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Market Analysis: L’Oreal Case Study


Introduction

L’Oreal was established in 1909 in the personal care industry in France. The firm’s operations involve the production of diverse cosmetic and beauty products. The firm has managed to penetrate the global beauty and cosmetic market. Currently, L’Oreal ranks as the largest cosmetic organisation in the world. L’Oreal has adopted internationalisation as one its business level strategies in an effort to maximise its profits.

The firm has targeted China as one of its marketing destinations. Currently, the firm ranks as the second largest skincare and beauty firm in China. Procter & Gamble leads the market as it has introduced all its major brands in the Chinese market. Likewise, L’Oreal has introduced most of its brands in the Chinese market such as Maybelline New York and Lancome.

In a bid to market its products successfully in the Chinese market, L’Oreal has adopted the concept of localisation in its marketing processes. The firm has set up a research and innovation centre in China. Moreover, the firm has established manufacturing centres at Yichang and Suzhou. Liu (2013, p. 178) argues that the ‘degree of market localisation is reflected in the effort made by an organisation to match local customer needs or requirements and it is measured by its local market orientation’.

The manufacturing centres enable L’Oreal to produce most of its professional and mass products, which allows the firm’s products to align with the market needs. Despite its localisation efforts, the firm has not fully localised all its products such as Yue Sai, which is still manufactured in the international market. This paper entails a comprehensive analysis of L’Oreal’s marketing efforts in China. The paper also recommends the adjustments that L’Oreal should consider in order to enhance its market dominance.

International market evaluation

The world is experiencing a growing trend with regard to the rate of inter-connections and inter-dependencies (Andexter 2008). It is imperative for businesses to develop sufficient competitiveness in order to stay relevant in the international market. Understanding the prevailing market condition is one of the ways through which organisations can remain competitive.

Aswathappa (2010, p. 501) asserts that the ‘existence of uncontrollable and controllable factors makes international marketing more complex as compared to domestic marketing’. Firms that have adopted the concept of internationalisation have trouble in understanding the international market.

However, surviving in such a market requires an organisation to align its marketing strategies such as marketing mix to conform to the prevailing market needs. The uncontrollable factors in the international environment relate to forces emanating from the political, social, economic, technological, cultural, ethical, competition, and the legal environments. The external business environment is characterised by diverse market changes.

Firms do not have control of most external forces such as technological changes. Consequently, it is imperative for marketers to ensure that their products and services align with the prevailing market changes. Such an adjustment will enhance an organisation’s competitive edge. Aswathappa (2010, p. 501) further argues that the ‘varying environments may rule out uniform marketing strategies across countries’.

According to a study conducted by the World Bank, it is projected that China will outdo the United States as the largest world economy in a few decades to come. Currently, the Chinese consumers are experiencing a remarkable increment in their purchasing power. Subsequently, they are in a position to purchase luxury products. Moreover, the Chinese have undergone a significant change in their purchasing behaviour, as evidenced by their preference for premium consumer products such as skincare and beauty.

The attractiveness of the Chinese beauty and skincare market has attracted a large number of multinational cosmetic companies over the past two decades. Some of the major industry players include Procter & Gamble, L’Oreal, Shisedo, Amway, and Unilever. The firms have developed adequate competitiveness by integrating marketing expertise, product development, research and development, and effective financial management.

By 2010, the aforementioned five cosmetic companies dominated the Chinese cosmetic market. However, the firms only covered 40% of the total market. Moreover, the firms faced intense competition from local firms such as Jala and Shanghai Jahwa whose products were effectively positioned in the local market. Consequently, there is a significant market potential in the Chinese cosmetic and beauty market.

Moreover, the likelihood of L’Oreal succeeding in China is evidenced by the view that a large number of consumers are appreciating the international brands. This trend is mainly evident amongst urban consumers in tier 1 cities such as Shanghai and Beijing. Consumers in these cities are increasingly becoming sophisticated with regard to consumption of beauty and cosmetic products.

One of the factors that have increased their level of satisfaction relates to growth in the rate of information explosion on premium cosmetic and beauty brands. Therefore, western brand names and images do not have substantial potential to attract Chinese consumers. Therefore, it is imperative for firms intending to enter the Chinese market to understand the prevailing market dynamics for such a move will give the firm’s management team insight on the most effective strategies to adopt in order to succeed.

Global branding and standardisation

Marketing in the international market presents businesses with an opportunity to expand their businesses and enhance their brands. Multinational corporations face diverse challenges in their marketing efforts (Ghantous 2008). However, branding in the international market is a major challenge for most businesses.

Glynn and Woodside (2009, p. 27) define a brand as ‘a name, symbol, design, term, or a combination of all which is intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors’. Therefore, branding enables an organisation to differentiate its operations from its competitors. Subsequently, an organisation is in a position to address the consumers’ emotional and functional demands.

Consequently, surviving in the Chinese market beauty market will depend on the quality of marketing strategies adopted. There are different options that multinational corporations can integrate in their operational and strategic marketing decisions (Ghantous 2008). Integration of global branding is one of the strategies that multinational corporations can integrate in their operations. Global brand strategy is mainly integrated in companies’ effort to attain market success in their new markets (Malaval 2001).

Global branding strategy does not entail developing a product for the total global market. One the contrary, it entails modifying a particular product to meet the specific market needs (Malaval 2001). Standardisation and localisation are some of the strategies that businesses can integrate in an effort to attain market dominance. Kotler, Pfoertsch, and Michi (2006, p. 89) propose that global ‘branding strategy is characterised by the strong focus on increasing profitability by reaping the cost of reduction that come from standardisation’.

Standardising an organisation’s global branding strategic leads to the development of a strong market position; furthermore, standardisation improves an organisation’s brand image in the international market and leads to improvement in an organisation’s brand and perceived prestige and quality. L’Oreal hired a renowned Paris-branding agency in order to reposition Yue Sai brand.

The Chinese external business environment is very complex (Liu 2013). Therefore, in a bid o survive in such a market, it is imperative for businesses to integrate a high degree of localisation. This move will enable a firm to cope with the market, which can be characterised by being disorderly, fragmented, and dominated by fluctuating levels of corporate control by the Chinese government.

Such controls have made major multinational companies in China such as Wal-Mart to lose substantial market opportunities (Liu 2013). The tight control imposed by Wal-Mart headquarters with regard to its Chinese market has led to ignorance of the Chinese culture. Ignoring the Chinese culture is a major challenge in an organisation’s effort to attain market dominance.

In an effort to penetrate the Chinese market, L’Oreal adopted the concept of standardisation as evidenced by the introduction of the Yue-Sai in 1992. The product was initially owned by Yue Sai Kan and was specifically targeted to the Asian women. In a bid to meet the beauty and skin care needs amongst the Asian women, L’Oreal identified Yue Sai as a potential product that was designed for the Asian market.

Consequently, L’Oreal purchased Yue Sai from the initial entrepreneur. The decision to acquire Yue Sai was perceived by many marketing analysts as a strategic move that would enhance L’Oreal’s effort to penetrate the Chinese market. The acquisition was in line with the firm’s mission, viz. ‘beauty for all’. L’Oreal also acquired another Chinese brand known as Mininurse. Consequently, L’Oreal has developed a strong market position in China through acquisition and licensing.

Standardisation enables an organisation to set the desired standard of quality. Through standardisation, an organisation is in a position to maintain the uniformity of its products in the international market. Moreover, standardisation enables an organisation to widen the market for its products. Glynn and Woodside (2009, p. 26) assert that standardisation ‘assures the consumers that the goods are pure and uniform in quality and performance’.

After acquiring Yue Sai, L’Oreal undertook a comprehensive product improvement and development in an effort to ensure that the product aligns with the Chinese skin needs. This move led to the introduction of the Vital Essential line in 2007. The product was developed using ganoderma mushroom extracts. In China, the mushroom is considered to have medicinal value and such a move illustrates the firm’s commitment to align its products to the Chinese culture.

Market targeting, segmentation, and strategic positioning

The market for a particular product or service is comprised of several different segments. Every segment has specific consumer characteristics and buying behaviours, and thus in a bid to capture the prevailing market demand, it is imperative for marketers to understand the heterogeneous market. This goal is only achievable via the concept of market targeting and segmentation. Targeting entails narrowing down to specific needs of the consumer.

Furthermore, targeting can be defined as the process of selecting the most effective market segment. Shimasaki (2009, p. 102) asserts that targeting ‘lets one to focus and tailor products to the specific preferences of the best customers’. Market segmentation is the process through which the total market is divided into homogenous subgroups. The marketing strategy for every segment varies from one segment to another.

The market segments have unique promotion, pricing, product, and distribution strategies (Shimasaki 2009). On the other hand, positioning entails the process through which an organisation intends its customers to view the available products. According to Shimasaki (2009, p. 102), ‘positioning conveys a product’s value to the buyer and solves the customers’ problems’.

An organisation’s positioning strategy determines the effectiveness with which the consumers understand the product or service value. In a bid to attain an effective market position, it is imperative for businesses to integrate a comprehensive differentiation strategy.

L’Oreal is cognisant of the importance of market targeting, segmentation, and positioning. In the process of penetrating the Chinese market, L’Oreal segmented the market by using age as its core demographic market variables. During its initial market entry phase, the firm adopted concentrated market targeting strategy.

Concentrated targeting strategy entails selecting a specific market segment and concentrating the marketing efforts on the identified segment (Lamb, Hair & McDaniel 2012). Concentrated targeting strategy enables organisations to understand the consumers’ motives, needs, and satisfaction. As a result, the firm is in a position to develop a specialised marketing mix. L’Oreal targeted women as the core customers.

China has undergone significant transformation with regard to personal care and beauty over the past few decades (Jian 2013). The younger generation in China is more receptive of beauty and cosmetic products as compared to the older generation as is evidenced by the increment in consumer spending with regard to premium beauty products.

Consumption of beauty and cosmetic products has increased significantly amongst young male and female consumers. It is estimated that the Chinese cosmetic and beauty market is growing at a rate of 13% annually. It is estimated that the country will continue growing at a rate of 10% (Fu 2013). The graph below illustrates the markets’ growth over the past decade.

The graph illustrates the markets’ growth over the past decade

Source: (Fu 2013)

The high growth potential in China is one of the factors that motivated L’Oreal to enter the market. However, the firm was forced to standardise and localise its products in order to meet the beauty and cosmetic needs for the Chinese women. For example, L’Oreal was forced to acquire and improve its main product, viz.

Yue Sai, in line with the Chinese herbal medicines. The concept of localisation has played a critical role in enhancing the firm’s success in China. Moreover, the process of continuous product improvement enabled the firm to align its operations with the changing lifestyle amongst the Chinese women. The modern Chinese women can be defined as proud, confident, and aware of their role in society. Therefore, the firm was forced to align Yue Sai to the changing consumer behaviour.

During its acquisition, Yue Sai had not developed an optimal market position despite its strong market position, which means Yue Sai’s market performance was relatively poor. Its sales were relatively low as compared to previous years. This aspect presented L’Oreal with a major challenge in its quest to attain the desired level of competitiveness.

L’Oreal had a relatively poor market reputation with regard to its effectiveness in acquiring and integrating other brands and this element would dampen the firm’s future acquisition efforts. Moreover, most Chinese did not perceive Yue Sai as being an inspirational brand. Therefore, they preferred foreign brands such as Shiseido, Lancome, and Estee Lauder.

Moreover, the brand was characterised by an uncertain business model. L’Oreal was concerned on how it would maintain Yue Sai’s dominance as a new lifestyle brand and a brand that leads to improvement in the level of confidence amongst the Chinese women. Moreover, L’Oreal intended to position itself as the dominant Chinese icon, which symbolises luxury.

L’Oreal recognises the importance of adopting an optimal positioning strategy in order to succeed in marketing the Yue Sai brand. The positioning strategy will determine the degree of market acceptance of the brand by the Chinese. In its positioning effort, L’Oreal ensured that Yue Sai brand delivers value to customers.

Consequently, the firm considered matching its distinctive capabilities with regard to product development and improvement, which enabled the firm to reposition Yue Sai as a brand that addresses the Chinese women’s beauty needs. Moreover, the firm has recognised the importance of exploiting the Chinese heritage and history in marketing the Yue Sai. Moreover, the firm is cognisant of integrating the concept of affordability in its value proposition efforts.

One of the value propositions that the firm should consider entails offering products that contribute to improvement in the consumers’ perception. The firm should ensure that Yue Sai gains market relevance and an enduring market position amongst the target consumers. Such a positioning strategy will contribute in improvement in the level of customer loyalty.

Marketing strategy

Marketers are faced by a major challenge emanating from prevailing marketing fluctuation and changes (Ferrell & Hartline 2013). Therefore, in a bid to survive in such a market, it is imperative for marketers to adopt optimal marketing strategies. Marketing strategies contribute to delivery of value to customers and fulfilment of their needs and wants.

Ferrell and Hartline (2013, p. 22) argue that the ‘combination of continual change and the people-driven nature of marketing makes developing and implementing marketing strategy a challenging task’. The marketing strategy is comprised of different components, which constitute the marketing mix.

The marketing mix is comprised of different variables, which address varying customer and product-related issues. In an effort to penetrate the Chinese market, L’Oreal has integrated the concept of marketing mix. The firm has focused on diverse marketing mix variables such as promotion, distribution, product, and pricing.

L’Oreal was committed towards ensuring that Yue Sai brand gains market acceptance after the acquisition. Consequently, the firm adopted the concept of standardisation by integrating the Chinese culture and heritage in the process of improving the Yue Sai brand.

L’Oreal ensured that aspects of the Chinese traditional medicine were integrated in the process of producing Yue Sai. The Chinese appreciate their cultural heritage and culture in their consumption process. Some of the elements that they hold with high esteem relate to health, medicine, and food.

Moreover, most Chinese are conversant with their country’s traditional medicine. Subsequently, they enlist diverse ancient medicinal practices such as herbs, acupuncture, and other practise in an effort to enhance their health. This trend is evident in all the age groups, and thus to succeed in such a market, it is imperative for businesses intending to enter the Chinese market to take into account the Chinese culture.

With regard to promotion, L’Oreal adopted diverse marketing communication methods. The main marketing communication methods included advertising and public relations. In its advertising process, the firm has adopted the press and television as the main marketing communication mediums. In a bid to reposition Yue Sai, L’Oreal allocated a substantial amount in its marketing communication budget.

The amount was utilised its marketing processes through television and print media. The advertising campaign featured Du Juan, who is a renowned Chinese supermodel. In a bid to attract potential customers, the firm ensured that a high level of creativity and effective designing were integrated in the television commercials.

For example, during the advertising campaign, the firm adopted the tagline ‘I hold my future in my hand’. The other slogan was adopted included ‘I look forward to every day with confidence’. Consequently, the firm was in a position to appeal to the Chinese women’s emotions. However, the high cost of advertising through these mediums hindered the firm’s effectiveness in creating awareness

In its effort to create awareness through public relations, L’Oreal contracted renowned Chinese personalities and celebrities to endorse its products. Some of the major personalities included singers, athletes, actors, and actresses. Eighty percent (80%) of the firm’s marketing communication efforts were focused on skincare product and 20% on makeup.

Furthermore, the firm had not adopted effective public relations’ channel as it had not adopted new media platforms such as Weibo, which were famous platforms in China. In a bid to enhance its effectiveness with regard to market awareness, L’Oreal should have considered increasing the size of its marketing communication budget.

According to Ferrell and Hartline (2013), consumers are very sensitive towards price in their purchasing patterns. Consequently, it is imperative for managers to adopt an effective pricing strategy. Initially, the firm adopted the premium-pricing strategy. However, the attractiveness of the Chinese market led to entry of a large number of industry players, which diminished the attractiveness of Yue Sai amongst most departmental stores that carried the product.

Moreover, most consumers started preferring premium brands offered by competitors, which presented a major challenge to L’Oreal. In a bid to eliminate this challenge, L’Oreal should have considered adjusting its premium pricing strategy in the process of marketing the Yue Sai brand.

This move would have ensured that the product is integrated effectively in its brand portfolio. Such an adjustment on the firm’s pricing strategy would determine the extent to which a large number of consumers would incorporate Yue Sai brand in their consumption patterns.

Ensuring effective and efficient market accessibility is another factor that L’Oreal should consider in marketing the Yue Sai brand. This goal is achievable via adopting a comprehensive distribution strategy. The distribution strategy should entail effective selection of distribution channel. Considering the view that L’Oreal deals with tangible products, it is imperative for the marketing manager to ensure that the customers access the firm’s products easily.

This move will increase the likelihood of maximising its sales revenue. Currently, the firm’s distribution channels in China are ineffective and the firm’s management team should consider a number of decisions in order to improve its efficiency with regard to the distribution of products. Some of these decisions relate to market coverage, establishment of distribution centres, adoption of optimal order processing strategies, warehousing, and specific channel members.

Currently, L’Oreal has established a number of distribution centres in different parts of China. Some of the firm’s departmental stores are located in Shanghai and the firm distributes its products through 550 departmental stores, 430 cosmetic stores, and through 98 Watson and Manning. However, the firm faces intense competition from other competitors who include Aupres, Lancome, and Herborist who have established a strong level of market dominance.

In a bid to survive in the Chinese market, it is imperative for the firm to consider improving its distribution efficiency by integrating emerging marketing communication channels. One of the options that the firm should consider entails the emerging e-commerce portals. Moreover, the firm should also consider expanding its market by adopting the concept of franchising, which will increase the product’s market reach. Consequently, the firm will increase the likelihood of marketing its products to a large number of customers.

Conclusion

The case study illustrates L’Oreal’s effort to enter the Chinese beauty and cosmetic market. Marketing in the international market presents multinational corporations with an opportunity to increase the level of profitability. This assertion arises from the view that international marketing enables an organisation to market its products to a large number of potential customers, which leads to increment in sales revenue.

Despite the above benefits, international marketing is a major challenge to a large number of multinational corporations. Consequently, it is imperative for multinational corporations to adopt optimal marketing practices. One of the elements that that multinational corporations should take into account entails developing a comprehensive understanding of the international market environment.

Therefore, a comprehensive marketing analysis and evaluation should be conducted. The analysis should focus on diverse market variables such as the political, legal, ethical, social, technological, and economic environments. Such an analysis will give marketers insight on the most effective marketing strategies and practices.

The market environment varies from one country to another. The analysis shows that there is a high market potential for beauty and cosmetic products in China. The market potential emanates from the high youth population in the country. Moreover, China is undergoing a significant market transformation with regard to consumer attitude on beauty and cosmetic products. Most Chinese consumers prefer consuming local products. Despite the high market potential, China is characterised by unique market environment.

Consequently, it is imperative for businesses to adopt effective market entry strategies. In a bid to survive in such a market, it is imperative for market entrants to understand the market, which will aid in determining the most effective market entry strategies. In the process of entering the market, L’Oreal adopted the concept of acquisition. The firm acquired Yue Sai, which a local Chinese brand that had substantial market potential.

This move enabled L’Oreal to localise its product offering effectively. However, the acquired product was not effectively designed, and thus L’Oreal was forced to undertake additional improvement by integrating the Chinese culture in its product development. The case study also shows that Yue Sai was not effectively marketed and this aspect motivated the firm to integrate effective marketing practices such as targeting, positioning, and market segmentation.

In order to survive in the Chinese market, it is imperative for L’Oreal to allocate a substantial amount of money in its marketing budget, which will aid the firm in conducting a comprehensive marketing research. Consequently, the firm will be in a position to undertake effective product improvement.

Moreover, the firm should consider improving its marketing communication by integrating emerging marketing communication platforms such as social media, which will enhance the likelihood of the firm attracting a large number of potential customers.

Reference List

Andexter, T 2008, Analysis and evaluation of market entry modes into the Asia-Pacific region based on the examples of a German SME in the industrial goods business, Verlag, New York.

Aswathappa, K 2010, International business, Tata McGraw-Hill, New Delhi.

Ferrell, O & Hartline, M 2013, Marketing strategy; text and cases, Cengage Learning, Mason.

Fu, Y 2013, . Web.

Ghantous, N 2008, Brand internationalisation strategy beyond the standardisation and adaptation dichotomy, GREFI, Paris.

Glynn, M & Woodside, A 2009, Business to business brand management; theory, research and executive case study exercises, JAI Press, Bingley.

Jian, S 2013, New level of China’s beauty and personal care market. Web.

Kotler, P, Pfoertsch, W & Michi, I 2006, B2B brand management, Springer, New York.

Lamb, C, Hair, J & McDaniel, C 2012, Essentials of marketing, Cengage Learning, Mason.

Liu, H 2013, Chinese businesses; landscapes and strategies, Routledge, New York.

Malaval, P 2001, Strategy and management of industrial brands: Business to business products and services, Kluwer Academic Publishers, Boston.

Shimasaki, C 2009, The business of bioscience: what goes into making biotechnology product, Springer, New York.

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IvyPanda. (2019, December 22). Market Analysis: L’Oreal. Retrieved from https://ivypanda.com/essays/market-analysis-loreal/

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"Market Analysis: L’Oreal." IvyPanda, 22 Dec. 2019, ivypanda.com/essays/market-analysis-loreal/.

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IvyPanda. "Market Analysis: L’Oreal." December 22, 2019. https://ivypanda.com/essays/market-analysis-loreal/.

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IvyPanda. 2019. "Market Analysis: L’Oreal." December 22, 2019. https://ivypanda.com/essays/market-analysis-loreal/.

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IvyPanda. (2019) 'Market Analysis: L’Oreal'. 22 December.

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