LOréal Case

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L’Oréal:
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Attracting the Next Billion Consumers (mini-case)
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basis for class discussion rather than to illustrate either effective or ineffective
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316-0113-1
L’Oréal: Attracting the Next Billion Consumers (mini-case)
L’Oréal:
Attracting the Next Billion Consumers
In 2015, Jean-Paul Agon, the CEO of L’Oréal, was wondering how the company’s strategy should be adapted for
it to achieve the two ambitious objectives he had set for it: (i) attracting one billion new customers by 2020 and,
in order to do so, (ii) “universalizing” the company’s products and brands. The challenge for L’Oréal was to offer
products that were adapted to an increasingly diverse base of customers while at the same time maintaining the
unique personality of its brands around the world and successfully leveraging its global scope.
The L’Oréal Group
L’Oréal was founded in 1909 and began expanding its product line in the late 20s. Major international expansion
began shortly after World War I. The first foreign subsidiary was created in Spain (1950), soon followed by direct
investments in most other Western European markets. In 1996, L’Oréal took over Maybelline, one of the leading
cosmetics firms in the US. In 1998 it acquired Soft Sheen Products, a brand targeted at individuals of African
origin. In 2003, 2004 and 2014 respectively, it bought Mininurse, Yue-Sai and Magic, three leading skin care

brands in China. L’Oréal claimed to be the largest cosmetics group in the world, with business in 130 countries.

50 of these countries were considered as “major markets” where specifically adapted products might be
developed and sold. L’Oréal’s 2014 sales were €23 billion and its profits were €4 billion. By early 2015 L’Oréal
employed 79,000 people around the world and its market capitalization was almost €100 billion. L’Oréal
products were sold under some 30 to 40 international brands and multiple more local brands.
The Market for Beauty and the Cosmetics Industry

The market for beauty products in the world was estimated to be between €150 and €200 billion in 2015.
Overwhelmingly, customers of beauty products were women aged of 18 to 65. Men accounted for under 5% of
sales but were a fast growing segment of the market. Consumption was correlated to the level of economic
development. As countries emerged from poverty, sales of beauty products grew rapidly. Customers in different
parts of the world viewed beauty - and hence the kind of products they sought to buy - differently, based on
income levels, ethnicity or culture. The cosmetics industry was difficult to define precisely. It overlapped with
personal care products as well as with luxury goods. Beauty products included skin care creams, fragrances,
lipstick, shampoo, sun protection, makeup, etc. Marketing activities played a critical role with marketing and
sales accounting for about 50% of total costs. L’Oréal was the world’s market leader with €23 billion in cosmetics
sales in 2014. Unilever and P&G followed with about €16 billion each. Other large competitors were Avon,
Beiersdorf, Estée Lauder and Shiseido (€5 to €10 billion each), Henkel, Johnson & Johnson, KAO, LVMH, Coty,
Chanel with €2 to €5 billion in beauty product sales. In most countries, small local competitors catered only to
local customers.
L’Oréal Products and Brands
L’Oréal defined its business exclusively as “beauty” and, as such, was present in the following segments: skin
care, hair care, make-up, fragrances (see appendix #1). L’Oréal products were managed and marketed through
the group’s four divisions: “Consumer Products” dealt with supermarkets and discount cosmetic stores; “Luxury
Products” were sold in high-end cosmetics stores, department stores and airport shops; “Professional Products”
were marketed in hair salons and beauty parlors; “Active Cosmetics” products were made available in
pharmacies and drugstores. These four cosmetics divisions were also responsible for managing the company’s

This case was developed by Professors Pierre Dussauge and Nathalie Lugagne, with the help of Research Assistant Joao
Pimentel. This case was developed within the framework of the L’Oréal Chair at HEC Paris whose support is gratefully
acknowledged. The authors are also very grateful to Alexis Perakis-Valat and Frédérique Scavennec, for providing guidance,
contacts and information without which this case could not have been written. Some of the data in the case have been
modified for pedagogical or confidentiality reasons.
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35 global brands. Each of these brands was used on multiple products and formulations and each specific product
came in several sizes and types of packaging. In addition to its portfolio of global brands, L’Oréal also owned
some 50 or so brands that were deployed locally in one particular country. These local brands pertained to the
Consumer Products division, generated under 5% of L’Oréal’s sales and accounted for less than 10% of all units
sold (see appendix #5). Thus, any type of product could be managed by several divisions and sold under different
brand names, depending on the channel through which it was being distributed. The exact formulas might vary
depending on the brand and division. Technical innovations were introduced first in the products handled by the
Luxury Products, Professional Products or Active Cosmetics divisions and cascaded down to Consumer Products.
Higher end brands tended to incorporate more innovative formulas that would only become available some time
later in the mass market brands.
The Activities and Organization of L’Oréal
Product development originated in both R&D and Marketing. Marketing was carried out at the brand and at the
country or zone level. Each brand had a dedicated international marketing team that would define positioning,
build brand equity, decide on the evolution of the brand’s product range, and propose new product launches.
Local marketing teams would then evaluate product acceptability in each local market, forecast sales and
organize local marketing initiatives. Corporate marketing controlled the way in which the brand and products

could be adapted to local market conditions. Even when products sold locally were identical to those sold in

neighboring countries, the localization costs required by local regulations accounted for 2% to 3% of the cost of
goods sold.
L’Oréal spent about one quarter of its revenue on advertising and promotion. These costs were essentially carried
out at the country level: local agencies helped L’Oréal marketing teams identify local beauty codes, create
suitable messages and have them promoted by native celebrities. Advertising space was overwhelmingly
purchased from local newspapers, magazines, websites, TV stations, etc. However, all advertising was supervised
by the brand managers at the global level.
Manufacturing consisted in mixing and processing the ingredients according to the exact formulation determined
by R&D, and packaging the product in containers of various shapes and sizes. Whenever possible, L’Oréal’s policy
was for manufacturing to be carried out in the region where the products were to be sold. This was driven by
transportation costs as well as import duty concerns. But for certain types of products, notably those managed
through the “Luxury Products” or the “Professional Products” divisions, manufacturing might be concentrated in
one location in the world and all other markets served from that location. In very large markets, most high volume
products were produced locally for the local market. On the other hand, in small markets, almost all products
were imported from abroad. Plants were generally specialized by product category, such as shampoo or lipstick,
and the larger L’Oréal plants had a capacity of up to 400 million units. It was considered that the minimum
capacity for a plant to be cost effective was 50 million units of a given product category. This capacity could be
spread out on a variety of product formulations and container sizes, but 200 000 units of each SKU (Stock Keeping
Unit, or individual product with the exact same formulation, packaging, size, etc.) were needed for operations to
be cost effective. For low price consumer products, the minimum efficient production volume could exceed one
million units while high priced luxury products could be produced profitably with volumes as low as 100 000
units. It was difficult for any given plant to handle more than 1000 different SKUs. Each year, L’Oréal
manufactured and sold over 6 billion product units. These 6 billion units, 80% of which were for the mass market,
pertained to some 50 000 different SKUs and were manufactured in the 45 plants that L’Oréal operated around
the world (see appendix #3a).
L’Oréal employed a total sales force of 12 000 and each brand had its own sales force. L’Oréal products were sold
in half a million outlets around the world. Two rapidly growing channels were e-commerce and “travel retail”,
i.e. airport shops. E-commerce accounted for 3% of sales in 2014 and was growing at 30%. Airport sales had
exceeded one billion Euros in 2014, up from € 500 million five years earlier.
International Expansion and Global Strategy
Almost from the beginning, L’Oréal started selling its products in foreign countries. L’Oréal’s international
expansion had greatly benefited from the company’s broad product scope: skin care products might account for
a large portion of sales in one country or region while it could be hair care or hair coloration products that made
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up most of the business in another. As the company had expanded internationally, it had created local
subsidiaries that initially cherry-picked those products and brands that best suited the local market. In recent
years, with foreign markets accounting for an ever increasing share of L’Oréal’s business, more of the brand and
product strategies took place at the local level. Over time, tensions between the headquarter-based managers
and category managers within the various local subsidiaries had become more frequent. When a product or
brand was not successful in a given market, headquarters tended to blame it on insufficient efforts at the local
level while local management would complain about how ill-suited to local specificities the product and its
marketing and promotion were. L’Oréal’s success in China, for example, had given rise to some controversy: the
company’s top brand in that market was L’Oréal-Paris which over the years had developed an exclusive and
premium positioning, quite different from what it was elsewhere in the world. Indeed, when L’Oréal had entered
the Chinese market, it had done so with its flagship brand, but had soon found that the usual channels through
which the brand was sold were not yet developed in China. It therefore sought distribution in more upscale
outlets, notably department stores in which specialized counters were set up, which resulted in the brand being
positioned much higher than elsewhere in the world. When traditional supermarkets and discount stores
eventually did emerge in China, L’Oréal managers in the country were reluctant to reposition L’Oréal Paris as a
mass market brand and because of this the company was slow to react. As a consequence, the bulk of the mass
market segment was soon captured by its main competitors, Unilever and Procter & Gamble (see appendix #4).
Ever since, some at the headquarters had been urging for the progressive repositioning of L’Oréal Paris, more in

line with its global strategy. Local managers on the contrary argued that redefining L’Oréal Paris’ strategy for it

to better fit the peculiarities of the local market had resulted in tremendous success, making L’Oréal Paris the #1
beauty brand in the most buoyant market in the world. They went on to advocate that, in China, L’Oréal Paris
should be given the freedom to introduce new formulas and innovations suited to the evolving demands of
Chinese consumers, that were not made available to L’Oréal Paris elsewhere in the world but were first
channeled towards the group’s luxury division. Some managers in China even argued that L’Oréal should launch
a “super-premium” brand specifically targeted to the Chinese high-end market. This, they contended, was
justified because the consumers of luxury products in China were very demanding in terms of image, exclusivity
and quality. In addition, the cultural and biological specificities of the Chinese beauty market would make it
necessary to create a whole new line of very high end beauty products adapted to Chinese consumers. As for re-
entering the mass market, L’Oréal managers in China recommended doing so with one or several new brands
specifically created for the Chinese market.
As Jean-Paul Agon was preparing for his impending executive committee meeting, these thoughts kept going
around in his mind. On the one hand, China was already a huge market for L’Oréal and its future potential was
mind boggling. This alone might justify creating products, concepts and brands specifically targeted to the
Chinese market. On the other hand, many of L’Oréal’s most successful products in the Chinese market were
products that had been developed to serve the global market and had been only slightly adapted to fit the
biological specificities of Asian. This suggested that many Chinese customers were eager to buy the same
products, concepts and brands as other customers the world over. Jean-Paul Agon was particularly puzzled by
the fact that Yue-Sai, the Chinese luxury brand specializing in traditional Chinese medicine-inspired cosmetics
that L’Oréal had acquired in 2004 was not proving as successful as anticipated. Yue-Sai sales had not grown as
fast as expected and profitability had been disappointing. Local competitors building on the same traditional
Chinese medicine-inspired cosmetics concept were outcompeting Yue-Sai! And the Yue-Sai management team
was hoping that foreign sales would pick up and compensate for the lower than expected sales in China, thus
contributing to restore the profit levels that had been forecasted for Yue-Sai. The Yue-Sai experience did not
exactly militate for the creation of China-specific brands (see appendix #4).
Study questions
1. What were the main issues L’Oréal was facing in implementing its global strategy?
2. Should all product lines and brands follow the same “universalization” strategy in all markets?
3. To what extent should local managers be given the freedom to adapt L’Oréal products and brands to
market circumstances?
4. Should the China operation be allowed to launch a “specifically Chinese” super premium brand? Should
it be allowed to launch one or more “specifically Chinese” mass market brands?
5. What advice would you give Jean-Paul Agon as to how L’Oréal should implement its “universalization of
beauty” strategy?
4
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Appendix 1a: L’Oréal’s sales breakdown by division
8%
14%
51%
27%
Consumer Products Luxury Products Professional Products Active Cosmetics
Appendix 1b: L’Oréal’s sales breakdown by business segment
4%
9%
30%
14%

21%

22%
Skincare Make-up Haircare Hair colourants Fragrances Other
Appendix 1c: L’Oréal’s sales breakdown by geographic zone

8%2%
9%
35%
21%
25%
Western Europe North America Asia Pacific

Latin America Eastern Europe Africa and Middle East
Appendix 1d: L’Oréal’s sales breakdown by brand
21%
27%
2% 16%
3%
3%
3%
3%
12%
10%
L'Oréal Paris Garnier Maybelline Lancôme

Body Shop Armani L'Oréal Professional YSL
Kerastase Other brands
Source: L’Oréal 2013 Annual Report
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Appendix 2: Overall Market Distribution across Product Segments in Major Countries
France Market Distribution (€ mn)
1886
5873 1725
3037
Fragrances Hair Care Skin Care Other Beauty and Personal Care
US Market Distribution (US$ mn)

5786

10619
40660 11672
China Market Distribution (RMB

mn)
4610
33605
83396
80479
Brazil Market Distribution (R$ mn)
12636
41801 18087
8947
Source: Euromonitor 2013
6
Appendix 3a: L’Oréal Plant Locations
Appendix 3b: L’Oréal Research Center Locations

316-0113-1
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Appendix 4: L’Oréal in China
L’Oréal established its first foothold in mainland China in 1997 when it opened an office in Shanghai. Before that,
all sales in China were through local agents and were managed from the company office in Hong Kong. Indeed,
any form of makeup had been banned in China for over 40 years after the communist regime was established in
1949 and cosmetics only began to make a come-back in the 90s. Because of this, customers of beauty products
in China were on average much younger than in other countries and the proportion of men was much higher.
The acquisition of Maybelline gave L’Oréal’s entry into China a big boost. Maybelline had set up a plant in Suzhou
and this made it possible for L’Oréal to rapidly ramp up local production and supply the market with locally
produced - but nevertheless high quality - products. L’Oréal went on to acquire three Chinese brands, Mininurse
in the mass market segment in 2003, Yue-Sai in the luxury segment in 2004 and Magic, the Chinese leader in
facial masks, in 2014.
One of the major issues L’Oréal faced when entering the Chinese market was distribution. There were very few
supermarkets in China at the time. And supermarkets were the main outlet for the bulk of L’Oréal’s product lines

and, in particular, for its flagship brand, L’Oréal Paris. As a consequence, the local management decided to focus

on department stores instead. In order to reach out to Chinese consumers and assist them in how to use
cosmetics, they set up L’Oréal Paris counters staffed with beauty advisers inside department stores. This strategy
was extremely successful but led to two unexpected outcomes. First, choosing to market the L’Oréal Paris brand
through department stores resulted in its being positioned at a significantly higher level in China than elsewhere
in the world. Second, focusing on department stores made it difficult for L’Oréal to succeed in the mass retail
channel when the supermarket wave hit China, especially as the positioning of their leading mass market brand,
L’Oréal Paris, was no longer consistent with that channel. L’Oréal had later tried to introduce Garnier to address
the supermarket channel, but sales never took off and Garnier was eventually pulled out of the Chinese market.
By 2015, L’Oréal was the #1 beauty company in China while the Chinese market was L’Oréal’s third largest in the
world (behind the US and France). In a market estimated to be more than €20 billion, L’Oréal sales in China were
expected to exceed €2 billion in 2015. L’Oréal was also one of the largest and fastest-growing advertisers in China
and was spending €500 million on advertising in the country. Reflecting L’Oréal’s mode of entry into the Chinese
market, the company’s position was particularly strong in makeup and skin care but was much weaker in hair
care. The main distribution channel for L’Oréal products was department stores and specialized retailers while
L’Oréal’s main mass market brands were finding it difficult to build up a presence in supermarkets and in other
mass retail channels.
L’Oréal had set up one of its five main R&D hubs in Shanghai to conduct research on the specificities of Asian skin
and hair. It was also the company’s main research facility for the development of whitening creams. The company
had two plants in China, the historic Suzhou (Jiangsu province) plant inherited from Maybelline which specialized
in skincare products and had a capacity of over 100 million units, as well as the more recent Tianmei plant in
Yichang (Hubei province) which specialized in makeup and had a capacity of 250 million units. Both plants were
primarily aimed at producing for L’Oréal’s mass market brands. The Tianmei plant was the second largest L’Oréal
plant in Asia and about half the output was exported.
L’Oréal had had some truly amazing successes in the Chinese market. China was the largest market for L’Oréal
Paris’ “Men Expert” line of skin care for men and accounted for well over half the total world sales for that line.
BB Cream by L’Oréal Paris, a product initially developed in Japan had been adapted to the Chinese market despite
a lot of internal resistance and had turned into an incredible success. In less than five years, sales had grown from
500 000 units to well over 10 million units (BB Cream came in three varieties and two sizes) and from €1 million
to over €20 million. Yue-Sai, the Chinese luxury brand acquired in 2004, had developed an entire line of products
specifically designed for Chinese customers which incorporated ingredients derived from traditional Chinese
herbal medicine. By 2015, the Yue-Sai brand was associated with 7 different product categories and 35 specific
SKUs and resulted in sales of 2.5 million units and €30 million. Because of strong local competition, however, the
profitability of Yue-Sai had not lived up to L’Oréal’s expectations and the brand’s international expansion had
remained limited, mainly focused on foreign markets with large Chinese communities.
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Appendix 5: L’Oréal Divisions and Brands - Key Indicators
Consumer Luxury Professional Active Cosmetics

Products division Products division Products division division
Main global brands Garnier, L’Oréal Lancôme, Kerastase, Vichy, La Roche
Paris, Maybelline, Armani, Yves L’Oréal Posay,
Softsheen- Saint Laurent, Professionnel, SkinCeuticals,
Carson, Essie. Biotherm, Kiehl’s, Redken, Matrix, Sanoflor, Roger &
Shu Uemura, Pureology, Gallet.

Diesel, Ralph Mizani, Carita,

Lauren, Cacharel, Decléor.
Helena
Rubinstein, Victor
& Rolf, Urban
Decay, Paloma
Picasso, Guy
Laroche, Maison
Martin Margiela,
Yue Sai,
Clarisonic.
Number of global brands 5 17 8 5

Number of local brands 50 0 0 0
% of L’Oréal cosmetics
51% 27% 14% 8%
sales per division
Average number of
40 20 20 20
products per brand
Average number of
container types and sizes 3 5 5 5
per brand
Number of product units
produced in division 4.8 bn 660 mn 340 mn 200 mn
(2014)
produced in division 4.3 bn 660 mn 340 mn 200 mn
(2014) for global brands
produced in division 500 mn 0 0 0
(2014) for local brands

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316-0113-1

Usage permitted only within these parameters otherwise contact info@thecasecentre.org

Taught by Lea Stadtler, from 31-Jan-2023 to 28-Feb-2023. Order ref F468416.

names and other identifying information to protect confidentiality.

Distributed by The Case Centre North America Rest of the world

The L’Oréal Group

Usage permitted only within these parameters otherwise contact info@thecasecentre.org

Taught by Lea Stadtler, from 31-Jan-2023 to 28-Feb-2023. Order ref F468416.

The Market for Beauty and the Cosmetics Industry

L’Oréal Products and Brands

The Activities and Organization of L’Oréal

Usage permitted only within these parameters otherwise contact info@thecasecentre.org

Taught by Lea Stadtler, from 31-Jan-2023 to 28-Feb-2023. Order ref F468416.

International Expansion and Global Strategy

Usage permitted only within these parameters otherwise contact info@thecasecentre.org

Taught by Lea Stadtler, from 31-Jan-2023 to 28-Feb-2023. Order ref F468416.

Appendix 1a: L’Oréal’s sales breakdown by division

Consumer Products Luxury Products Professional Products Active Cosmetics

Appendix 1b: L’Oréal’s sales breakdown by business segment

Usage permitted only within these parameters otherwise contact info@thecasecentre.org

Taught by Lea Stadtler, from 31-Jan-2023 to 28-Feb-2023. Order ref F468416.

Skincare Make-up Haircare Hair colourants Fragrances Other

Appendix 1c: L’Oréal’s sales breakdown by geographic zone

Western Europe North America Asia Pacific

Appendix 1d: L’Oréal’s sales breakdown by brand

L'Oréal Paris Garnier Maybelline Lancôme

Source: L’Oréal 2013 Annual Report

Appendix 2: Overall Market Distribution across Product Segments in Major Countries

France Market Distribution (€ mn)

US Market Distribution (US$ mn)

Usage permitted only within these parameters otherwise contact info@thecasecentre.org

Taught by Lea Stadtler, from 31-Jan-2023 to 28-Feb-2023. Order ref F468416.

China Market Distribution (RMB

Brazil Market Distribution (R$ mn)

Source: Euromonitor 2013

L’Oréal: Attracting the Next Billion Consumers (mini-case)

Appendix 3a: L’Oréal Plant Locations

Appendix 3b: L’Oréal Research Center Locations

Purchased for use on the Strategic management, at Grenoble Ecole de Management.

Appendix 4: L’Oréal in China

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Appendix 5: L’Oréal Divisions and Brands - Key Indicators

Consumer Luxury Professional Active Cosmetics

Usage permitted only within these parameters otherwise contact info@thecasecentre.org

Purchased for use on the Strategic management, at Grenoble Ecole de Management.

Number of global brands 5 17 8 5

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