Download Problem Identification

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
PLÉNITUDE by L’oréal
L’Oréal delayed
introduction of cleansers
until it established a
concrete position in the
French mass moisturizer
market
Share of French Mass Moisturizer Market
L’Oréal
Henkel’s
Diadermine
Nivea
19.6 %
13.0%
8.8%
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
Threats
•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
•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
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
Assumptions:

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.)
Missing Information:
 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
1.
L’Oréal should target women with beauty concerns
or issues, such as signs of aging or dry skin.
1.
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
$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
6.0
6.2
6.2
Ponds
5.0
4.6
9.1
13.9
15.1
-
1.0
3.8
5.7
5.4
7.0
6.5
5.7
4.8
5.2
Dollar Volume (Retail $)
Alpha-Hydrox
Neutrogena
Marketing Strategy: Simplify Product Line
1995 Dollar Shares (ACNielsen data)
Plénitude
Olay
Pond's
Alpha Hydrox
Nivea
Neutrogena
Revlon
Almay
Noxzema
Sea Breeze
Clean & Clear
$ Size Category (Retail)
Moisturizers
Cleansers
1995 Ad Spending
14.0
28.2
15.1
5.4
6.2
5.2
4.3
4.6
$471MM
3.4
7.9
11.2
6.2
4.1
21.6
8.9
6.7
$328MM
$29.2MM
48.1MM
18.1MM
11.9MM
12.8MM
13.3MM
11.5MM
10.0MM
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%
3
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:
1.
Do you agree with the recommendation
provided?
2.
Are there any other strategic alternatives
you would have suggested?
3.
What are other issues or concerns L’Oréal
should consider?