Bringing “Class to Mass” with Plénitude

1. Bringing “Class to Mass” with Plénitude Channin Campbell Samantha Chan Sabrina Minaya Erica Ryan Rose San Juan ItaelToibman

2. L’Oréal’sBACKGROUND • Founded in 1907 by French chemist, Eugene Schiller • World-wide presence (1995) • 2000 products • 500 brand names • In over 150 countries • L’Oréal’s Strategy : • “Quality, innovation and geographic expansion”

3. L’Oréal’sBACKGROUND QUICK FACTS • Sales of 53.4 billion French Francs ($10.9 billion US Dollars) (1995) • Cosmetics represented 81% of revenues (1995) • Cosmetics included hair care and skincare lines • $300 million spent on research and 300 new patents worldwide (1994)

4. L’OréalU.S.A. • L’Oréal U.S.A. became a wholly owned subsidiary (operating under the name Cosmair) (1994) • US sales - $1.5 billion (1995) • Acquired Maybelline, a leader in color cosmetics to broaden participation in the mass market (1996) • Combined L’Oréal Haircare Division and Cosmetics and Fragrance Division to form the L’Oréal Retail Division headed by Joseph Campinell

5. L’Oréal’sMARKETING STRATEGIES • “Trickle Down and Fire Up” • Revenue from mass market products fund R&D for next generation products (high-end products) • “Maintain premium pricing to reinforce quality and performance” • Concentrate resources and support “star product” to pull entire line • Follow the “Golden Rules” of Advertising • Feature star product • Provide technological superiority • Depict an executive, up-to-date and assertive executive woman

6. PLÉNITUDEby L’Oréal • Launched the Plénitude brand in 1982, France • Introduced a single product initially, a general purpose moisturizer • France advertising positioning: • “high end, superior performance but accessible” • “class of the mass” (“class to mass”) • “Delays Signs of Aging” • Strong performance in France 1982 – 1987

7. PLÉNITUDEby L’oréal L’Oréal delayed introduction of cleansers until it established a concrete position in the French mass moisturizer market

8. PLÉNITUDEU.S.A. LAUNCH • Test launch in Atlanta & Dallas (1988) • US advertising positioning: • “high end, superior performance but accessible” • “class of the mass” (“class to mass”) • “Reduces Signs of Aging” • Introduced entire line(as developed in France) nationwide after US test markets showed a 14% share in the moisturizer

9. PLÉNITUDEU.S.A. Retail Presentation of Entire Line 14 SKU’s introduced covering 3 categories Basic moisturizers Treatments moisturizers cleansers

10. PLÉNITUDE U.S.A. • Advertising resource allocation followed the “star products” system

11. PLÉNITUDEU.S.A. – Early Results • Strong US performance hitting sales targets 1989 – 1995, but have failed to generate profits the 8-9 years after it was first introduced hitting a four-year sales plateau

12. 5CFramework

13. SWOT Analysis

14. Problem Analysis “Will luxury companies in the next century, which do not have the mass market base, have the resources necessary to do the research to compete? I think the answer is no.” How L’Oréal’sLindsay Owen-Jones, Chairman and CEO of L’Oréal, saw the “trickle down and fire up” philosophy. L’Oréal’sunsuccessful attempt to bring the “class to mass” strategy to the US skincare market resulted in a four-year sales plateau. They were unable to market to the varying skincare needs of US consumers, which may lead to more years of unprofitability in the US and may delay the introduction of the Plénitude brand globally and may even hurt L’Oréal’s superior reputation, supported by its technological innovation, in the skincare industry.

15. Problem Analysis • The main problem in the case is how to increase profitability and sales, and how to improving its position in the market in the United States for the Plenitude line of products. • Are aspects of the strategy "too French" for the U.S market? • When doing such do they try to establish the "class" part of a value proposition by focusing more on their moisturizers and cleansers? • Or do they continue with the promoting "Revitalift-Eye" as a "star product" where they would put all money and marketing support towards that one product?

16. Assumptions and Missing Information Assumptions: • The Plénitude product line has been unprofitable since its U.S. introduction in 1988. • L’Oréalis willing to consider changing its premium pricing strategy. • The main problems with the Plénitude brand are pricing and packaging. That is consumers perceive the line to be too complicated, due to the amount of information on the packaging, and too expensive. • The major issue in the Plénitude case is branding and consumer perception. • L’Oréal wants to continue selling the Plénitude line in the U.S. • Plénitude’s global success is dependent upon its success in the U.S. market. • L’Oréal is basing it’s U.S. marketing strategy on it’s French strategy, without properly adjusting for cultural differences.

17. Assumptions and Missing Information (cont.) Missing Information: • What do U.S. consumers look for in facial skin care products? • Is technology an important factor in over-the-counter cleaners and moisturizers? • Are American women as educated French women when it comes to skin care? • How would U.S. consumers prefer to receive product information if not on the packaging? • Sales figures for each of the products in the Plénitude line. For example, what are the least popular products? Which are the “stars”? • Consumer demographics (not just the five identified “benefit” segments).

18. Strategic Alternatives Alternative #1: Focus on differentiation and target niche market

19. Strategic Alternatives (cont.) Alternative #2: Simplify product line

20. Strategic Alternatives (cont.) Alternative #3: Simplify pricing structure

21. Strategic Alternatives (cont.) Alternative #4: Divide product line to target younger and older users

22. Strategic Alternatives (cont.) Alternative #5: Differentiate brand by educating consumers about skin care

23. Evaluation of Alternatives • By making sure that the product is differentiated, it allows L’Oréal to stand out in a market saturated by competition. The current issue to address includes improving Plénitude's operations in the US as well as introducing a Revitalift-Eye into existing product line.  • Further, this alternative will capitalize on the strongest strength that L’Oréal has which is its brand name. One of the likely consequences of this is the possibility of losing customers not included in the targeted niche market, such as the younger group. Alternative #1: Focus on differentiation and target niche market

24. Evaluation of Alternatives (cont.) • This alternative directly improves Plénitude's current operations since the issues that were mentioned in the surveys included people being confused about too many options. • The issue with simplifying is that it may reduce the amount of choices people have when making a decision about the products they have, but on the other hand it is an opportunity to market to the segment that does not necessarily need all the information to begin with and may be intimidated by too much.  • With this alternative one thing to watch out for is not taking too much information out so that everyone is confused. Alternative #2: Simplify product line

25. Evaluation of Alternatives (cont.) • Simplifying the price structure could potentially attract new customers. • At the same time, it would also possibly hurt L’Oréal financially as some people might see it as a decline in value.  Alternative #3: Simplify pricing structure

26. Evaluation of Alternatives (cont.) • Dividing the product line is an alternative that is in a slightly different direction than the others. While the first three alternatives focused on simplifying, this alternative is focused on specifying the product line to target younger customers with cleansers and moisturizers, while at the same time targeting advertisements of specialty products to older women. • The opportunity lies in the ability to use L’Oréal brand to reach a larger potential market, however the challenge lies in the fact that they don’t have unlimited resources to spend on marketing. Alternative #4: Divide product line to target younger and older users

27. Evaluation of Alternatives (cont.) • L’Oréaldrives sales with product technology, but the department-store-gone-self-serve is a challenge to their sales.  Therefore, L’Oréal can stand out by educating consumers about skin care.  • Many of the consumers already know and appreciate L’Oréal to be a higher quality product, so providing education instead of just product information they can promote use among the younger generation who doesn’t necessarily have the history of the commercials or advertising.   Alternative #5: Differentiate brand by educating consumers about skin care

28. Recommendation Our recommendation is to use a combination of Alternative 1 and Alternative 2:We believe that the best approach is to focus on product differentiation and targeting niche markets, while at the same time simplifying the product line.

29. Marketing Objective: Target Niche Market • L’Oréal should target women with beauty concerns or issues, such as signs of aging or dry skin. • The company should target women 30 and older seeking a product to reduce a specific sign of aging or a product to reduce signs of aging in general. • This strategy would focus on women 30 and over in the previously identified “Stressed Out” and “Age Focused” benefit segments. • Example: L’Oréal’ssuccessful product, Revitalift, helps consumers solve a specific beauty problem.

30. Marketing Strategy: Target Niche Market • Using one of L’Oréal’s greatest asset, its brand name, we can increase awareness of the line by sending out targeted messages to customers age 30 or over. • Specifically, targeting the ads to American women so that the products aren’t seen as too French. Possible suggestions include general slogans like, “Keep your skin hydrated during BBQ season!” or “Avoid sun-spots from cheering for the Ravens from the bleachers!” to get women to identify with the product and increase awareness.

31. Marketing Objective: Simplify Product Line • Plénitude sells more moisturizers than cleansers. More specifically, Plénitude sells more treatment moisturizers than daily moisturizers; and therefore, should focus its product line around treatment moisturizers which capitalize it’s greatest asset – technology. • Technology is a greater asset in selling treatment moisturizers instead of daily moisturizers.  Many of its competitors were much stronger in the daily segment.  • In general, the moisturizers are more profitable than cleansers for Plénitude in general.  • The Plénitude Line is among the top 3 in market size and brand shares for moisturizers. • Specifics shown in next slide • Further, they can simplify the product line by simplifying the packaging so that it’s not as intimidating to women who do not want or need too much information to make a decision.

32. Marketing Strategy: Simplify Product Line

33. Marketing Strategy: Simplify Product Line

34. Marketing Strategy: Simplify Product Line Focus on its “star” products and profitable treatment moisturizers.

35. Financial Implications • L’Oréal is spending too much on advertising and promotion, and not generating enough sales to turn a profit.  If L’Oréal narrows its focus and simplifies its product line, marketing costs would change significantly. Here is how these strategies will affect marketing expenditures: • L’Oréal spends $29.2MM on advertising its cleansers and moisturizers; it could easily cut its spending by 20%* ($5.84MM) by simplifying its product line and eliminating cleansers, for which it only has a 3.4 dollar share in 1995, the lowest among all of its competitors. Those savings alone would reduce the pre-tax loss (for 1995 the pre-tax loss was 12.5MM) by 50%. • We estimate that segmenting markets and focusing marketing efforts, in addition to simplifying the product line, will result in additional cost savings (for which we do not have solid numbers as the case is missing financial data). *This is an estimate based on our interpretation of the financial and case information available.

36. Discussion Questions: • Do you agree with the recommendation provided? • Are there any other strategic alternatives you would have suggested? • What are other issues or concerns L’Oréal should consider?