、M0461893、M0561257
Course: Global Strategic Management
Instructor: Dr. 羅芳怡
Department: Department of International Business
Academic Year: Semester 1, 2016-2017
Case Study about Global Marketing Strategy of L’Oréal
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ABSTRACT
This paper attempts to analyze L’Oréal as a beauty leader and its strategies which made
the company become and remain the largest cosmetics and beauty company. L’Oréal is a
worldwide company and has large shares of market in the most of marketplaces where it
invests, making use of powerful variety of marketing tools and strategies. Exploiting both
traditional and innovative marketing techniques, L’Oréal aims to grown its customer base to
two billion by 2020 while implementing CSR strategies, analyzing their business units by
identifying high-growth prospects according to growth rate and market share and
investigating the strategies that have been used to achieve it.
The evolution of the L’Oréal journey throughout the years shows how the brand
combination within a portfolio is a key factor for company growth and development which is
a crucial phase to understand the company competitive advantage. With the combination of
large amount in capital available and high technical capabilities, L’Oréal has access to
resources to produce in a large scale while making use of its strong research and development
department to bring up innovation. The corporate level strategies involve horizontal
integration, vertical integration and strategic alliances to build a stronger image in different
geographic markets. The importance of market analysis in all business areas, the corporate
strategies and marketing challenges as they globalize, the importance of understanding the
customer, proper use of resources and capabilities, customizing its products and business
strategies as key points to strive and prosper are being discussed in the paper.
Keyword： L’Oréal, Global Strategy, Global Strategic Management, Globalization, Product
Development, R&D, CSR, Multiculturalism, Global Business, Universalization.
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TABLE OF CONTENT
Abstract …………………………………………………………………………………………………………………….1
Table of Content ………………………………………………………………………………………………………2
List of Tables …………………………………………………………………………………………………………….3
List of Figures ……………………………………………………………………………………………………………4
Chapter 1. Introduction …………………………………………………………………………………………..5
Chapter 2. Corporate Strategy ……………………………………………………………………………….11
Chapter 3. Strategy Map ………………………………………………………………………………………..21
Chapter 4. Industry Analysis ………………………………………………………………………………… 33
Chapter 5. Strategy Group ……………………………………………………………………………………..43
Chapter 6. Analyzing Resources and Capabilities ……………………………………………………..50
Chapter 7. Value Chain Analysis ……………………………………………………………………………..66
Chapter 8. BCG Matrix Analysis ……………………………………………………………………………..76
Chapter 9. Outsourcing and Differentiation …………………………………………………………….. 82
Chapter 10. National Diamond Analysis …………………………………………………………………..85
Conclusion ………………………………………………………………………………………………………………92
Reference ………………………………………………………………………………………………………………93
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LIST OF TABLES
Table 1: Acquired brands of L’Oréal from 1967 – 2015 …………………………………………….11
Table 2: Resource VRIS …………………………………………………………………………………………..60
Table 3: Capabilities VRIS ………………………………………………………………………………………64
Table 4: Consolidated sales by geographic zone ………………………………………………………..79
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LIST OF FIGURES
Figure 1: Business level strategy ……………………………………………………………………………….16
Figure 2: Strategy map of L’Oréal ……………………………………………………………………………21
Figure 3: Research and Innovation …………………………………………………………………………..21
Figure 4: Corporate Social Responsibility …………………………………………………………………24
Figure 5: Human Resource Management ………………………………………………………………….26
Figure 6: Marketing ……………………………………………………………………………………………….28
Figure 7: Finance …………………………………………………………………………………………………..30
Figure 8: Growth of the worldwide cosmetics market from 2006 to 2015 …………………..33
Figure 9: Porter Five forces ……………………………………………………………………………………..34
Figure 10: Bargaining power of suppliers ………………………………………………………………… 35
Figure 11: Bargaining power of new entrants ……………………………………………………………38
Figure 12: Intensity of rivalry …………………………………………………………………………………..40
Figure 13: Capabilities and Resources ………………………………………………………………………53
Figure 14: Sale of operational divisions …………………………………………………………………….76
Figure 15: Sale breakdown ………………………………………………………………………………………77
Figure 16: Sale and growth ………………………………………………………………………………………78
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Chapter 1
INTRODUCTION
I. Background of L’Oréal
1.1. Overview
L’Oréal is the world’s largest cosmetics company headquartered in France. It’s core
business focuses on manufacturing cosmetics. Their main products are hair colour, hair care,
perfume, skin care and make-up. Dedicated for the beauty for over 100 years, L’Oréal ranks
number 1 in the list of the world’s top cosmetics companies in 2016 by Women Wear’s Daily
Magazine which is a fashion-trade industry journal sometimes called “the bible of fashion”.
L’Oréal annual report has shown that it has the highest sales in 2015 with US$29.94 billion,
followed by Unilever with US$21.66 billion and nearly twice higher than Procter & Gamble.
1.2. History
Founded by Eugène Schueller – a young and creative chemist in 1909, L’Oréal innitially
began with first hair dyes that he himself formulated, produced and offered to hairdressers in
Paris. Since this first step, the founder set up culture that is now typical gene of L’Oréal:
research and innovation in the service of beauty.
Through one century operation, the company experienced four main phases.
1909-1956: The first steps, constructuring a model
Its founder – Eugène Schueller graduated from France’s national chemical engineering
school in 1904 and went on to establish his own enterprise on 30th July 1909 that later
wellknown as L’Oréal .
Thanks to deep knowledge in chemics , Schueller developed his abiity for new ideas and
came out his fitrst hair dye named Oréal which was combination of blended harmless
chemicals. The dye was an outstanding breakthrough at that time, offering a wide range of
colors different to others in the market which commonly used henna or mineral salts so gave
quite artificial look.
In 1925, the company renamed as L’Oréal. Since that time, It has changed consumer’s
daily life much.
1957-1983: Globally expanding through acquistions
This period was formative years of “Le Grand L’Oréal”. At the decision of its former
chairman – Mr. François Dalle, the Group went to internationalization. Its strategy was
acquisitions of other strategic brands, grounding spectacular growth for the Group.
Emblematic products joint in. The company’s motto was “Savoir saisir ce qui commence”
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(seize new opportunities).
Brasil was the prior destination with a direct presence in 1959 which became platform for
the whole of Latin America. The acquisition of Lancôme – a fantastic perfume, skincare and
make-up brand – in 1964 was the first strategic move to become a luxury cosmetics empire.
One year later, purchasing Garnier enabled L’Oréal to own a portfolio of organic haircare
products – a different compliment to haircare. In 1970, by taking over Biotherm, L’Oréal
stepped its research effort to skincare field. Specially, the year 1973 revealed the growth of
the Group in dermatological and dermopharmaceutical activities after its acquired a majority
interest in pharmaceutical company Synthelabo. In 1976, L’Oréal bought mascara brand
Ricils to enter make-up segments. At that time, the agreement with Netsle provided L’Oréal’s
international development in particular markets as Japan to expansion in Asia. In 1983, it set
up an R&D centre focusing on hair care and skincare to tailor its products to the Japanese .
1984-2000: Become number one in the beauty industry
These seventeen years were marked by a great growth, dominated by significant
investments in research. The Group had successfully become the world cosmetics leader
through its global presence of brands owing to numerous strategic acquisitions.
2001-now: Embracing diversity in its global growth
Building a portfolio of powerful and international brands, L’Oréal has enhanced its
competitive advantage by embracing diversity in its global growth agenda. The Group keeps
making new acquisitions to catch global and regional needs. It also undertakes social
responsible initiatives to enjoy sustainable development. Interestingly, the acquisition of The
Body Shop in 2006 marked its encouragement in natural products and against test on animals.
1.3. Key facts and figures
Until now, L’Oréal operates in 140 countries by 82,900 employees. It has about 35,000
patents granted in total and nearly 500 patents newly registered every year. Its strength in
Rerearch and Innovation is recognized in top 20 Diverse and Inclusive companies by
Thomson Reuter in 2016. It has 34 research and evaluation centers, 44 factories and 153
distribution centers worldwide. In 2015, it recorded US$29.94 billion of sales, in which
17.4% acounted for operating profit.
II. Performance of L’Oréal
2.1 A global success
L’Oréal presents in 140 countries on all five continents. While the world was in affection
of global crises, L’Oréal still earned money in all over the countries they opperate and
continued to improve and develop their current capability. In 2015, L’Oréal’ sales in Europe
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growth 2.3% in Western Europe and 9.8% in Eastern Europe while that number in North
America was around 3.5%. Because of good performances in Japan, India, Australia and
Thailand, specially L’Oréal Luxe brand improved in the fourth quarter, its sales went up by
4,7%. 4.6% growth in sales was revealed in Latin America. The highest growth was
particularly in Africa, Middle East with figure of 12.1%. Specifically, Egypt, Pakistan and
Saudi Arabia sales growth reached the top of 20%.
2.2 L’Oreal Mission
Beauty is a language
For over a century, the company has devoted energy and its capacity for an only purpose:
beauty. It is a rich business sense, as it allows all individuals to express their individuality,
get confidence and open up to others.
Beauty is universal
L’Oréal is committed to all the world’s women and men to provide the best quality,
efficacy and safety of cosmetics innovation. By satisfying the infinite diversity of beauty
needs and desires around the world
Beauty is a science
Since its inception, the group has been pushing the frontiers of knowledge. Unique
research arm enables it to continuously explore new fields, invent future products, and inspire
beauty rituals from all over the world.
Beauty is a commitment
The company provides access to products that enhance well-being, mobilizing its
innovative strength to preserve the beauty of the planet and supporting local communities.
These are exacting challenges, which are a source of inspiration and creativity for L’Oréal.
Beauty is for all
By leveraging the diversity of its team, as well as the richness and complementarity of its
brand portfolio, L’Oréal has made cosmetic the universalization of its next few years of projects.
2.3 L’Oréal ambition
L’Oréal’s ambition is to create more and more people around the world by creating an
unlimited variety of cosmetic products to satisfy their beauty needs and desires.
Beauty for all, beauty for each individual
In L’Oréal, there is no single and unique beauty model, but numerous forms of beauty,
with the period, culture, history and personality linked to attract more women and men to use
our products to contact an extremely diverse population, with Universalization of the
beautiful vision. In our view, universalization does not imply reunification, but instead is
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inspired by the diversity of innovation.
Observing local beauty customs
L’Oréal’s research and innovation team to reshape themselves, to create the world’s
diversified cosmetics. In every region of the world, it has set up a research platform, a true
professional center, designed to customize the beauty. These fields of study have created new
products that can be a global success. This is a real turning point in thinking about innovation.
Facilitating access to cosmetics products
In the market undergoing major changes, L’Oréal every year forward, bringing the best
beauty for everyone. With a portfolio of 32 international brands and an organizational structure
based on distribution channels, the company has the ambition to meet the needs of each consumer
according to his or her habits and lifestyles. Therefore, L’Oréal in their own way to promote the
development of the border, and to meet the challenges of more and more innovation.
Accelerating the regionalization of our expertise
In order to win another billionaire in the world is an ambitious project to inspire L’Oréal.
An economic, but also human adventure requires rapid deployment of its forces and
companies in various fields, including research, manufacturing, marketing, sales,
interpersonal and administrative teams to accelerate the transformation. This big project is
also an opportunity for innovation and the establishment of L’Oréal tomorrow.
III. Divisions of L’Oréal
L’Oréal has a strong and long-term brand which is being positioned to consumers across all
income levels by providing a wide range of beauty product. The company wants people around
the world to have easy access to their products that match their desire, lifestyles and beauty needs.
L’Oréal’s segmented its brand into five different Division where each of the brands develops a
specific image of beauty by universal consumption and distribution channels.
L’Oréal has 5 brands and divisions that are detailed below.
3.1 L’Oréal Luxe
L’Oréal Luxe opens a unique world of beauty. Its international brands incarnate all the
phase of elegance and purification in three major specializations: skin care, makeup and
fragrances. This division product is sold in department stores, cosmetics stores, travel retail,
own-brand boutiques and online site.
3.2 L’Oréal Consumer Products
The Consumer Products Division offers the best in accessible cosmetics innovation to a
wide customer around the world and distributed in mass retailing channels.
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3.3 L’Oréal Professional Products
The objective is to be the leader in each professional beauty category: hair care, nail
beauty and skincare and distributed in worldwide salons.
3.4 L’Oréal Active Cosmetics
Highly complementary beauty-health brands supported by professional healthcare
partners and sold in health care channels worldwide including pharmacies, drugstores and etc.
3.5 The Body Shop
The Body Shop using the world’s finest natural ingredients to create a high-quality
product in a sustainable and ethical way.
Consumer Products Division has generated highest sales compare to other brand divisions
and is strengthening its leadership in a dynamic dermo-cosmetics market. L’Oréal Luxe are
also catching up with its growth driven by its cutting-edge innovations. The Professional
Products Division is taking benefits of new plan to boost the professional beauty market, and
continues to improve steadily. Last, the Active Cosmetics Division are doing well by
conquering the health care channels worldwide.
IV. Reasons why we choose L’OREAL as our case
The background of L’Oréal has motivated and inspired us to make deeper research on. It is
obvious that L’Oréal got start from the hair-color business, such a small business with one person
in that time but shortly after, successfully branched out into other cleansing and beauty products.
For over a century L’Oréal has been devoted all energy and competencies to just sole business –
beauty. Nowadays, L’Oréal is such a truly global beauty brand with a large number of
internationally famed products. The beauty of passion of L’Oréal really excites our attention.
The second impression is the unique strategy of L’Oréal – universalization strategy. It is
convinced that there won’t be existed a single and unique model of beauty at L’Oréal, However, it
is an infinite diversity which changed according to the times, cultures, histories, individuals…etc.
The definition for L’Oréal’s strategy is: “Universalization means globalization that respects
differences. Differences are at desires, needs and traditions”. L’Oréal is driven by the vision of
universalization of beauty over the world to catch a larger numbers of male and female and meet
intensive diverse populations. With prosperity of unique and international portfolio of 32
complementary brands on 140 countries, L’Oréal believes to push back the boundaries and meet
every demand of customers according to his or her habit and lifestyle.
Last but not least, Product innovation is a factor that makes L’Oréal to become special. In
order to create cosmetic products which could adapt to the rich diversity of people on over
the world, L’Oréal has have established many Research platforms, veritable centers of
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expertise in the service of a personalized beauty on five continents. They believe that product
innovation ought to meet cultural expectation, it managed to adapt to specific cultural
difference in beauty market on over the world. L’Oréal currently has six worldwide research
and development centers, two in France, One in the U.S. Another in Japan. In 2005, L’Oréal
established one R&D in Shanghai, China, and the final is in India.
“For a Brazilian woman, hair and body are most important, for a Chinese woman facial skin
is the priority, for an Indian woman it’s make-up. Our approach is the ‘universalization’ of beauty,
i.e. globalization without uniformization” explained Jean-Paul Agon – Chairman of L’Oréal.
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Chapter 2
CORPORATE STRATEGY
I. Corporate strategy
1.1. Expand through Acquisition
L’Oréal growth strategy has been carried out both through internal development and
through acquistion of companies already operating in the cosmetics industry. In particular,
external growth by acquisition is part of L’Oréal’s long-term strategy, with a long-term
annual growth goal of 10%. This option has also been facilitated by the group’s liquidity and
low debts. Purchases of more companies allows the group to reach the critical size needed for
exploiting economies of scale both in R&D activities and in marketing and distribution. The
acquisitions also promote L’Oréal to quickly expand its geographical horizon and develop its
market segments. The actual portfolio of 25 prestigeous brands is the results of a series of
acquisitions that began many year ago, which is described in the table below.
Table 1: Acquired brands of L’Oréal from 1967 – 2015
Year Luxe Consumer
Products
Professional
Products
Active
Cosmetics
The Body
Shop
1967 Lancôme
(France)
Garnier
(France)
1971 Biotherm
(France)
1980 Vichy
(France)
1985 Ralph Lauren
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(the U.S);
Giorgio
Armani (Italy)
1989
La
Roche-Posay
(France)
1993 Redken (the
U.S)
1996 Maybelline
New York
(the U.S)
2000 Kiehl’s
(the U.S)
SoftSheen.Cars
on (the U.S)
Matrix (the
U.S)