INTRODUCTION TO COMPANY

LOral: Company Background LOral was founded in 1907 by chemist Eugne Schueller when he invented the first non-damaging synthetic hair dye. Since its beginnings LOrals policy has been one of constant innovation, research and hard work in a field which would eventually come to be known as marketing. The fact that its founder was a chemist still influences the companys research orientation, as witness the 300 new patents LOral takes out every year, enabling the company to launch 200 new products annually. The first hair colour dyes were called Aurale. In 1909, Eugne Schueller created La Socit Franaise de Teintures Inoffensives pour Cheveux1 , which subsequently became LOral. The name was intended for products, not for the company itself. It is a combination of two of the endings most used in French company names in the early 20th century: or and al. Or was also the name of one of Auroles range of warmcoloured tints. Joining or et al produced the name LOral, which was reminiscent of the companys first brand of hair colour: Aurale. During the 1930s LOral extended its product portfolio to include skin care and suntanning products. Following World War II, the company diversified its products and brands to gradually include all types of cosmetic products and conserve its position in the distribution networks. Steady growth soon made LOral a world class operation. In 1997, LOral was a leader in beauty products, selling 500 brands and 2,000 different products (80,000 SKUs2) throughout the world. The company had more than 47,000 employees, and operations in 150 countries handled by 400 subsidiaries, 100 import agents, 60 offices and 42 factories. LOrals export sales increased from 50% in 1987 to 80% in 1997. Although 58.6% of the companys sales were made in Europe, there was enormous

growth potential in Asia, where sales amounted to only 6.8% of total billings. Forecasts for future growth there were very optimistic (See Appendix 1 for company figures). While still a European company, LOral was becoming increasingly global, as witness its acquisition of the US Maybelline brand in 1996, for which the company paid $758 million. The holding company Gesparal owned 53.7% of LOrals capital. Gesparal was 51% owned by Madame Bettencourt daughter of LOrals founder, Eugne Schueller and 49% owned by Nestl. The remaining 46.3% of LOrals shares were traded on the Paris Stock Exchange, and through the London SEAQ and American Depository Receipts in the United States. How LOral Was Organised LOral was divided into five functional areas, four divisions and three geographic territories, all of which answered directly to Chairman and CEO Lindsay OwenJones. The functional areas were Communications and Public Relations, Human Resources, Finance and Administration, Manufacturing and Logistics (which supervised the companys 42 factories), and R&D which had more than 2,000 employees and a budget equal to 5% of group sales. The four divisions were organised on the basis of the four main distribution channels for cosmetics and beauty care products: Salon Division, Consumer Division, Perfumes and Beauty Division and Active Cosmetics Department. The Salon Division (Coiffure) was world leader, with 25% of the market. 1997 billings amounted to around 7,000 million French francs, up 12% over the previous year. The division manufactured and marketed hair care products for use by professional hairdressers and products sold exclusively through hairdressers salons. The leading brands were Krastase, LOral Professionnel, Inn and Redken. The Consumer Division (Produits Public) registered 31,700 million

French francs in sales in 1997, up 18.1% from a year earlier. This division handled all products and brands distributed through mass-market channels, making LOral products available to the largest possible number of consumers (see Appendix 2 for the Consumer Divisions organisation chart). The division was made up of several companies, each of which marketed its own brands: LOral Paris (Elnett, Plnitude, Elvive/Elsve/ElVital, Studio Line), Laboratoires Garnier (Neutralia, Belle Color, Ambre Solaire, Fructis, Ultra Doux), LaScad (Dop, Fluoryl, Narta), Gemey Paris (Gemey, Kooka, Naf Naf, Club Mditerrane), Maybelline New York and Jade. The Perfumes and Beauty Division (Parfums et Beaut) registered 15,600 million French francs in sales in 1997, an increase of more than 12% over 1996 sales. The division commercialised a range of up-market international brands selectively distributed through perfume and cosmetics shops, department stores and travel retail shops throughout the world. Leading brands were Lancme, Biotherm, Helena Rubenstein, Cacharel, Guy Laroche, Ralph Lauren, Paloma Picasso, Giorgio Armani and Lanvin. The Active Cosmetics Department (Cosmtique Active) registered 2,800 million French francs in sales in 1997. It produced and marketed several brands of cosmetics, skin care products and hair treatments, which were distributed to a select group of pharmacies. The divisions leading brands were Laboratoires Vichy, Phas and La Roche-Posay. The four divisions were independent of one another. Each division consisted of different business units, among which there was also a certain degree of independence. Occasionally, various businesses belonging to a single division competed with one another. For example, Elsve and Fructis, produced by Laboratoires Garnier, competed in the mass market. But this competition was actually encouraged by LOral as it allowed the group to sum up the sales of all its brands, making it the market leader.

INTRODUCTION ABOUT CASE

LOral had several shampoo brands, among them Elsve, the shampoo market had never been one of the companys main priorities because margins were extremely narrow. In addition to that, consumers perceived very few differences and therefore positioning and differentiating a particular brand was a trying task. Still, Lindsay Owen-Jones was convinced that LOrals Elsve brand had a lot of potential. It was the market leader in France and the challenge was to make it a leader throughout Europe. This would involve constant research on new formulas, targeting new market segments, introducing new packaging, a new

communications strategy and maybe even changing the trademark, typography and colours. LOral couldnt ignore the competitive environment that surrounded the firm. Competitors were very active and aggressive. Procter & Gamble had recently introduced Wash & Go, a 2-in-1 shampoo and conditioner. One of the meetings Main subjects of discussion was the high penetration rate that this product had achieved in its introduction. Would the 2- in-1 concept be valid in the long term or was it just another passing fancy? How should Elsve react to their competitors new product? Neither could LOral overlook the fact that there was serious competition from other major brands among them Pantene, the European market leader which were very international and increasingly using global marketing strategies. The question was whether Elsve could become part of this international group of brands. Elsves experience and the keys to its success in France were very likely points to keep in mind when designing a global strategy for the rest of the world... L'Oral launched the first Elsve shampoo, using the slogan: "The shampoo for permed hair". When the brand had gained a solid foothold in France, it began going international. The strategy was to introduce a product for the mass market, but with an original, innovative formula. The company therefore

developed Balsam, a new formula which was used in a conditioner. Elsve thus managed to position itself as a hair care product. As of 1978 the company began to expand its range of Elsve products. This was not so easy because the brand had such a strong position as a shampoo for damaged hair. At this time, the market was experiencing very important changes: the frequency in the use of shampoos increased dramatically and shampoos that were claiming to be gentle and mild enough to be used every day became more appealing to consumers. Timotei, Ultra Doux and Mixa Baby a baby shampoo that became the market leader in France in those days because it was seen as so mild that it could be used every day became the most popular brands. Elsve had a positioning as a shampoo for damaged hair and was seen as too rich, too nourishing and too heavy to be used on a daily basis. When planning Elsves brand extension, LOral decided to offer separate products for fre quent and lessfrequent shampooing, and later move into products that would produce a certain desired effect subsequent to shampooing. This gave rise to products such as Elsve Balsam, Elsve Frquence, Elsve Volume and Elsve for oily hair. Although the brand was introduced in several different countries, the brand name used was not always the same. In the USA the brand was called Vive and in Germany it was called ElVital, to give just two examples. In the UK, it was called Elsve but the brand was to disappear from the market within a few years. The communications strategy was based on enhancing the value of each product, emphasising its distinctive characteristics. The strategy focused on individual products rather than on the umbrella brand, enabling the company to publicise all the technological innovations applied to each product. Unfortunately, this very strategy kept it from creating a strong, unified brand. The name of each product was better known than the name of the brand in general.

In 1987, following a new product introduction by Timotei, the market registered a new trend: active ingredients were in fashion and products started to introduce natural ingredients and reason-whys in their product ranges. The Elsve product range was renewed and LOral decided to target new market segments. The idea was to offer products for all types of hair, enriching the formula with a different active ingredient for each hair type: Elsve Protein, Elsve Jojoba for long hair and Elsve Vitamines were introduced. The company had to look for segments that would be large enough to be profitable and, at the same time, make sure that the products complemented one another so they wouldnt cannibalise each others sales.

A constant technological challenge Research and development was essential in order to discover new ingredients which could be added to product formulas, giving them an extra value that would be perceived by consumers and enable the manufacturer to secure a larger share of the hair care products market. But not just any innovation translated to an increased market share. Industry manufacturers had to find ingredients that gave consumers added value and enabled them to differentiate a particular product from its competitors. Market research showed that after shampooing consumers wanted their hair to be soft detangled and fluffy and smell nice, and that the trend for healthy and shiny hair had gained popularity. All shampoos had some more or less common ingredients, such as water, perfume, and cleansing agents. Before 1994, a polymer compound was added to the product in order to revitalise the hair. Polymers acted on the most damaged parts of the hair fiber, revitalising and restoring its health. But this type of molecule was more revitalising than cleansing, so when used by people with

normal or only slightly damaged hair the result was hair that was somewhat lank and rough, which consumers did not like. L'Oral made two very important strategic decisions: The company launched Elsve Multivitamines and added the Technicare line to the Elsve product range. Elsve Multivitamines used a silicone-based formula that tested better than the composition of Procter & Gambles silicone-based Pantene which at the time was the European market leader. Launching Elsve Multivitamines enabled Elsve to increase its target segments, addressing not only consumers with damaged hair or other hair care problems but also people with normal hair. Moreover, the new formula allowed LOral to increase the prices of Elsve products by 20%. Increased revenue meant that Elsve could spend more on advertising. Until 1995 LOrals products had included the Technicare line, which was especially for damaged hair. The products were fairly expensive, targeted at a highly specialised, very specific market segment. There were three lines of Technicare products: Energance (for permed hair), Rayonnance (for tinted hair) y Fortifiance (for damaged hair). Lindsay Owen-Jones wondered if it was worthwhile to have two brands with such similar characteristics, strategies and product positioning. He therefore decided to merge the two to achieve a critical market share, maintaining the colours used in the Technicare packaging to identify the different product lines. The brand name was gradually changed: first it was called Energance Elsve, then it became Elsve Energance and finally Elsve for permed hair. The same process was also applied to the other two product lines. Internally, the switchover was handled as it would have been had LOral acquired an external company. With the addition of Technicare, Elsve managed to acquire 10% of the hair care market. Sales increased and so did prices, due to the use of new formulas. Billings went up and the brand was able to increase its advertising budget. This enabled Elsve to address more segments with differentiated

messages, thereby further increasing its market share. Elsve/Vive/ElVital (see Appendix 3 for the Elsve product range) aimed to further strengthen its competitive position by adopting three key strategic decisions: address all possible market segments, add highly innovative technical features to the "stars" of the product range and reinforce the product image by making the brand name more visible on packaging. The product range was launched in the UK in 1997 under the brand name Elvive (see Appendix 4, for Elvive products in the UK). LOral also commercialised other brands of hair care products, among them Studio Line and Ptit LOral. It also marketed Ultra Doux, Fructis and Neutralia through Laboratoires Garnier, and the J. Dessange brand through LaScad. LOral had launched Formula Homme as a brand for men, hoping to break into a market segment which was underexploited but had a great deal of growth potential, and it was later re-branded as Progress Homme and reintroduced under Elsves umbrella brand. Competing with a number of different L'Oral brands enabled the company to position its products in more market segments and compete for market leadership by adding together sales for its different brands. Although there was a bit of an overlap between segments, product cannibalism was avoided by designing different positioning strategies: every single product invested in creating its own personality. Consumers identified each and every one of the brands but did not relate them to LOral.

Elsves competition Elsve competed with other brands of cosmetic shampoos which also had such broad product ranges that they could reach all market segments. In order to do this, manufacturers basically used TV commercials as a way to position their cosmetic

shampoo brands. Elsves most important competitors were Pantene, Organics, Timotei and Wash & Go (See Appendixes 9, 10 and 11 for market shares and average prices of the leading brands in selected countries). Most brands tried to position themselves carefully in order to differentiate themselves from their competitors. As in any other industry, one of the problems was that there were some competitors that were followers of the major leaders. They waited for the leaders to introduce some new innovation and then launched similar products at a lower price. Pantene led the market for cosmetic shampoos and ranked second to Elsve in conditioners. Manufactured by Procter & Gamble, Pantenes formula was based on Pro- Vitamine (B5). Pantene's technological progress was due to constant research and innovation, which were key factors for success in this branch of industry. Pantene advertising sought to reinforce its brand image, positioning itself as specialists in hair care. Its slogan was, Hair so healthy it shines, with Pro Vitamine (B5) the reasonwhy. Pantene commercials demonstrated how the vitamin acted from the roots to the tips of the hair. Commercials usually featured slice of life scenes with which a broad segment of the public could identify. Pro-Vitamine marketed itself as the solution for consumers hair problems. Wash & Go was another important Procter & Gamble brand. At first its advertising message was that Wash & Go was fast and practical, but hair care and other features had gradually been introduced. The brand usually used active, sportylooking models in order to reach a mixed male/female market segment. Organics was a Unilever brand that communicated the message that healthy hair was vitally important and must be very well cared for. The product name had connotations of natural animal or vegetable ingredients. Its principal ingredient was Glucasil, which nourished the hair. Knowing this, one can understand its ads, which depicted hair as something that had its roots in the earth. Organics attempted

to position itself as a shampoo that made hair strong, healthy and shiny. At first Organics ads contained an essentially symbolic message, but this had gradually been revised and shampooing scenes added. The target public was exclusively female and more interested in cosmetic features than in healthier hair.

EVALUATION CRITERIA
LOral tried to make employee relations as personal as possible. The company cut through red tape and kept paper work to a minimum, encouraging oral communication through numerous meetings and team work. It was not surprising to note that many of the companys employees were on a first-name basis. The company shaped loyalty and efficiency by making employees thoroughly acquainted with the company, its structure, its management methods and objectives, ensuring that they understood not only the companys corporate culture but also the many different cultures that made up the organisation. LOral looked for employees with an innovative, pioneering spirit, ready to travel to new countries and open new markets. The company looked for people who were independent, had initiative, creativity and were willing to take responsibility. As of 1978 the company began to expand its range of Elsve products. This was not so easy because the brand had such a strong position as a shampoo for damaged hair. At this time, the market was experiencing very important changes: the frequency in the use of shampoos increased dramatically and shampoos that were claiming to be gentle and mild enough to be used every day became more appealing to consumers. Timotei, Ultra Doux and Mixa Baby a baby shampoo that became the market leader in France in those days because it was seen as so mild that it could be used every day became the most popular brands. Elsve had

a positioning as a shampoo for damaged hair and was seen as too rich, too nourishing and too heavy to be used on a daily basis. When planning Elsves brand extension, LOral decided to offer separate products for frequent and less-frequent shampooing, and later move into products that would produce a certain desired effect subsequent to shampooing. This gave rise to products such as Elsve Balsam, Elsve Frquence, Elsve Volume and Elsve for oily hair. Although the brand was introduced in several different countries, the brand name used was not always the same. In the USA the brand was called Vive and in Germany it was called ElVital, to give just two examples. In the UK, it was called Elsve but the brand was to disappear from the market within a few years. The communications strategy was based on enhancing the value of each product, emphasising its distinctive characteristics. The strategy focused on individual products rather than on the umbrella brand, enabling the company to publicise all the technological innovations applied to each product. Unfortunately, this very strategy kept it from creating a strong, unified brand. The name of each product was better known than the name of the brand in general. LOral also commercialised other brands of hair care products, among them Studio Line and Ptit LOral. It also marketed Ultra Doux, Fructis and Neutralia through Laboratoires Garnier, and the J. Dessange brand through LaScad. LOral had launched Formula Homme as a brand for men, hoping to break into a market segment which was underexploited

but had a great deal of growth potential, and it was later re-branded as Progress Homme and reintroduced under Elsves umbrella brand.

Competing with a number of different L'Oral brands enabled the company to position its products in more market segments and compete for market leadership by adding together sales for its different brands. Although there was a bit of an overlap between segments, product cannibalism was avoided by designing different positioning strategies: every single product invested in creating its own personality. Consumers identified each and every one of the brands but did not relate them to LOral.

CONCLUSION
Whenever there was a technological innovation industry competitors were faced with an alternative: they could either launch a new product concept that contained the new ingredient or they could introduce the new ingredient in an alreadyexisting product and inform consumers of the change through advertising and new package designs. But introducing an innovation could sometimes be a risky business. If it was not as successful as hoped it could affect the entire brand image. So when LOral was not absolutely certain of the outcome it introduced new formulas under a secondary brand name. LOral Paris was the groups flagship brand. It focused on the long term and always sought sustainable product concepts because the LOral brand was too highly valued to risk launching anything whose success was not assured. These were the sorts of issues that the marketing team at LOral was facing in their strategic design to become the European shampoo market leader