Discussions on L’Oreal globalization case – Classroom Discussions

06/08/2012

Introduction

Some of the questions that could be answered from the case are-

- How businesses change/ fragment / consolidate owing to globalizations?

- How organizations standardise across globe?

- Effects of high degree of M& A

The central theme of the case is the acquisition of Kiehl, a New York based brand. Quite similar to the acquisition of Ben & Jerry’s by Unilever.

Because of this acquisition, what is in store for L’Oreal and what could change for L’Oreal? Also what L’Oreal needs to unlearn (if anything) owing to this change. Change by here we mean L’Oreal a brand that is pan global, very good focus on R&D and advertising, in contrast to a no advertising, store dependent region centric brand like Kiehl.

Product Performance:

Product performance is characterized by two aspects- i.e., product performance mapping is done based on –

1. Profitability (ROIC)2. Impact, which includes

a. Brand Equityb. Brand Recallc. Brand Recognition

High performing products will score high in profitability as well as the Impact.

Normally this strategy will be evaluated based on-

1. Product development process2. Distinct strategic approach to products3. R&D spend.

Acquisitions done by L’Oreal in the past are purely based on the PRODUCTS of those brands (Like Garnier) and not on the Brand or any other factor.

All related products a company has forms a product line. Eg- Shampoos and Conditioners etc.,

Number of variants within a product line forms the depth of the product line

Number of product lines a company has will form the product width. Line extension of increase in products can happen both horizontally as well as vertically, i.e.,

along both width and depth.

The major difference between strategy and tactic according to the case is that strategic acquisitions are scalable according to L’Oreal considering future prospects and development. For instance Kiehl is one such strategic acquisition

Tactical acquisitions are those which are done to complement of fill gaps in the existing product lines, so that the product portfolio and hence business model becomes robust.

Normally firms go on an acquisition spree when they find the following factors-

1. Commonality in the production process2. Commonality in consumption pattern (similar internal and external environments)3. Commonality in distribution channels.

How different are ‘mass’ and ‘premium’ brands-

There is a strong divide between the product ranges offered by L’Oreal- Consumer, three major divisions namely consumer products(mass), professional products and luxury products.

The major classification is based on the segmentation, which primarily classifies the market into such product divisions. If the segmentation is loose, then the company needs to offer products for a larger market size, which is the mass market, whilst the smaller pockets would be the premium segments. Channel decisions again vary for specific market segments, L’Oreal’s market divisions in this case.

L’Oreal has adopted Differentiation as a generic strategy (Michael Porter), as it offers differentiated products for different markets. Eg. Lipgloss range for Japan (Water Shine)is different from that of European markets(Water Shine Diamonds), from the case.

Questions to be answered (Write up to be prepared and mailed tomorrow after the completion of the case discussion)

Q1. How did L'oreal become the world's largest beauty company? What was the role of acquisitions in this growth?

Q2. L'oreal offers consumers worldwide "American" and "French" concepts of beauty. Are there any limits to the national beauty images it can globalize?

Q3. What are the global opportunities for Kiehl's? What are the limits, if any?

Acquisition happens to harness the brand value and brand name. Reason why L’Oreal has acquired these brands (inorganic growth) was primarily for the products. Two major aspects of the ‘Internal Stability’ are the-

Employees

Financial Stability

But very less number of products were developed by L’Oreal as it takes more R&D, efforts and time to develop and commercialize a brand, rather its quite shorter to pick up an existing brand and nurture it and take it globally.

The market was fragmented initially, then consolidated due to acquisitions and then fragmented again as the companies started looking at smaller pockets of ‘niche’ segments and also created SBUs to cater specific segments identified and developed products for the same.