L'Oreal Introduction L'Oreal is the largest cosmetics company in the world. It shouldn't be a surprise that L'Oreal doesn't sell all of its product lines in every market in which it sells, and the market in the Netherlands is no exception. Upper management of the Netherlands' L'Oreal subsidiary have to make decisions on which product lines will succeed in their respective market and which ones will falter. In this particular case, L'Oreal needs to decide if it would like to introduce Garneir product lines such as the Synergie skin care line and the Belle Couleur permanent hair colorants line into the Netherlands market. The basic problem is whether or not to introduce these lines into the Dutch market.
Situation Audit In the Netherlands, unlike in France, L'Oreal and Garneir are both sold under the same sales force. This must be taken into consideration considering that L'Oreal has products in both hair colorants (Recital) and in skin care (Plenitude). Fortunately, the Dutch market maybe able to handle both of these product lines from L'Oreal and Garneir if it is felt that they could both be profitable. When looking at the Dutch market, the most surprising thing is the youth of population. 40% of the population is under the age of 25. This is an important demographic stat because a lot of younger women are the ones who use cosmetics, but it is important to note that the fastest growing populations are those of age 25 and older which might be important to the market of hair colorants.
Another interesting trend is the number of Dutch women who work outside the home with a labor force rate of 29% and it is increasing more rapidly than those of other countries like the United States and the United Kingdom. This is very interesting because these women will have more money, independence, and self-confidence. In these terms, these women will more than likely use more cosmetics because of the increase in time that they spend outside of the home. A final insight into the Dutch market shows that Dutch women tend to shop for value, especially in cosmetics, which needs to be taken into account. The overall Dutch market looks somewhat promising to the introduction of Synergie and Belle Couleur lines, but other factors must also be looked at.
While the overall Dutch market is important in the analysis, the product markets might give a better indication of how these products might do. For both of these lines, their markets seem to originate over the prices of the products being sold, from the upper end, to the middle, and farther down to the low end of the price scale. In the skin care market, which is the second largest sector of the Dutch cosmetics market, unit volume has grown at 12% annually in the last five quarters while dollar sales has risen at 16% annually. Also, 50% of Dutch women between 15 and 65 use traditional skin care products. The forecast is also good considering by the year 2000, sales in the cosmetic industry in the Netherlands is to reach around $145 million, with an annual growth rate in the 3% range (Datamonitor, Makeup). For the hair coloring market, almost 75% of Dutch women use permanent colorant instead of semi permanent colorants, relating well considering Belle Couleur is a permanent colorant.
During the past four years the volume growth has been 15% annually. The hair care market value, which includes hair colorants, is expected to reach around $320 million by the year 2000, once again growing around 3% a year (Datamonitor, Haircare). Its easy to see that both of these markets look profitable in the future and that if these lines are introduce they will have the ability to become successful in the markets. Another important determinate is the competition in these respected markets and the behavior of consumers. In the skin care market there are many competitors that include L'Oreal's Plenitude. Some of these competitors offer only partial lines while other offer complete skin care lines.
It is also important to note that new entrants usually spend a lot more money on advertising that compared to their market share. For example, Ponds spends roughly 2. 5% of the industries ad expenditure while it holds 9% market share. On the other hand, Plenitude owns 5% market share but spends 13% of the industries ad expenditure. This is important because if and when the Synergie line is introduced into the Dutch market, it can be expected that it would need far more money for advertising to establish itself and the brand than what is needed by our competitors. Another worry about the market is that consumers tend to be loyal with users feeling an emotional attachment with a particular brand image.
So even though these consumers are loyal, a good advertising campaign maybe able to swing users to Synergie with the correct self-concept that appeals to the masses. The hair coloring market also has many competitors even though four of them make up around 80% of the market share. Once again though, L'Oreal has its own product in this market, and even worse this product, Recital, is the leading seller. Even though there are indirect competitors in the market like hair salon, it is believed more women will use home coloring, as it was more convenient for the workingwomen. An important competitor to look at in this market would have to be Guhl. Guhl has increased its share from 9% in 1987 to 14% in 1989 using warmer shades, using drug chains, and using better marketing to increase its sales in large independents.
Another important note is that advertising has increased dramatically with the higher intensity of competition. As with the skin care industry, consumers tend to be brand loyal. These consumers bought their products in drugstores and also asked store personnel for advice. Another insightful thing of consumers is that in a study, 33% wanted a warmer / red tone, 17% wanted to lighten their hair, and another 29% wanted to hide gray. Obviously, the hair coloring sector seems a little more complex and maybe even a little more risky to consider for the Belle Couleur line to enter. Luckily, market research information has been collected for both product lines, which will show how the sample market has responded to our product lines and hopefully it can give insight into how our products will do in the real market.
For Synergie, the positioning statement and terminology associated with the total product line was received positively according to the research. On a seven-point scale, Synergie received a 4. 94 while products Plenitude and Dr. vd Hong received a 4. 97 and a 4.
88, respectively. While this is good, a trial and use phase of the anti-aging day cream and the moisturizing cream showed overwhelmingly that these consumers feel that these products might be overpriced. For example, when the price was not known, all participants gave the anti-aging cream a 5. 37 after trial and a 5. 26 after use for a week (out of 7). When the price was known, these participants gave the anti-aging cream a 3.
75 after trial and a 3. 6 after use for a week. It is clear that when these prices were not known, the consumer gave the products a considerably higher score. This shouldn't be too big of a surprise considering the Synergie line ranges from 11. 95 to 21. 95 guilders.
These prices are more in line with the upper end of the skin care market even though it is positioned in the middle end of the price ranges. For Belle Couleur, the product price seems to be more acceptable. When the participants were asked about their probability of buying, 78% said they certainly or probably would buy the hair coloring line. After they were aware of the price, 83% said they certainly or probably would buy the hair-coloring product. This increase basically came from those who were neutral when they were unaware of the price. The problem comes after use of the product, when only 59% of consumers questioned said they would certainly or probably buy the product.
The certainly not percentage increased over threefold from the price-unaware stage to the after-use stage. This is definitely not a good indication of how these consumers view the quality of the product. According to further data collected after the product usage, these consumers who disapproved that that the colors were too dark and it didn't do a good job of covering the gray. This can be attributed to the difference in French and Dutch tastes in the colors of their hairs, but unfortunately the product is made in France and is unlikely to change considering the size of the Dutch market compared to L'Oreal's worldwide sales. It is interesting to look at the second part of the survey of those who most likely would not use the product. This data, which involves the evaluation of the final color of Belle Couleur, a comparison to their expectations of the product, and the comparison of Belle Couleur with their own brand, shows that on average the scores received by the product were not horrible.
Looking closely at the data, especially in the comparison of expectations and with their own brand, the percentage of consumers who felt much better or better was about the same percentage of consumers who felt the it was worse of much worse. This usually leaves a fairly high percentage of those who thought these products were the same. This is the shortcoming of the Belle Couleur product, because many of these consumers are extremely brand loyal and probably feel that there is no need to switch to a different brand that is fairly close to their original product. The final area that needs to be looked at is the distributor that would possibly sell these two product lines.
The most important thing about distributors is that they hold most of the power in deciding what lines they want to hold. Distributors use criteria for determining whether or not they will carry a particular line, with consumer acceptance, manufacturer advertising and promotion, and introductory monetary allowances holding the most weight. Luckily, L'Oreal holds a positive image with Dutch retailers that will help with the introduction of these new product lines. The most important detail about distributors is what type of store should these products be introduced in. Independent drugstores, drug chains and food stores hold the most importance for L'Oreal and should be assumed that these new lines would use the same types. Problem Statement The major problem is whether or not L'Oreal should introduce the new product lines of Synergie and Belle Couleur into the Dutch market.
These products will be introduced under the Garnier brand name and they must make a strong impression because they will be the first product lines (excluding the relatively unknown Am bre Salaire product) using the Garnier name. A secondary problem if one or both of these lines are introduced is that a marketing program needs to be developed for both. Again, if one or both of these lines are introduced, it needs to be made sure that the Garnier products don't negatively affect the L'Oreal products that are already established in these markets. Identification of Alternatives The possible solutions to the main problem seem fairly simple. The first would be to introduce both lines into the Dutch Market. The second would to introduce only the Synergie line into the Dutch market.
The third would be to only introduce the Belle Couleur line into the Dutch market. The fourth and final alternative would be to not introduce either of the lines into the Dutch market and find an alternative line to establish the Garnier brand name in the Netherlands. Criteria The criterion used to decide whether or not these lines are introduced into the Dutch market is the key point of this whole problem. These criteria must pick a solution that not only is profitable for the company, but must also make sure that these lines will have the ability to put an impressionable and impressive brand image in the mind of consumers in their respected markets.
The most important criteria in determining whether or not to introduce these products are their ability to create a positive brand image for Garnier. Because of this importance, this criterion should hold the most weight of. 5. It also must be noted that only product quality will be used in evaluating this criterion because marketing changes such a price and promotion can change if indeed these products are introduced. The second most important is the profitability of their respected markets. This is important to show how profitable these lines could be.
Therefore it will hold the weight of. 3. The final criterion is how much a suspected line will affect the sales and the usage of the sales force of L'Oreal. It will therefore hold a weight of. 2. Analysis Criteria Relative Weights 1 2 3 4 Brand Image 0.
5 6. 5 7. 5 5 2 Profitabiltiy of Market 0. 3 7.
5 7 8 0 Effect on L'Oreal products 0. 2 6 6. 5 5. 5 10 6. 7 7. 15 6 3 Obviously for this chart and analysis to hold any value it must be explained.
For the ability of the product to give a good brand image to Garnier, certain numbers ranging from 1-10 were used with 10 giving Garnier the best image. According to the preliminary research, the Synergie line had the highest scores from the consumer and therefore it was assumed that it had the best quality. Belle Couleur received a 5 because of its somewhat poor ratings in the earlier research that was done. Alternative 1 received the average of alternatives 2 and 3 because both products would be forming the brand image. Alternative 4 received two because of its inability to develop any brand image. Notice that it isn't a zero because it is also not destroying a brand image.
For the profitability of the markets, it is believed that both markets could support a successful brand, assuming it was marketed right, and that the hair-coloring product was a little more profitable than that of skin care. Alternative one again received an average of both markets while alternative four received a zero because if the company doesn't introduce either of the products, it would be unable to take advantage of a growing and profitable market. The final criterion is the effect of the new lines on the profitability of the existing L'Oreal products and the use of the sales force that would be required to introduced these new lines, taking away from the use of the sales force on the L'Oreal products. Alternative four received a 10 because it would not affect either the sales or the use of the sales force. It is believed that both alternative two and three would compete with the other products, taking sales away while using up the same sales force.
That is the reason why both received a mediocre score, but alternative number three received a lower score of 5. 5 because the L'Oreal product Recital holds most of the market and I felt that it would lose more sales in comparison of the Synergie line taking away sales from a bottom feeder in the L'Oreal product Plenitude (5% market share). Again, alternative one received the average of two and three. Recommendations From the analysis above, it can be seen that alternative two is the best option.
This is the introduction of the Synergie line into the Dutch market. Now that the main problem is solved, there are two remaining problems to look at. The first is to develop a marketing plan for the new Synergie line. The second problem is to develop a tactical marketing plan for the existing L'Oreal product.
First, a marketing program needs to be developed, which includes the product (Synergie line), distribution strategy, price, and promotion. For the new line, drug chains and large independents should be concentrated on the most. They make up 88% of skin care unit sales and 76% of dollar sales. For the current L'Oreal products, these two distributors make up 75% of their sales.
This should help to get Synergie's foot in the door. These distributors would also like to see the high scores the Synergie products received in our research considering it is the highest ranked criteria they use to evaluate new products. Also the positive image these distributors have of L'Oreal should certainly help with the acceptance of Garnier products like Synergie. Now we must look at the price.
Our research showed that the consumers were not that happy about the cost of the product. It might be a good idea to drop the price of the products by 5-10 percent if possible to help us get more sales at first. This will enable us to more effectively compete in the middle end range of the market. With a fairly decent brand loyalty in skin care, we might be able to raise the prices once we have established our goal in market share. As for promotion, the most important part of this area has to be advertising.
As it was shown earlier, we can expect high advertising costs in respect to market share until we can establish ourselves in the market. With these high costs, we must make sure that we advertise as effectively as possible. It would be smart to somehow relate our product to the workingwomen of the Netherlands. Since this segment is growing and it could be assumed that they would be more likely to use our product because they are out in public and they also have more money to spend on things such as cosmetics.
The Dutch women in this market need the Synergie line to give off the idea of a self-concept that can relate our brand image to their needs as a workingwoman. An idea for the advertising campaign could be "You " re working the hardest, shouldn't you look the best too!" While this product line is marketed towards the workingwoman, the L'Oreal product Plenitude could be marketed towards keeping a youthful look with its ability to delay the signs of aging. The best bet for the profitability of both products is to effectively find a certain image that each consumer can identify herself with. With this, I believe that both products can succeed in the same market and both can have the potential to have large market shares. Bibliography Datamonitor, Feb. 2004.
Haircare In The Netherlands. Retrieved on April 23, 2005. web Feb. 2004.
Makeup In The Netherlands. Retrieved on April 23, 2005. web.