L’Oreal: A Case Study

MKT1003: Principles of Marketing

Prepared for: Mr Luke Lee
Prepared by: Group 2, Tutorial C11 (Odd Week)
DarshiniPatkunan (U091301H)
Elizabeth Tay (U090885U)
Zheng Cheng Jiu Lin (A0073241R)
Jonathan Ng Jun Kiat (A0073385Y)
LohYiangMeng (A0072567X)
SophilAngShue Ying (U091017A)
Contents

1 Question 1: Using the full spectrum of segmentation 2

variables, describe how L’Oreal has segmented the Indian
market.
2 Question 2: What segment(s) is (are) L’Oreal now 3
targeting? How is L’Oreal now positioning its products?
How do these strategies differ from those employed by its
competitors in India?
3 Question 3 What role, if any, does social responsibility play 5
in L’Oreal’s targeting strategy in India?
4 Question 4: Do you think that L’Oreal will accomplish its 6
goals in India? Why or why not?
5 Question 5: What segmentation, targeting and positioning 7
recommendations would you make to Loreal for future
marketing efforts in India?
6 Appendix 10

7 Bliblography 12

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Question 1
Using the full spectrum of segmentation variables, describe how L’Oreal has segmented the Indian
market.

L’Oreal has engaged in many forms of Market Segmentation in their venture in India, with different
variables during different time periods. Firstly we will discuss the segmentation methods when it first
entered the market in 1991, followed by what ensued after their makeover.

When it First Entered the Market

Gender Segmentation: L’Oreal first segmented the population into the different sexes as they thought
their products’ “combination of low price and natural ingredients would fit India’s market, where women
use plants and herbs as part of their beauty culture”. Their product specifically catered to the women of
India, though later our group discusses how it should carve a niche market for itself in the Men’s sector as
well.

Income Segmentation: L’Oreal segmented the market into 2 main segments: the poorer masses and
the rest. It marketed its product as low in cost to attract the poorer masses, and her efforts in reducing
ingredients to cut price reveals her aim to minimize costs as much as possible. At this point of time, it was
not yet targeting the affluent middle class or upper class and thus did not make any distinct segmentation of
the richer classes, preferring to regard them as a whole entity.

The “L’Oreal Makeover”

After a poor start, L’Oreal approached the market with a different concept. Presence of home brands
posed problems as they had already captured a large proportion of the masses’ market share. They offered
cheaper products to buyers at a price which L’Oreal was unable to match, and their long presence had
established a strong sense of loyalty in the buyers, making it difficult to pry them away. With the
understanding that it needed to capture a different market, it proceeded with a different from of segmentation
in order to better identify its target segments

Income Segmentation: This time L’Oreal separated a new segment from the original 2 segments: the
quickly rising middle class which was gaining in affluence. This was very specific compared to the original
two broad segments it identified as they saw that this was the fastest growing income class that represented a
highly untapped market potential due to their radically different mindsets from the masses.

Psychographic Segmentation: L’Oreal segmented India into different groups based on their thinking
and behavior from the older, more conservative Indians who held conservative values of thriftiness more

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strongly and stubbornly, and the younger more impressionable generation who had developed a very
different and westernized view on spending and culture. Influx of brands like Tommy Hilfiger, Benetton and
even MTV in 1991 greatly emphasized Western values of luxury, beauty, and self-awareness leading to the
rise of a new segment of people who did not view thriftiness with equal importance as their predecessors but
were rather more willing to splurge on luxury goods which were previously considered too expensive and
wasteful.

Age Segmentation: By segmenting the market into the younger middle class from the more
conservative, often older Indians, it had also inevitably segmented the market based on age, and showed an
increased interest in capturing the market share of the younger Indians.

Benefits Segmentation: L’Oreal further segmented the market on a benefits basis when it introduced
Excellence Crème. Being in crème form, it [was gentler on hair] compared to the natural ingredients such as
ammonia which damaged and dried up women’s hair. It thus segmented the market into those who needed
the hair dying and strengthening benefits of Excellence Crème and those who did not. This was a crucial
form of segmentation for L’Oreal as it underlined the core concept of its marketing strategy to promise
superior products with additional benefits to consumers when choosing between L’Oreal and Home brands,
and subsequently has led to the immense success that L’Oreal has experienced in India.

L’Oreal has made use of various variables to identify the segments it wishes to target, and also
engaged in using Multiple Segmentation Bases (Age, Income, Psychographic and Benefits) to complement
its Differentiated Marketing approach. This allows them to effectively identify several differentiated
segments and design separate offers for each, translating into stronger sales and a stronger position within
each market segment. In the following section we discuss which segments were targeted and the strategies
employed by L’Oreal with its newly identified segments.

Question 2
What segment(s) is (are) L’Oreal now targeting? How is L’Oreal now positioning its products? How
do these strategies differ from those employed by its competitors in India?

L’Oreal now targets the young affluent middle class females, especially those with graying hair, and
also maintains some effort in targeting the masses. It saw a need to target this new untapped market for
maximum profits as it not only possessed the purchasing power that masses lacked, but more critically a
modernized mentality that made these people more receptive to purchasing L’Oreals’ more luxurious and
expensive products.. While retaining their core values of thriftiness, [the young middle class were more
willing to spend on luxuries and formed the heart of transformation of consumer spending in India].

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 L’Oreal also target women that sought benefits from using its products. Since there was previously
no product that solved women’s hair greying problems, L’Oreal introduced Excellence: Crème that promised
additional benefits apart from just dying of hair. It did not damage hair like henna or ammonia but even
promised to strengthen it. The young middle class fit into this segment well because unlike their older
predecessors, who did not mind using products that damaged their hair as long as they were cheap due to
monetary problems, these women were more educated and concerned for the need to have healthy beautiful
hair, as well as more equipped with the purchasing power to do so. Cheap harmful products would not
appeal to them as much as high quality L’Oreal products which justified their higher price with higher
benefits.

L’Oreal has not given up on targeting the lower income masses however. Demand for necessities
have been increasingly driven by the rural rather than the urban sector, and as of 2008 only 29% of India
lived in urban areas. Thus it has introduced new products like ‘Colour Naturals’ which be used multiple
times and cost only $3.10, translating into increased value for the masses. Though difficult to capture, the
masses’ market share formed too large a proportion of the total market share to be ignored, and L’Oreal
maintains some effort in capturing their market share, thus inducing L’Oreal to introduce products in this
sector of the market.

‘Excellence Crème’ was marketed as a ‘luxury purchase’ and a ‘high-end niche’ product(),
positioning itself as higher quality and made of extensively developed ingredients with additional benefits.
One of the most innovative and pricey products in Europe then, it was also gentler on the hair than local
products such as henna or ammonia. L’Oreal hired Ms World in an advertisement to show that beautiful
women use L’Oreal, thus positioning itself as not just a basic shampoo, but one that made women beautiful.
This promise of beauty and benefits positioned L’Oreal higher in the market compared to the home brands
which positioned themselves as cheap, value-for-money products which only served the most basic of
functions of hair cleaning.

In terms of how L’Oreal differs from other brands, it employs a “more for more” marketing concept
while home brands used a “less for less” concept. Home brands sought to sell the most basic shampoos with
the lowest quality ingredients in order to offer the lowest prices, while L’Oreal justified their high prices by
using high quality ingredients. While home brands used such a concept to attract the lower-income masses
that only needed bare necessities, L’Oreal’s strategy targeted the more affluent that were more educated and
had more disposable income to splurge on luxury items if they justified their price.

There was also a difference in how they captured loyalty. Home brands aimed to garner loyalty of
existing users through brand familiarity as repeated use by generations of Indians would bring about feelings
of trust and dependability. This attracted thrifty housewives who wanted the cheapest products, which
translated into loyalty and substantial profits when their children grew up and also continued to use the same
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brands. L’Oreal however could not and did not try to establish brand familiarity in such a short time as it
was very new in the market. It thus attempted to capture the loyalty of a new segment of the market by
promising better quality products to the rising middle class, hoping they would realise L’Oreal’s higher price
and better quality justified a move away from home brands to a new found loyalty in L’Oreal.

Finally, in L’Oreal’s attempt to re-enter the lower income market, it differs from home brands by
offering good quality at lower prices instead of the home brands’ offer of low price and low quality. While
still more expensive than home brands, it was considerably cheaper than its own up market products but
retained much of its quality. This translates to greater value for the masses who might switch to L’Oreal
when they realised the better quality shampoo offered at similar prices to the home brands.

Question 3
What role, if any, does social responsibility play in L’Oreal’s targeting strategy in India?

Corporate Social Responsibility (CSR) plays a significant role in profitability in many companies,
describing the relationship between businesses and the larger society surrounding it. It can also redefine the
role and obligation of the private business within that society if deemed necessary(Keinert). When L’Oreal
first entered India, beauty education was absent, training seemed redundant and hairdressers were well
satisfied with cheap local domestic brands(Patel). L’Oreal realized that its business operations in this case
concerned a larger group than itself if it wished to increase profits. L’Oreal’s CSR thus began to be driven
by the need to include social concerns into its business decisions and operations, and it focused on increasing
its reputation as the leading beauty industry amongst the urban Indian middle-class. Since then, they have
envisioned to differentiate themselves from the rest of its competitors and invested heavily in education and
training to boost their status in the community.(Patel)

L’Oreal’s social initiatives can be linked to 3 key areas: Education, Women and Science. Working
with Aide et Action, a non-governmental organization whose aim is to promote access to education in rural
areas, L’Oreal India launched the program “Beautiful Beginnings” on 7th July 2009, an initiative which
aimed to train at least 200 unprivileged school drop-out girls every year to make them employable. It was
even inaugurated by Bollywood actress AishwaryaRai (Appendix, Fig 1), an influential and popular female
artiste in Bollywood. Her patronage enabled the masses to identify L’Oreal more closely to the Indian
community, and we believe this had far-reaching effects on how the masses perceived L’Oreal as a socially
responsible and dependable brand. The initiative was very successful, with more than 200 students
graduating within a year, and some even gainfully employed by L’Oreal.

In January 2009, L’Oreal, in collaboration with Nehru Science Centre (NSC), set up an exhibition
“Decoding the Hair” in Mumbai (Televisionpoint.com, 2009). An exhibition that is first of its kind in India,
it showcased large magnified sculptures of the hair strands as well as other games and activities relating to
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hair care and products. Housed in a well-known exhibition point like NSC and reaching out to schools,
college and the corporate sector, L’Oreal is able to position itself in India as a “true expert in hair care”
(MSL Asia, 2009) with its focus on scientific research and development.

In 1998, L’Oreal India started the “For Young Women in Science Scholarships” which awarded Rs
250,000 to 5 esteemed girl students each year from the state of Maharashtra, to pursue studies in a
recognized college or university in India. By sponsoring these young women and their hopes for the future,
the programme can increase the role of women working in scientific disciplines, empowering them with
knowledge.

By empowering women with new skills and knowledge, female participation in the labour market
can be increased, thereby increasing their disposable income (Appendix, Fig 2) and their financial
independence. This translates to a larger pool of urban middle-class females with the purchasing power for
L’Oreal products and thus a rise in profits for. Most importantly, with these initiatives, L’Oreal places itself
in the light of possessing a genuine sense of responsibility via its contributions back to the community.
Ultimately, this increases their reputation, image and reliability with not just the targeted female urban
middle-class, but the rest of India and even the world.

Question 4
Do you think that L’Oreal will accomplish its goals in India? Why or why not?

L’Oreal’s goals in India are to capture the market share of the rising middle class and their loyalty by
providing higher quality products as well as to further penetrate the lower income market through efforts to
establish a socially responsible image in India.

Over the years L’Oreal has aimed to encourage women to view beauty in a fun, affordable and
generous manner(India, 2008). In line with its mission to make prices affordable, we believe that L’Oreal
has reached that goal. By skewing its marketing campaign to cater to the Indian culture while at the same
time upholding it’s concept of being a luxury brand, its launch of GarnierShampoo+Oil satisfies this
mission. With its reasonable pricing (from USD $3 to $1) and positioning as a premium product (B, 2010), it
is able to appeal to the Indian woman who use natural ingredients to treat their hair(Euromonitor). Other
products in the Garnier line such as the Fructis’ Long and Strong were also clearly created to accommodate
to the Indian culture where woman have long, thick hair. With the promise of good quality products and
much reduced prices, L’Oreal has indeed staked its claim as a viable competitor in the lower income market.

L’Oréal India has also succeded in its plans to increase operations via wider distribution and
advertising(Euromonitor). By using an advertising campaign showcasing Aishwarya Rai they have reaped
many benefits. This campaign has been styled in a Western manner yet uses a homegrown actress to make it
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relatable to the older masses and the young alike, who’s views are increasingly being shaped by Western
influences. The use of a homegrown celebrity would also mean that the older generation of Indians, who
generally come from the lower income group, to identify L’Oreal as more of an dependable Indian brand
rather than an unfamiliar foreign brand, enabling L’Oreal to capture some customer trust and loyalty from
the masses. This would in turn aid in their efforts of penetrating the lower income classes who are generally
loyal and resistant to change away from home brands.

L’Oreal has always prized itself on it’s efforts with sustainable development and camaraderie with
local communities (Euromonitor). In 2009, they set out to launch the International Hairdresing Academy in
Mumbai where local students are provided with the oppurtunity to learn various styling techniques. In doing
so, not only has L’Oreal contributed back to the community by increasing jobs, but also promoted their
brand image in India as an MNC that truly cares for the community. This would resonate well with the asian
culture of Indians who take pride in core values and ethics, and once again serves to establish a sense of trust
and dependability in the hearts of the Indian populace.

However, even though L’Oreal may be slowly dominating the middle class, it still faces stiff
competition. Hindustan Unilever with its wide range of cheap products have appeal especially to those in the
lower-income brackets and are able to penetrate the rural area, which makes up a large share of the hair care
industry in India. Their local brand image also gives them a stronger influence on the market. However,
Hindustan Unilever is in fact losing their edge to other local brands offering similar products based on local
preferences(Euromonitor Int 2010), giving L’Oreal an opportunity to target these people with its premium
and low-cost products. Though L’Oreal might not enjoy the success it has seen with the middle income
groups in its quest to penetrate the lower income market currently, its continued efforts to establish brand
loyalty and consumer confidence would no doubt turn their tide in their favour in the long run when future
generations continue to use the products their parents use, who in this case happen to be the young rising
middle class in India right now.

Question 5
What segmentation, targeting and positioning recommendations would you make to Loreal for future
marketing efforts in India?

While L’Oreal’s methods have brought it profitable results so far, we believe a shift in focus of the
segmentation to age and gender can be considered to prolong its success. Although L’Oreal has always
practiced differentiated marketing strategy to target several market segments, we think there is a segment
which has been largely neglected: If tapped, L’Oreal could see massive profits and success in India. In this
case we believe L’Oreal should target the Men.

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 While the annual disposable income for women has experienced a significant 35% growth, the men
have experienced an even more substantial and surprising growth of 65%. (Appendix, Fig3), clearly
demonstrating the greater purchasing power of the men. If this segment is successfully targeted, L’Oreal
could potentially see an exponential rise in its revenue.

Men’s grooming is one of the most dynamic categories in the beauty and personal care industry, and
skin care in particular has been predicted to continue to surpass other men’s grooming categories in terms of
sales. With an 8% value growth seen in 2009 (Euromonitor, 2010), it would thus be wise for L’Oreal to gain
a larger market share of men’s grooming in India. L’Oreal has stepped into the market with skincare
products like the Paris Men Expert line(L'Oreal), but these products merely mimic what is already available
in the women’s lines.

In order to differentiate its men’s grooming products from their competitors, L’Oreal should take a
leaf out of Old Spice’s book. Old Spice is a brand offering solely men’s grooming products manufactured by
Proctor and Gamble (, 2010), and it positions itself as a “men’s brand for men”. Recent advertising
campaigns even saw their sales increase by 107%. We see the potential for L’Oreal to enter this market by
positioning its products similarly, as “men’s products for men”, instead of being an imitation of its women’s
products. They could carve out a market for the men who would feel more comfortable identifying
themselves with a masculine brand rather than the very feminine and beauty-oriented L’Oreal. Success in
this area would then depend heavily on how well L’Oreal establishes its male grooming line as a masculine
brand so male Indians would not feel uncomfortable picking them up off the shelves. Success might even
push them into a position to challenge current market leader Unilever(Euromonitor).

By studying the current trends in global beauty and personal care industry, it reveals a rise in home
care beauty (Euromonitor). Evidence of this can be seen in the value growth of colourants jumping from
1.5% to 5% from 2007-2009. (Appendix, Figure 4). Value sales of at-home colourants are set to swell by
US$1.2 billion over 2009-2014, indicating that the DIY trend is here to stay. As consumers look towards
cutting down on beauty expenditure, more and more women are opting for at-home beauty treatments
instead of expensive salon treatments. This might seem to suggest a fall in profits for L’Oreal since she has a
value share of 46.5% in the salon hair care market in India, (Euromonitor)but a deeper analysis actually
reveals a rising new market for L’Oreal. Instead of passively accepting and reacting to trends in the
marketing environment, L’Oreal should take a pro-active stance and turn the tide of this potentially harmful
encounter by pushing out more DIY home-based beauty products to capture the market share from this rising
segment of the market. We recommend that L’Oreal uses this leverage that it has as the leading provider in
salon services to establish their salon care products by providing “Salon results right at home”, thus
providing women with similar hair care benefits that can be achieved at the salon without leaving the
comfort of their homes.

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 L’Oreal’ has since pushed out the Paris Professional line and positioned itself as a convenient and
easy-to-use product that offers salon-standard results but with the added convenience of being used at home
to appeal to these busy women. They are the driving force behind L’Oreal’s sales since they are the target
group for cosmetics and toiletries (Euromonitor)especially those between the ages of 20 and 30. Considering
the fact that this age group with continue to be the median age of the Indian population for the next five
years (Appendix, Fig 5), L’Oreal needs to be highly sensitive to their needs if she intends to enjoy continued
success in India, as these urban, working women enjoy high disposable income and seek time-saving options
in the form of DIY products

As we can thus see, by being up to date with the latest trends and abreast of local happenings enables
L’Oreal to successfully identify emerging markets and adapt to the changing conditions in the market to
cater to these untapped segments. It empowers them to gainfully profit from ever changing market
conditions and turn crisis into opportunity which would have otherwise spelled the doom for other
companies.

In conclusion, L’Oreal is a company that is fully aware of emerging trends with products that are
already in the market to cater to them, so it should continue its current efforts in those areas. It has also
emphasized many times in its values and mission statements that it seeks to be a socially responsible brand
that takes responsibility for the environment and its consumers, earning much praise and accolades from the
community and various environmental watch groups. Such a stand is commendable, and it has shown to go
down well with its consumers, earning it a large loyal fan base and continued success and profits in the
beauty sector.

However, our group believes that L’Oreal has the potential to further boost is profits through various
measures. We have identified the Men’s sector as one of the most profitable and untapped sectors in India so
far, and a successful marketing campaign in that area would have far reaching repercussions for L’Oreal.
She would reap not just immediate profits, but also brand identity, loyalty and trust if it is able to
successfully create customer delight and please its male customers. This translates into Customer Lifetime
Value and subsequently Customer Equity which further boosts L’Oreal’s profits in the long run and allows
her to possibly dominate an even larger proportion of the Indian market.

Finally, it is important for L’Oreal to be kept up to date about the latest trends and views of their
main target markets, in this case the middle class income women, in order to cater to them more specifically
and create more value for them. Just like any other firm, L’Oreal needs to be aware of its customers’ needs
and wants and similarly identify the needs of potential customers. In taking a pro-active stance to effect a
change in beliefs and attitudes, L’Oreal has successfully turned crises into business opportunities and saved
itself from potential disasters. Thus it should also continue its efforts in these areas. We believe that L’Oreal
is currently occupying a very dominant position in the market and has established itself as a trustworthy and
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reliable brand in the minds of consumers all over the world. By maintaining its current efforts and improving
upon them with our said suggestions, L’Oreal will continue to enjoy its success and possibly gain an even
stronger foothold in the beauty industry.

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Appendix
Figure 1: AishwaryaRaiBachchan inaugurating Beautiful Beginnings, Aide et Action (http://www.aea-
southasia.org/NewsDetails.aspx?NewsId=19)

Figure 2: Disposable income by education. (Euromonitor, NUS LINC Portal)

Figure 4: Mean Annual Disposable Income by Education and Gender (% growth): 2000-2007
(Consumer Lifestyles-India)

Figure 5: Value Growth in Key At-home Beauty (Global Beauty and Personal-care 2010 Euromonitor
International)

Figure 6: Median Age of the Indian Population (ConsumerLifestyles-India)

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