Market study of L’Oréal Kim Jiwon (Jessie) 11340696045 Wong Siew Fong 11340126053

Contents Market overview Chinese beauty market consumer behavior Company overview & Main business L'Oréal’s business model in china L'Oréal in China Situation & competitors in China (local & intl’) Challenges & problems Recommendation

Market overview Global beauty market

Global beauty market Compound annual growth rate 3.4% Personal Care Industry Reaching $630billion by 2017 Demand from Asia Pacific region generated $21billion incremental retail value Premium Cosmetics outperformed Mass Cosmetics (growth of 4.7%)

Chinese beauty market

China’s Beauty Market Retail sales increased by 17% year-on-year Foreign cosmetics enterprises captured about 80% market share in key cities Cosmetics sales growth relatively slower in tier 1 cities

China’s Beauty Market Shifting away from the traditional distribution channels Health and beauty retailers and Online retailers replacing Grocery retailers and departmental stores

China’s Beauty Market: Socioeconomic factors Lack of makeup culture: only 10%-15% of the market is Makeup products Increasing recognition to Local brands TCM and Herbal Culture

Company overview

L'Oréal Started in French in 1909 World’s largest cosmetics company, with worldwide sales of €22.5 billion in 2012 In 130 countries on five continents Unrivalled portfolio of 27 brands 2 main divisions The Luxury Product Division (LPD) The Consumer Product Division (CPD)

L'Oréal China Started in 1997 in Hongkong with L’Oréal Paris Second largest beauty and skincare player in China: No.1 in the luxury segment Established a Research and Innovation Centre in Shanghai, and manufacturing centres in Suzhou and in Yichang

Product categories Active Cosmetic Division Consumer Product Division Professional Products L'Oréal Luxe Lancôme Giorgio Armani Beauty Biotherm Kiehl’s Shu Uemura Helena Rubinstein Yves Saint Laurent Yue Sai Yves Saint Laurent Beauté Ralph Lauren Cacharel Clarisonic Diesel Viktor&Rolf Maison Martin Margiela Urban Decay L’Oréal Professional Kérastase Matrix Redken Pureology Shu Uemura Art of Hair Mizani Essie Vichy La Roche-Posay SkinCeuticals Innéov Roger&Gallet Sanoflore L’Oréal Paris Garnier Maybelline NY Mini Nurse Softsheen.Carson Createurs de beaute.com Essie

Product categories Make Up Hair SkinCare Skin Care For Men

largest market in 2008 to the 3rd largest market China grew from the 7th largest market in 2008 to the 3rd largest market

Business model in China

Key Customer Activities Value relationship Propositions Key Partners advertisement agencies Suppliers distributors Key Activities Production Marketing R&D Value Propositions Prestige Western branding Asian Customer relationship Advertisement Consumer Caring Center in Shanghai Customer segments Gender Income Distribution Channels Departmental stores Beauty product chains E shopping platforms Key Resources R&D Production plants Employees Marketing Cost Structure marketing, research costs, commission and rentals (departmental stores), production Revenue Streams fixed pricing e commerce

Gender Income Channels Prestige Lancôme Giorgio Armani Beauty Biotherm Kiehl’s Shu Uemura Helena Rubinstein Yue Sai Departmental Stores Cosmetic Stores Female Beauty product chains E shopping platforms Masstige Vichy La Roche-Posay SkinCeuticals L’Oréal Paris Garnier Maybelline New York Mini Nurse Male L'Oréal Men Expert Garnier Men

Value proposition Asian western Origins Chinese Age Young Mature

Key Customer Activities Value relationship Propositions Key Partners advertisement agencies Suppliers distributors Key Activities Production Marketing R&D Value Propositions Prestige Western branding Asian Customer relationship Advertisement Consumer Caring Center in Shanghai Customer segments Gender Income Distribution Channels Departmental stores Beauty product chains E shopping platforms Key Resources R&D Production plants Employees Marketing Cost Structure marketing, research costs, commission and rentals (departmental stores), production Revenue Streams fixed pricing e commerce

L'Oréal in China

Competitive Advantages “Because you’re worth it” International experience + Adapting to the local market Competitive Advantages “Because you’re worth it”  “你值得拥有” Strong R&D capability Local Acquisitions 12.4 percent year-on-year growth in 2012 12.05 billion yuan ($1.94 billion) in China 12th consecutive year the company gained double-digit annual growth

Huge potential from the next generation Chinese taste for Luxury Huge potential from the next generation L’Oreal Luxe

Yue Sai - L'Oréal’s Local Brand Struggle for successful marketing the brand for modern Chinese women. Yue Sai - L'Oréal’s Local Brand Struggle for successful marketing traditional Chinese medicine ingredient Bought in 2004, targeting mass-market the brand for modern Chinese women

Situation & Competitors Competition in China : Situation & Competitors (Local & Intl’)

– Shanghai Jahwa (上海家化) Local competitor – Shanghai Jahwa (上海家化) Established in 1898 leading and largest Chinese company of beauty and personal care products doubled its revenue in the past 5 Liushen, Herborist, Maxam and GF blending traditional Chinese herbal medicine with modern biotechnology. several international partnership like Coty Adidas and Sephora

Jahwa L'Oréal Product positioning Strength Target group Masstige/ low end segments Luxe market Local brand vs. International brand Masstige/ mass market vs. Prestige market Younger market vs. Mature market Owns the most extensive distribution network in china Use of herbal ingredients and traditional Chinese Medicine Consistent strategy development as local brands Specialized in luxe brands Prestigious: trustworthy image Internationally diverse portfolio

International competitor – P&G Established in 1837 , the world’s largest consumer products company First multinational to enter China’s beauty and skincare market in 1988 6% of the firm's worldwide sales in China 250 brands in six main categories Beauty products ; Olay, SK-II, Pantene, Head&Shoulders, Safegaurd, Gillette

P&G L'Oréal Emphasis Target group Brand image strength Beauty and Hair care products Beauty and cosmetics Usually mass and rural Luxe market consumers Amiable international brand Luxury European brand Flexible marketing strategy (esp. in rural areas) Prestigious: trustworthy image Diverse portfolio (whole product categories) Specialized in luxe brands Prestigious: trustworthy image Diverse portfolio (cosmetics and skincare products)

Market Share

Challenges & Problems Limited consumer market for makeup products Competition with local brands and natural products Conflicts of Animal testing

only major market which require animal testing China: only major market which require animal testing EU’s rule: sales forbidden for animal tested products in EU Threats of alienating consumers in markets where public sentiment demands humane treatment of animals Companies would need to reformulate their wares for the two markets

Suggestion : What are the next steps for L'Oréal? Competition with local brands (natural products) Maintain luxe image Strengthen local brands like Yue sai Connecting the long heritage with safety and luxury image

Suggestion : What are the next steps for L'Oréal? - Invested €900 million in international research on alternatives, such as reconstructed tissues and tissue models. - 5.7 billion L’Oréal products are sold per year which are free from animal testing -  Less than 1 percent of its total safety testing on cosmetics ingredients involve animals * Produces 130 000 reconstructed skin models per year in France * The facility in Pudong (China) produces close to 30 000 skin models China requiring Animal testing Finding alternative methods to testing Keep talking to local authorities to ease the regulations

Suggestion : What are the next steps for L'Oréal? Limited consumer market for makeup product in China Word of Mouth marketing Samples for makeup products(color) Make-up Campaigns & Workshop

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