Case study Distributing LOral in China

The current marketing campaign of LOral in China crosses many product areas. The distribution of the many products offered by the LOral Group has meant a variety of issues must be contended with. The LOral Groups entry into China has been part of the companys global marketing strategy. The product range includes the LOral range of skincare for men with an online campaign developed to support promotion and distribution in the expanding Chinese market.

LOral

The LOral Group is the world leader in the field of cosmetics and beauty products, headquartered in Paris, France. LOral has successfully developed a business manufacturing, selling and distributing products in the field of cosmetics, hair care and colour, skincare, sun protection, make-up, and perfume. In addition, LOral is active in the dermatological and pharmaceutical fields.

LOral is a family company founded in 1909 by Eugene Schueller. At this time, it was called Socit Franaise des Teintures Inoffensive pour Cheveux. Schueller gradually convinced the Parisian hairdressers to buy and sell his products. LOral is currently present in 130 countries. In 2010 its consolidated sales were EUR19.5 billion and net profit was EUR2.24 billion. With 66 600 employees in 66 countries and several large and notable brands including; Yves Saint Laurent Beaut, Lancme, Kiehls, Garnier and Maybelline New York, LOral sales increased by 11.6% in 2010.

LOral sells products to business and to professional stylists (B2B), and to nonprofessional consumers (B2C). In terms of its distribution, LOrals outlets range from chemists to department stores, as well as its own boutiques. The French company has a worldwide presence; however, the majority of its sales come from North America and Western Europe. In addition, its international presence and distribution is increasing as new wealth in areas such as Asia has increased consumer spending power and thus their consumption of cosmetics, hence broadening the need for effective distribution.

LOrals global marketing strategy

LOral sells and distributes a wide variety of cosmetic products, concentrating on hair colour, skin care, sun protection, make-up, perfumes and hair care. Its focus is on distribution of innovation-based high-quality products. It emphasises research and development whilst offering a wide range of products in all cosmetic fields. LOrals products have a high level of consumer recognition thanks to several renowned brands including Yves Saint Laurent, Lancme, Garnier and LOral. LOral opted for a standardised marketing strategy, with the same products being marketed in different countries around the globe.

In order for LOrals range of products to be effectively distributed to the maximum number of customers, LOral offers an extensive range of products across widely different price ranges; therefore, attracting different target audiences across its ever-widening distribution area. LOral is involved in distributing through mass-market retailing as well through both the luxury and professional divisions. Thanks to diverse but effective distribution strategies the wide product range is able to effectively reach various market segments.

The LOral Group is one of the most reputable distributors of cosmetics bands in the field due to its powerful and efficient communications. The group employs international marketing campaigns, which convey a consistent image and assure consumers of the same product quality throughout its range. Visuals and the famous slogan Because Im worth it are known all around the world. In addition, LOral sponsors international events such as Festival de Cannes in order to support its luxury brand image.

Distribution

The distribution network of LOral is diversified and the company places great importance on its delivery reliability which has contributed significantly to its success. The Consumer Product segment sells its goods through mass-market chemists and retailers in order to reach as many customers as possible. But the LOral Group uses other specific distribution networks such as a smaller collection of department stores. LOral also distributes through its own boutiques and specific retail locations have been developed for the distribution of its luxury product range. The professional product range is sold and distributed by professional stylists in hair salons. Distribution of the active cosmetics product segment is through specialised skin care professionals. They, for example, are sold in pharmacies and specialty drugstores. This wide and diversified distribution network is one of the main strengths of the LOral Group.

LOrals strategy in China

LOral entered and began distribution of its products in the Chinese market in 1996 and is now the second biggest cosmetics seller in China just behind Procter & Gamble. Between 2001 and 2009 sales increased by over 1300%. The French company reached a turnover of USD1.45 billion in 2010 with 19 international and domestic brands in the Chinese market. LOral has a multi-brand strategy to cover the mass market in China. By diversifying its brands in China, LOral can distribute and fill multiple market positions and thereby maximise its relevance to the consumer.

Distribution of LOrals many diversified brands in China could be described as a pyramid. For example, brands such as LOral Paris, Maybelline, Garnier, and Mininurse are distributed through the mass market; these products represent the base of the distribution pyramid. Vichy, Kerastase, and Matrix Make-up are in the middle of the distribution pyramid, as all around the world these products are sold and distributed through pharmacies and hair salons. The very top of the LOral distribution pyramid is reserved strictly for high-end products such as Lancme, Biotherm, Shu Uemura, and Kiehls. These products are sold and distributed through specialised boutiques, retail outlets and high-end department stores. Each level of LOrals brand pyramid occupies a different sales and distribution area. These distribution outlets are readily able to respond to different customers needs, which is particularly relevant in China due to the wide income disparities among the Chinese population. LOral has chosen to modify its distribution strategy including its localised sales and distribution model as well as developing its online shopping model. This chosen diversified distribution strategy is understandable due to the rapid growth and the size of the cosmetics market.

LOral opened a research centre in Shanghai in 2006, which bases its research on the way women and men wash their face and apply cosmetics, and the diameter of their hair follicles. The decision to establish the R&D Centre in Shanghai impacts upon distribution decisions as location is critical in order to develop cosmetics and hair care products designed especially for Chinese market. The high potential of the Chinese market and the different needs and expectations of the Chinese people have led LOral to adapt the marketing mix to meet local needs.

Diversity of products, branding and sales distribution methods all contribute to LOrals success in the beauty and cosmetic market in China. The LOral Group purchased the Chinese skincare brand Mininurse in 2004. Mr Alexis Perakis-Valat, LOrals CEO, suggests that Mininurse can reach the consumers that other brands cant reach. This aligns with LOrals long-term strategy, [we] think its a great asset for us in China and consumers love the brand. With 5% market share and sales reaching nearly EUR40 million, it should be an interesting acquisition to develop and integrate its distribution into the existing Chinese market. LOral also targets its distribution toward the rapidly growing mens skincare market in China. Like the womens market, the distribution strategy in this market is totally different from the Western market.

LOral mens skincare campaign

Projected to reach USD269.6 million in 2011, the Chinese mens skincare market distribution attracts mostly large firms. LOral launched its distribution into this market only four years ago and the LOral Paris brand now accounts for nearly 25% of the Chinese market. The mens share of the skincare market represents only 710 percent in Western Europe. Moreover, sales of mens products in China are growing at more than double the pace of women. Chinese men are now examining their position in terms of competition for jobs and wives in the new China and cosmetics are no longer seen as unmanly, in fact, they are a key to moving forward.

Some of the influencing factors above are why LOral is investing in this emergent mens market, creating and adapting products and setting up its marketing expertise to reach Chinese men. LOrals products are number one in mens skin-care, with distribution reaching 32% percent of the market in 2009. It is important to note that women account for seven out of ten purchases within the male product range. It is often the case that consumers buy products as gifts for husbands and boyfriends. The Chinese consumers buying behaviours are totally different from those of consumers in the Western market, thus impacting upon distribution methods. LOrals marketing campaign is targeting especially women. LOral offers a wide range of specialised products using its efficient distribution network. The campaign for mens skincare is based on an image of modernity and wellbeing, starring international and Chinese celebrities.

LOral online

LOrals Chinese campaign focuses on the internet and social media. China is an enormous online market, with 384 million internet users, representing 22% of the worldwide total, of whom 233 million access their internet via mobile phone. For urban Chinese people, the internet is the most important distribution media and source for information. In 2010, LOral opened up its Luxury Beauty website, enabling Chinese internet users to buy products online, including most of its luxury brands. In addition, Lancme has launched Rose Beauty, the first social network for beauty in China. It has already attracted more than four million people. The Chinese social media landscape is totally different from the rest of the world: there is no Facebook, Twitter or YouTube but a wide variety of other social media. LOral distribution has been created around several China-specific websites to reach these millions of locals. It launched distribution e-communities and e-commerce sites for the brand Lancme, and now the e-commerce site is one of the brands largest points-of-sale. LOral created a specific website in order to allow Chinese customers to give their opinions about LOral products. Thanks to this strong online presence, LOral has added another network in its powerful distribution network.

In a meeting with the CEO of LOral China, you have been asked to outline the possible threats to LOreal if the company sold their products online. Explain some of the issues that LOral might be likely to encounter in online distribution.