Because you're worth it - ask anybody in the streets of China and they will recognize L'Oréal's memorable brand tagline. However, scratch the surface further, few would have known that the cosmetics beauty giant L'Oréal Group also owns 16 other brands in China since first entering in the market in 1996.
China Looks Beautiful to L'Oréal
If you compare L'Oréal with its competitors, L'Oréal entered the China market late. However, compare L'Oréal's growth in China and they are simply in a league of their own. Their sales in China last year grew 27.7% year-over-year to 6.95M RMB (USD $1.02B) - a double digit growth in China for eight consecutive years (compared to a decline in sales in Western Europe and North America in 2008).
Multi- Brand Strategy
L'Oréal uses a multi-brand strategy to cover the mass market in China. The best way to describe their diversified brands is that of a pyramid:
At the base of the pyramid comprise of L'Oréal Paris, Maybelline Garnier, and Mini-Nurse - all products that target the mass market.
Brands such as Vichy, Kerastase, and Matrix make up the middle of this pyramid. These products are sold in pharmacies and hair salons meant for consumers looking for that mid-level quality of products.
The very top of that pyramid is reserved strictly for the high-end products such as Lancome, Biotherm, Shu Uemura, and Kiehl's. These products are sold in retail outlets, high-end department stores, and specialized boutiques.
Each level of L'Oréal brand pyramid occupies a certain price area, which meets the needs of Chinese consumers from a price sensitivity perspective namely due to the wide income gaps in China.
Now beyond price, L'Oréal products go through different tiers of sales channels including supermarkets, pharmacies, hair salons, department stores, and specialized boutiques. Even L'Oréal brands have their own unique 'personality' - L'Oréal Paris is a high-performance technology brand, Maybelline New York is fashion driven, and Garnier is often characterized as a natural brand. Diversity in products, branding, and sales distribution all contribute to L'Oréal's success in cornering the beauty and cosmetic market in China today.
As in many large corporations, acquisition plays a big role in L'Oréal's strategy in China. In this particular case, acquisitions of local brands help cover another dimension of market along with their other global products. Case in point, L'Oréal China acquired Mini-Nurse (Chinese mass-market skin care brand) in late 2003 and Yue-Sai (a local make-up and skin care brand) in early 2004.
Mini-Nurse was distributed in 280,000 outlets across China, and held a large share of the low-end market at that time. The acquisition enabled L'Oréal to access mass-market consumers that have never been able to access the products before as well as securing local distribution/operation knowledge to L'Oréal.
As Lan Zhenzhen (Vice President of L'Oréal China) commented, nearly 60% of the company's sales in China come from the bottom base of L'Oréal's brand pyramid (i.e. local brands and mass-market products). It's not hard to see how important the local brand acquisitions are for the company's growth over the long run.
As we known, no matter what strategies companies implement, localization is a MUST in any foreign market. And for L'Oréal China, they are no exception.
First example, L'Oréal Research Center in Pudong, Shanghai. L'Oréal invests over 3% of sales every year in product R&D (industry average is 1.5%-2%). This research center was opened in 2005 in order to get a better understanding of unique properties of the hair and skin of Chinese consumers. This was "the first facility of its kind to be operated by a cosmetics company".
For example, most Chinese women like skin whiteners rather than tanning products. Odd for us folks in the US (especially here in Los Angeles), but a sign of beauty for those in China. Also, the texture of Chinese hair is thicker and more course if compared to typical US Caucasian hair. This requires different product mix, different marketing, and really a different knowledge set to effectively sell and move these products in China. L'Oréal has dedicated in-depth research to these and other issues, and followed up with more innovations in products to suit the needs and preferences of Chinese consumers.
Out of a workforce of nearly 4,000, 95% of L'Oréal China employees are local - and most brand managers as well as marketing/sales executives are Chinese. Hiring local employees is essential for doing business in China - simply because the employees have a better understanding of the market, the culture, the consumer's needs and, last but not least, are more cost-effective than overseas employees.
Smart Human Resources
We've established that most of L'Oréal's employees are Chinese. The interesting bit to me is that the average age of the employee in L'Oréal China is actually less than 31 years old (coincidentally, the same age as their consumer target). In fact, their youngest brand manager was 25, according to Jean-Paul Ago, CEO of L'Oréal Group.
L'Oréal started many different competitions among Chinese students since 2001, including the "Innovation Lab Challenge", the "L'Oréal Brandstorm", and the "Industrial Challenge". These various competitions allowed college students to not only get introduced to the cosmetics industry, but more importantly, brings a deep and wide talent pool for L'Oréal in regards to creative ideas and future employees.
L'Oréal's continuous recruitment and selection of young people has two significant benefits: first, fresh and innovative ideas for the company (since young people follow trends), and second, a savings on salaries, as young graduates means less money.
Lastly, L'Oréal China has always been a good corporate citizen. While fifteen years ago that may not have been high on the priority list for companies, today is an important branding aspect that companies must be consciously aware of now. Below are a few of the different 'social responsibility' campaigns L'Oréal China has launched - each to carefully brand L'Oréal's brand image in the China market:
The first French sponsor of Expo 2010 Shanghai (2009)
Donated 9,000,000 RMB and materials worth 8,000,000 RMB to all earthquake disaster areas (2008)
"I Am Proud of Saving Resources" campaign to conserve energy, recycle (2002-today)
Initiated "Protecting the Yangtze River and Save the White-flag Dolphin" campaign (2005)
With UNESCO, established the "World Young Women Scientist Award" (2000) and with All-China Women's Federation, China Association for Science and Technology, and Chinese National Commission for UNESCO established the "China Young Women Scientists Award"
In the foreseeable future, L'Oréal's future is optimistic in China. However, the cosmetics market in China is filled with stiff competition from both foreign and local brands. Besides its major competitors that exist today, South Korean and Japanese cosmetics giants (Amorepacific, Kao, Shiseido) are targeting China as well.
Not only is there the general consensus that Asian brands are more suited for Asian skin, South Korean and Japanese cosmetics also benefit from the fact their local soap operas are extremely popular in China. These soap opera stars exhibit a desirable look and thus have strong affiliation to their particular native brands.
Despite the growing competition, the overall market is growing with opportunity. However, for L'Oréal, they've tackled the market intelligently and take one step at a time. As Paolo Gasparrini, the President of L'Oréal China noted, "all of our achievements of today started from absolutely zero". It's just the beginning of the China journey and there is still a long road ahead ...
In the L'Oreal China, each brand has its own marketing department and sales department, rather than R & D department. For different brands and specific market conditions, L'Oreal China in the marketing properly adjust its advertising strategy.
As a French company, L'Oreal focus on flexibility and adaptability of the organization. L'Oreal set up R & D center in Shanghai to strengthen the competitiveness of their products and make it more suitable for Chinese customers.
L'Oreal to promote innovation in this big business is one way to promote different brands in different regions compete with each other. L'Oreal in favor of its competition among different brands. It establishes a research center with another rivalry, it built a marketing team to contend with another branch. They still fight each other in the process as well as down its competitors. L'Oreal to the Chinese market by continuously introducing new brands to enhance the self-competition.
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