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TOPIC: HOW DID L'OREAL SUCCESSFULLY ENTER THE VIETNAM MARKET

UNDER MONOPOLISTIC COMPETITION?

Table of contents

1. Introduction 3
1.1 Market overview 3
1.2 Historical background 4
1.3 Problem Statement 5
1.4 Research Objective 5
2. Monopolistic Competition literature review and application 6
2.1. Definition of Monopolistic Competition 6
2.2 Economic Efficiency under Monopolistic Competition 6
3. The competition of the cosmetic market in Vietnam 8
3.1. Existing rival 8
3.2 Product differentiation 10
3.2.1 Entry Barriers 12
3.2.2 Differentiated Product 13
3.2.3 Location Strategy 15
3.3 L’Oreal’s success in Asia 15
3.4 L’Oreal’s latest movements 16
4. Conclusion and recommendation for L'Oreal 17
5. References 17
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1. Introduction

Vietnam's cosmetics business is booming. Vietnam's growing demand for cosmetics, especially

personal care, and beauty goods, has led to a cosmetics market boom. According to The Society of

Cosmetics of Ho Chi Minh City, approximately 400 foreign cosmetic manufacturers presently

operate in Vietnam, making up 90% of Vietnam's market share.

Vietnam's cosmetics sector is growing double-digits. Beauty expenditures per capita are low

compared to Thailand or China. The increasing expansion of the young Vietnamese middle class is

an opportunity for firms that supply unique and high-quality items and can engage digitally with

men and women. Our Vietnamese market has great growth potential.

1.1 Market overview

​According to Nielsen, Vietnam is one of Southeast Asia's fastest-growing cosmetics markets,

despite average monthly consumer spending of $4 USD.

According to Kantar Worldpanel's Insight Handbook 2019, spending on makeup remover,

moisturizer, and sunscreen has risen considerably in the last four years.

The aforementioned enterprises, which sell things for contemporary ladies, have gross profit

margins between 30 and 80%. This explains market excitement.

Vietnamese cosmetics are international, local, and handmade. Most buyers are willing to pay a lot

for a collection of high-quality cosmetics from a reputable brand. Buying cosmetics in sets

maximizes income.

The economy also influences cosmetics (Nguyen & Sirikhoon, 2008). Vietnam has more than 90

million people and a growing GDP, making it one of the largest developing markets and a

significant commodity destination. 2007-2012 was a tough time for Vietnam's economy. (2013)
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Vietnam's GDP rose 5.42% in 2013. This is a sign of recovery for the government's attempts to limit

inflation and restore economic stability. It should lead to more sustainable growth in the following

years. Reforms to the Vietnam commodities market and cosmetics sector allowed cosmetics

enterprises to export freely after gaining quality certification and eliminating cosmetic tariffs. It

helps enterprises enter the Vietnamese market. Vietnamese women utilize cosmetics and skincare at

80%. Third of Vietnam's cosmetics industry is skincare (Nguyen & Sirikhoon, 2008). Vietnam's

humid environment and air pollution enhance demand for sunscreen, whitening, and anti-aging

products. Due to a lack of local products, more than 90% of cosmetics have been imported in

Vietnam in recent years, and the import value of beauty, make-up, and skincare preparations has

risen substantially.

1.2 Historical background

L'Oréal has built a solid connection of trust and love with Vietnamese clients over the previous

decade. L'Oréal Vietnam joined the group in 2007. L'Oréal is the market leader in Vietnam's beauty

business. Vietnam's development is impressive. Vietnamese may pick from well-known brands.

Customers in VietNam choose effective, safe, and trustworthy things. Additionally, customers in

this area are interested in skin care products due to the oily environment.

1.3 Problem Statement

L'oreal faces strong competitors and fake products. Innisfree, created in 2000, is a main competitor

in Vietnam. The two wanted to provide a cheap alternative to costly cosmetics. L'oreal can not

separate itself from the competitors. They will continue to lose market share until they differentiate

themselves. Besides that, L'Oréal has fake products in Vietnam. Fake items are sometimes cheaper
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than legitimate ones and difficult to recognize. Because fake packaging is so similar to legitimate

packaging, purchasers can not tell the differences. This is a problem for L'Oreal because if people

buy fake products thinking they are legitimate, it might harm the company's reputation and total

profit.

1.4 Research Objective

Innisfree, the company's main competitor, has been on the market shorter than L'oreal. To begin,

most people are aware of both brands. The goal of this study is to compare L'oreal's products against

Innisfree's products using advanced technologies in order to persuade people to prefer L'oreal over

Innisfree. Second, the packaging and design of fake goods are increasingly challenging to identify,

contributing to the growth of fake items. This is especially true for premium brands like L'Oreal,

which is why it is critical to understand what L'Oreal does to prevent consumers from purchasing

fake items so that the company can maintain its position as a market leader in Vietnam's cosmetics

business.

2. Monopolistic Competition literature review and application

2.1. Definition of Monopolistic Competition

Monopolistic competition combines monopoly and competitive market components. Edwards

Chamberlin and Joan Robinson noticed this market in the 1930s. Monopolistic competition is

characterized by a large number of sellers and buyers, the flexibility of many firms to join the

market and compete, and the selling of highly substitutable but not perfect replacements.

L'Oreal is a powerful brand in monopolistic markets. Monopolistic competition describes a market

structure where several firms manufacture comparable but distinct products. L'Oreal offers 13

skin-whitening products in Vietnam, from face cleansers to masks.

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L'Oreal, a monopolistic competitive corporation, differentiates its goods. They divide items by

practical characteristics or design, such as Age Prefect for older customers and Youth Code for

younger customers.

2.2 Economic Efficiency under Monopolistic Competition

Monopolies like L'oreal have a negative slope, but an elastic demand curve since their product is

identical to others. They supply a broad choice of products at low costs. L'oreal controls prices as a

price maker. It provides 150,000 VND to 750,000 VND to support people.

L'oreal and other multinational corporations create skincare products in Vietnam to meet customer

demand. No major barriers to entry or exit imply market freedom. Monopolies like L'oreal can only

produce regular long-term profits.

L'Oréal earned supernormal profits because it stayed ahead of its competition. L'Oréal differentiated

its products. L'Oréal has created salons, mass retail, and premium brands. So they are difficult to

replicate. L'Oréal built a strong brand by focusing on advertising. Long-term monopolistic

dominance allows L'Oréal to make modest earnings.

Because of easy entry and exit, L'oreal will only generate a normal profit (zero economic profit)

under monopolistic competition.

If L'oreal can separate itself from its rivals, it can manage its pricing; thus, higher prices reduce

demand, and lower prices raise it. L'oreal must cut its pricing to offer more products since demand

dictates price. Any price drop must apply to all identical units at once. Therefore, marginal revenue

is less than the price for all except the first.

Long-term, more enterprises will join the sector to benefit, and prices will fall, erasing economic

gains.
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Figure 1: The graph shows how L’oreal competes in the long run (EconomicsOnline, 2020)

3. The competition of the cosmetic market in Vietnam

3.1. Existing rival

● Overview of Innisfree competitor

The biggest cosmetics and skin care firm in Korea, Amore Pacific, introduced Innisfree in 2002,

positioning it as the country's first green brand. The business debuted its first brand store in 2005,

unveiling its 100th location in 2007. Innisfree constantly works to conserve nature's beauty and

attempts to extract healthy and natural beauty from materials found on Jeju Island. Natural diversity

brings values that are good for the skin and the ecosystem. Products from Innisfree are renowned for

their high-quality ingredients from Jeju, a pearl island.

Innisfree debuted its first location in Vietnam in October 2016 in District 3 of HCMC at 257 Hai Ba

Trung. After nearly five years of supporting the Vietnamese beauty industry from its initial store,
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Innisfree has 21 locations across six major cities, including Ho Chi Minh City, Hanoi, Da Nang, Hai

Phong, and Nha Trang, and Binh Duong. Numerous young people and cosmetic-loving consumers

all around the nation support the brand.

● Competitor analysis

- Product:

The primary components used in all of the goods were all inspired by Jeju Island, which has been

the source of resources that the business has sought from its inception. Innisfree has released several

goods manufactured with natural components like green tea, volcanic ash, purple orchids, big oil,

cherry blossoms, deep sea water, Yeongjucho mushrooms, seaweed, and honey, canola bee, olive,

and red pomegranate.

Despite concentrating on skin care goods, Innisfree also offers clients a range of grooming, body,

hair, and makeup items. It is clear that Innisfree's products have catered to and satisfied the demands

of people of all sexes, of all ages, and with any skin or body issues. Some popular products and

lines, such as Green tea, are unadulterated and smell pleasantly clean. The majority of Innisfree's

best-selling items depend on this lineup at the moment. Especially the primary benefit of Volcanic

Line, a product whose design was inspired by the volcanic lava of Jeju Island, is to constrict pores.

In addition, a well-known product range from Innisfree is the Truecare Line. This product went out

of stock after it was initially introduced and was sold out in a week.
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- Price:

To satisfy the demands of the local population, Innisfree will set the pricing of its products to be

equal to the average price of products in the market it enters. All products are priced between

150,000 and 880,000 Vietnamese Dong.

Innisfree serum typically costs between 380,000 and 480,000 VND, making it affordable for

students or office workers.

- Distribution:

This brand has established a broad distribution network in supermarkets, and shopping malls

including Vincom, Aeon Mall, SC Vivocity, and genuine retailers. The purpose is to be able to reach

target customers who are young people. Moreover, small shops for Innisfree will be set up around

colleges or other densely populated places.

Innisfree distributes its products through digital channels like its official website and e-commerce

portals. As previously mentioned, Amorepacific signed a strategic partnership deal with Lazada

group in May to expand its digital distribution networks in this region. Lazada group is one of the

biggest e-commerce platforms in Southeast Asia.

- Advertisements:

Innisfree has used effective 4P Marketing Mix tactics to draw clients and persuade them to buy their

products. Product, price, place, and promotion make up this list.

Utilize the popularity of social networking sites and the Internet. Send advertisements to potential

customers and utilize influencer marketing to persuade them to use products or services.
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3.2 Product differentiation

● Pricing Strategy

Innisfree L’Oreal

● The prices of Innisfree's products range ● With pricing starting from 120,000 to

from low to mid-range, making them 220,000 VND, the company has

suited for the company's student, office introduced a number of well-liked

worker, and student clientele. Between product lines into the market. These

200,000 and 300,000 VND is the prices are significantly cheaper than

mid-range price range for Innisfree those of the high-end line but higher

cosmetics. than those of comparable products from

rival companies in the same market

competitors.

❖ Innisfree offers incentives to clients who ❖ The company has launched cosmetics

shop online when they spend up to 299, for decent or average-income customers,

399, or 99. These incentives include with costs for makeup, skin care, and

bonus gifts, free shipping, and loyalty hair care ranging from 170,000 to

points. 580,000 VND.

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❖ Innisfree's higher-end product lines ❖ Due to the great quality, high-income

frequently target customers with more customers are even prepared to pay high

stable incomes with products that treat costs for high-end skincare, makeup, and

more complicated skin issues. perfumery lines with prices ranging from

700,000 to 11,500,000 VND and their

dependability in comparison to rivals.

❖ The product lines with the highest prices ❖ Price strategies take into account

in the company's higher segment of elements including premium pricing,

Innisfree cost more than 900,000 VND. location served, competition, and

product demand.

3.2.1 Entry Barriers

● Risks of fake cosmetics

Consumers' primary source of beauty items is now counterfeit products, which have a market share

of up to 75%. Within a year of L'Oreal's official entry into Vietnam with the launch of its first three

brands—Lancome, L'Oreal Paris, and Maybelline New York—the market was inundated with

outlets with genuine L'Oreal signs. This was when L'Oreal began combating counterfeiting.

However, when e-commerce in Vietnam grew in 2015, fake goods were converted into portable

items and openly sold on websites. At the time, revenue from a website was noted. More than 1

billion VND are spent there each month.

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Currently, over 60% of L'Oreal cosmetics sold in Vietnam are hand-made or counterfeit. Due to

internet business diversion, it is harder for firms and market regulators to combat counterfeiting

since they cannot monitor home-based warehouses. Loss of online business control may be behind

Vietnam's counterfeit goods and smuggled cosmetics.

Fake price Authentic price

Revitalift Pure Hyaluronic Acid Moisturizer Revitalift Pure Hyaluronic Acid Moisturizer
1.5% (30ml) 1.5% (30ml)
+ 399,000 VND + 569,000 VND

Aura Perfect Cleanser (100ml) Aura Perfect Cleanser (100ml)

+ 79,000 VND + 99,000 VND

L'Oreal Paris 3-in-1 Micellar Water (400ml) L'Oreal Paris 3-in-1 Micellar Water (400ml)
+ 145,000 VND + 189,000 VND

L’Oreal Paris Infallible 24H Matte Cover L’Oreal Paris Infallible 24H Matte Cover
Foundation Foundation
+ 62,000 VND + 278,000 VND

Color Riche Le Rouge Lipstick Color Riche Le Rouge Lipstick

+ 130,000 - 150,000 VND + 238,000 VND

3.2.2 Differentiated Product

1) Anti-counterfeiting technology

The large beauty company L'oreal has been battling with fraudulent items for a long time. Fake

products are bad for business and bad for customers. L'oreal has been finding an effective and

affordable solution for its consumers. L'Oreal has a staff dedicated to researching ingredients,

processes, and technology to create the greatest cosmetics for customers. L'Oreal can identify fake
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products before they reach the consumer by combining blockchain technology and AI to verify

authenticity.

● Blockchain technology

L'oreal, a major cosmetics company, has long struggled with counterfeit goods. False goods hurt

both businesses and consumers. Sales fell by 50% after the corporation learned in 2017 that

counterfeit copies of its goods were being offered in Vietnam. L'Oreal has been looking for a

workable and cheap alternative for its customers. L'oreal's response was to develop a digital

blockchain that records each product's entire history. L'Oreal has a staff devoted to researching

ingredients, techniques, and technology to produce the best cosmetics for clients. By using

blockchain technology and AI to check authenticity, L'Oreal can spot any counterfeit products

before they reach the consumer.

L'Oreal's initial step was to develop a "blockchain-based digital ledger system" that would keep

track of all transactions involving its products, including where they were manufactured, by whom,

and when they were distributed. Then, this data is kept on a blockchain network where it can be

accessible by anyone with a need for it, including law enforcement and customs officers who may

be attempting to hack the system. The business developed this product authentication system in

collaboration with VeChain, a platform for managing supply chains on the blockchain. Customers of

L'oreal who use this solution will not have to worry about being duped into purchasing a phony

product because they will know for sure whether they are purchasing a genuine product or not.

L'oreal's goal is to provide a solution for their customers to ensure they are not buying fake

products. This can be done by using a QR code on their product's packaging or blockchain
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technology. This section introduces how L'oreal is trying to prevent people from buying fake

products, what type of solutions they are looking into implementing, and why these solutions may

work or not work.

● Artificial Intelligence technology

For many years, L'oreal has fought against counterfeit goods. By creating an AI-based method to

detect fake goods, they have moved on the right path. The business uses AI to find and pursue

counterfeiters. In order to ensure that they are not selling any fraudulent goods, it is also utilizing

machine learning to evaluate the data from its sales and distribution networks as well as the

comments from customers.

2) Advanced monopoly ingredients

● Sunscreen compound

The skin will be immediately exposed to UVA, UVB, and other dangerous radiation if people do not

wear sunscreen. This negatively impacts the appearance and affects skin health, leading to

accelerated aging and skin damage. As a result, L'Oreal has developed a new sunscreen component

by using cutting-edge technology to manufacture sunscreen products that protect 99% of users from

UVA and UVB radiation to the fullest extent possible, which Innisfree's product can not protect

consumers comprehensively. The most significant advancement in sun care in 30 years, UVMune

400, is L'Oréal's first sun filtering technology that successfully shields skin from ultra-long UVA

radiation. L'Oréal contributes to the crucial public health goal of preventing severe skin damage

from the sun and skin cancer with this significant scientific advancement. Some particular goods

can be Loreal UV Perfect BB Max Broad Spectrum Sunscreen: The cream of this product is quite
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soft with many nutrients and advanced technology containing breakthrough Color Equalizer

ingredients to help even skin tone.

3.2.3 Location Strategy

3.3 L’Oreal’s success in Asia

The success of L'Oréal comes from five factors: breakthrough, distinctiveness, character,

consolidation, and nationality. In Vietnam, L'Oréal has earned trust and affection for some of its

most famous beauty products in the previous ten years. It has a vital role in society with the "Beauty

for a Better Life" project, "L'Oréal For Women in Science Program," and a commitment to

educating relevant authorities on anti-counterfeit challenges. The following ten years are about

bringing beauty to Vietnamese women and men. L'Oréal is committed to producing sustainable,

innovative, engaging products in Vietnam. L'Oreal's success derives from consumers' faith in their

products and the quality of the ingredients they use to ensure customer satisfaction. The COVID-19

pandemic affected L'Oreal's e-commerce business in 2020, with only Asia-Pacific reporting growth.

L'Oreal's Vietnam cosmetics sales grew dramatically from 2016 to 2019. L'Oreal had the greatest
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cosmetics gross profit in 2019 with 1230 billion VND ($52,5 million).

Figure 2: Gross profit of cosmetic brands in Vietnam (VCCorp.vn, 2020)

3.4 L’Oreal’s latest movements

L'Oreal developed its first digital skincare line after COVID-19 as more people were forced to work

remotely during the epidemic, more face-to-face technology. According to L'Oreal financing, they

are leading our Beauty Tech revolution by investing in data and AI and building strategic

relationships like the one with Verily to understand skin aging processes better and to detect and

track counterfeiters. It uses machine learning to analyze the data from its sales and distribution

channels, as well as the consumers' feedback, to ensure that they are not selling any fake products.

Besides that, L'Oreal uses advanced technology to research new filter sunscreen ingredients that can

prevent up to 99% UV rays. In addition, these new patent ingredients remain stable in the UV

environment and create a layer that protects consumers' skin and does not weaken for 12 hours that

Korean sunscreens can not protect effectively on the skin.

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4. Conclusion and recommendation for L'Oreal

Diversity, advertising, product development, and innovative ideas for different age groups all define

L'Oréal's brand. L'Oréal sells comparable items in a monopolized market (Brassington & Pettitt,

2004). Competition impacts L'Oréal's pricing, advertising, location, and product selection. L'Oréal

should provide new items depending on the target market to keep customers. They may update to

attract new customers. L'Oréal should hire a health professional to increase client confidence.

L'Oréal should sell men's makeup. Even beginners should have access to cosmetics.

5. References
2021 Annual Results. (2022, February 9). L’Oréal Finance.
https://www.loreal-finance.com/eng/news-release/2021-annual-results

Dulout, M. (2019, December 16). Why L’Oréal remains #1 in beauty…. Capitalmind.

https://capitalmind.com/fr/why-loreal-remains-1-in-beauty/

L’Oréal Vietnam. (n.d.). L’Oréal. https://www.loreal.com/en/vietnam/

Pettinger, T. (2019, February 27). Monopolistic Competition – definition, diagram and examples |

Economics Help. Economicshelp.org.

https://www.economicshelp.org/blog/311/markets/monopolistic-competition/(n.d.).

The Sydney Morning Herals. (2021). Innovation and creation: The story behind Korea’s beauty

giant.

https://brandedcontent.smh.com.au/amore/innovation-creation/
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Innisfree. (2022). Discover Jeju Ingredients.

https://us.innisfree.com/pages/about-innisfree-ingredient

Misa Amis. (2021, November 11). Detailed analysis of Innisfree's marketing strategy - famous
Korean cosmetic brand.
https://amis.misa.vn/29513/chien-luoc-marketing-cua-innisfree/

Trang, T. (2021, December 10). Chiến lược Marketing của Innisfree – Thương hiệu mỹ phẩm xanh
toàn cầu.
https://marketingai.vn/chien-luoc-marketing-cua-innisfree-thuong-hieu-my-pham-xanh-toan-cau/#:~
:text=D%E1%BB%85%20d%C3%A0ng%20nh%E1%BA%ADn%20th%E1%BA%A5y%20r%E1
%BA%B1ng,vi%C3%AAn%2C%20nh%C3%A2n%20vi%C3%AAn%20v%C4%83n%20ph%C3%
B2ng.

Hằng, T. (2019, November 28). Thị trường mỹ phẩm của L’Oreal tại Việt Nam: 60% là hàng xách
tay và hàng giả. Tạp Chí Tài Chính Doanh Nghiệp.
https://taichinhdoanhnghiep.net.vn/thi-truong-my-pham-cua-loreal-tai-viet-nam-60-la-hang-xach-ta
y-va-hang-gia-d9984.html

Olatunji, B. ( 2021). VeChain‘s Stablecoin, VeUSD, explained.

https://www.gate.io/vi/blog_detail/1318/vechain-s-stablecoin-veusd-explained?lang=en

Behrens, M. (2022, May 24). L’Oréal Breaks the Ultra-long UVA Code with UVMune 400.
https://www.cosmeticsandtoiletries.com/formulas-products/sun-care/news/22249181/loreal-loral-bre
aks-the-ultralong-uva-code-with-uvmune-400