Bringing “Class to Mass” with Plénitude Channin Campbell Samantha Chan Sabrina Minaya Erica Ryan Rose San Juan Itael Toibman

L’Oréal’s BACKGROUND Founded in 1907 by French chemist, Eugene Schiller World-wide presence (1995) 2000 products 500 brand names In over 150 countries L’Oréal’s Strategy : “Quality, innovation and geographic expansion”

L’Oréal’s BACKGROUND QUICK FACTS Sales of 53.4 billion French Francs ($10.9 billion US Dollars) (1995) Cosmetics represented 81% of revenues (1995) Cosmetics included hair care and skincare lines $300 million spent on research and 300 new patents worldwide (1994)

L’Oréal U.S.A. L’Oréal U.S.A. became a wholly owned subsidiary (operating under the name Cosmair) (1994) US sales - $1.5 billion (1995) Acquired Maybelline, a leader in color cosmetics to broaden participation in the mass market (1996) Combined L’Oréal Haircare Division and Cosmetics and Fragrance Division to form the L’Oréal Retail Division headed by Joseph Campinell

L’Oréal’s MARKETING STRATEGIES “Trickle Down and Fire Up” Revenue from mass market products fund R&D for next generation products (high-end products) “Maintain premium pricing to reinforce quality and performance” Concentrate resources and support “star product” to pull entire line Follow the “Golden Rules” of Advertising Feature star product Provide technological superiority Depict an executive, up-to-date and assertive executive woman

PLÉNITUDE by L’Oréal Launched the Plénitude brand in 1982, France Introduced a single product initially, a general purpose moisturizer France advertising positioning: “high end, superior performance but accessible” “class of the mass” (“class to mass”) “Delays Signs of Aging” Strong performance in France 1982 – 1987

Share of French Mass Moisturizer Market PLÉNITUDE by L’oréal Share of French Mass Moisturizer Market L’Oréal Henkel’s Diadermine Nivea 19.6 % 13.0% 8.8% L’Oréal delayed introduction of cleansers until it established a concrete position in the French mass moisturizer market

PLÉNITUDE U.S.A. LAUNCH Test launch in Atlanta & Dallas (1988) US advertising positioning: “high end, superior performance but accessible” “class of the mass” (“class to mass”) “Reduces Signs of Aging” Introduced entire line (as developed in France) nationwide after US test markets showed a 14% share in the moisturizer

PLÉNITUDE U.S.A. Retail Presentation of Entire Line 14 SKU’s introduced covering 3 categories Basic moisturizers Treatments moisturizers cleansers

PLÉNITUDE U.S.A. Advertising resource allocation followed the “star products” system 1989 Full Plénitude product line 1990 Action Liposomes 1991 Eye Defense Cream 1992-93 Hydra Renewal/Wrinkle Defense Crème updated to “Advanced” 1994 Excell-A-3 1995 Revitalift Face

PLÉNITUDE U.S.A. – Early Results Strong US performance hitting sales targets 1989 – 1995, but have failed to generate profits the 8-9 years after it was first introduced hitting a four-year sales plateau 1990 1995 Sales $31.7MM Approx. $63.4MM Advertising and promotion $35.5MM $38.3MM Pre-tax loss -$25.4MM -$12.5MM

5C Framework Company L’Oréal known as a luxury brand in the beauty industry L’Oréal known for its superior technological innovation Plénitude brand very successful in France Competitors United States Oil of Olay, Ponds, Nivea Worldwide Estee Lauder, Clinique, Christian Dior, Chanel Context Youth market can’t afford L’Oréal’s premium prices Consumer Younger franchise Working, successful and the career woman Men Collaborators Department stores Drug stores Beauty salons

SWOT Analysis Strengths Innovative technology L’Oréal brand recognition Product potential with Revitalift line Mature skin market segment Superior research & development department Experience in consumer cosmetic products Weaknesses No differentiation in daily moisturizer/cleanser market High advertising costs Lack of profitability Consumer behavior in US unknown Unattractive product cover No awareness in US market Opportunities Large US market Opportunity to tap into younger consumer segment Many channels for L’Oréal product Revise pricing/marketing strategy to increase consumer appeal Opportunity to develop mature market with Revitalift product Threats Competition with Olay’s similar product Consumer loyalty to competitor product Expensive product image Lack of acceptance from younger market Domestic products more widely known

I think the answer is no.” Problem Analysis “Will luxury companies in the next century, which do not have the mass market base, have the resources necessary to do the research to compete? I think the answer is no.” How L’Oréal’s Lindsay Owen-Jones, Chairman and CEO of L’Oréal, saw the “trickle down and fire up” philosophy. L’Oréal’s unsuccessful attempt to bring the “class to mass” strategy to the US skincare market resulted in a four-year sales plateau. They were unable to market to the varying skincare needs of US consumers, which may lead to more years of unprofitability in the US and may delay the introduction of the Plénitude brand globally and may even hurt L’Oréal’s superior reputation, supported by its technological innovation, in the skincare industry.

Problem Analysis The main problem in the case is how to increase profitability and sales, and how to improving its position in the market in the United States for the Plenitude line of products. Are aspects of the strategy "too French" for the U.S market? When doing such do they try to establish the "class" part of a value proposition by focusing more on their moisturizers and cleansers? Or do they continue with the promoting "Revitalift-Eye" as a "star product" where they would put all money and marketing support towards that one product?

Assumptions and Missing Information The Plénitude product line has been unprofitable since its U.S. introduction in 1988. L’Oréal is willing to consider changing its premium pricing strategy. The main problems with the Plénitude brand are pricing and packaging. That is consumers perceive the line to be too complicated, due to the amount of information on the packaging, and too expensive. The major issue in the Plénitude case is branding and consumer perception. L’Oréal wants to continue selling the Plénitude line in the U.S. Plénitude’s global success is dependent upon its success in the U.S. market. L’Oréal is basing it’s U.S. marketing strategy on it’s French strategy, without properly adjusting for cultural differences.

Assumptions and Missing Information (cont.) What do U.S. consumers look for in facial skin care products? Is technology an important factor in over-the-counter cleaners and moisturizers? Are American women as educated French women when it comes to skin care? How would U.S. consumers prefer to receive product information if not on the packaging? Sales figures for each of the products in the Plénitude line. For example, what are the least popular products? Which are the “stars”? Consumer demographics (not just the five identified “benefit” segments).

Strategic Alternatives Alternative #1: Focus on differentiation and target niche market Description Advantages Disadvantages Differentiate L’Oréal by focusing on innovations in specialty products. Continues L’Oréal's success on innovation Lose potential market in younger customers Target niche market who will value innovations in skin care. The stressed out and age focused groups Keep premium pricing strategy to earn more Customers perceive L’Oréal brand for older women or for women with problems. Use niche market to build brand equity

Strategic Alternatives (cont.) Alternative #2: Simplify product line Description Advantages Disadvantages Reduce the number of SKU's offered to consumers May reduce confusion among consumers who do not know how to purchase L’Oréal products Eliminates consumers' opportunity to make choices Some consumers may be more willing to try L’Oréal

Strategic Alternatives (cont.) Alternative #3: Simplify pricing structure Description Advantages Disadvantages Reduce the current number of price points reduce average price for cleansers and moisturizers Simpler price structure could make product line easier to shop Could alter perception of L’Oréal products as less valuable Enter competitive pricing strategy Could win over some younger consumers with lower prices Lower prices may not be competitive enough against Pond's and Olay Current structure is 2 price points for cleansers, 3 for moisturizers, and 3 for treatment moisturizers Consumers would be more likely to try and convert to L’Oréal Negatively affect financial performance

Strategic Alternatives (cont.) Alternative #4: Divide product line to target younger and older users Description Advantages Disadvantages Target younger customers with cleansers and moisturizers and older women with the specialty products Larger potential market if L’Oréal markets to younger and older women Financially challenging to split marketing resources Offer different pricing strategies for the two product lines Can gain brand equity from all generations Younger women will consider staying loyal to L’Oréal products when they're older

Strategic Alternatives (cont.) Alternative #5: Differentiate brand by educating consumers about skin care Description Advantages Disadvantages Educate American consumers on how French women take care of skin Create a value for L’Oréal brand because L’Oréal also teaches consumers about skin care Financially costly to educate women about skin care Target women who are interested in skin care Reduce confusion about the product and use Not addressing a consumer problem or concern, but trying to create a problem to solve Abandon star program of focusing advertising on one product

Evaluation of Alternatives Alternative #1: Focus on differentiation and target niche market By making sure that the product is differentiated, it allows L’Oréal to stand out in a market saturated by competition. The current issue to address includes improving Plénitude's operations in the US as well as introducing a Revitalift-Eye into existing product line.  Further, this alternative will capitalize on the strongest strength that L’Oréal has which is its brand name. One of the likely consequences of this is the possibility of losing customers not included in the targeted niche market, such as the younger group.

Evaluation of Alternatives (cont.) Alternative #2: Simplify product line This alternative directly improves Plénitude's current operations since the issues that were mentioned in the surveys included people being confused about too many options. The issue with simplifying is that it may reduce the amount of choices people have when making a decision about the products they have, but on the other hand it is an opportunity to market to the segment that does not necessarily need all the information to begin with and may be intimidated by too much.  With this alternative one thing to watch out for is not taking too much information out so that everyone is confused.

Evaluation of Alternatives (cont.) Alternative #3: Simplify pricing structure Simplifying the price structure could potentially attract new customers. At the same time, it would also possibly hurt L’Oréal financially as some people might see it as a decline in value. 

Evaluation of Alternatives (cont.) Alternative #4: Divide product line to target younger and older users Dividing the product line is an alternative that is in a slightly different direction than the others. While the first three alternatives focused on simplifying, this alternative is focused on specifying the product line to target younger customers with cleansers and moisturizers, while at the same time targeting advertisements of specialty products to older women. The opportunity lies in the ability to use L’Oréal brand to reach a larger potential market, however the challenge lies in the fact that they don’t have unlimited resources to spend on marketing.

Evaluation of Alternatives (cont.) Alternative #5: Differentiate brand by educating consumers about skin care L’Oréal drives sales with product technology, but the department-store-gone-self-serve is a challenge to their sales.  Therefore, L’Oréal can stand out by educating consumers about skin care.  Many of the consumers already know and appreciate L’Oréal to be a higher quality product, so providing education instead of just product information they can promote use among the younger generation who doesn’t necessarily have the history of the commercials or advertising.  

Recommendation Our recommendation is to use a combination of Alternative 1 and Alternative 2: We believe that the best approach is to focus on product differentiation and targeting niche markets, while at the same time simplifying the product line.

Marketing Objective: Target Niche Market L’Oréal should target women with beauty concerns or issues, such as signs of aging or dry skin. The company should target women 30 and older seeking a product to reduce a specific sign of aging or a product to reduce signs of aging in general. This strategy would focus on women 30 and over in the previously identified “Stressed Out” and “Age Focused” benefit segments. Example: L’Oréal’s successful product, Revitalift, helps consumers solve a specific beauty problem.

Marketing Strategy: Target Niche Market Using one of L’Oréal’s greatest asset, its brand name, we can increase awareness of the line by sending out targeted messages to customers age 30 or over. Specifically, targeting the ads to American women so that the products aren’t seen as too French. Possible suggestions include general slogans like, “Keep your skin hydrated during BBQ season!” or “Avoid sun-spots from cheering for the Ravens from the bleachers!” to get women to identify with the product and increase awareness.

Marketing Objective: Simplify Product Line Plénitude sells more moisturizers than cleansers. More specifically, Plénitude sells more treatment moisturizers than daily moisturizers; and therefore, should focus its product line around treatment moisturizers which capitalize it’s greatest asset – technology. Technology is a greater asset in selling treatment moisturizers instead of daily moisturizers.  Many of its competitors were much stronger in the daily segment.  In general, the moisturizers are more profitable than cleansers for Plénitude in general.  The Plénitude Line is among the top 3 in market size and brand shares for moisturizers. Specifics shown in next slide Further, they can simplify the product line by simplifying the packaging so that it’s not as intimidating to women who do not want or need too much information to make a decision.

Marketing Strategy: Simplify Product Line Moisturizers - Market Size and Brand Shares (Dollar Basis - All Mass Outlets)   1991 1992 1993 1994 1995 Dollar Volume (Retail $) $309MM $338MM $375MM $440MM $471MM Plénitude 11.7 13.6 14.1 13.8 14.0 Olay 38.3 36.1 32.3 29.7 28.2 Almay 5.4 6.0 5.6 4.4 4.6 Nivea 4.8 5.5 6.2 Ponds 5.0 9.1 13.9 15.1 Alpha-Hydrox - 1.0 3.8 5.7 Neutrogena 7.0 6.5 5.2

Marketing Strategy: Simplify Product Line   1995 Dollar Shares (ACNielsen data) Moisturizers Cleansers 1995 Ad Spending3 Plénitude 14.0 3.4 $29.2MM Olay 28.2 7.9 48.1MM Pond's 15.1 11.2 18.1MM Alpha Hydrox 5.4 - 11.9MM Nivea 6.2 12.8MM Neutrogena 5.2 13.3MM Revlon 4.3 Almay 4.6 4.1 Noxzema 21.6 11.5MM Sea Breeze 8.9 Clean & Clear 6.7 10.0MM $ Size Category (Retail) $471MM $328MM Moisturizer Units Sold % Daily % Treatment 1. Alpha-Hydrox 11% 89% 2. Plénitude 35% 65% 3. Pond's 51% 49% 4. Nivea 73% 27% 5. Neutrogena 78% 22% 6. Olay 88% 12%

Marketing Strategy: Simplify Product Line Focus on its “star” products and profitable treatment moisturizers.

Financial Implications L’Oréal is spending too much on advertising and promotion, and not generating enough sales to turn a profit.  If L’Oréal narrows its focus and simplifies its product line, marketing costs would change significantly. Here is how these strategies will affect marketing expenditures: L’Oréal spends $29.2MM on advertising its cleansers and moisturizers; it could easily cut its spending by 20%* ($5.84MM) by simplifying its product line and eliminating cleansers, for which it only has a 3.4 dollar share in 1995, the lowest among all of its competitors. Those savings alone would reduce the pre-tax loss (for 1995 the pre-tax loss was 12.5MM) by 50%. We estimate that segmenting markets and focusing marketing efforts, in addition to simplifying the product line, will result in additional cost savings (for which we do not have solid numbers as the case is missing financial data). *This is an estimate based on our interpretation of the financial and case information available.

Discussion Questions: Do you agree with the recommendation provided? Are there any other strategic alternatives you would have suggested? What are other issues or concerns L’Oréal should consider?