CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

Case Study “L’Oréal (A): Fighting the Shampoo Battle”

At the end of June 1997, L’Oréal’s Chairman and CEO, Lindsay Owen-Jones, called a meeting to study the European shampoo market. Although L’Oréal had several shampoo brands, among them Elsève, the shampoo market had never been one of the company’s main priorities because margins were extremely narrow. In addition to that, consumers perceived very few differences and therefore positioning and differentiating a particular brand was a trying task.

Still, Lindsay Owen-Jones was convinced that L’Oréal’s Elsève brand had a lot of potential. It was the market leader in France and the challenge was to make it a leader throughout Europe. This would involve constant research on new formulas, targeting new market segments, introducing new packaging, a new communications strategy and maybe even changing the trademark, typography and colours.

L’Oréal couldn’t ignore the competitive environment that surrounded the firm. Competitors were very active and aggressive. Procter & Gamble had recently introduced Wash & Go, a 2-in-1 shampoo and conditioner. One of the meeting’s main subjects of discussion was the high penetration rate that this product had achieved in its introduction. Would the 2- in-1 concept be valid in the long term or was it just another passing fancy? How should Elsève react to their competitor’s new product?

Neither could L’Oréal overlook the fact that there was serious competition from other major brands –among them Pantene, the European market leader– which were very international and increasingly using global marketing strategies. The question was whether Elsève could become part of this international group of brands. Elsève’s experience and the keys to its success in France were very likely points to keep in mind when designing a global strategy for the rest of the world...

Copyright © 2000 CEMS. This case was written by Josep Franch, Professor of Marketing at ESADE (Barcelona), and Neus Quintana, Teaching Assistant. The authors would like to thank L’Oréal for their information and assistance. The case is intended to serve as a basis for discussion and not as an example of appropriate or inappropriate management of a particular situation. No part of this material may be reproduced without written authorisation from CEMS.

–1– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

L’Oréal: Company Background

L’Oréal was founded in 1907 by chemist Eugène Schueller when he invented the first non-damaging synthetic hair dye. Since its beginnings L’Oréal’s policy has been one of constant innovation, research and hard work in a field which would eventually come to be known as marketing. The fact that its founder was a chemist still influences the company’s research orientation, as witness the 300 new patents L’Oréal takes out every year, enabling the company to launch 200 new products annually.

The first hair colour dyes were called Auréale. In 1909, Eugène Schueller created La Société Française de Teintures Inoffensives pour Cheveux1, which subsequently became L’Oréal. The name was intended for products, not for the company itself. It is a combination of two of the endings most used in French company names in the early 20th century: “or” and “al”. “Or” was also the name of one of Auréole’s range of warm- coloured tints. Joining “or” et “al” produced the name L’Oréal, which was reminiscent of the company’s first brand of hair colour: Auréale.

During the 1930s L’Oréal extended its product portfolio to include skin care and suntanning products. Following World War II, the company diversified its products and brands to gradually include all types of cosmetic products and conserve its position in the distribution networks. Steady growth soon made L’Oréal a world class operation.

In 1997, L’Oréal was a leader in beauty products, selling 500 brands and 2,000 different products (80,000 SKUs2) throughout the world. The company had more than 47,000 employees, and operations in 150 countries handled by 400 subsidiaries, 100 import agents, 60 offices and 42 factories. L’Oréal’s export sales increased from 50% in 1987 to 80% in 1997. Although 58.6% of the company’s sales were made in Europe, there was enormous growth potential in Asia, where sales amounted to only 6.8% of total billings. Forecasts for future growth there were very optimistic (See Appendix 1 for company figures). While still a European company, L’Oréal was becoming increasingly global, as witness its acquisition of the US Maybelline brand in 1996, for which the company paid $758 million.

The holding company Gesparal owned 53.7% of L’Oréal’s capital. Gesparal was 51% owned by Madame Bettencourt –daughter of L’Oréal’s founder, Eugène Schueller– and 49% owned by Nestlé. The remaining 46.3% of L’Oréal’s shares were traded on the Paris Stock Exchange, and through the London SEAQ and American Depository Receipts in the United States.

1 Literally, The French Non-damaging Hair Dye Company. 2 Stockkeeping Units.

–2– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

How L’Oréal Was Organised

L’Oréal was divided into five functional areas, four divisions and three geographic territories, all of which answered directly to Chairman and CEO Lindsay Owen-Jones.

The functional areas were Communications and Public Relations, Human Resources, Finance and Administration, Manufacturing and Logistics (which supervised the company’s 42 factories), and R&D which had more than 2,000 employees and a budget equal to 5% of group sales.

The four divisions were organised on the basis of the four main distribution channels for cosmetics and beauty care products: Salon Division, Consumer Division, Perfumes and Beauty Division and Active Cosmetics Department.

The Salon Division (Coiffure) was world leader, with 25% of the market. 1997 billings amounted to around 7,000 million French francs, up 12% over the previous year. The division manufactured and marketed hair care products for use by professional hairdressers and products sold exclusively through hairdressers’ salons. The leading brands were Kérastase, L’Oréal Professionnel, Inné and Redken.

The Consumer Division (Produits Public) registered 31,700 million French francs in sales in 1997, up 18.1% from a year earlier. This division handled all products and brands distributed through mass-market channels, making L’Oréal products available to the largest possible number of consumers (see Appendix 2 for the Consumer Division’s organisation chart). The division was made up of several companies, each of which marketed its own brands: L’Oréal Paris (Elnett, Plénitude, Elvive/Elsève/El’Vital, Studio Line), Laboratoires Garnier (Neutralia, Belle Color, Ambre Solaire, Fructis, Ultra Doux), LaScad (Dop, Fluoryl, Narta), Gemey Paris (Gemey, Kookaï, Naf Naf, Club Méditerranée), Maybelline New York and Jade.

The Perfumes and Beauty Division (Parfums et Beauté) registered 15,600 million French francs in sales in 1997, an increase of more than 12% over 1996 sales. The division commercialised a range of up-market international brands selectively distributed through perfume and cosmetics shops, department stores and travel retail shops throughout the world. Leading brands were Lancôme, Biotherm, Helena Rubenstein, Cacharel, Guy Laroche, Ralph Lauren, Paloma Picasso, Giorgio Armani and Lanvin.

The Active Cosmetics Department (Cosmétique Active) registered 2,800 million French francs in sales in 1997. It produced and marketed several brands of cosmetics, skin care products and hair treatments, which were distributed to a select group of pharmacies. The division’s leading brands were Laboratoires Vichy, Phas and La Roche-Posay.

The four divisions were independent of one another. Each division consisted of different business units, among which there was also a certain degree of independence. Occasionally, various businesses belonging to a single division competed with one another. For example, Elsève and Fructis, produced by Laboratoires Garnier, competed in the mass market. But this competition was actually encouraged by L’Oréal as it allowed the group to sum up the sales of all its brands, making it the market leader.

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The different business units also competed among themselves when a new formula was discovered and sometimes it was difficult to decide which business would benefit from the discovery.

Outside of Europe L’Oréal was divided into geographic territories. The three territories were North America, Latin America and Asia. The managers of each one of these territories were in charge of all L’Oréal’s activities in their particular zone, keeping in constant touch with the managers of the four operating divisions.

In 1997, L’Oréal was the world leader in hair colour, styling agents and home perms, with market shares of 35.1%, 17% and 12.9%, respectively. It ranked second in salon hair care products, with a world market share of 13.6%. Market shares of 8.4% in shampoos and 8.2% in conditioners made L’Oréal the third-ranking company in the world. Its position in 2-in-1 products was not as good, with a 5.2% market share, making it the fourth ranking company in terms of sales.

In 1997, L’Oréal’s share of the European market amounted to 30%. Market shares in Latin America and Eastern Europe were also fairly strong, amounting to around 15% in both zones.

Corporate Culture

L’Oréal group employed 47,242 people, 38,308 of whom worked in cosmetics. 2,100 of them were cosmetics researchers. L’Oréal’s corporate culture was rooted in dynamics, teamwork, growth and research. As the company’s CEO put it:

“I am personally attached to this melting pot of individual dynamism, openness and entrepreneurial skills. It’s what makes L’Oréal strong.” (Lindsay Owen-Jones)

L’Oréal tried to make employee relations as personal as possible. The company cut through red tape and kept paper work to a minimum, encouraging oral communication through numerous meetings and team work. It was not surprising to note that many of the company’s employees were on a first-name basis.

The company shaped loyalty and efficiency by making employees thoroughly acquainted with the company, its structure, its management methods and objectives, ensuring that they understood not only the company’s corporate culture but also the many different cultures that made up the organisation.

L’Oréal looked for employees with an innovative, pioneering spirit, ready to travel to new countries and open new markets. The company looked for people who were independent, had initiative, creativity and were willing to take responsibility.

–4– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

L’Oréal: Elsève and other brands of hair care products

Elsève's history dates back to 1971 when a conditioner in small green bottles was introduced. The conditioner was applied directly to the hair in order to revitalise it. Indeed, the word “sève” means “sap” in French, referring to the hair’s natural oils. L’Oréal's strategy was to start by targeting a specialised segment in order to create a good brand image.

In 1972, L'Oréal launched the first Elsève shampoo, using the slogan: "The shampoo for permed hair". When the brand had gained a solid foothold in France, it began going international. The strategy was to introduce a product for the mass market, but with an original, innovative formula. The company therefore developed “Balsam”, a new formula which was used in a conditioner. Elsève thus managed to position itself as a hair care product.

As of 1978 the company began to expand its range of Elsève products. This was not so easy because the brand had such a strong position as a shampoo for damaged hair. At this time, the market was experiencing very important changes: the frequency in the use of shampoos increased dramatically and shampoos that were claiming to be gentle and mild enough to be used every day became more appealing to consumers. Timotei, Ultra Doux and Mixa Baby –a baby shampoo that became the market leader in France in those days because it was seen as so mild that it could be used every day– became the most popular brands. Elsève had a positioning as a shampoo for damaged hair and was seen as too rich, too nourishing and too heavy to be used on a daily basis. When planning Elsève’s brand extension, L’Oréal decided to offer separate products for frequent and less-frequent shampooing, and later move into products that would produce a certain desired effect subsequent to shampooing. This gave rise to products such as Elsève Balsam, Elsève Fréquence, Elsève Volume and Elsève for oily hair. Although the brand was introduced in several different countries, the brand name used was not always the same. In the USA the brand was called Vive and in Germany it was called El’Vital, to give just two examples. In the UK, it was called Elsève but the brand was to disappear from the market within a few years.

The communications strategy was based on enhancing the value of each product, emphasising its distinctive characteristics. The strategy focused on individual products rather than on the umbrella brand, enabling the company to publicise all the technological innovations applied to each product. Unfortunately, this very strategy kept it from creating a strong, unified brand. The name of each product was better known than the name of the brand in general.

In 1987, following a new product introduction by Timotei, the market registered a new trend: active ingredients were in fashion and products started to introduce natural ingredients and reason-whys in their product ranges. The Elsève product range was renewed and L’Oréal decided to target new market segments. The idea was to offer products for all types of hair, enriching the formula with a different active ingredient for each hair type: Elsève Protein, Elsève Jojoba for long hair and Elsève Vitamines were introduced. The company had to look for segments that would be large enough to be profitable and, at the same time, make sure that the products complemented one another so they wouldn’t cannibalise each other’s sales.

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In 1995, L'Oréal made two very important strategic decisions: The company launched Elsève Multivitamines and added the Technicare line to the Elsève product range.

Elsève Multivitamines used a silicone-based formula that tested better than the composition of Procter & Gamble’s silicone-based Pantene which at the time was the European market leader. Launching Elsève Multivitamines enabled Elsève to increase its target segments, addressing not only consumers with damaged hair or other hair care problems but also people with normal hair. Moreover, the new formula allowed L’Oréal to increase the prices of Elsève products by 20%. Increased revenue meant that Elsève could spend more on advertising.

Until 1995 L’Oréal’s products had included the Technicare line, which was especially for damaged hair. The products were fairly expensive, targeted at a highly specialised, very specific market segment. There were three lines of Technicare products: Energance (for permed hair), Rayonnance (for tinted hair) y Fortifiance (for damaged hair). Lindsay Owen-Jones wondered if it was worthwhile to have two brands with such similar characteristics, strategies and product positioning. He therefore decided to merge the two to achieve a critical market share, maintaining the colours used in the Technicare packaging to identify the different product lines. The brand name was gradually changed: first it was called Energance Elsève, then it became Elsève Energance and finally Elsève for permed hair. The same process was also applied to the other two product lines. Internally, the switchover was handled as it would have been had L’Oréal acquired an external company. With the addition of Technicare, Elsève managed to acquire 10% of the hair care market.

Sales increased and so did prices, due to the use of new formulas. Billings went up and the brand was able to increase its advertising budget. This enabled Elsève to address more segments with differentiated messages, thereby further increasing its market share.

Elsève/Vive/El’Vital (see Appendix 3 for the Elsève product range) aimed to further strengthen its competitive position by adopting three key strategic decisions: address all possible market segments, add highly innovative technical features to the "stars" of the product range and reinforce the product image by making the brand name more visible on packaging. The product range was launched in the UK in 1997 under the brand name Elvive (see Appendix 4, for Elvive products in the UK).

L’Oréal also commercialised other brands of hair care products, among them Studio Line and P’tit L’Oréal. It also marketed Ultra Doux, Fructis and Neutralia through Laboratoires Garnier, and the J. Dessange brand through LaScad. L’Oréal had launched Formula Homme as a brand for men, hoping to break into a market segment which was underexploited but had a great deal of growth potential, and it was later re-branded as Progress Homme and reintroduced under Elsève’s umbrella brand. Competing with a number of different L'Oréal brands enabled the company to position its products in more market segments and compete for market leadership by adding together sales for its different brands. Although there was a bit of an overlap between segments, product cannibalism was avoided by designing different positioning strategies: every single product invested in creating its own personality. Consumers identified each and every one of the brands but did not relate them to L’Oréal.

–6– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

The Hair Care Products Industry

With European sales of 28,865 million French francs in 1997, hair care products ranked among the leading branches of the personal grooming and beauty care industry. 1997 figures represented a 4.9% increase in volume but a 6.2% increase in billings. Considering that these types of products were aimed at a market that was in its maturity stage in terms of both penetration and use, opportunities for future growth would depend on creating added value. Hair care products could be divided into three main categories: shampoos, conditioners and styling agents, such as sprays, mousses and gels (See Appendix 5 for a breakdown of hair care product sales).

The amount of shampoo used in European countries was on the rise. The introduction of shampoos for frequent use and the better evolution of the product formulas in terms of usage quality and mildness helped increase sales tremendously in the 1980s. In 1989 Procter & Gamble launched Vidal Sassoon Wash & Go, the first 2-in-1 shampoo and conditioner, which soon led the UK market. The silicone-based 2-in-1s were particularly popular with men because the combined product made shampooing faster. Silicone formulas were a technological breakthrough that produced hair which was more shiny and less tangled after washing.

During the 1990s it was discovered that, although silicone was a fast-acting hair conditioner, it was not nourishing. As a result, many brands changed their formulas, and other ingredients were added. In 1993, Pantene launched a shampoo enriched with Pro- Vitamine B5. A major advertising campaign soon placed it at the head of the UK market and led many other brands to revise their formulas. They began searching for new, more sophisticated formulas that introduced cosmetic ingredients that perfumed the hair or made it shiny as well as cleaning it. Other brands that were successful with this more cosmetic approach were L'Oréal's Elsève, Elvive and El'Vital, as it was known in different countries, and as of 1996 Laboratoires Garnier's Fructis brand. Fructis included fruit acids, fructose and vitamins, ingredients which were very popular with consumers, who associated them with healthy, shiny hair. This constant striving for improved products had revitalised the entire hair care products industry. In 1997 another technological breakthrough was about to come: a formula that combined both silicones and polymers.

While most consumers used shampoo, the same could not be said of conditioners. In 1997 conditioners were used by only 16.7% of the potential European market, therefore they were far from being a standard product.

The introduction of 2-in-1s obviously affected the sale of conditioners. Consumers liked the idea of getting both shampoo and conditioner in a single bottle and 2-in-1s began cannibalising conditioner sales. But when 2-in-1 sales began to decline, conditioner sales started picking up because 2-in-1 advertising's emphasis on the conditioning agent had impressed consumers. People were becoming receptive to the idea of conditioning agents and manufacturers began promoting the idea of a stronger conditioner to be used only once a week. The most recently introduced conditioners by Pantene, Elvive, Organics, and other brands made consumers aware of the importance of using conditioning products to ensure healthy hair.

–7– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

Styling agents were brought to market in the 1980s when more elaborate hairstyles began to be popular. Many of these styles meant that some special product had to be used so that people with all types of hair could wear their hair in the latest fashion. Use of styling agents increased steadily and manufacturers began to introduce them in spray and gel forms. From 1990 onwards, the popularity of elaborate hairstyles began to decline in the UK, giving way to a more natural look that did not require so much care. The rest of Europe adopted this more natural look as of 1992, causing sales of styling agents to drop sharply. It is also important to note that in 1992 most European countries were in a recession period and consumers stopped using styling agents because they considered them an unnecessary expense that could be eliminated when money was scarce.

Mousses were the styling agent least affected by declining sales. They were the product that adapted best to any kind of hairstyle and were less dependent on fashion fads. Gels were also able to hold their own thanks to an increasing tendency among young people, particularly adolescents, to adopt a more extravagant look. In those days manufacturers were trying to win back young people and reach new age groups. According to an article published in LSA Le Journal de la Distribution, thirty to fifty year olds were particularly interesting targets because they were so difficult to satisfy: women in this age group considered themselves too old to use styling agents and too young to use standard hair sprays. Therefore the slowdown in styling agent sales might also be partly due to their extremely young product image.

The molecules discovered and added to shampoos and conditioners were also added to styling agents. Although styling agent sales were on the decline in terms of both volume and value, manufacturers saw the increase in the sale of gels as an encouraging sign. However, they were trying to redirect their advertising message and no longer talk only about using styling agents in order to be able to wear a particular hairstyle, but also attempted to explain to consumers that styling agents could also make their hair more attractive.

Among L’Oréal's most important competitors were multinationals like Procter & Gamble, Unilever and Henkel, to mention only a few (See Appendix 6 for data on the company's leading competitors).

As leader of the world shampoo and 2-in-1 market, Procter & Gamble embarked on a strategy of rapid growth in 1985, acquiring other companies in order to increase their product portfolio, not only in the hair care products market but also in cosmetics. Procter & Gamble’s goal was to create and maintain customer loyalty to its brands, offering quality and value in innovative products backed by heavy investments in advertising. Research and development and advertising were the pillars of Procter & Gamble’s strategy to develop truly global brands, such as Pantene Pro-V, Vidal Sassoon Wash & Go and Head & Shoulders.

Brand names for hair care products had also been one of the pillars of Unilever strategy, aimed at maximising the value of both established and new brands throughout the world and making the company more global than ever. Organics was Unilever’s most successful hair care product. It was positioned as a shampoo that nourished hair from the roots to the tips, thanks to an ingredient called Glucasil Complex.

–8– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

The brand was first introduced in Europe and subsequently in other regions. It was then available in seventy countries, with variations in order to adapt the product to consumer habits in the different markets.

In 1995, Henkel purchased Schwarzkopf and became another major player in the hair care market. Although Henkel enjoyed a solid position in Europe, it was little known in North America, The acquisition of Schwarzkopf also opened the door to interesting business opportunities for Henkel in Latin America and Southeast Asia.

The shampoo market

Shampoos were used by 83.5% of the population, although there was little brand loyalty and it was extremely difficult to create any. There was a widespread belief in Europe that changing shampoos frequently was good for the hair because otherwise it would get used to a particular shampoo and the results would not be so satisfactory. As a consequence, manufacturers –who could not explain the origin of these beliefs– had serious problems getting consumers to repeatedly buy the same brand. The main European markets were Germany, France, UK, Italy and Spain (see Appendix 7 for market volumes and Appendix 8 for Elsève distribution coverage).

The hair care product market was heavily influenced by the evolution of consumer habits and technology. In the 70s, consumers wanted washing frequency, later they wanted to have more conditioning and detangling, and in the late 90s they wanted shinier hair. Product formulas had also evolved a great deal: Manufacturers launched new products with new qualities, which consumers then demanded. Increasingly heavy investments in marketing and new product development had gradually shortened the life cycle of the products which had not adapted themselves to the market. In contrast, Elsève was a successful example of brand renovation and long product life with absolutely no sign of decline because it continuously offered new products in its own range. Still, manufacturers were continually launching new products and brands, which was a costly activity, in the hopes of making a strong and immediate impact on the market.

The hair care product market had been traditionally female. However, during the 1990s manufacturers began increasingly addressing two segments with a high growth potential: the male segment and the children’s segment. Many companies had launched specific lines for men, although not always successfully, as was the case with L’Oréal’s Formule Homme line. A number of companies had tried presenting their products as unisex brands, among them Procter & Gamble’s Wash & Go and L’Oréal’s Studio Line. In addition, the children’s market was particularly interesting in France, Germany and Italy. L’Oréal’s LaScad led the French market with P’tit Dop, competing with other products that were directed exclusively at children and featured fun packaging and special fragrances. The German market for children’s shampoos doubled between 1992 and 1997, with brands such as L’Oréal’s Laboratoires Garnier and Procter & Gamble’s Vidal Sassoon for Kids. The children’s market in Italy began really taking off in 1996, with the introduction of L’Oréal’s Piccol’o.

–9– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

People were washing their hair more frequently than ten years ago. Europeans washed their hair on an average of 3.5 times a week. Expectations of clean, soft hair had given way to demands for shiny hair with extra body. Demand for cosmetic features had forced manufacturers to enhance their products with innovative value-added features in order to position them as high quality products and increase their market shares. The principal innovations were polymers, silicones, provitamin B5 and Ceramide-R.

Elsève’s competition

Elsève competed with other brands of cosmetic shampoos which also had such broad product ranges that they could reach all market segments. In order to do this, manufacturers basically used TV commercials as a way to position their cosmetic shampoo brands. Elsève’s most important competitors were Pantene, Organics, Timotei and Wash & Go (See Appendixes 9, 10 and 11 for market shares and average prices of the leading brands in selected countries).

Most brands tried to position themselves carefully in order to differentiate themselves from their competitors. As in any other industry, one of the problems was that there were some competitors that were followers of the major leaders. They waited for the leaders to introduce some new innovation and then launched similar products at a lower price.

Pantene led the market for cosmetic shampoos and ranked second to Elsève in conditioners. Manufactured by Procter & Gamble, Pantene’s formula was based on Pro- Vitamine (B5). Pantene's technological progress was due to constant research and innovation, which were key factors for success in this branch of industry. Pantene advertising sought to reinforce its brand image, positioning itself as “specialists in hair care”. Its slogan was, “Hair so healthy it shines”, with Pro-Vitamine (B5) the reason- why. Pantene commercials demonstrated how the vitamin acted from the roots to the tips of the hair. Commercials usually featured “slice of life” scenes with which a broad segment of the public could identify. Pro-Vitamine marketed itself as the solution for consumers’ hair problems.

Wash & Go was another important Procter & Gamble brand. At first its advertising message was that Wash & Go was fast and practical, but hair care and other features had gradually been introduced. The brand usually used active, sporty-looking models in order to reach a mixed male/female market segment.

Organics was a Unilever brand that communicated the message that healthy hair was vitally important and must be very well cared for. The product name had connotations of natural animal or vegetable ingredients. Its principal ingredient was Glucasil, which nourished the hair. Knowing this, one can understand its ads, which depicted hair as something that had its roots in the earth. Organics attempted to position itself as a shampoo that made hair strong, healthy and shiny. At first Organics’ ads contained an essentially symbolic message, but this had gradually been revised and shampooing scenes added. The target public was exclusively female and more interested in cosmetic features than in healthier hair.

–10– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

Unilever also marketed Timotei, which had traditionally related shampoo with nature. Its message was that the hair was nourished and protected thanks to natural ingredients which made it more beautiful, stronger and resistant. Timotei was directed excusively at women and did practically no advertising for its conditioners. Timotei’s advertising was becoming increasingly global and institutional, emphasising the brand rather than the individual products. Its advertisements usually did not mention why the products give users such strong and shiny hair.

Although it was marketed by one of the L’Oréal companies, Laboratories Garnier, Ultra Doux had to be also considered one of the Elsève competitors. Ultra Doux was positioned as the ultra-mild shampoo, targeting all the people in the family. It was a shampoo for frequent use, made of natural ingredients. Its advertising message was “Extrême douceur puisée au coeur des plantes”3.

Everyone in the industry invested heavily in advertising. Advertising and sales were closely correlated: the more advertising was done, the more products were sold. The main advertising medium was television, followed by press advertising. Since 1995 shampoo advertising had been increasing at a slower pace, unlike advertising for hair colouring and permanents, which had registered an increase (See Appendix 12 for the advertising budgets of the leading brands).

A constant technological challenge

Research and development was essential in order to discover new ingredients which could be added to product formulas, giving them an extra value that would be perceived by consumers and enable the manufacturer to secure a larger share of the hair care products market.

But not just any innovation translated to an increased market share. Industry manufacturers had to find ingredients that gave consumers added value and enabled them to differentiate a particular product from its competitors. Market research showed that after shampooing consumers wanted their hair to be soft –detangled and fluffy– and smell nice, and that the trend for healthy and shiny hair had gained popularity.

All shampoos had some more or less common ingredients, such as water, perfume, and cleansing agents. Before 1994, a polymer compound was added to the product in order to revitalise the hair. Polymers acted on the most damaged parts of the hair fiber, revitalising and restoring its health. But this type of molecule was more revitalising than cleansing, so when used by people with normal –or only slightly damaged– hair the result was hair that was somewhat lank and rough, which consumers did not like.

3 “Extreme mildness coming from the heart of the plants”.

–11– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

From 1994, L’Oréal developed a silicone-based formula that replaced polymers. Silicones treat each stand of hair individually, leaving it very soft and easy to comb as it was thoroughly detangled. Consumers noticed this immediately and Elsève successfully entered the normal hair segment of the market. But silicone also had a drawback: it was not nourishing. By combining polymers and silicones, L’Oréal was able to profit from the advantages of both ingredients: the nourishing action of polymers and the soft, detangled hair that was produced by silicone. Combining the two ingredients in the shampoo formula gave L’Oréal a major advantage over its competitors.

Whenever there was a technological innovation industry competitors were faced with an alternative: they could either launch a new product concept that contained the new ingredient or they could introduce the new ingredient in an already-existing product and inform consumers of the change through advertising and new package designs.

But introducing an innovation could sometimes be a risky business. If it was not as successful as hoped it could affect the entire brand image. So when L’Oréal was not absolutely certain of the outcome it introduced new formulas under a secondary brand name. L’Oréal Paris was the group’s flagship brand. It focused on the long term and always sought sustainable product concepts because the L’Oréal brand was too highly valued to risk launching anything whose success was not assured.

These were the sorts of issues that the marketing team at L’Oréal was facing in their strategic design to become the European shampoo market leader…

–12– CEMS Case Study “L’Oréal (A): Fighting the Shampoo Battle”

Appendix 1: Key figures for L’Oréal

L’Oréal Group 1993 1994 1995 1996 1997 Net sales (million FF) 40,163 47,624 53,371 60,347 69,120 Operating profits (million FF) 4,493 5,352 5,886 6,632 7,762 Net profits (million FF) 2,936 3,472 3,796 4,225 4,739 Number of employees 32,300 38,972 39,929 43,158 47,242 Earnings per share (FF) 44.4 46.2 50.0 55.2 62.2 Cosmetics & Toiletries Net sales (million FF) 32,238 38,858 43,280 48,988 56,163 Operating profits (million FF) 3,711 4,452 4,649 5,120 5,878

Net Sales % of total % growth Year 1997 (million FF) sales 1994/1997 Western Europe 40,472 58.6% 25.5% North America 15,872 23.0% 171.0% Asia-Pacific 4,730 6.8% 33.9% Rest of the world 8,047 11.6% 34.3% Total 69,121 100.0% 45.1%

Regional shares North Latin Western Eastern Africa & (% value) America America Europe Europe Asia M. East Australasia Colorants 28.2% 35.7% 54.8% 22.3% 4.6% 31.0% 28.9% Conditioners 3.9% 3.9% 24.1% 19.3% 0.4% 10.2% – Home perms 4.0% 6.6% 33.4% 11.9% 2.5% 2.6% – Salon hair care pdts’ 8.2% 48.3% 27.4% 0.2% 9.9% 19.2% 48.3% Shampoo 4.4% 3.7% 18.4% 15.2% 0.4% 8.7% – Styling agents 5.5% 27.8% 30.4% 12.5% 1.4% 24.3% 3.5% 2-in-1s 1.8% 0.3% 15.4% 8.6% 0.1% 7.5% – Total hair care 9.3% 14.4% 30.2% 14.5% 1.4% 11.8% 4.8%

Source: Euromonitor, based on company records

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Appendix 2: Organisation chart

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Appendix 3: Elsève product range

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Appendix 4: Elvive product range for the United Kingdom

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Appendix 5: Hair care industry data

Industry sales Million FF Million units Western Europe 1996 1997 1996 1997 Shampoos 12 068 13 194 853 912 Conditioners 4 359 4 600 247 261 Hair sprays 6 870 6 993 410 411 Mousses 2 173 2 249 120 123 Gels 1 607 1 829 97 108 Industry total 27 077 28 865 1 726 1 816

Source: AC Nielsen

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Appendix 6: Financial highlights for L’Oréal’s main competitors

Procter & Gamble 1994 1995 1996 1997 Net sales (million $US) 30,385 33,482 35,284 35,764 Operating profits (million $US) 3,670 4,244 4,815 5,482 Net profits (million $US) 2,211 2,645 3,046 3,415 Number of employees 103,000 96,500 99,200 106,000 Earnings per share ($US) 1.54 0.85 2.14 2.43 Cosmetics & Toiletries Net sales (million US$) 5,912 6,507 6,914 7,108 Operating profits (million US$) 570 728 966 1,066

Source: Euromonitor from company records

Unilever 1993 1994 1995 1996 1997 Net sales (million £) 27,863 29,666 31,516 33,522 29,766 Operating profits (million £) 1,944 2,526 2,526 2,874 2,386 Net profits (million £) 1,296 1,559 1,473 1,610 3,335 Number of employees 294,000 304,000 308,000 306,000 287,000 Earnings per share (£) 17.36 20.90 19.66 21.47 44.55 Personal Grooming Products Net sales (million £) 4,018 4,433 5,986 6,940 6,852 Operating profits (million £) 343 472 658 770 801

Source: Euromonitor from company records

Henkel 1993 1994 1995 1996 1997 Net sales (million DM) 13,867 14,069 14,198 16,301 20,065 Operating profits (million DM) 550 671 725 1,011 1,373 Net profits (million DM) 385 464 488 555 1,127 Number of employees 40,470 40,590 41,728 46,377 53,753 Earnings per share (DM) 3.20 3.35 3.35 4.00 5.35 Cosmetics & Toiletries Net sales (million DM) 1,410 1,404 1,377 2,677 2,972 Operating profits (million DM) n.a. n.a. n.a. n.a. n.a.

Source: Euromonitor from company records

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Appendix 7: Total hair care sales by country

(Million US$) 1993 1997 US 5,770 7,177 Germany 2,063 2,287 France 1,791 2,072 UK 1,055 1,328 Italy 1,037 1,055 Spain 430 529 Netherlands 388 438 Greece 166 291 Sweden 217 258 Switzerland 178 218

Source: Euromonitor

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Appendix 8: Distribution coverage

Distribution coverage (June 1997) France UK Germany Spain Market total Numerical distribution 100,0 96,0 86,0 96,0 Weighted distribution 100,0 100,0 100,0 100,0 Elseve / Elvive / Elvital Numerical distribution 99,0 30,0 34,0 n/a Weighted distribution 100,0 91,0 89,0 n/a Source: AC Nielsen /IRI Infoscan

Note:

Numerical distribution measures the percentage of outlets that sell a particular brand or a product category. Weighted distribution is the market share (in value) of these outlets in the overall product category.

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Appendix 9: Market shares for the main shampoo brands

Market shares (%) Volume Value Western Europe 1995 1996 1997 1995 1996 1997 Alberto 1,2 1,3 1,2 1,2 1,5 1,3 VO 5 0,7 0,8 Beiersdorf 2,9 2,9 2,9 2,8 2,7 2,6 Nivea 2,8 2,8 2,9 2,7 2,7 2,6 Bristol Myers 0,4 0,5 Clairol Herbal Essence 0,4 0,4 Colgate 4,7 5,0 4,6 3,6 3,6 3,3 Gard 0,8 1,1 1,0 0,6 0,7 0,6 Palmolive 2,6 2,8 2,6 1,6 1,8 1,7 Respons 0,9 0,9 0,8 1,0 1,0 1,0 Henkel / Schwarkopf 7,8 8,6 9,0 6,8 6,9 6,9 Henkel 2,7 2,7 2,8 2,6 2,4 2,4 Poly Kur 1,4 1,4 1,3 1,2 1,1 1,0 Schwarzkopf 5,1 5,9 6,2 4,2 4,5 4,4 Schauma 2,9 3,6 3,9 2,1 2,4 2,5 Glem Vital 0,7 0,6 0,6 0,5 0,5 0,5 Gliss 0,6 0,7 0,7 0,6 0,7 0,6 Johnson & Johnson 3,0 2,6 2,5 3,7 3,3 3,2 L'Oréal 20,2 20,2 21,6 19,3 19,3 21,4 Elsève 5,9 6,2 7,3 6,1 6,2 7,6 Studio Line 1,0 0,7 0,5 1,0 0,7 0,5 P'tit L'Oréal 1,1 1,0 0,9 0,8 0,8 0,8 Ultra-Doux 4,2 4,4 4,4 3,6 3,8 3,9 Fructis 0,0 0,3 1,7 0,0 0,3 1,8 Neutralia 1,5 1,3 1,1 1,5 1,3 1,2 J. Dessange 1,5 1,4 1,1 1,7 1,6 1,3 Procter & Gamble 19,2 19,3 19,3 23,2 23,2 23,4 Vidal Sassoon 5,4 4,1 3,1 6,5 4,9 3,7 Pantene 8,9 10,7 11,8 11,0 12,7 14,0 Head & Shoulders 2,3 2,4 2,7 3,3 3,6 4,1 Shamtu 0,9 0,5 0,3 0,6 0,3 0,2 Petrol Hahn 1,1 1,1 0,9 1,0 0,9 0,7 Revlon 1,3 1,1 1,1 1,5 1,2 1,1 Unilever 13,6 12,9 12,2 14,0 13,4 12,5 Timotei 4,8 4,2 3,6 4,5 3,9 3,3 Sunsilk 0,7 0,4 0,3 0,7 0,4 0,3 Organics 3,1 4,2 4,3 3,7 5,0 4,8 Clear 1,2 1,0 1,0 1,2 1,0 1,1 Dimension 0,7 0,6 0,7 0,5 Wella 2,7 2,7 3,1 3,1 3,1 3,5 Wella Balsam 0,6 0,5 0,6 0,8 0,6 0,7 Crisan 0,8 0,8 0,7 1,0 0,9 0,8 Source: AC Nielsen and IRI Infoscan

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Appendix 10: Market shares in selected countries

Market shares 1997 France UK Germany Italy Spain (% in volume and value) vol. val. vol. val. vol. val. vol. val. vol. val. Alberto 4,8 4,8 VO 5 2,3 2,3 Beiersdorf 0,2 0,2 10,0 9,7 0,2 0,1 Nivea 0,1 0,1 10,0 9,7 0,2 0,1 Colgate 7,7 5,5 0,1 0,1 4,9 3,5 2,9 2,3 0,3 0,3 Gard 4,3 2,8 Palmolive 6,8 4,7 0,1 0,1 2,3 1,7 Respons 0,7 0,6 0,6 0,7 Henkel / Schwarkopf 1,8 1,9 2,1 1,7 23,5 18,2 4,0 3,3 2,4 2,4 Henkel 1,8 1,9 4,5 3,9 4,0 3,3 2,4 2,4 Poly Kur 4,5 3,9 1,7 1,7 Schwarzkopf 2,1 1,7 19,0 14,2 Schauma 16,5 11,8 Glem Vital Gliss 0,3 0,3 2,0 1,9 Johnson & Johnson 4,7 6,5 0,2 0,3 5,6 6,3 6,2 7,1 L'Oréal 57,1 59,3 8,6 8,6 11,1 11,9 26,4 26,4 11,4 11,6 Elsève / Elvive / Elvital 10,5 11,1 6,3 6,4 5,9 6,5 7,7 7,7 5,4 5,5 Studio Line 1,8 1,9 1,1 1,0 P'tit L'Oréal 2,9 2,4 1,9 2,1 Ultra-Doux 8,0 8,0 3,6 3,3 9,6 8,9 5,1 5,1 Fructis 7,4 7,9 1,8 2,1 0,5 0,6 Neutralia 2,8 3,1 2,3 2,3 0,8 0,8 0,3 0,3 J. Dessange 5,6 6,9 Procter & Gamble 10,5 12,5 25,6 31,8 18,5 20,7 18,5 22,0 27,0 33,2 Vidal Sassoon 1,7 1,8 4,7 6,0 3,5 3,8 6,9 8,1 Pantene 2,8 3,2 14,2 17,1 13,3 15,0 16,9 20,3 13,9 17,0 Head & Shoulders 1,8 3,8 6,7 8,8 0,5 0,9 6,2 8,1 Shamtu 1,1 1,0 Petrol Hahn 4,2 3,8 Revlon 1,6 1,9 10,3 9,2 Unilever 8,4 8,5 15,2 15,1 7,8 7,3 12,9 14,0 12,0 12,9 Timotei 3,4 3,0 3,7 3,6 5,1 4,2 1,5 1,2 6,3 7,6 Sunsilk 1,2 1,2 Organics 2,6 2,9 8,7 8,8 2,8 3,0 3,0 3,4 Clear 1,2 1,5 6,6 7,9 Vasenol 2,6 1,9 Dimension 4,7 4,8 Wella 0,1 0,2 5,7 5,5 4,8 5,9 1,0 1,1 1,9 1,8 Wella Balsam 0,1 0,2 1,7 1,5 Crisan 2,7 3,3 Source: AC Nielsen and IRI Infoscan

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Appendix 11: Retail prices in selected countries (figures in French francs)

Average retail prices (FF) France Germany UK Spain Beiersdorf Nivea 13,4 13,6 12,4 Henkel Poly Kur 12,1 14,8 Schwarzkopf 10,6 14,8 L'Oréal Elsève/Elvive/El'Vital 14,5 15,6 18,0 15,2 Fructis 14,8 17,3 Ultra Doux 13,8 14,5 Procter & Gamble Vidal Sassoon/Wash & Go 14,7 15,3 21,2 17,4 Pantene 15,7 15,8 21,2 17,8 Head & Shoulders 28,4 23,7 23,1 18,8 Unilever Timotei 12,0 11,7 17,4 17,6 Organics 15,2 15,4 17,9 16,3

Source: AC Nielsen and IRI Infoscan

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Appendix 12: Share of voice in selected countries

Share of voice 1997 (%) Europe France UK Germany Italy Spain

Beiersdorf Nivea 2,1 7,3 Other brands 0,3 1,1 Henkel Schwarzkopf 4,0 0,1 15,0 2,3 Other brands 1,6 0,7 5,7 1,0 L'Oréal Elsève / Elvive / El'Vital 10,9 14,0 10,6 11,5 9,3 8,9 Fructis 3,6 10,8 7,8 2,6 Ultra Doux 4,3 5,2 5,0 4,8 4,3 Other brands 5,1 23,1 0,5 0,1 7,8 3,5 Procter & Gamble Vidal Sassoon/Wash & Go 4,8 0,8 6,6 5,0 12,2 Pantene 20,9 12,6 24,9 25,5 15,6 22,7 Head & Shoulders 6,9 6,6 8,4 5,9 14,2 Unilever Timotei 2,4 2,3 0,1 2,0 8,8 Organics 6,6 5,5 18,0 3,9 4,9 Other brands 3,1 7,8 5,9 Other manufacturers Alberto Culver 0,8 3,8 Bristol Myers 0,6 0,3 Colgate 0,3 0,1 0,3 Eugene Perma 1,5 8,7 0,4 Johnson & Johnson 1,2 2,5 4,4 Revlon 0,3 0,4 1,5 Wella 3,5 5,3 5,1 4,8 2,1

Industry expenditures (million FF) 4 182,6 614,2 828,6 865,8 837,6 723,7

Source: Adex (AC Nielsen)

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