Product Strategy @ L'Oreal

1. Describe the Product Portfolio of L'Oreal

The challenge at L'Oreal was to leverage its position and innovation capabilities to transfer the
Plenitude product line to the United States market and achieve both bottom and top line growth. In
1988, the L'Oreal 'Plenitude' line was launched in the U.S. market consisting of a 14 SKU (Stock keeping
units) line-up that was sub-divided under cleansers and moisturizers (both daily and treatment). By
early 1995, the line had extended to 19 separate products. Each segment was further categorised
according to criteria such as skin type and time of usage. The packaging of each product was
captivating and informative and there was a very unique purpose for the information provided on the
packaging as the strategy of L'Oreal was to push such products in retail outlets without dedicated sales
staff which entailed that the consumer was to be educated via instructional packaging.

To give a brief overview of the company, it was founded in 1907, in Clichy, France, by the chemist
Eugene Schueller to provide advanced hair care products for customers of French hairdressers. Under
the guidance and control of Schueller's family the company had evolved to provide cosmetic, skin and
hair care products with the principle strategy of 'quality, innovation and geographic expansion'. Later
the holding company 'Gesparal' and Nestle became major shareholders of the company which provided
deep-pockets for it's innovation philosophy and geographic expansion plan. Within the context of
L'Oreal, Plenitude existed to target consumers of skincare products via the mass market retail
channels. Other ranges focused on hair care and 'Lancome' for cosmetic markets.

The company's collaboration with channel partners was vital for the products distribution across
markets. Relationships were essential with retail partners that ranged from high-class department
stores (e.g. Les Galeries Lafayette) to small boutique hair and beauty salons which it's Redken,
Professionelle and Salon Classics ranges targeted. In the U.S. this extended to operators such as K-mart
and Wal-Mart. The branding and communications of the product portfolio was also a critical success
factor at L'Oreal and cooperation with agencies including 'Publicis' was imperative to convey the
message of each sub-brand within markets. Other essential collaborators in the launch and
maintenance of its product portfolio included market research agencies like 'AC Nielsen' that tracked
both quantitative and qualitative aspects of target markets (especially in the United States). Another
form of collaborator included its U.S. licensee, Cosmair, which marketed its salon based product lines.

In order to fully describe the company's product portfolio it is also necessary to understand the
consumers of such products and the benefits which were derived or needs fulfilled. However,
distinguishing such factors in light of both French and American markets is perhaps a key component of
the problem that existed at L'Oreal. The needs that each product fulfilled were beyond basic
physiological needs and extended to 'belonging' and 'esteem' factors which contributed to an
individual's sense of intimacy, self-worth and need for respect from others (e.g. peer's, loved ones
etc.).This can also be related to the reasoning behind the companies advertising campaigns that
launched a call to action entitled 'because you're worth it'. The nature of such products transcended
functional values and the emotional attachment that consumers felt was also important to distinguish
and create 'star' products. This is alluded to in the 'Customer Value Hierarchy' which identifies core,
basic, expect and augmented product values. In the case of L'Oreal, the Plenitude line is clearly
competing on an augmented level which attempts to exceed customer's expectations through high
quality and innovation.

Within the context of the U.S. industry, the Plenitude range was positioned within a highly competitive
sector that was dominated by large operators such as Proctor & Gamble and Ponds (Exhibit 11 and 12
highlights the various players in both the moisturizing and cleansing sectors in a graphical BCG and
depicts the amount of growth with volume; from this analysis the leaders in moisturizing and cleansing
are 'Olay' and 'Noxzema' respectively). Another feature of the industry which is pertinent to describe is
the industry point of view regarding the products which they sell. The former CEO of Revlon Inc.,
Charles Revson, alluded to this sentiment with the quote – "In the factory, we make cosmetics. In the
store, we sell hope" which indicates the high-level of consumer need which the industry clearly
understands and is appealing to.

2. What explains the lack of success of Plenitude in the

U.S.? How is this different from the situation in
France?
Both markets are comprised of varying demographic and cultural differences. In the U.S., the market is
considerably less informed about the use of L'Oreal's product line whereas the French population are
more sophisticated regarding the use of these products. Within the context of both countries a
reciprocal relationship exists between indigenous brands and their sense of tradition and established
position which has been facilitated by a generation-based system wherein family and peer groups play
a huge role in marketing the products. This is true in the situation of both Pond's and Oil of Olay within
the U.S. and with L'Oreal in France.

The lack of success in the U.S. was evident in the fluctuating positions that Plenitude maintained
regarding market share between Oil of Olay and Pond's and for the 8-9 years that the product line
existed without generating profits. Factors which affected L'Oreal's performance included the firm's
relatively recent entry into a very competitive marketplace which would be depicted according to
Porter's 5 Forces model as demonstrating a high level of rivalry. Rivals such as Pond's and Oil of Olay
benefitted from established positions in terms of branding, channel management and the amount of
intimate knowledge of consumers and the competitive landscape. Additionally the strategy of L'Oreal
involved licensing the company's Technique Professionelle, Salon Classics and Redken divisions to
Cosmair. The separation of these identities gave the corporate brand less controlling influence over the
entire business initially.

The plenitude range was originally launched in France circa 1982 with phenomenal results and in
total,the French market for cosmetics was larger than that in the U.S. with contributions to revenue of
23% and 20% respectively. The positioning of the line was "high-end, superior performance yet
accessible" and the environment was competitive yet the mass-market offered only a handful of
significant players. In light of this opportunity, management launched their so-called "class of the mass"
strategy which positioned high-tech products at a premium of 30% over rival brands such as Nivea and
Diadermine.

The French success saw the rise of a 'star' strategy which involved investing heavily in advertising and
promotion of product s such as basic moisturizers which contained 'action liposimes'. However, the
pricing for such offerings was placed at a significant premium and financed R&D efforts to maintain
innovative products which would become the future stars of L'Oreal's product portfolio. Another
important element of the overall French marketing strategy was the incremental basis with which each
product was launched and advertised. For example, initially only a moisturizing range was built as
innovation in the cleansing segment was deemed to be difficult to achieve. Furthermore, awareness
was created by a print campaign which then evolved to incorporate television ad spots. However the
big question amongst executives was how to transfer this proven success formula and strategy to the
United States?

The smooth roll-out of the Plenitude line was quite the opposite in the United States where
management seemed to adopt a 'blast' type strategy that launched 14 SKU's immediately within 3
categories upon the market. This seemed contrary to the original 'trickle down, fire-up' philosophy and
reaction from the U.S. marketplace was mixed with many customers feeling confused and over-
whelmed by the product's communication strategy. Therefore the lack of understanding of U.S.
customers was initially a huge stumbling block for the company. Furthermore, if the strategy of L'Oreal
is considered within the context of Ansoff's Matrix it is quite clear that in France, the Plenitude product
line comprised of relatively new products in a market where L'Oreal already existed in 1982 which is
quite different to the strategy applied to entry in the United States. This involved entering a new
market with an existing set of products and entailed little diversification. The disregard, of this
seemingly pure 'market development' approach, for products that were adapted for the market was a
major weakness of Plenitudes launch in the United States and contributed significantly to L'Oreal's
trailing position. The basis for success would have been provided by developing a diversification
strategy that aligned products with the diverse wants and needs of the American market. The feedback
gained from focus groups and research could have provided the means for applying such market
intelligence to the Plenitude portfolio.

3. Develop a marketing strategy including product

positioning, pricing, packaging, product line length &
width, and new product development.
Positioning the L'Oreal Plenitude line in the most effective manner can be addressed by understanding
the current perception of the line in the U.S. market. Focus groups have identified some key issues
concerning the complicated nature of the Plenitude brand and the confusion with which potential
buyers face in the buying process. Yet buyers credit the brand with high-quality given its association
with parent brand L'Oreal. The strength of L'Oreal to transmit connotations of high-quality and
innovative features is marginally offset by the brands diametrically opposed weakness in being
associated with high-price; yet positioning the brand to convince and assure target segments of the
benefits is a good strategy for both value creation and appropriation.

Within the brand relationship spectrum, the positioning would best fit under a Sub-brand strategy that
places the L'Oreal master brand as a key driver. This rationale is in-line with the findings of focus
groups that have identified the strengths of the L'Oreal brand in its appeal to the 'masses' yet find the
sub-brand 'Plenitude' somewhat lacking in stature and credibility. It is also a brand which "doesn't really
mean anything" to some focus group members therefore it's ability as a co-driver in a master-brand
strategy is significantly impaired and relegated to providing distinction as L'Oreal's retail brand. Such a
scenario maintains high-value for the end-user but also allows L'Oreal to prevent instances of channel
conflict with its high-end and professional product lines.

An underlying tenet of L'Oreal's strategy to provide quality, innovation and achieve geographic
expansion in the U.S. market was consumer education at the point of purchase. Traditionally, the
brand was distributed in a department store environment similar to 'Les Galeries Lafayette' in France
with the benefit of highly trained sales staff however through the retail channels in the U.S. market,
this variable was not available in the HBA (Health and Beauty Aids) section of discount retailers.
Despite consumer awareness of the L'Oreal brand and exposure to lipstick, nail-polish and hair care
products, the subtle nuances of L'Oreal's skincare range depended on the effectiveness of the products
packaging to generate sufficient awareness, interest, desire and action in the buying process.

Thus, a reliance on captivating and informative packaging in addition with a strong merchandising
effort were critical to the success of Plenitude in lieu of dedicated sales support and in 1988, $32,5
million was budgeted for the advertising and trade promotion of the line. A unique feature of such in-
store efforts was the presentation of packages in a 'Skincare Centre' format which assembled each
product together to illustrate the comprehensive set of product solutions L'Oreal marketed for
skincare. At the product micro-level, each package communicated precisely the benefits, application
guidelines and brand promise with which management relied upon to 'educate' the target segment. The
front of each package contained the Masterbrand, sub brand and product name (e.g. L'Oreal,
Plenitude, Revitalift) in heavy typeset with the active ingredients and functional attributes beneath.

However, the overwhelming feeling that some consumers experienced in the buying process suggests
that a slightly modified approach to the packaging of the Plenitude range is required. Therefore, an
enhanced approach to this delicate issue of 'educating vs. overwhelming' target segments involves
deemphasizing complicated and cluttered package facades with simplistic names indicative of product
functionality combined with appealing imagery and emphasis on the Masterbrand. The rear of the
package will include concise information for the engaged consumer.

In the process of creating a coherent marketing strategy for the plenitude line, pricing is also critical. A
1995 market study which identifies five benefit segments indicates that the "Unconcerned", "Price
Conscious Socialisers" and "Age Focused" groups are all concerned and influenced by price. From a
channel point of view, the exposure and bargaining power of L'Oreal with retail partners is also quite
important as higher margins will permit greater control for category managers of merchandising and
positioning of bottom and top-line products amongst competitors in the channel. At the product range
level, the 'Plenitude' brand offers the fourth highest margin to retailers amongst the top 5 competitor
brands in skincare with its cleanser range reducing the average margin significantly. However, the
product range of Olay commands the highest market share in the industry yet provides the least
amount of margin for retailers, which suggests that a possible strategy for L'Oreal is to decrease prices
of its 'Daily Moisturizing' range to increase share against Olay which would complement the company's
goal of top-line growth. Furthermore, the average retail margin for 'Daily Moisturizers' is 58,2% which
suggests that L'Oreal are in a healthy position to offer value pricing to customers and thus gaining
market share against Olay and Noxzema in their respective segments.

From the outset, extending the product line length could be perceived by management at L'Oreal to be
a low-risk, low-cost exercise that will increase profits of the range by more precise customer
segmentation. Yet this is a somewhat myopic approach to increasing sales, lowering inventory and
allaying competitive intensity and includes assuming the risks of lowering brand equity and loyalty,
diminishing relationships with trade partners and may ultimately fail in acting as a demand catalyst.
However, management could chose to stretch the line downward to attract price sensitive segments or
upwards in order to maintain a price premium across the product range. L'Oreal could also decide to
extend its product width in the introduction of new lines, which would prove costly without clearly
established innovations and segments or provide greater product depth in terms of the total number of
SKU's available in the market. However, such an approach would undoubtedly add to the confusion that
current shoppers experience during an encounter with the Plenitude range.

New product innovation and the 'star' system is another key element which has served to facilitate
product innovation through high growth and profitable products, yet success in the U.S. market will not
be sustainable based on the premise that one successful product determines the outcome of the
product line, this is too risky. L'Oreal's situation in 1995 is depicted by the launch of 'Revitalift Face'
which requires a high investment to launch and the return on investment (ROI) is not easily
quantifiable. Thus, the use of high technology products and innovation should be equally distributed
across the product portfolio to achieve a mix of high value with high performance while focusing on the
moisturizing and daily cleansing segments. This scenario decreases the dependency of the portfolio on
one product while reinforcing the strength of the master brand based on the innovation of the product
groups. This strategy also provides consistency across the range.

Finally, the implementation of the marketing strategy should take into account the theory and
framework behind creating blue ocean strategy's. A strategy canvas identifies the key competing
variables of the industry and attempts to create value by adjusting these criteria in order to create a
form of 'uncontested market space' . In the case of L'Oreal Plenitude, U.S. market entry depends on
maintaining the core elements of the product's high-tech nature, the emphasis on advertising plus
promotion and the inclusion of aspirational role-models to drive the brands image.

While there are many obvious and logical reasons for leveraging the power of the corporate brand, this
facet needs to be approached with conservatism and prudence in light of the potential risks posed to
the parent in the event of instances which may contaminate the L'Oreal Masterbrand. Therefore a de-
emphasis of relying on the corporate brand is also recommended. Additionally, a blue-ocean value
curve will be achieved by lowering the complicated nature of the packaging (while keeping instructions
on the back) and creating an element of simplicity for U.S. consumers that otherwise find the product
range 'overwhelming' and 'complicated' according to focus groups. For example, customer testimonials
indicate motivation to purchase 'eye defence' products based on clarity and self-descriptive titles which
is the opposite of products such as 'Excell A' which add to the busyness and confusion of the products.
Building on such changes to the tradition industry value curve, will be a reduction in prices for the
cleanser and daily moisturizer segments in order to become more competitive as mentioned previously
yet the treatment product line should maintain its premium pricing strategy while extending the
special purpose of products within this category.

Exhibit 1: Retail Margin per Category

Average Retail Margin per Category

Brand Cleansers Daily Moisturizers Treatment Moisturizers
Nivea na 48,86% 49,08%
Ponds 47,65% 48,91% 40,99%
Neutrogena 45,18% 39,07% 40,67%
Olay 48,35% 16,41% 67,13%
Plenitude 28,67% 50,82% 39,12%

Exhibit 2: Margin per Brand

Brand Average Margin per Brand

Ponds 44,83%
Olay 34,34%
Plenitude 38,90%
Neutrogena 43,06%
Nivea 48,97%
Exhibit 3: Size of Product Lines

Average Size of Product LineBrand # of Products

Ponds 9
Olay 14
Plenitude 19
Neutrogena 5
Nivea 4

Exhibit 4: Retail Margins for Ponds Products

Pond's Product Categories & Trade/Retail Margins

Trade Retail $ % Retail
Product Category Product Name Price Price Margin Margin
Moisturizers
(Daily) Dry Skin Cream 5,5 8,19 2,69 48,91%

Age Defying Lotion

Moisturizers (Regular or Delicate skin) 3
(Treatment) oz 7,8 10,99 3,19 40,90%
Age Defying Lotion
(Regular or Delicate skin) 2
oz 7,8 11,23 3,43 43,97%
Prevent & Correct Lotion 10,8 14,94 4,14 38,33%
Prevent & Correct Cream 10,8 15,2 4,4 40,74%

Cleansers Cold Cream 2,78 4,09 1,31 47,12%

Self-Foaming Cleanser 5,03 7,44 2,41 47,91%
2 in 1 Cleanser - Tube 2,79 4,22 1,43 51,25%
2 in 1 Cleanser - Pump 3,88 5,6 1,72 44,33%

Exhibit 5: Retail Margins for Plenitude Products

Plenitude's Product Categories & Trade/Retail Margins
Trade Retail $ % Retail
Product Category Product Name Price Price Margin Margin
Moisturizers Active Daily Moisturizer -
(Daily) Regular 4,72 7,11 2,39 50,64%
Active Daily Moisturizer -
Oil-Free 4,72 7,17 2,45 51,91%
Active Daily Moisturizer -
SPF15 4,72 7,21 2,49 52,75%
Hydra - Renewal Jar 6,83 10,17 3,34 48,90%
Hydra - Renewal Tube 6,09 9,13 3,04 49,92%

Moisturizers Advanced Wrinke Defense

(Treatment) Cream - Jar 8,87 12,15 3,28 36,98%
Advanced Wrinke Defense
Cream - Tube 7,07 10,3 3,23 45,69%
Advanced Overnight 8,87 12,26 3,39 38,22%
Eye Defense 8,87 12,07 3,2 36,08%
Excell Cream 8,42 11,36 2,94 34,92%
Excell Lotion 8,42 11,51 3,09 36,70%
Serum 10,43 15,19 4,76 45,64%
Revitalift - Face 8,87 12,31 3,44 38,78%

Cleansers Deep Cleansing Gel 5,5 6,97 1,47 26,73%

Hydrating Cleansing
Cream 5,5 7,07 1,57 28,55%
Hydrating Floral Toner 5,5 6,94 1,44 26,18%
Clarifying Foaming Gel 6,25 8,06 1,81 28,96%
Clarifying Mask 6,25 8,09 1,84 29,44%
Clarifying Toner 6,25 8,26 2,01 32,16%

Exhibit 6: Retail Margins for Neutrogena Products

Neutrogena Product Categories & Trade/Retail Margins

Trade Retail $ % Retail
Product Category Product Name Price Price Margin Margin
Moisturizers (Daily) Combination Skin 7,5 10,43 2,93 39,07%

Moisturizers Healthy Skin Oil-Free 7,5 10,55 3,05 40,67%

(Treatment) Bottle

Cleansers Facial Cleanser 5,91 8,33 2,42 40,95%

Deep Clean 4,1 6,07 1,97 48,05%
Deep Pore 5,5 8,06 2,56 46,55%

Exhibit 7: Retail Margins for Oil of Olay Products

Oil of Olay Product Categories & Trade/Retail Margins

Trade Retail $ % Retail
Product Category Product Name Price Price Margin Margin
Moisturizers
(Daily) Original Beauty Fluid 5,86 6,59 0,73 12,46%
Oil Free Beauty Fluid 5,86 6,65 0,79 13,48%
Sensitive Skin Beauty
Fluid 5,86 6,66 0,8 13,65%
UV Protectant Beauty
Fluid 5,86 6,74 0,88 15,02%
Original Beauty Fluid
(Large) 7,53 8,76 1,23 16,33%
UV Protectant Beauty
Fluid (Large) 7,53 9,6 2,07 27,49%

Moisturizers
(Treatment) Night of Olay 4,49 6,45 1,96 43,65%
Replenishing Cream (4
SKU's by type) 4,58 8,73 4,15 90,61%
Age Defying Protective
Renewal Cream na 7,31 na na
 Age Defying Protective
Renewal Lotion na 7,36 na na

Cleansers Foaming Face Wash 2,12 3,17 1,05 49,53%

Facial Cleansing Lotion 3,09 4,56 1,47 47,57%
Refreshing Toner 2,69 3,98 1,29 47,96%
Age Defying Daily
Renewal na 4,76 na na

Exhibit 8: Retail Margins for Nivea Products

Nivea Product Categories & Trade/Retail Margins

Trade Retail $ % Retail
Product Category Product Name Price Price Margin Margin
Shine Control
Moisturizers (Daily) Mattifying Fluid 4,84 7,15 2,31 47,73%
Facial Nourishing
Lotion 4,58 6,87 2,29 50,00%

Moisturizers
(Treatment) Anti-Wrinkle Cream 6,13 9,22 3,09 50,41%
Optimale 7,12 10,52 3,4 47,75%
Exhibit 9: BCG Matrix of Plenitude Product Line (Dollar Share)

Exhibit 10: BCG Matrix of Plenitude Product Line (Unit Share)

Exhibit 11: BCG Matrix Representation of Moisturizer Market

Exhibit 12: BCG Matrix Representation of Cleanser Market

Exhibit 13: Ansoff's Matrix (French Market)

French Skincare Industry

Existing Products New Products
Existing Markets Market Penetration Product Development
L'Oreal Plenitude
New Markets Market Development Diversification

Exhibit 14: Ansoff's Matrix (U.S. Market)

U.S. Skincare Industry

Existing Products New Products
Existing Markets Market Penetration Product Development

New Markets Market Development Diversification

L'Oreal Plenitude

Exhibit 15: Four Actions Framework

4 Actions Framework
Reduce Raise

Corporate Brand Emphasis Width of Product Line

Packaging Detail
Pricing
Frenchness
Special Purpose
Focus on Star-product

Create Eliminate
Simplicity -