L'Oreal Company Background - Case Study Example

LOreal - Building a Global Cosmetic Brand L Oreal Company back ground The company was founded based on a single product that was established in 1907 by Eugene Schuelter, who first discovered and developed a chemical formula for coloring hair named Aureole, since he was a chemist by profession (Ghauri & Cateora, 2010 p644). The advantage of this brand was that it was made in such a way that it did not destroy hair as did other similar products that were in the market, which used corrosive chemicals. Thus, this product gained popularity amongst the Parisian hair dressers he was selling to, prompting him to continue producing the formula on his own and selling it to the hair dressers, until 1909 when he established a full-fledged company that started manufacturing the product, under the name of Cheveux. It continued the business still in small scale, using the assistance of three-in-house based chemists (Ghauri & Cateora, 2010 p644). By 1920, the company had expanded its production of the products, and now started selling its products to other countries, such as Italy, Holland and Australia. The company initially depended on print advertisement, where Schuelter, enlisted the services of a well experienced graphic designers to make advertising posters for the company. With further growth of the business, the need for a different strategy of advertising arose, and Schuelter, established a women magazine as the basis of advertising the company’s product which were targeting women in 1933 (Ghauri & Cateora, 2010 p644). This strategy was followed by other promotional strategies such as creating a campaign for cleaning children using the company’s Dop Shampoo product in 1937, and then went ahead and created a jingle for the campaign that emerged as one of the most famous jingles of the time. The company eventually changed its name in 1940, and established the company name after one of its popular products, L’Aureole, to brand the company its current name, LOreal (Ghauri & Cateora, 2010 p644). LOreal pioneered the advertisement of its products through film commercials that were developed in theaters in the 1950 and in 1973, the ownership of the company changed hands, with 50% of the company’s stock being sold to a personal care products manufacturing company, Gesparal, which eventually sold its stock to Nestle, while the rest half of the stock shares were traded to the public (Ghauri & Cateora, 2010 p644). Nestle received 49% of the shares, while the daughter of the owner and founder of the company retained a 51% stake in the company’s ownership. Critically comment on LOreal’s global brand management strategies. Do you think LOreal’s strategies were primarily responsible for its impressive financial performance? What other factors helped the company remain profit able since over two decades? LOreal’s global brand management strategies have been brilliant, an aspect that enabled the company to successively expand and also grow in profitability. The brilliant management strategies that have been applied by LOreal’s to achieve success over the last two decades include: Applying different promotional and advertisement strategies LOreal’s global brand has applied diverse promotional and advertisement strategies ever since its establishment as a small business that was selling a single product to a few Parisian hair dressers. The business back then applied print media as its advertisement and promotional channel (Ghauri & Cateora, 2010 p644). The company enlisted the services of various famous and well qualified graphic designers who produced brilliant posters for the businesses products. However, as the company continued to grow and expand its line of product manufacturing, the company adapted a different strategy for promoting its products, which would resonate well with the target customers it sought to sell its products to, through establishing a women magazine. The establishment of a women magazine as a promotional strategy was particularly a creative idea, because a magazine was more effective than posters. This is because, a magazine was tailor-made for the specific target market that the company sought to serve; women (Ghauri & Cateora, 2010 p644).Therefore, the shift of the company from applying the poster as the promotional channel to using the women magazine was a positive direction towards establishing the brands of the company in the minds of women as the target niche market, thus fostering brand identity and recognition, in a way that was unique. The management also applied fresh ideas and pioneering and advertisement that made the customers feel part of the larger plan by the company, and consequently continued to support and purchase the company’s product. In 1950, LOreal pioneered the use of screened film advertisement that were filmed in theaters, bringung a fresh idea into the advertisement world, that was captivating and interesting to the target customers (Ghauri & Cateora, 2010 p647).Therefore, the application of a fresh and pioneering idea of advertising served to revive the brand image of the company, and thus persuade more customers to continue purchasing the product (Bar-Zohar & Haber, 1996 p24). Emotional advertising is yet another advertisement and promotional strategy that LOreal has been using, to be able to remain competitive in the market, while still earning good profits. The company formulated some sentimental advertisement campaigns that made the target customers feel recognized and valued by the company, and thus they became ready to purchase the products of the company, even at higher prices than the competing products. For example, the company adapted a marketing campaign for its “preference” brand of hair color product, whose theme was Because lm worth it (Ghauri & Cateora, 2010 p644). Such a sentimental and captivating theme served to make the customers feel that they are worth using a good product even if the product could be expensive; simply because they are also worth such value (Hitt, Ireland & Hoskisson, 2007 p16). Consequently, the promotional campaign was able to bring more profits to the business, and thus enabled it to expand its operations to other countries such as the USA, Far East, Russia and South America (Lamb, Hair, & McDaniel, 2012 p114). Applying diversification strategy The LOreal’s global brand management strategies are exemplary, in that it ventured into diversification strategy, through adapting a large portfolio of products, manufacturing and distributing a range of products for each of the cosmetic market segment (Ghauri & Cateora, 2010 p647). The company produced and distributed a range of products for the consumer, luxury, Professional and pharmaceutical, ensuring that it catered for a wide range of customers, while also meeting every single need under each segment. This strategy is creative in the sense that it helps the company to fight competition, through ensuring that different customers will still get the range of products they desire under the company’s umbrella, thus preventing the customers from seeking the competitors products (Coming, 2013 n.p.). Internationalization strategy Internationalization strategy is yet another management strategy that served to help the company achieve success for the two decades (Marshall & Johnston, 2005 p63). After realizing that the brand LOreal was a popular brand in France, and after realizing that the company was able to offer a range of products that were of high quality, the company decided to take its business international, first starting with the immediate neighbors such as Holland and Australia, and then moving to distant markets such as Russia, USA and the Far East (Ghauri & Cateora, 2010 p648). Internationalization is a strategy that helps to promote the growth and expansion of a business, while also ensuring that the business has better chances of success, since when one market fails, the business can readily depend on the other markets (). Therefore, the LOreal management strategy for internalization helps the business to remain competitive and profitable, thus affording the company to attain success for decades. Acquisition strategy LOreal’s global brand management strategies entailed the acquisition of unknown brands and then developing and expanding the brand to different markets. The acquisition strategy served to promote the company’s expansion strategy, while also ensuring that the company did not introduce new products to different international markets that the company expanded to (Ghauri & Cateora, 2010 p647). This was essential to ensure that each market was served with products that suited he cultural settings of the market, since the products were introduced in those markets, and were based on the cultural settings in those markets (Brandon, 2011 p72). The rebranding and improvement of the culturally suitable products in the new markets served to enhance the quality and features of the product, thus keeping with the philosophy of the company; to offer quality products, at affordable prices (Sherrow, 2006 p137). The combination of all these strategies enabled the company to remain profitable for two decades. The combination of these promotional and management strategies seek to keep the customer aware and interested in the products of the company, while at the same time ensuring that customers will get all the products they desire under the umbrella o the company. This way, the company becomes competitive and profitable. Nevertheless, there were other factors that helped the company remain profitable for two decades. First, the quality of the products offered by the company were superior from the very beginning, creating a brand loyalty for the company, which he company later build-on to become successful (Saxena, 2006 p55). Secondly, the adoption of the right supply and distribution channels helped the company to achieve success for two decades, since through the right distribution channels; the company was able to reach its different customers in different markets, both locally and Internationally (Jones, 2010 p85). With specific reference to Maybelline, critically comment on Jones’ strategy of acquiring relatively unknown brands of different cultural origins. Giving them a makeover and marketing them globally. Jones’ strategy of acquiring unknown brands and then developing and expanding them globally was a very noble strategy, considering that it paid off very well. Maybelline is particularly one of the brands acquired by LOreal Company, which propelled the company to a great height of success, through enabling the company to conquer foreign markets using their own local products, which were culturally relevant and acquainted to the domestic society (Hitt, Ireland & Hoskisson, 2007 p45). The success factor largely emanated from the fact that Jones’ strategy of acquiring relatively unknown brands entailed the development of new and relevant products to the markets where the company expanded, while improving o n the already existing ones to make them high quality products that enabled the company to effectively compete in the new markets. For example, the company acquired the Maybelline brand in Japan and improved its products such as the initial lipstick product that dried quickly, which was moisturized and improved, and later branded Water Shine Diamonds”, a brand that eventually became very successful in different international markets (Ghauri & Cateora, 2010 p647). The acquisition strategy also entailed expanding to competitive market, and then investing in key facilities that would sell the brand differently from its initial location and kind of facility. Further focus of the expansion strategy entailed increasing the accessibility of the new and improved products in different international markets, a factor that served to promote growth of the company, and increase its profitability. What are the merits and demerits of acquiring an existing brand Vis-a -Vis creating a new brand? Merits The first advantage of acquiring an existing brand Vis-a -Vis creating a new brand is that; the acquired brand brings with it the goodwill of the customers that have been purchasing its products (). The goodwill that comes with acquisition of the new brands include the name of the business, which is well known in the market where the acquired company serves, in addition to acquiring the customer base that the business previously had and recognition of the products, such that they are not new to the intended customers (FindLaw, 2012 n.p.). Another merit associated with acquiring an already existing brand is that the company acquiring the brand also acquires the employees of the business acquired, who are well acquainted with the business of the company, as well as experienced in its ways of operations (FindLaw, 2012 n.p.). This is an advantage to the acquiring company, since it offers continuity and smooth transition of operations. Further, the acquisition of the already existing brand is beneficial to the acquiring company, since it allows the company to acquire the supply and distribution channels (FindLaw, 2012 n.p.). This is very important for the company, since the business is granted continuity, through using the same channels of supply and distribution, and thus averting the challenges associated with establishing new channels of distribution. The company also acquires the existing premises and stocks, meaning that it does not have to start from nothing (FindLaw, 2012 n.p.). Finally, the acquisition of an already existing business is advantageous for the acquiring company, considering that the company will benefit from the legal and regulatory framework and consents that have been established by the acquired brand, making the operations of the acquiring company smooth (FindLaw, 2012 n.p.). Demerits of acquiring an existing brand Vis-a -Vis creating a new brand The major demerit associated with acquiring an existing brand Vis-a -Vis creating a new brand is that; the acquiring company acquires any bad reputation and poor brands, in case the business did not perform well in the market (FindLaw, 2012 n.p.). Another problem associated with the acquisition strategy is that he acquiring company may inherit problems associated with the acquired brand, such as employee dispute, poor employees and supply and distribution problems that the previous business had (FindLaw, 2012 n.p.). In addition, the acquired business could have poor credit reputation, thus making it difficult for the acquiring company to get financing from the lenders, due to association with the previous business (FindLaw, 2012 n.p.). The other demerit associated with the acquisition of an already existing brand is that; it is difficult to ascertain the correct value of the acquired property, and thus the acquiring company might suffer from the inheritance of obsolete stock, as well as damaged properties and equipment (FindLaw, 2012 n.p.). In addition, any irregularities associated with the legal and regulatory framework, as well as the irregularities associated with the tax system will become a baggage of the acquiring company. To ensure that the image of its brands did not overlap, LOreal Company used different brand names of its different range of products, thus ensuring that each of the products among its diverse line of products remained uniquely identifiable, and thus there were no chances of the different brands overlapping in the market (Ghauri & Cateora, 2010 p649). Further, to ensure that the different brands offered by the company did not overlap, the company applied a cultural fusion strategy, where each brand that was offered in any single market was integrated and completely blended into the cultural setting of the market, so that the different brands offered by the company sustained unique identities, based on the cultures to which such products were blended (Begoun, 2010 p41). Further, repackaging and then marketing the acquired products served to give the brands a new identity, which in turn differentiated the newly acquired products from the traditional brands of the company, thus preventing any chances of overlapping of the different brands offered by the company (Ghauri & Cateora, 2010 p649). In addition, to ensure that the brands offered by LOreal Company did not overlap each other, the company also applied another blending strategy, where to similar brands could be combined together to form a fusion brand of the two, especially where one product is popular and competitive in a given market, so the fusion-brand can be marketed under the guise of the popular product (Brandon, 2011 p77). This strategy helps to make the lowly favored brand sell in other markets where it could not easily get a market. LOreal encouraged competition among its brands in a particular segment while preventing the brands from cannibalizing each other, through introducing a brand from one market into the other market, so that the two different brands from different markets can compete in one market (Ghauri & Cateora, 2010 p649). The introduction of two brands to compete in the same market is meant to encourage the two teams involved in the production of the two different brands to combine efforts and work together as one team. This way, the teams will develop the strategies for selling both products without any of the product being disadvantaged or cannibalized by the other one (Saxena, 2006 p58). Further, to prevent the two brands from cannibalizing each other, LOreal Company applied the strategy of having its two brands competing against each other, as a strategy of defeating competition from the other competing products, produced by other companies (Ghauri & Cateora, 2010 p648). This is because, should the company have only one product in the market, the competition for that product from other company’s products will be higher, than it would be when the competitors are competing with two products belonging to the same company (Sherrow, 2006 p102). In addition, LOreal Company ensured that its two products competing in the same market did not cannibalize each other, through applying the innovation strategy, where the two products competing in the same market will be innovated to possess different features and brand images, which will in turn ensure that the products do not overlap each other, but that they compete in healthy manner (Ghauri & Cateora, 2010 p649). References Bar-Zohar, M., & Haber, E. (1996). Bitter scent: The case of LOréal, Nazis, and the Arab Boycott. New York, NY [u.a.: Dutton. Begoun, P. (2010). The Complete Beauty Bible: The Ultimate Guide to Smart Beauty. Rodale. Brandon, R. (2011). 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