The Rapid Growth of The Body Shop Brand - Case Study Example

Information Introduction The Body Shop International Plc announced on March 17, 2006 its agreement to merge with L’Oreal. TBS has been known for its ethical retailer of natural cosmetics. The merger agreement was worth 652 million euro or 1.14 billion dollars. Shareholders profited from this merger while the founder Dame Anita Roddick suffered a major windfall. This announcement sparked controversy for TBS and Roddick because of her strong opinions against L’Oreal’s practices. Many analysts believed that branding TBS should not be based on social activism. TBS built its’ consumer market on values and campaigned against animal testing. The merger between the two cosmetic companies is hopeful in that it would grow L’Oreal and introduce new market segments that would enhance the company’s product brand. Marketing Niche The Body Shop’s marketing approach was different from traditional retailers who sold cosmetic products. TBS advertised its company by using offbeat brochures. Roddick, the founder, was an activism for social change. She used this concept as a marketing tool for her company. She based her business on the ideals of social change and spoke against common corporate practices, which attracted much media attention and thus introduced a new consumer market. According to Roddick, “There is no more powerful institution in society than business.” She believed that businesses should resemble moral leaderships. Her press popularity allowed her business to gain free publicity. The TBS brand was founded on five core values. The five values consisted of opposition to animal testing, self-esteem, community trade, protection of the planet, and human rights. Roddick and TBS did not believe in testing cosmetic products on animals, and the company went to the extent of campaigning to ban this practice. TBS did thorough inspections on venders to ensure that their products were not animal-tested. Since 1986, TBS participated in various animal testing campaigns that would ban this practice. SWOT Analysis The merger of TBS and L’Oreal addresses concerns from critics. The ideals of TBS are very distinct from the ideologies of L’Oreal. Maintaining existing customers is a concern because this market was based on the company’s ideals, such as avoiding animal testing. To gain a new market segment, the company must present new and innovative product ideas that capture the attention of consumers while maintaining the company’s existing principles. The Strengths, Weaknesses, Opportunities, and Threats Analysis are demonstrated below. Strengths The merging of the cosmetic companies will create a new and improved brand for L’Oreal. L’Oreal will place itself in a new market of consumers. L’Oreal should incorporate The Body Shop’s ideals in marketing campaigns. L’Oreal’s mission should be to strive for producing a cosmetic line that is both safe and ethical. The values of TBS should be the forefront of L’Oreal’s marketing features. This will allow L’Oreal to gain new prospective customers as well as maintaining existing TBS customers. Weaknesses Because The Body Shop has strong values for protecting the planet, activating self-esteem, defending human rights, supporting community trade, and being against animal testing, it will have to maintain these values as it merges with L’Oreal. TBS has received mixed reviews with consumers and critics. Consumers may question the validity of TBS’s principles. TBS will have to reposition itself as a natural brand cosmetic line through L’Oreal. Although TBS will merge with L’Oreal, it needs to be a brand that can stand alone as L’Oreal’s premier brand of naturally-based cosmetics, or it will fall into the ideals of L’Oreal. This will be a great weakness for the brand, and it will have the potential of affecting its existing markets. Opportunities Due to the merger, L’Oreal and TBS will benefit from the brand recognition. L’Oreal has an existing customer base that has expanded into various market segments, and TBS has a loyal customer base that values the company’s ideals. With the merger, L’Oreal will have to ensure that the TBS customers will continue to buy naturally produced cosmetics. This market will help place L’Oreal in a premier segment and allow the company to gain additional customers. L’Oreal must ensure the TBS customers that the brand will not change but will be enhanced by new and innovative product ideas. Threats TBS is known for its principles of anti-animal testing. However, with this merger, L’Oreal will have to gain the respect and loyalty of many TBS customers. Many critics believe that L’Oreal would compromise TBS’s loyal customer base. However, this compromise will seriously damage TBS and potentially reduce its customer base. Because TBS has built its values on anti-animal testing of cosmetic products, merging with L’Oreal seriously damages TBS’s reputation, since L’Oreal principles are different from TBS. The merger has caused internal conflict with the TBS board members. A total of five member of the board of directors have resigned, replacing them with L’Oreal members. Product In the early years, TBS established itself as a premier cosmetic company by promoting naturally produced products. The company was known for its natural ingredients, which included jojoba oil and rhassoul oil. The products consisted of names such as Mango Dry Mist and Tea Tree Oil Facial Wash. The Body Shop packaged its products with a detailed description of the ingredients and properties contained in the cosmetics. As the years progressed, Roddick had internal conflict for her radicalism, position on globalization, and criticism of anti-wrinkle cream. She was forced to step-down as the CEO of the company. She was replaced by Patrick Gournay who focused on new products through retailing. The initial product line was reduced by one-fourth, and franchises with lose profits were bought out. Gournay formed a customer loyalty program. However, these new products failed to produce a profit for the company, and the company had a failed proposal to be bought out by Grupo Omnilife, a Mexican retailer. Another failed offer was introduced by Lush Fresh Handmade Cosmetics, but Roddick was concerned about the company’s unethical practices. Gourney admitted that the marketing strategy was badly executed and failed to focus on the brand image, naturally-based products. Therefore, the company re-launched products such as Ice Blue and Chamomile Shampoo. Price When The Body Shop first established, it saved packaging cost by using Urine sample bottles. The labels on the packages were hand-written, and this allowed the company to save costs for printing labels. Roddick priced her products at a reasonable, marketable price. She strategically priced her cosmetic line higher than competitor prices at mass-merchandise stores. TBS products were not reduced at a sales price, but she rewarded valued customers with a 15% discount when they returned product containers for refilling. With the merger, The Body Shop Company aims to gear towards a masstige segment. This segment of customers would be able to afford prestige cosmetic prices at a cheaper price. The merger with L’Oreal would ultimately work towards establishing this niche of customers. The Body Shop Company built its customer base on pricing lower than the prestige prices but higher than the store prices. Due to economic market changes, The Body Shop will need to produce new products that will focus on this segment of consumers. Publicity The societal marketing approach that Roddick used helped to build her loyal customer base. The brand was growing at fifty percent and gaining much media attention in the early days. The company focused on products that were both natural and safe. In the 1990s, the company faced much competition from competitors in the United Kingdom and the United States who focused on marketing naturally produced cosmetics. She believed that advertising expenses were wasteful. She based her product design on the traditional ideas of people around the world who she visited during her travels. She avoided spending money on conducting marketing research, but she depended on the direct responses of consumers for new product ideas. Her promotion strategy was to inform the customers about the concept of the products and how these products were discovered. Place The first The Body Shop store was opened in Brighton, UK in March 1976. The store was inspired by a similar store located in Berkeley, California. The store was located next to a firm of undertakers who threatened to sue Roddick if she opened the store under the name “The Body Shop.” The undertakers filed a complaint with the local council indicating the location of the store and its name. Roddick replied back to this complaint by sending a letter to the local council stating that she was a housewife and that she was trying to make some money. She contacted The Argus, a local newspaper, anonymously and told them about her story. The story was placed on the front page of the newspaper, allowing Roddick’s business to receive free publicity. The second store was opened in six months, and in 1980, Roddick gained the right to the U.S. brand The Body Shop name. In 1991, The Body Shop had seven-hundred stores opened, and the company was worth Seven-hundred million Euros. Conclusion L’Oreal and The Body Shop were hoping for the merger agreement. L’Oreal was depending on TBS to grow its business. L’Oreal believed that because TBS had brand recognition in fifty countries this company would increase L’Oreal’s value in the masstige segment. In 2005, L’Oreal lost its leadership in the global cosmetics world to Procter & Gamble. Because of this loss, L’Oreal depended on TBS to help boom its business. The merger would place L’Oreal in a distinct segment because this would be this first time L’Oreal retailed through stand-alone stores and direct selling. The merger would benefit the growth of L’Oreal in marketing natural and ethical products, unlike most cosmetic lines. This would give L’Oreal an opportunity to show the customers that they are taking an approach to producing safe cosmetics that are not animal-tested. The company attempted to produce these types of products when it created the herbal-based product line. However, this line failed to attract customers and was not seen as a natural product brand. After the merger, TBS announced that it is ready to create a line of innovative products beginning in the fiscal year of 2007. The design of the products will be enhanced from new make-up collections to skin care produced with Aloe Vera. The company would extend the Love Your Body Loyalty program to thirteen additional market segments. It hoped to expand into markets such as India, Pakistan, and Poland. The company believed that direct sales using the Internet and The Body Shop At Home would attract more customers and ultimately expand the company into new and existing markets. L’Oreal planned on expanding its customer base by opening up The Body Shop At Home in Germany and in the United Kingdom by introducing the e-commerce site. According to Euromonitor, “L’Oreal’s experience in managing prestige brands around the world and its financial strength could fuel the growth of the TBS brand.” Merger In my response to the merger, the reasons for the decline of the TBS brand in the late 1990s and early 2000s is that this company failed to re-invent itself. Although, the company maintained loyal customers, TBS did not create new and innovative products that would ultimately gear towards prospective consumers. Throughout the years, there has been a shift in economic spending. TBS did not price its products at sales prices to gain a new segment of buyers. I believe that TBS wanted to reposition its brand to target the masstige segment because this is a huge consumer base. Many individuals in this segment search for competitive prices when purchasing cosmetics. As explained in the previous sections, The Body Shop brand has focused on various ways to reposition itself as a huge brand for cosmetics. Some ideas such as making over the design of existing products and creating new products to gear towards specific marketing segments is beneficial towards the growth of this brand. However, merging with L’Oreal poses a benefit for L’Oreal but a risk for The Body Shop. In order for The Body Shop to benefit from this merger, the company must focus on maintaining its existing customers by allowing them to see that naturally-based products will continue to be produced. L’Oreal and The Body Shop should form a legal agreement that will allow the merger to be completed only if the ideals and mission of The Body Shop continue in existence. Works Cited Purkayastha, Debapratim & Fernando, Rajiv. “Body Shop Brand: Repositioning to Target the ‘Masstige’ Segment and Impact of its Acquisition by L’Oreal.” ICMR Case Collection Icfai Center for Management Research. Copyright 2008. 31 Jan. 2008. Read More