Phase II

MKTG 361, 001-2

October 10, 2020

Team 62
Ku, Edward
Rulney, Ethan
Santos, Grace
Scholz, Greg
Simone, Alexis
Zickerman, Chase
Company and Industry Description
L’Oréal is a personal care company founded in 1909 in Paris, France. The company is made up
of 36 brands, some of them being global, making L’Oréal a multinational company. L’Oréal
manufactures and markets makeup-products, sun care, skin care, hair care, perfumes, and
coloring products (MarketLine, 2020). There are currently 88,000 individuals employed by
L’Oréal throughout the world, allowing a diverse workplace. Throughout the years L’Oréal has
developed as a company and have earned themselves the title as the number one cosmetic group
in the world. As a company, their mission is to offer all women and men on the planet the best of
beauty in terms of quality, efficacy, safety, and responsibility (L’Oréal, 2020).

NAICS, Industry Growth, Competition

L’Oréal falls in the cosmetic industry. According to NAICS, L’Oréal’s services are categorized
under four codes: 325620 (Toilet Preparation Manufacturing), 414520 (Toiletries, Cosmetics,
and Sundries Merchant Wholesalers, 424210 (Drugs and Druggists’ Sundries Merchant
Wholesalers), and 446120 (Cosmetics, Beauty Supplies, and Perfume Stores). All of these
industries are booming and they typically generate massive revenue. In 2014 L’Oréal earned
about 30 million dollars in revenue (MarketLine, 2015). In comparison, in 2019 L’Oréal
generated about 35 million dollars in revenue, demonstrating an increase in L’Oréal’s revenues
throughout the years. The rise of Covid-19 has caused a massive shift in the cosmetics industry.
In May 2020 the global beauty industry predicted that it is expected to have a 30% drop in
revenues for the year of 2020, and up to a 35% drop in the United States alone. On the other
hand, from January to June of 2020 online mass beauty sales rose 13.5% (MarketLine, 2020).

Although the cosmetic industry is high in revenue, it is also a highly saturated market with many
competitors of various sizes. The internet allows smaller players to compete with massive
companies like L’Oréal, and demands that the industry as a whole stay current with the most
effective way to market beauty products. A challenge that everyone in the industry faces is
stability in purchasing volume; when it comes to makeup, a customer liking a product does not
necessarily equate to them increasing their purchasing volume (Hiner, 2020). Unlike the snack
industry, for example (if somebody likes Ritz crackers, they will likely buy and consume more of
them), there is a relatively low ceiling for how much of one shade of lipstick a consumer needs.
This means the cosmetic industry is continuously engaging in Research & Development to come
up with captivating new products that will appeal to their customers, because in order to make
more money off of a consumer they must expand the range of products that consumer purchases,
or convince them to purchase a more expensive product. It’s challenging to create makeup that
stands out as “try-worthy” in an industry full of companies attempting to do the same thing.

Product Description
L’Oréal offers a range of lip care options and prices to its diverse consumers. The lowest priced
lipstick is distributed via mass retail channels, thus it can be found at drugstores and
supermarkets around the world. Individual sticks of lipstick generally range from 0.10oz
and .20oz in quantity, and cost anywhere from $5-$10. There is also the distinction between lip
gloss (less color, thinner) and a thicker lipstick (full color) - L’Oréal offers both in an array of
colors to suit every customer. From ingredients to production, L’Oréal’s objective is to come up
with the optimal finished product (L’Oréal, 2020).
Unique Selling Proposition (USP)
The unique selling proposition for L’Oréal’s Consumer Product lipstick is the wide variety of lip
care products they have to offer to a diverse group of customers who will not spend top dollar on
cosmetics. They sell different formulas of lip products, in all shades, that are suitable for every
look that the consumer may need. As a company, L’Oréal wants their customers to feel “worth
it” and they do that by creating lip products that everyone feels beautiful in, and offering them at
a price that everyone can afford.

Environmental and Seasonal Trends

It has become increasingly difficult to sell consumers on cosmetics in the face of COVID-19.
Many people who were accustomed to putting lipstick on every day for work or school have now
found themselves working from home with no need to dress up. Even as people begin to go out
in public, the mask requirement is making it pointless to apply makeup on the lips. Lipstick sales
fell 75% during the lockdown period (London, 2020).

COVID-19 not only reduced the need for cosmetics, the impact of the pandemic on consumers’
incomes also inhibited sales. Even if regular customers want to continue purchasing lipstick,
many of the people in L’Oréal’s Consumer Products division are financially impacted by
COVID-19 and thus have less money to spend on unnecessary products such as lipstick. The
total revenue of the industry in the US is expected to decline 7.4% in 2020 due to the coronavirus
pandemic (Hiner, 2020).

SWOTT Analysis
Strengths
L’Oréal’s main strength stems from the fact that they are the leading provider in cosmetics
worldwide. L’Oreal have 9 different brands selling lipstick in the Consumer Products Division,
and their brand dominance provides global recognition for their lip care products, as well as
plenty available advertising dollars. The historically strong performance has allowed them to
invest large amounts of money in research and development as well, continually evolving to
provide lip care that the consumer wants.

Weaknesses
While being a global company certainly has its benefits, one weakness of this business structure
is the decentralized nature of their organization. This can make it difficult for L’Oréal to speed
up their production processes, as the many subdivisions need to operate based on instruction
from directors from around the world.

Opportunities
The growing global makeup market continues to present new opportunities for L’Oréal moving
forward. Additionally, different lip gloss options could be explored to provide new ways for
consumers to complement new makeup looks, or even a lip gloss to pair with a trendy no-
makeup look.
Threats
One way that could affect the growth of L’Oréal is the mass production of counterfeit products.
Counterfeit products may damage the company’s sales and reduce its product margins.
Consumers may easily purchase counterfeit low quality L’Oréal products by mistake, which can
damage the company’s reputation as the leading cosmetics provider.

Trends
The cosmetics industry is scrambling to adapt as “no-makeup” looks become increasingly
popular. Many social media influencers have taken to posting pictures that are more natural,
rather than airbrushed photos of faces covered in makeup. However, this is not the kiss of death
for lip care specifically - consumers are instead turning to more lip gloss options. Additionally,
looking at the historical data, this low makeup trend now is indicative of a rebound by around
2021. Experts say they expect this resurgence to be based mainly around makeup made with
natural ingredients (Chain Drug Review, 2020). Recently, there has been an upward trend in the
market for male makeup. It is now quite common to see men all over social media, television,
and real life to be promoting and normalizing makeup for men.

Please refer to Figure 1 on the Attachments page for the full SWOTT Analysis.

Target Markets
Currently, there are millions of L’Oréal users across the world. As a globally leading cosmetic
brand, L’Oréal has clients of all types and we’ve identified their top three target markets. The
target markets include women ages 20-40 who are working in a professional setting, women ages
18-22 pursuing a higher education and women between the ages of 41-60 trying to maintain their
youth. In our market segments we have identified social media users, consumers with yearly
incomes of less than 100 thousand, and geographical location. Refer below to the attachment
page, figure 2, for more information. The market segmentation table shown below shows a three
step breakdown to true market size and how clients only slightly decline based on social media
use and income. The three biggest marketing problems L’Oréal faces can be found in Figure 3 on
the attachment page, and the team has suggested three potential recommendations for each
individual problem.

Competitive Analysis
Competitive Landscape
In 2019, L’Oréal was the number one competitor in the cosmetics industry with an annual
revenue that was about 9.4 million dollars higher than the second ranked competitor in the
industry. L’Oréal was estimated to account for 40% of the global cosmetics industry in 2019
(Cosmetics Market, 2020). Large companies that occupy a significant amount of market share
are a rarity in this industry, it is otherwise very fragmented. This explains why L’Oréal has taken
the strategy of acquiring smaller brands (of which there are plenty) to build a dominant portfolio
(Thomas, 2020).

Direct Competitors
The direct competitors of L’Oréal can be broken down into three competitors: Revlon, Elf
Cosmetics, and Avon. These three competitors sell large varieties of lip care products to their
consumers at affordable prices which makes them appealing to L’Oréal’s top three target
markets.

Revlon
Since founded in 1932, Revlon has developed into a large company that is made up of 35 brands.
Throughout time Revlon has developed into a global brand, selling products in 150 countries
(Revlon Inc). In 1939 Revlon introduced lipstick to their brand after the success with the launch
of their nail polish line in 1937 (Revlon Inc). The launch of their lipstick line was based on the
concept that consumers could match their lipstick color to their nail polish color. This
introduction was a success and they strengthened their lip care production division from there.
Revlon’s lip products are consistently priced within an affordable price range, specifically
around $5-$14, making it accessible to L’Oréal’s three target markets, but particularly to 18-22
year old women pursuing higher education. Second quarter results for 2020 shows that Revlon
has net sales of $347.6 million as opposed to $570.2 million in net sales during the same quarter
in the year prior, marking a 39% decline (Revlon Inc).

Elf Cosmetics
In contrast to Revlon, Elf Cosmetics is a smaller company that would be viewed as a direct
competitor to L’Oréal. Elf Cosmetics, which stands for eyes, lips, face, was founded in 2004.
They built themselves as a brand that is recognizable for extremely affordable cosmetic products.
One of the founders told CNN that “we feel women shouldn’t have to skip lunch or not go out
for dinner or have cutbacks to afford makeup” (Jacques, 2017). They back that up with lipstick
priced at $3-$6. Elf rebounded from an unimpressive 2018 with a strong 2019; last year Elf had
revenues of $282.8 million compared to $267.4 million in 2018, resulting in a yearly increase of
5.76% (Wall Street Journal, 2020).

Avon
In 1886, Avon was founded by David H. McConnel. Avon now holds the title as the leading
social selling beauty company in the United States (Avon, 2020). Avon sells a wide variety of
cosmetic products including makeup, skincare, bath and body products, hair care, fragrances,
etc., which is similar to L’Oréal. Unlike L’Oréal, Avon hires brand representatives who sell their
products to consumers instead of purchasing them directly from a retail store. Consumers can
also purchase these products through the company’s website directly. Avon sells semi-affordable
lipstick products ($10-$20) that would only appeal to the most affluent in L’Oréal’s three target
markets.

Summary
As demonstrated in Figure 3 of Attachments, our extensive research has brought to light three
main issues that L’Oréal’s consumer lip care faces. First, the prevalence of face masks have led
to a decrease in demand for lip gloss. In response to this, L’Oréal could run an advertising
campaign emphasizing the importance of looking your best whenever you take your mask off (at
a meal perhaps). They could also launch a line of lipstick that accents the lips well over video
calls, to take advantage of a time when masks are off. Another alternative is packaging lipstick
with eye makeup so the consumer receives both at purchase.
Second, as discussed earlier, COVID-19 has drastically cut consumers’ discretionary income
from which they pay for lipstick. L’Oréal could run advertisements emphasizing the low cost of
Consumer Divisions’ makeup, and highlight it as a way to treat themselves during challenging
times. They could alternatively actually lower these prices to make it more affordable. Another
option is a “buy one give one” cause in which L’Oréal donates a cheaper lipstick to those
impacted by COVID-19 whenever a lipstick in the luxury division is purchased.

The final issue is the no-makeup, natural trend. Lip gloss has been shown to appeal more to those
who are striving for a natural look, thus L’Oréal could expand their lip gloss line. An ad
campaign redefining lip care as enhancing natural beauty rather than covering anything up could
also be lucrative. Another slightly different course of action would be to hire brand influencers to
represent a no-makeup look except with lipstick, to put lipstick in the natural beauty category.
 Attachments
Figure 1: SWOTT Analysis Chart

Strengths:
● Constant R&D on new products, markets, and
consumer needs
● International production and distribution
● Brand name and global reputation
● Sophisticated advertising to target markets
Weaknesses:
● Decentralized organization structure
● Difficult to increase market share, having
already occupied so much

Opportunities:
● Rapidly growing makeup market
● Potential to continue to keep growing brand
portfolio through mergers and acquisitions
● Lip gloss market growth as no-makeup look
trends
Threats:
● Counterfeit products with fake L’Oréal
labeling
● Competitors that specialize in one product
category throughout the industry

Trends:
● No-makeup look currently trending, with a rebound expected by 2021
● All-natural lip care products
● Lip gloss look rather than thick lipstick
● Male makeup

Figure 2: Target Market Chart

Primary Target Market Secondary Target Tertiary Target Market

Market

Target Description Women ages 20-40 who Women ages 18-22 Women between the ages
are working a job in a pursuing a higher of 41-60 striving to
professional setting education maintain their youth

Initial (N) 40,000,000 11,300,000 42,500,000

Segment Basis 1: 82.4% 89.9% 62%

Social Media User
(Facebook, Instagram,
Twitter)

Segment Basis 2: 44% 4% 45%

Income <50k per year

Segment Basis 3: Europe North America Asia

Location (Region)
 Final N (True Size) 33,240,000 2,022,700 21,207,500

Figure 3: Problems and Solutions Chart

Problem Solution 1 Solution 2 Solution 3

Face mask impact on Ad campaign messaging Sell lipstick that is Package lipstick with eye makeup,
lipstick demand to always being ready specifically made to look so they continue to buy it during
(wear it anyway) good over video (Zoom) mask times

Discretionary income Advertisements that Lower prices on lipstick “Buy one give one” cause where
decreases due to emphasize the “treat during this time to build every time L’Oréal Luxe
COVID-19 yourself” angle brand loyalty customers buy lipstick, L’Oréal
Consumers donates a lipstick to
those hit hard by COVID-19

No-makeup look Increase lip gloss Ad campaign displaying Bring makeup influencers on to
trending options lipstick as bringing out wear no makeup except lipstick
natural beauty rather than
covering the face

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