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The case of L’Oreal demonstrates how organizations employ various strategies in order to achieve great results and success. The organization’s management led by Jones has employed some unpopular strategies, but, at the same time, managed to move forward contrary to popular perception. In order to comprehend the company’s activities, the current paper examines the management strategies used, the role of acquiring less famous entities such as Maybelline and the maintenance of a wide array of brands successfully.
Based on the current case, L’Oreal’s performance has been exceptional since for roughly two decades, the company posted two-digit profit. Having sustained such a performance for such a long time reflects that the company’s management had put in place working strategies. Often, very few organizations maintain high levels of performance.
The main strategy that emanates from the L’Oreal’s company is offering a diverse mixture of brands. It is a duty of a management team to set strategies that an organization explores. When an organization offers many brands, diversity augurs well for a business since the globe is culturally diverse (Shaw 2012). Diversity brings an element of plurality in terms of demands or customer needs. Thus, having many brands allows a company to serve many and diverse customer needs. For that reason, a management that employs a strategy of running several brands is better-placed to forge ahead of other players in the industry. From the case, it emerges that in the initial stages, L’Oreal was the only cosmetics company that owned more than a single brand. In addition, the company had a presence in each distribution channel.
Advertising is also an important strategy that L’Oreal employed to great effect. Advertising is known to influence customers’ perceptions about products (Shaw 2012). Based on the case, it is clear that advertising was a strategy employed by the company from its initial stages. As indicated, early on, Schueller relied on promotional posters produced by prominent graphic artists like Charles Loupot. In addition, the use of celebrities in advertising was embraced.
The strategy of advertising through film commercials was also employed by L’Oreal Company. One of the company’s first products to be advertised was the sun-care cream. It also emerges that one of the most significant advertisements of the company included the mastery, ‘Because I’m worth it’. In particular, the famous tagline was meant to enhance the reception of the hair color product. Using the advertisement, the company’s management proved to be innovative in the production of high quality products affordably. At the same time, the company’s management was able to attain product differentiation in the industry that lacked aspects of differentiation.
Product differentiation plays a significant role in setting a company or an entity’s products apart from those of others (Shaw 2012). Thus, besides reigniting interest in the company’s products, the advertisement line was able to develop a differentiating aspect. As the case proves, a product differentiation proved to be a major factor in the success of L’Oreal.
Another important finding is that the L’Oreal Company relied on acquiring various brands, which were rebranded to meet emerging market demands. The new brands were acquired from diverse places with different cultural backgrounds. The acquisition strategy is critical in enhancing a company’s performance. As Homburg, Kuester and Krohmer (2009) observe, acquisitions offer significant strategic options regarding corporate restructuring. The primary aim of acquisitions is to bring organizations together in order to enhance expansion. Business leaders responsible for supervising mergers and acquisitions influence the direction a business entity takes. The strategy of acquisitions is critical since, firms that are acquired have already been in business and have an understanding on local dynamics. Thus, the L’Oreal Company was able to take advantage of existing brands and using them to enhance its business position through the acquisition strategy.
The strategy of working with agents and consignments in the US, Russia, the Far East and South America is another critical strategy that the L’Oreal’s management employed to great effect. Working with agents has a particular significance when it comes to market reach, as well as appeal (Homburg, Kuester & Krohmer 2009). It should be noted that agents typically come from local regions. Consequently, agents are able to sell products based on locals’ expectations. Hence, apart from increasing the market reach for the company, working with agents contributed towards an increase in the sales. In addition, the company was able to work with all segments within the cosmetics industry. Thus, the company’s management employed the strategy of market segmentation in pursuing its objectives. Encompassing, pharmaceuticals, professional, luxury and consumer segments, was a major reason why L’Oreal matched further ahead of other industry players.
Operating in an industry characterized by innovation requires a substantial investment in research (Homburg, Kuester & Krohmer 2009). Thus, the L’Oreal Company embraced the strategy of innovation-based production, which contributed to its leadership position in the industry. L’Oreal and other companies such as Proctor and Gamble, which adopted innovative approaches, were able to produce a variety of products that could satisfy customer needs. This ultimately translates to an increase in company sales and revenues. In particular, the company came up with herbal and natural products, which proved critical in improving its profitability.
The company’s success was largely influenced by the management strategies taken. However, other factors such as the failure by other industry players to follow suit in serving all customer segments may have played a role in the enormous levels of success scaled by the organization. Based on the case, it was only L’Oreal, which ventured into all four segments in the cosmetics industry.
It is noted that in the cosmetics industry, product differentiation is narrow. Consequently, profit margins remain narrow too. By creating an emotional attachment to its products, L’Oreal’s managed to move ahead of other industry players. As demonstrated, the tagline sent a message that persuaded consumers to be content at paying a higher price for L’Oreal’s products. The ability to appeal to the emotional attachments of customers proved instrumental in tilting the profit scales in favor of the company. Thus, it held that other factors such as a growing demand for cosmetic products contributed to the sustainable growth path taken by the company. With a growing demand, the company was able to increase production levels leading to an expansion in the size of revenues.
It is often remarked that an ability to chart an uncommon path is what marks out exceptional managers from the rest. As the case of the acquisition of Maybelline reflects, Jones chose to chart a path least preferred in the industry. Based on the case, industry players did not embrace the acquisition of diverse brands. In practice, companies homogenized existing brands to suit different cultural backgrounds. However, Jones adopted the strategy of acquiring little-known brands from diverse cultural backgrounds. As Jones explained, the company was diversifying cultural origins of its brands. Based on Jones’ thinking, the aspect of multiculturalism was a critical in business. Coming from a diverse cultural background, Jones stood a pole position of understanding the role of culture in the demand for products.
People from different cultures have different tastes (Laermer & Simmons 2007). Consequently, acquiring firms from local areas enhances a company’s ability to understand customer tastes. Thus, the acquisition of the brands helped L’Oreal to understand different cultural demands without having to invest so much in research. In addition, working with such entities is critical since the company was able to avoid lengthy processes that are involved in setting up new structures in foreign markets. It is also noted that erecting to acquire existing brands was important in appealing to locals since acquired entities already had a presence in their native markets.
Risk-taking is also a major characteristic of successful entrepreneurs (Laermer & Simmons 2007). The takeover of Maybelline was a considerable gamble on the part of Jones since the company was associated with low quality products. However, Jones managed to transform Maybelline within a short spell, as reflected in its transition from a poor-performing entity to a leading brand in the US.
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The acquisition strategy serves as a guide when investing since such a strategy describes an approach to be used in acquiring capabilities and other resources needed to make an acquisition successful (Homburg, Kuester & Krohmer 2009). Put differently, an acquisition strategy is influential in documenting factors, approaches to business and underlying assumptions. When mapping acquisitions, it is possible to identify risks and trade-offs necessary to mitigate such risks. In fact, acquisitions take a long time and involve lots of difficult decisions. Thus, an acquiring firm has time to update its approaches and refine its strategy. The implication is that since acquisitions take an iterative process, it is easier to modify approaches to fit into changes in circumstances.
Acquiring an existing business has both merits and demerits. The major argument of acquiring an existing business revolves around the notion that it is generally less risky than starting a new entity (Homburg, Kuester & Krohmer 2009). Some of the merits of acquiring an existing firm are based on the difficulties associated with starting a business from scratch. Acquiring an existing firm does not require extensive planning as in the case of starting afresh. This happens because an existing entity already has structures, work plans and customers. Thus, it is easier to enter a business that is already running than setting up a new one.
Another advantage of acquiring an existing business rests on the idea that the approach guarantees a continuous inflow of cash (Homburg, Kuester & Krohmer 2009). On the contrary, starting up a new business would require patience as time is required to set every procedure in place. In addition, a new business does not guarantee cash inflows even after start-up. Another closely related merit of existing organizations is their history. With a history although not very rosy as that of Maybelline, there is the groundwork that permits such organizations to take loans, liaise with other entities, or attract new investors.
Customers are integral to a business’ survival chances (Shaw 2012). Existing firms already have a customer base, which comes handy when acquired. Existing firms have customers, goodwill, contacts, staff, plants, stock and equipment. It should also be noted that an existing firm has employees who understand the business environment. In other words, existing employees are likely to bring necessary experience in improving business. Thus, instead of setting up a new entity, the acquisition of an existing one is preferred.
As indicated earlier, acquisitions have their limitations. In addition, investors need to be aware that not every existing entity offers good prospects. In practice, many owners sell unprofitable units. Although, such a state presents an opportunity for revival, the investment could prove risky. To begin with, an existing business may need significant improvements. In case improvements are required such as replacing equipment in existing plants, then investors need to tread with caution, least the costs soar. The scenario becomes worse when acquired firms are underperforming.
It should be noted that acquiring an existing firm requires big investments. Moreover, owners of acquired firms demand upfront payments (Shaw 2012). Thus, acquiring firms are obliged to make wide budgetary provisions to accommodate such ventures. In addition, the acquisition process is complex, requiring services from accountants and solicitors. Thus, many resources are needed.
Another concern that needs concentration is that of poor location, management and low staff morale (Shaw 2012). If an entity is located in a poor location, relocation issues must be factored in. For instance, in the current case, Maybelline had to be relocated in the rebranding exercise after acquisition. However, the case of L’Oreal reflects that management is more critical than other factors since the organization’s management was able to acquire many firms and turn their fortunes around. It is also observed that the management should inspire and motivate organizational staff to ensure the company progresses. However, it is concluded that inheriting an organization located in an inappropriate location, poorly managed and with lowly motivated staff is a limitation.
L’Oreal operated a large brand portfolio as demonstrated by the company’s presence in all segments of the cosmetics industry. The positioning strategy could be traced from the advertisement campaign of 1972 modeled along the line ‘Because I’m worth it’. From the tagline, the company was in a position to create a philosophy gravitating around innovativeness and quality. The allure of quality-innovativeness products is so engrossing such that customers are left wanting more. In particular, the tagline sends a message that paying more for products is justified. Such types of messages push consumers into preferring a company’s products in the belief that they are getting the best possible quality. This allowed the company to establish an emotional connection with customers. The emotional connection was attained, because the tagline was important in distinguishing its products from those of its competitors. By paying more, customers were convinced that they valued themselves. This translated into more revenues and profits for the company.
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It should be noted that a market positioning relates to how a firm wants customers to perceive its products or services against those of competitors (Homburg, Kuester & Krohmer 2009). Similarly, marketing strategies employed to achieve such objectives come into focus. A market position does not depend on proactive levels, reactivity or passiveness of the process of developing and maintaining a marketing position. However, influencing perceptions is critical in establishing a deliberate market position by employing different strategies. While developing a market position, companies use the most appealing messages as reflected in the case of L’Oreal, which focused on customers’ views of quality and innovativeness.
It is also noted that a position taken by competitors influence the strategies a company takes in its market positioning. From the current case, L’Oreal has taken a dominant strategy by portraying its products as the best. By positioning themselves away from other industry players, L’Oreal adopted a marketing mix strategy in terms of pricing, quality, innovativeness and diversity. The company also created attractive brands owing to its association with prominent beauty cultures (American and French).
Under the company’s strategy of acquisition, it emerges that L’Oreal acquired less famous brands and turned them around greatly. For instance, Carson and Soft Sheen were acquired, given a face lift before being repackaged and marketed fiercely among African-Americans. Thereafter, the company took the brands to Africa leading to the realization of insurmountable profits.
Competition among brands is common when an organization deals in a number of products. Jones encouraged competition among L’Oreal’s brands. For example, after the acquisition of Redken, a US-based hair-care, it was introduced into the French market to compete with the company’s other brands in hair care. Many analysts thought that such move could lead to self-cannibalism within the company. However, as Jones intimated, the move was significant in spurring competition since various marketing teams from the brands could work harder than before.
Becoming the only company operating in all the four industry segments played a role in setting the company apart. Teams at L’Oreal were free to be innovative and developing improved products since competition among brands was encouraged. Thus, the work environment in the company allowed for the blossoming of a competitive spirit among the various teams of L’Oreal. As a result, L’Oreal managed to defeat its other rivals in the market. Jones argued that keeping many brands was consistent with increasing competition and extending the gap with other industry players.
The company ensured distinctiveness among its brands by maintaining distinct images of the different brands. In particular, the company ensured that no brand image overlapped with that of another. Through product or brand differentiation, the company was able to keep the different brands unique.
The L’Oreal Company portrayed a picture of creativity by operating two research centers, one in New York and another in Paris. Operating such centers proved a successful market positioning strategy as consumers thought that L’Oreal was a scientific organization focusing on delivering high quality products. The company attached glamour to its products, an aspect that made them more appealing. In this respect, celebrity figures from different fields were used to promote the company’s products. Featuring celebrities such as Beyonce Knowles, Kate Moss and Leticia Casta was significant in positioning the company in the industry as a market leader. Overall, the company’s brand portfolio was managed carefully as evidenced by positioning each brand on a given segment in order to minimize overlapping.
Apart from the already mentioned types of positioning, the company also applied quality positioning. The company produced quality products, and created an image among customers that it was producing products of a high quality. Quality positioning is a good strategy that can be employed alongside other strategies. By focusing on quality, the company distinguished itself from its competitors. In addition, the aspect of being the only player that featured in all the four segments of the cosmetics industry set the company apart from the rest. In addition, the strategy of value/price positioning was used by the company. Pricing is closely tied to the quality of products that a company produces. One of the approaches used is to focus on high-end tactics, which create an impression or altering psychological beliefs such as implying that the more expensive a product is, the valuable it is. Regarding this finding, the company managed to portray itself as a company whose products were worth paying for more.
From the case under review, the role of management in the running of organizations becomes clear. In particular, Jones was a major contributor to the strategies that the company adopted. Through the adoption of various strategies, some unpopular, the company managed to advance to become a leading player in the cosmetics industry. One of the main strategies employed was acquisition, which entails taking over firms as demonstrated by the case of Maybelline acquisition. Through the strategy, the organization rebranded little-known entities and revamped them to a point of assuming leadership in the industry. The case of L’Oreal reflects that management is more critical than other factors since the organization’s management acquired many firms and turned them into more productive entities.
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