Strategic Challenges L\'oreal - Company

Strategic Challenges

L'Oreal - Company analysis

The following analysis will provide information on one the most important players in the international cosmetics industry, L'Oreal, and a brief history of this industry. The company's advantages, like its diversified target markets, its position as a worldwide leader on the market, its tradition, quality products, research and development activity as well as its innovative marketing approach, make of this company a powerful competitor for other companies in this industry. The company has several challenges to benefit from: major takeovers in the United States, Europe and Asia, new research and development centers in Asia, and other local strategic challenges. These opportunities are created by the company itself, and are not due to the market's conditions, as L'Oreal influences the market through its innovative products and activities.

Ever since ancient times, cosmetics have been present in people's lives, cosmetics products being used for beauty purposes or for medical ones. Over the ages, cosmetic products have been used in order to show the correspondence with a certain social status, or to change and improve the appearance, and even to prevent ageing.

In the 1920s cosmetic products have faced a real revolution, becoming an industry, due to the United States, where beauty products and fragrances were manufactured at an industrial scale, becoming more and more accessible due to chain department stores. However, the cosmetics industry's modern era began in the 1950s, when extremely diverse cosmetic products were manufactured and commercialized at a mass level, for a post-war society, satiated by privations. Given the importance that public relations were starting to develop, the cosmetic products were advertised both on radio and on the recently discovered television. In the 1970s, the cosmetics industry was facing certain obstacles created by ecologists, which lead to the interdiction of certain ingredients, in order to protect endangered species, and animal testing. Nowadays, the cosmetics industry is characterized by diversity. The annual sales incomes from the extended cosmetics market, that also includes plastic surgery, fitness and diet products, are over $160 billion worldwide. The American trio Elizabeth Arden, Helena Rubinstein and Max Factor, is responsible for the extraordinary development of the cosmetic industry. These were the companies that established the market, being surpassed only by Revlon before World War II, and by Estee Lauder right after the war.

However, L'Oreal is the oldest company and the worldwide leader, of the dominant cosmetics companies. L'Oreal was founded in 1909 by Eugene Schueller. The company has 52,080 employees. The company is mostly active in the field of cosmetics, but also in the dermatological and pharmaceutical fields.

L'Oreal's target markets are: mass market, professional, luxury, and active. The mass market products include brands like L'Oreal Paris, Garnier, Maybelline New York and SoftSheen-Carson, while the luxury market products include prestigious brands like the Body Shop, Cacharel, Giorgio Armani Perfumes and Cosmetics, and many others.

Each of these target markets correspond to different target customers. The target customers for the mass market products are women between 25-45 years of age, with medium to increased incomes, from urban areas. These customers are searching for quality products that also offer an equitable price level, in accordance with the quality they provide.

The target customers for L'Oreal's professional products are represented by professional make-up artists that work in this field.

The luxury products' target customers are sophisticated women between 25-45 years of age, with high incomes, and a high social status, who purchase L'Oreal products for the quality they provide, for the company's tradition, for the status that these luxury products offer. When buying these luxury products, the customers do not only buy the product itself, its physical properties, but also the luxury status that comes with its high price, tradition, and quality. The customers are buying the status, not just the product. In other words, the higher the price, the higher the status they confer.

The active products are developed for customers interested in the products' medical properties.

In conclusion, L'Oreal's target customers are sophisticated, educated, beauty oriented people, with medium to high incomes, that appreciate the company's products' quality.

Regarding the company's earnings, 54.8% of the cosmetics sales come from consumer products, 25.1% come from luxury products, 13.9% come from professional products, and 5.5% come from active products. More than half of the company's sales incomes, 52.7% come from Western Europe, 27.6% come from North America, and 19.7% come from the rest of the world.

Even if L'Oreal is the worldwide leader in the cosmetics industry, competition is very harsh in this line of business. L'Oreal's most important competitors are Procter & Gamble's Max Factor International, Clinique, Estee Lauder, but also "niche players such as Los Angeles-based cosmetics maker Stila."

All of these competitors are strong international companies, that offer products of similar quality as L'Oreal does. They follow L'Oreal's footsteps by developing similar products, by offering similar advantages, and by promoting their products in a similar way. For example, in the TV ads, L'Oreal's products are advertised by celebrities, most of them well-known actresses, like Andie McDowell, Penelope Cruz, Milla Jovovich and others, in order to create a connection between the customers and these celebrities through L'Oreal products. Max Factor, one of the competitors, followed the same scenario, creating a link between their products and recent movies and the celebrities starring in them. Also, Avon Cosmetics' products are advertised by another celebrity, Salma Hayek.

It is not easy for a new entrant to make its way in this industry, especially with players like L'Oreal. New entrants cannot threaten this company's position on the market, as it is impossible for a new company to compete with L'Oreal's tradition in this industry.

When it comes to the company's unique capabilities, it is hard to settle on a single aspect, as L'Oreal's strength resides in its marketing approach and also in the research and development activity.

L'Oreal's marketing activity is completely opposite to other companies': instead of homogenizing their brands, in order to make them suitable to any culture, L'Oreal's products "embody their country of origin." For example, when L'Oreal acquired the American cosmetics company Maybelline in 1996, instead of sticking the L'Oreal label on it, the company's professionals started a complete makeover of the Maybelline brand, and the promotional campaign was based on promoting the products' U.S. origins. Also, the company's products are distributed through all distribution channels, including direct mail, which has a positive impact on the company's sales, since the company's products can reach any environment.