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L'Oreal's Global Branding Strategy Bottom of Form

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Introduction
In 2005, the $18.89 billion L'Oreal group was the largest and Case Code : MKTA020
the most successful cosmetics company in the world, with Case Length : 14 Pages
over 17 international brands. L'Oreal was ranked 49th by the
Business Week Interbrand survey conducted in August 2004. Period : -
Its brands were valued at $5902 million ($5600 million in Pub Date : 2005
2003). L'Oreal sold makeup, perfume, and hair and skin care
products to both men and women in 150 countries. The group Teaching Note :Not Available

reported its 18th consecutive year of double-digit growth in Organization : -

December 2004. Since 1989, L'Oreal's sales had grown at a
Industry : -
compounded annual rate of 12% to $1.7 billion.
Countries : -
"L'Oreal combines the double-
digit top-line growth of a hot
technology company with the To download L'Oreal's Global
bottom-line comforts of a well-
Branding Strategy case study
run bank. What sets L'Oreal
apart is its consistency over (Case Code: MKTA020) click on
time."1 - pointed out an
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case from the list of available cases:
A decade ago, about 75% of the
company's $5.5 billion annual
sales were from Europe, the
bulk of it in France. In 2004, 85
% of L'Oreal's consolidated
sales were in markets outside
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As an analyst put it, "L'Oreal is the only real global leader in » Marketing Case Studies Collection
every segment of the industry."2 Whether it was selling Italian » Marketing Communications Short
elegance, New York street smarts, or French beauty through
its brands, L'Oreal had reached out to a wide range of Case Studies
customers across incomes and cultures. Under Lindsey » View Detailed Pricing Info
Owen-Jones (Owen-Jones), L'Oreal's CEO for 17 years,
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L'Oreal had fine-tuned its global branding strategy.
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As Owen-Jones' term at L'Oreal drew to a close, industry » Case Studies by Area
observers wondered if his successor, Jean-Paul Agon (Agon),
would be as deft as Owen-Jones in managing L'Oreal's » Case Studies by Industry
complex brand architecture and delivering profits. L'Oreal » Case Studies by Company
also faced new challenges with companies like Procter &
Gamble (P&G) deciding to give a special thrust to their
beauty products. Would L'Oreal be able to hold on to its
seemingly invulnerable position in the global cosmetics
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Please note:
This case study was compiled from published
sources, and is intended to be used as a basis for
class discussion. It is not intended to illustrate
either effective or ineffective handling of a
management situation. Nor is it a primary
information source.

L'Oreal, the world's largest cosmetics company

was established in 1907 by a French chemist
Eugene Schueller (Schueller). Schueller had
developed a formula to make synthetic dyes
safe for human hair.

He sold his patented hair dyes to local

hairdressers and beauty salons in Paris. The
company's name was adapted from Schueller's
first brand, L'Aureole, which meant 'halo', in
French.

By 1920, Schueller started exporting to other

European countries like Holland, Austria and
Italy. Schueller's successor, Francois Dalle
(Dalle) took the company public in 1963.
Sensing a threat from France's left-wing politicians who were advocating state control of the
nation's top companies, Dalle decided to internationalize L'Oreal's ownership structure. In
1973, Dalle persuaded Liliane Bettencourt, Schueller's daughter and L'Oreal's main
shareholder, to dilute her majority stake. Under a complex deal, Swiss food-products giant
Nestle took a 49% stake in a holding company--with Bettencourt owning the remaining 51%.
The holding company in turn acquired a little over 50% of L'Oreal's stock. In 1972, L' Oreal
launched the legendary campaign "Because I am worth it," to promote the 'Preference' line of
hair color. The emotional pitch "Because I am worth it," made the consumer feel good about
paying higher prices for L'Oreal products.
Over the next few years, the company's business
expanded considerably. It started distributing its
products through agents and consignments to the
US, South America, Russia and the Far East.
The next phase of L'Oreal's growth started under
Lindsey Owen-Jones who had joined L'Oreal in
1969, fresh out of Oxford and the Insead
business school in Fontainebleau (France).

He rose to head the company's Italian operations

(1978-1981), where he caught the eye of his
superiors with exceptional performance. He was
then asked to head the strategic US operations.
Managing the company's US operations was not
an easy task...
Brand Management
L'Oreal had built a dozen or so mega brands
rooted in the local culture and appealing to
different segments of the global market. Instead
of homogenizing the various brands and making
them palatable in myriad cultures, Owen-Jones
decided to embody their (the brands') country of
origin, turning what many marketing gurus
considered a narrowing factor into a marketing
virtue. As a senior L'Oreal manager put it, "You
have to be local and as strong as the best locals
but backed by an international image and
strategy. We have made a conscious effort to
diversify the cultural origins of our brands."...
Brand Extensions
L"Oreal realized the need for caution in case of brand extensions. The company extended its
brands after doing a thorough research. When L'Oreal decided to enter the kids shampoo
category in 1998, it debated whether to launch a new brand or go for an extension. The
company realized the L'Oreal name, long associated with women's hair care, would capture
instant credibility with moms. But Kids was really a child-oriented product. When L'Oreal
first unveiled its L'Oreal Kids shampoo line early 1998, retailers were skeptical. "Retailers
say the value isn't there. We say it is, that the child establishes value. We were pretty
tenacious." - mentioned Carol Hamilton, 45, senior VP-marketing for the L'Oreal retail
division of Cosmair...
Advertising and Promotion
L'Oreal backed its product innovations with the
twelfth-largest media budget in the world. In the
late 1980s and early 1990s, "external charges",
 which included L'Oreal's advertising and
promotions expenditure jumped from 37% to
47% of sales. L'Oreal increased its global ad
spending to $1.25 billion in 1998, putting it
almost on par with Coca-Cola. L'Oreal had a
unique promotion policy for all its brands. A
brand, which sold in mass-market outlets,
advertised and promoted itself in a way similar
to brands sold in department stores...
Corporate Structure
L'Oreal was organized as a clutch of small profit
centers, some with as few as ten employees. The
company's work culture encouraged audits and
budget meetings to focus less on the spilled milk
of the past, and more on leading indicators of
how things would look at year-end.

These meetings encouraged discussions to find

out which overlooked products showed signs of
life but were undercapitalized and which
products were not matching expectations and
needed pruning. The structure allowed L'Oreal
to move fast...
Competition
L'Oreal faced competition from various formidable rivals. On one side, cosmetic majors like
Revlon and Avon and Nivea vied for shelf space. On the other, there were the giant FMCG
companies like Unilever and P&G. There were also local competitors like HLL-Lakme in
India, Dark and Lovely in Africa, and the erstwhile Shu Umera in Japan (L'Oreal later
acquired this brand)...
Future Outlook
As Owen-Jones raced to expand international
sales, he realized the need to ensure that his
brands did not confuse consumers, leading to
brand cannibalization. Owen-Jones also faced
uncertainty surrounding the company's future.
Bettencourt, 79, had indicated she did not want
the arrangement with Nestle to change in her
lifetime. Nestle had promised to respect her
wishes. But after her death, it was not clear
whether Nestle would be as compliant with her
only child, Francoise. Nestle had about $13
billion tied up in L'Oreal, and with 26% of its
Cashing in on The
Maybelline Formula
Maybelline's success
proved Jones' philosophy
of creating successful
cosmetic brands by
embracing two different
yet prominent beauty
cultures (French and
American). Commenting
on this, Guy
Peyrelongue, head of
Maybelline, Cosmair
Inc., US Division, said,
"It is a cross-
fertilization." L'Oréal
followed this strategy for
the other brands it
acquired over the years,
such as Redken (hair
care), Ralph Lauren
(fragrances), Caron (skin
care and cosmetics),
SoftSheen (skin care and
cosmetics), Helena
Rubenstein (luxury
cosmetics) and Kheil
(skin care) (Refer Table
III).
L'Oréal acquired the above relatively unknown
brands, gave them a facelift, and repackaged and
marketed them aggressively...
Future Prospects
L'Oréal's efforts paid off
handsomely. The
company posted a profit
of € 1464 million for the
financial year 2002, as
against € 1236 million
for the financial year
2001.

Its overall sales grew by

10% in 2002, and much
of this increase was
attributed to impressive
growth rates achieved in
emerging markets like
Asia (of the 21%
increase in sales volume,
China contributed 61%),
Latin America (sales
grew by 22% with sales
in Brazil increasing to
50%) and Eastern
 Europe (sales grew by
30% with sales in Russia
increasing by 61%)...
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