Case Study #21: L’Oreal Banks On Affordable Invention Strategies to Boost Global Sales and Profitability

If you want to take a temperature check on the economy, be very observant when you visit any retail channel that sells consumer products. Most retailers have very rich data about customers and what they buy. And this data is distilled for in-store and online strategies to drive sales wherever possible. Great deals on shelf space within your immediate view or promotion islands at major areas of store traffic are no accidents.

On August 28, 2009, the Wall Street Journal interviews Jean-Paul Agon, Chief Executive Officer of L’Oreal. He discusses how economic AND market conditions are forcing him to make some tough decisions at his company, such as organizational restructuring and hiring freezes. However, Agon also talks about growth through “affordable invention”.

In the interview, Agon says: “The last thing to do would be to give up innovation because cosmetics is really about permanently inventing new products, new technologies, new benefits, new results. For a while we've been very obsessed with premium-ization, more performance and higher prices. The strategy resulted in a narrowing of the target.”


An example of this strategy is a special line called Basics from Garnier that will be sold for 5 euros, 50% cheaper than the lowest end Garnier product in the market today (10 euros). Agon also talks about expanding in countries such as China, India and Brazil. L’Oreal has subsidiaries in Egypt, Pakistan and Kazakhstan. The L'Oreal Brandstorm is reflective of L'Oreal's desire to grow its global presence:



Inventions or innovations are mostly perceived as expensive distractions from core business operations. Businesses facing the adversity of suboptimal economic conditions and increasing customer attrition cannot afford to shrink further. Like L’Oreal, they must re-purpose invention and innovation strategies to execute growth of new products in markets on the periphery of their core business. Cannibalization will be minimal if the target markets and product offerings are very distinct from one another. It is my belief that rich customer generated from L’Oreal distributors and a collaborative approach to strategic change helps the brand begin its anti-crisis strategy between the summer and fall of 2008. There is a significant lead time required by product development to execute a new product via all gates of the process. Overall, this is a very data-and-insight driven strategy that will help L’Oreal recognize an incremental stream of revenue to offset losses in its flagship categories.

The expansion of the target market makes the L’Oreal brand vulnerable to dilution. Generally, this is the double-edged sword for luxury brands trying to keep head their heads above water in tough economic times. I do not agree with Agon’s marketing strategy of only advertising high-end products because they are not as accessible as his new flanker line of products. That may maintain L’Oreal’s brand image, but have very little impact on sales. L’Oreal will have to deploy thoughtful retention tactics for their core customers by providing free advice on beauty, skincare, style and health via offline and online channels that capture data about the core customers. Packaging on certain products can be re-designed to be less ostentatious without diluting the L’Oreal brand image. The lower costs of packaging may enable the company to maintain or reduce retail pricing. Loyal customers can be rewarded with free gifts and certain distributors may be encouraged to work with the L’Oreal product development team on new ideas.

Economic recessions don’t last forever, so it is important for brands to maintain their relevance and allure to the people who love them while finding ways to succeed in new markets. This will help achieve both short-and-long term business goals.