Loreal Case Study

L’Oreal is a beauty and cosmetics’ brand that has been the leader in the industry since the early 1900s. In recent years, L’Oreal has been struggling to compete in the haircare industry and now it has to decide how to remain competitive and achieve 10% or greater of US market share in the haircare market. The three possible alternatives are: launching a new brand called Ultra Doux, re-launching Fructis, and exiting the mass consumer products haircare category to concentrate in more upscale market segments. The criteria are customer satisfaction, profitability, brand image. The first alternative L’Oreal can consider is to launch Ultra Doux in the US. The brand will be launched alongside Fructis as part of Garnier. One advantage is that the brand is already successful in several European countries with 18% market share in Belgium so it is likely to be successful in the US. Another advantage is that the brand is associated with warmth and simplicity so it will attract ‘family-oriented’ customers, which is largely untapped in the US. Also, having more products is better because different customers will have different needs and it is likely that one product cannot satisfy everyone’s needs. There are also some disadvantages. Ultra Doux did not do well in UK which is most similar to the US than other European countries so despite several successes, it might not do well in the US. Also, cannibalization will occur because Fructis and Ultra Doux are substitutes. They might offer different benefits but that is not the only thing consumers consider. Lastly, although the ‘family-oriented’ segment is not competitive for now, competitors could launch products realizing this market gap. The second alternative to consider is re-launching Fructis. The re-launch will change the product to two types. One with all-natural formula and more elegant, simple packaging and one with the current ‘vibrant’ packaging and different message. This has some advantages. First, it will attract new customers. Currently, L’Oreal is known as brand for upper middle-class women around the age of 30. These customers’ preferences have been shifting to natural, simple, traditional products so the new all-natural, simple, elegant packaging will satisfy needs of this customer base and attract more. Vibrancy is popular among younger people so Fructis’ message can be changed to attract younger people and packaging tweaked a bit to make this visible. Second, Fructis already has stable supply chains so the re-launch will be quick and low-cost in terms of distribution. Third, it will increase engagement because people will start talking about the product on social media and become curious. However, there are also disadvantages. Fructis has been in the market for a long time but still declining in market share so it might not be successful. Also, introducing new elements may be confusing and lead to loss of current customers. Marketing will need to increase to let customers become aware of this change so cost will increase. Lastly, the haircare market is very competitive and the re-launch will focus on the same line of product so rebranding might not be enough. The third alternative to consider is to exit the mass haircare category. This will allow L’Oreal to focus on other things such as skincare and get more return on investment. Also, it will decrease financial risk by going out of a competitive market. One of L’Oreal’s goals is to gain a market share of 10% and achieving this will be hard so pulling out will prevent L’Oreal from going for an unrealistic goal and lose money. In addition, Fructis is not doing well. Market share decreased from 6.8% in 2011 to 5.8% in 2015 so it is better to invest in a product that is more likely to be successful. There are also disadvantages of exiting. Firstly, haircare is a big market that encompasses 24% of revenues in the beauty industry. The market is expected to increase in the future and its demand is resistant to volatile beauty trends and economic conditions so L’Oreal will lose out on potential profit. Also, it might affect brand image. There might be loyal customers who use L’Oreal products as a set: skincare, haircare, beauty, etc. Taking out one might lead to loss in all of them. Lastly, to exit the market, the company will have to buy-back inventories and there are large sunk costs. It already paid for paid for promotion and supplies for at least a year. Using the criteria of customer satisfaction, profitability, and brand image, re-launching Fructis is the best option for L’Oreal at the moment. The re-launch will divide Fructis into two parts: youthful and classic. For the youthful version, the packaging will stay vibrant and formula will stay the same, but price will be dropped to around $2.98 to compete with Herbal Essences, another brand that aims millennials and young adults. Places will stay the same but promotion will focus more on price and benefits. Given the busy life of millennials, promotion should mostly use social media and coupons. For the classic version that aims baby-boomers, packaging will become more simple, but not all-white. The vibrant Fructis characteristic should be preserved to not confuse customers and lose the brand image. An example will be a clear packaging with the benefits and ‘natural’ traits written in relatively large letters. Italic font can also be used because it portrays a ‘classic’ vibe. The formula will be changed to all-natural and promotion should focus on it using TV advertisements and flyers. Price will be around $3.5 (cheaper than Pantene) and place kept the same. The emotional perspective of this classic version will be gentle and simplicity, like Ultra Doux. However, there are risks to this relaunch. Firstly, success is uncertain. Fructis might be doing well in Europe because of culture and how they see the product so relaunch might not be enough to improve its sales. This uncertainty risk can be reduced by going through an ‘experiment’ period when sales and customer responses will be analyzed without supplying for a full year. Another risk is that having two sub lines of products might lead to cannibalization. This risk will be reduced by the price differences and marketing to show the products are different. People at the age of 25-35 were found to be willing to invest in quality. Higher price is associated with quality so the expensive classic version is more likely to be purchased by baby-boomers than millennials. Still, these risks are inferior next to the other two alternatives’ risks. Ultra Doux might improve brand image but it has the highest uncertainty in terms of success (profit, customer satisfaction). Exiting the market will clearly not achieve the goals and doesn’t satisfy all three criteria. Only 16% of customers have one brand they use regularly and multicultural people are strongly interested in trying new products so relaunch will attract many new customers. Also, Fructis is a known brand that has a center shelf position. Switching cost is low and substitutes are many so placing a new product on a shelf where people will see it the most is advantageous. Thus, relaunching has high potential of profitability and it will also improve brand image because people will see the brand as trying to improve its products. Thus, relaunching Fructis is the best option to achieve L’Oreal’s goals. Launch new brand Ultra Doux Ultra Doux along Fructis, both part of Garnier, under Loreal Pros: 1. Attract new customers 2. Having more products are better - more options - like pantene etc 3. Successful in Europe 4. Following trend: all-natural Cons: 1. Didn’t do well in UK which is similar to USA than other 2. Cannibalization 3. Competitive a. Competitors might launch products although wholesale not competitive for now 4. Need to tweak some Re-launch existing brand Fructis Pros: 1. Low switching cost so putting it in front again might attract 2. Relaunch with focus on __ (natural etc) 3. Already have supply chains, etc. 4. Improve brand image New design: have stand out position on the shelf so new design will get attention Cons: 1. Might not be successful a. Been in the market for a long time 2. Lose current customers a. Confusing 3. Competitive market, same line of product - rebranding might not be enough If not aware of change, lose customers, confusing Exit mass consumer products haircare category and concentrate in more upscale market segments Worst decision out of the 3 Pros: 1. Focus on other things a. Allocating to where? b. More return from other 2. Decrease risk of going out of competitive market 3. Fructis not doing well a. Numbers from case Cons: 1. Big market, losing potential profit 2. Might affect brand image a. Use garnier hair, skincare, etc - Loyal customers not happy 3. Buy-back inventories, big sunk costs (already paid for promotion etc) Appendix: 4P’s discuss this in your solutions Product: if launch new brand: What is changing after USA after Europe? Will the products be the same? If relaunching, what is the re-launching going to look like? Product? Formula? if exit, what should Garnier do Price: can use competitor’s price Place: keeping it in same location? What store? Promotion: emotional tie of consumer, at least 2 different promotional strategies (coupons, etc.) Define your alternative and what you’re doing Might be doing bad or good in one country because of culture and how they see it so need to tweak for new market Cost not sure for all Solution: talk about risks and challenges ¾ of page Ways to mitigate cons Example: cannibalisation - different products, marketing to let consumers know they’re unique If saying risky, what kind of risk? Financially? ‘New formula’ not that new Can combine two alternatives Launch ultra doux, change Fructis Why is Fructis not doing well? Price - target different consumers Tailor product to regions, geocosmetics,