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L’Oreal SWOT Analysis, Cosmetics Industry & L’Oreal’s Market Strategy

L’Oreal Cosmetics and the Beauty Products Industry

In a bid to win clientele and build a loyal client base, multinational beauty and cosmetics companies like L’Oreal have continued to, aggressively, create new and exciting beauty and cosmetics products for their clients. Competition for the cosmetics market share has been so aggressive that in 2017 alone, L’Oreal filed for close to 500 patents and invested over $1 billion in beauty and cosmetics products research and development (Danao 2017).

While this is arguably one of the most aggressive research and development undertakings, a spot check into the beauty and cosmetics industry, including its history and dynamics, makes it easier to understand the need for L’Oreal to mount such an aggressive cosmetics products development and marketing initiative.

L'OREAL cosmetics logo

L’Oreal Beauty and Cosmetics Company Overview

Since its inception in 1909 by a French chemist, Eugène Paul Louis Schueller, L’Oreal has grown to become a household beauty and cosmetics brand across the world. In fact, in 2017, Forbes ranked it 133rd in its list of Top Multinational Performers at a market capitalization of $107.5 billion. Additionally, it was ranked at position 397 in the Fortune 500 magazine’s list in the year 2017 (Danao 2017).

L’Oreal has enjoyed success in the beauty and cosmetics market, vastly due to the fact that it markets thousands of high-quality individual beauty products; from its hair styling, makeup and fragrance brands to cosmetics for body and skin care, permanents, cleansers, and hair colors.  Some of L’Oreal’s popular cosmetics brands include: Carol’s Daughter, Lancôme, Viktor & Rolf, Giorgio Armani, Essie, Maybelline, and Magic.

L’Oreal’s Market Position Strategy in the Cosmetics Industry

L’Oreal remains one of the most recognizable brands in the world’s beauty and cosmetics market owing to its presence in over 130 countries. Its strong market presence has enabled it continue to register impressive and consistent growth over the years. However, that has not gone without competition from other big cosmetics brands that have equally forged a commanding presence in the beauty industry.

Companies such as Procter and Gamble, Unilever, Oriflame Cosmetics Global, Yves Rocher, Revlon, and Avon have continued to give L’Oreal stiff competition for market share. Despite the competition, L’Oreal has continued to remain relevant in the beauty and cosmetics market for more than a decade due to its brand quality, distinct cosmetics products, pricing, and well-designed promotion and distribution strategies.

In this regard, it is worth noting that L’Oreal has a wide range of beauty products that appeal to both individual consumers and beauty professionals in salons and beauty parlors. L’Oreal has also developed a wide range of cosmetics for its wealthier clientele who are open to spending more money on unique cosmetics products.

The company has also taken consideration of the large beaty and cosmetics market segment that comprises of middle and lower income classes of people who are interested in acquiring quality cosmetics products at lower, affordable prices by making beauty products that are suitable for this market category.

However, it has become increasingly apparent that the bigger share of its advertising revenue continues to be channeled to products marketing in wealthier Western nations than in developing nations.

L’Oreal has traditionally acquired the majority of its clients from Western countries. Hence, the cosmetics company has concentrated its marketing efforts on consolidating its existing market rather than aggressively targeting new upcoming markets. The resulting situation has been a far less uptake of L’Oreal’s products in developing countries where they are substituted with products from rival brands.

L’Oreal’s External Market Analysis and Competitive Analysis

L’Oreal has over the years curved a niche for itself as a market leader in quality skin care and beauty products. It is perhaps right to argue that the brand’s success stems from its continued efforts of expanding its market beyond France by reaching out to the wealthy clientele in other countries and continents.

L’Oreal’s success in the beauty and cosmetics industry can also be attributed to the fact that L’Oreal has continued to package itself as the best choice for its wealthy clients by developing high-end product lines such as Giorgio Armani, which is one of the most popular cosmetics brands in the world. Additionally, L’Oreal has been able to correctly identify markets that have a high demand for beauty products and to target such market aggressively.

L’Oreal’s Internal Analysis

Over time, L’Oreal has been able to position itself a one stop shop for all beauty and cosmetic products. In fact, it has also had a number of successes in introducing new beauty and cosmetics products into the market.

One such success story can be drawn from its successful introduction of shampoo for kids in 1998 at a time when shampoos were strictly associated with women hair care. This product attracted criticism over the estimated return on investment. Through aggressive marketing, the shampoo for kids product line gained instant credibility among mothers who took up the product.

Market Attractiveness

The objective of any marketing initiative is to satisfy clients expectations by providing them with the desired products at the right price (Holt 2004). However, it is worth mentioning that market attractiveness is predicated on a number of factors such as the available opportunities, potential for growth, and competition (Wiedmann & Hennigs, 2013).

Global sales of beauty and cosmetics products have grown considerably in the last decade owing to increasing awareness on the importance of image and personal presentation. Additionally, the growing middle class and the wealthy have made it far easier for cosmetics brands to succeed.

For example, the rising population of the younger global population has seen an increase in brand conscious individuals that are willing to pay hundreds, sometimes thousands of dollars in order to improve their appearance (Atwal, 2014).

For brands such as L’Oreal, the growth in the digital space has seen a steady uptake of their product lines across the globe. YouTube stars Michelle Phan and Eva Gutowski are perhaps some of the most recognizable personalities behind the growth of the L’Oreal brand owing to their huge following on social media platforms.

The mere fact that their personas command respect and admiration from their fans has made it easier for the brand to position itself amongst the leader in the provision of quality beauty products that one can associate with.

L’Oreal SWOT Analysis

There is no doubt that L’Oreal will continue being a market leader in the cosmetic industry. However, in order to make this brand even bigger, it becomes imperative to first conduct a SWOT analysis in order to gauge its current position while highlighting its areas of weakness.

Strengths

Strong Market Presence

Perhaps that which is most apparent is the fact that L’Oreal has a very strong presence globally as it has hundreds of stores spread out across 130 countries. This alone provides it with the edge, in regards to having a better understanding of the individual needs of each market.

One such example can be drawn from the fact that Chinese customers are now able to order their products online from their websites that are translated to mandarin.

It is also worth noting that what follows from a strong market presence includes increased revenues from sales hence making L’Oreal a high grossing venture that has the financial capability to fund its marketing and operation campaigns.

Strong Brand Portfolio

L’Oreal basks in the glory of having superior market products which have been readily accepted into the market. These product include Nicely, Ralph Lauren, Dark & Lovely, Urban Decay, Amani, and Giorgio Armani. Out of these, the Active cosmetics and L’Oreal Luxe remain one of its biggest revenue earners.

Well-Established Distribution Network

L’Oreal has over the years demonstrated its capability to deliver its products to its customers with efficiency. This situation has been made possible largely because it has a huge network that includes traditional mediums such as wholesalers to e-commerce websites.

In fact, the company experienced a 34% increase in its annual sales figures in the year 2017 worth close to $2.5 billion. Therefore, its vast experience in understanding its distribution network has continued to gross the company billions each year.

Satisfactory Social Media Presence.

There are numerous examples of celebrities that have continued to join the marketing campaign for L’Oreal. They include the likes of social media personalities like Eva Gutowski and Michelle Phan.

These personalities have made it possible for the products to enjoy great reception amongst consumers hence making it a worthwhile venture. According to a statement by the company’s Chief Marketing Officer, Hugh Pile, the company was set to increase its market presence by partnering with bloggers and v-loggers who set trends and increase the credibility of the product amongst consumers.

As part of its objectives, L’Oreal seeks to appeal to the internet savvy youths who would not be targeted through the use of conventional mainstream media.

Weaknesses

In spite of its numerous strengths, L’Oreal has equally continued to face a plethora of challenges. The first of these includes the fact that often its products are unaffordable in comparison to those offered by its rivals.

Therefore, this makes the uptake of these products far less. Companies such as Unilever, Dove, and Procter and Gamble have really proven a thorn in the flesh of L’Oreal.

Secondly, because of its vast business interests across different nations across the globe, L’Oreal has often found itself falling short of failing to advertise its products as aggressively to other nations around the globe.

For instance, products which are labelled as premium products have often not been advertised in developing nations. As a result, the company only avails products which suit that market.

It is worth noting, however, that this aspect could have set a bad precedence in regards to contributing to the low uptake of certain products than others. Therefore, this situation has pushed some of its brands to recording little to no sales as they are not aggressively advertised and made popular.

Opportunities

It is no secret that times have changed and so has the macroeconomic environments of other countries. Africa and other Emerging Markets in the Middle East have continued to provide untapped market potential for global entities that wish to do business in Africa.

The situation today is not the same as that which was present a decade ago. According to economic forecasts, African countries are set to experience increased growth with time and this could translate into a bigger market for the firm’s products (Keller, 2009).

Therefore, this situation ought to make it more appealing to the brand to identify even more untapped areas and channel both resources and energy into creating new possibilities. As it is the case today, a vast majority of its advertising expenditure is focused on countries in the west that have been traditional consumers of the product.

Threats

As the global consumption of beauty products have risen, so too has the rise in competition. One such example can be drawn from the fierce competition between L’Oreal and other companies such as Unilever.

Unilever is a British-Dutch multinational giant that equally has a commanding presence in the global space where it operates its stores in over 170 countries across the globe. Its similar market segment to that of L’Oreal has made it even a force to reckon with in the global cosmetic industry.

In fact, Unilever has over the years managed to identify itself as a global household brand as evidenced by its greatly improved its revenues.

One such product that has done really well includes the Dove Bar Soap that provides an alternative to L’Oreal brands. Dove’s reception has been good since its inception. In fact, in 2010 alone, it was reported that close to 45% of the United Kingdom’s population had used the product.

Perhaps the biggest driver of its success stems from its vast extensive range of cleaning and personal care products that work well with all types of hair and skin. Also, the fact that it was proven to be milder on more sensitive skin improved its chances for success especially in the US market when it was first introduced in the year 1950.

It is, however, noteworthy that L’Oreal’s concerns come from across the board as manufacturers continue coming up with newer products that appeal to a particular market segment.

The Future of the Beauty and Cosmetics Industry

There is no doubt that the future of the global beauty and cosmetics industry looks bright and awaits those that can tap into its potential. According to recent figures by leading research institutes such as Orbis Research foundation, the value is set to increase by another 400 billion from 435 billion to over 800 billion by 2020.

Therefore, there is overwhelming evidence that beauty and cosmetics companies that will manage to endear themselves to customers stand to benefit greatly from this growth and reap handsome returns in the process.

The biggest driver of this growth can be attributed to changing macroeconomics within countries that were once regarded as unattractive for luxury cosmetic giants.

These countries include those in Africa and the Middle East which had soaring unemployment figures hence making it unattractive to the global multinational companies to market their products as aggressively. Additionally, rising political tensions and instability appeared to be the common thread across these countries.

Therefore, this made it even harder for big brands to set shop in these areas owing to the high insecurity and the rather dicey political temperatures that would have otherwise made it rather impossible to conduct good business in these areas. However, the changing tides have now continued to present these countries as potential markets which are open for business and trade.

Countries within the Middle East, Asia, Southern and Eastern Europe, and Africa have continued to record consistent growth hence a growing population of affluent middle and upper class. In fact, it was estimated that the number of high net worth individuals in Africa rose by about 9.9% which was by far greater than the global average by about 7 basis points (Capgemini, 2015).

For African countries like South Africa, Nigeria, Kenya, Morocco, and Ghana have continued to attract more clients within these areas owing to the fact that private consumption of these products continues to be high.

An equally important factor that will be at the heart of most beauty companies and which perhaps remains the most crucial stems from the fact that there is a growing youthful population within the emerging markets. For instance, it is documented that up to 60% of Africa’s population consists of individuals below the age of 35 (Ncube & Lufumpa 2014).

These numbers are set to go even higher by the year 2020. Therefore, it makes perfect sense why such companies would want to set shop in these emerging markets if they want to remain relevant in the years to come.

L’Oreal’s Market Expansion Strategy- The African Beauty and Cosmetics Industry

The African beauty industry has slowly continued to enjoy increased acceptance amongst individuals that have since shelved their rather conservative traditions that did not encourage the use of makeups and other beauty products. The driver of this growth has further been made possible due to the rather youthful population within these markets.

However, like any other market segment the success of L’Oreal is predicated on two things. They include its structuring of its growth strategy and its product restructuring.

L’Oreal has enjoyed a huge global presence but like any other company, its first major objectives includes to be more aggressive in making itself a market leader and toppling its arch rivals.

One of the ways through which that could be made possible includes expanding its e-commerce platform whereby this will enable it reach out to the younger tech-savvy individuals that it seeks to target. Africa and other emerging markets have since seen a surge in internet users and this has allowed firms to start targeting more and more young individual customers.

Also, the fact that most of these young people look up to some social figures such would make it imperative to partner with them in order to increase consumer confidence amongst the population. Having a vibrant e-commerce would equally transform the way individuals shop by making it convenient for them to have their products delivered to them at their preferred destination.

Last but not least, L’Oreal will be required to restructure its product offering through introducing brands that will be structured in two ways. The first of these includes those that will be affordable to the majority of the population.

The second segment will target the rather affluent individuals that are looking for sophisticated products to enhance their appearance. It is estimated that by undertaking these steps, the company would eventually find popularity amongst keep competition at bay.

These markets have largely been ignored in the past but it would take a more aggressive marketing approach in order to ensure that the upcoming generation identifies with them and are comfortable using these products.

Perhaps the biggest reason why it would be imperative to restructure its product offering can be attributed to the fact that different products are compatible with different people hence, therefore, products which have traditionally identified with success in the West may not necessarily make excellent choices in these markets.

This aspect is what has contributed to the success of other brands such as the Dove Unilever product which has been restructured to target all individual users. Some of the new products include Dove dry therapy, Dove daily, and Dove breakage. Dove dry shampoo for instance has found great success amongst users with a dry scalp while Dove daily has become popular amongst the population as it is suitable for everyday use.

In this regard, therefore, it would be imperative that L’Oreal restructures its brands in order to target the population that it intends to win over.

L’Oreal’s Marketing Mix

L’Oreal has certainly made enough strides and effort to venture into various different markets across the globe. However, it has continued to enjoy success in these areas to varying degrees.

Therefore, it is not in doubt that in order for it to aspire for even more success, it has to make changes to its overall marketing structure in order to ensure that these adjustments capture the demands of the market. The 4Ps would prove crucial to the guiding the structuring of its marketing mix.

It will be noted that in order for L’Oreal to achieve customer needs and appeal to the growing youthful population as well as the wealthier individuals, it will have to provide additional brands that appeal to their unique individuality.

This will later on pave way to its promotion through marketing campaign techniques that will make the product more appealing to the population (Richter, 2012).

One such way that that can be made possible includes partnering with reputable bloggers and personalities that have a huge following to sustain an aggressive marketing campaign that demonstrates L’Oreal’s new positioning.

The other factor that ought to be considered includes the pricing factor. It is important to note that pricing is derived from a number of factors key among which includes transportation and the handling of the product from its point of origin till it reaches the consumer.

All factors constant, it would be advisable for L’Oreal to target mostly the middle class and the more affluent personalities in order to achieve success. Last but not least, L’Oreal will have to relook at its distribution systems that could have an impact on the pricing of its products.

The company, therefore, will have to strike a balance in regards to settling on a more appropriate distribution network that will not put undue pressure on increased costs.

Conclusion and Recommendations

The future of the beauty industry looks bright. However, like any other sector, players have to remain on top of their game in order to suppress potential threat that could have a negative impact on their longevity.

L’Oreal is one such company that has continued to enjoy tremendous growth over the last century. It is worth noting that despite its success, it too has to constantly look to expand in order to drive up sales and appeal to even more individuals.

However, in spite of this, it has been noted that it still ignores a huge portion of virtually untapped markets in emerging market countries of Africa and the Middle East.

Part of the reasons why this situation had been in existence stemmed from the fact that these areas were once regarded as unattractive to global brands that were mostly located in the west. However, the changing times have made these countries look attractive for investment.

In order for the company to remain relevant, it has to start pulling its resources and market its products to the rather youthful population. Also, the company should also channel its energy towards targeting the upcoming wealthier clientele in these countries as research has continued to point out that such markets will experience a surge in the number of wealthier individuals.

References

Atwal, G., and Jain, S. (Eds.). (2012) the luxury market in India: Maharajas to masses, London, Palgrave Macmillan

Capgemini. World Wealth Report. (2015). RBC Wealth Management. Retrieved from https://www.capgemini.com/thought-leadership/world-wealth-report-2015-from-capgemini-and-rbc-wealth-management [2018].

Doole, I. (2012) International Marketing Strategy: Analysis, Development and Implementation, London, Cengage Learning.

Danao, Monique (2017). How L’Oreal became a top global beauty brand. Retrieved from https://www.referralcandy.com/blog/loreal-marketing-strategy/[2018]

Holt, D (2004). How Brands Become Icons. Boston: Harvard Business School

Keller, K. L. (2009) ‘Managing the growth tradeoff: challenges and opportunities in luxury branding, Brand Management, vol. 16, no. 5/6, pp. 290-301.

Mahajan, V. (2008). Africa rising: how 900 million African consumers offer more than you think, Financial Times, New York.

Ncube, M., and Lufumpa, C. L. (2014). The emerging middle class in Africa, Routledge, London.

Orbis Research (2018). Global cosmetics products market expected to reach USD 805.61 billion by 2023- Industry size and share analysis. Retrieved from https://www.reuters.com/brandfeatures/venture-capital/article?id=30351

Wiedmann, K-P., and Hennigs, N. (2013) Luxury marketing: a challenge for theory and practice, Springer, Wiesbaden.

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