Case Study Report on ‘L’Oreal and the Globalization of American Beauty’

International University of Monaco Master in Business Administration    

Case Study Report:

       

 

     

 

 

 

       

                                                                                                 Professor: Dr. MüHLBACHER, Hans MBA Students: GUALDI, Giulia KUZMINA, Victoria SAEZ, Andy WOSZCZYNSKI, Martin  

University Campus, October 2014   International University of Monaco  

The big picture In 2001, as part of its US acquisition strategy, L’Oreal bought Kiehl’s, a small familyowned cosmetic company based in New York which was then included in its luxury brand portfolio. Under many aspects this was a peculiar acquisition for L’Oreal as Kiehl’s reached a cult status by essentially applying a business model opposite to that of L’Oreal. Kiehl’s business was in fact small-scale (their products were notably hard to find), local (mainly centered around their NYC shop, and few other high-end retailers) and based on the creation of strong ties with the local community of customers rather than on advertising. This approach to business, together with the high-quality, natural-origin and effectiveness of their products earned Kiehl’s a strong reputation as a cult brand. Four years after the acquisition, in 2004, the question that arises is how L'Oreal can preserve the status, the integrity and the cult following of the brand while at the same time making it grow and taking it worldwide. This problem can be more concisely formulated as following: how can Kiehl’s become a large-scale brand without losing the small-scale features which have determined its success? In order to address this question we briefly recall some key elements about Kiehl’s and L’Oreal which will be useful for our analysis. About Kiehl’s: Kiehl’s mission is not only to make profit but also to improve the quality of the community it is embedded in. This commitment reflects not only at the level of the products and of the customer service but also in the company’s will to entertain fair, just and trustful relations with its stakeholders.

Kiehl’s

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customer is in general very sensitive to the company’s mission and enjoys being part of a community as opposed to belonging to a mass. Kiehl’s within L’Oreal: Kiehl's addresses a market segment previously not significantly covered by L’Oreal brands. Using L'Oreal's jargon, within is Luxury division, Kiehl's could be considered as a calf as opposed to the fragrance brands playing the role of the cash cows. Consistently with its general acquisition policy, L'Oreal puts a major focus in preserving Kiehl's identity. To this end, until 2004, L'Oreal's growth strategy for the brand had been mainly focused on respecting and exporting as much as possible of Kiehl's original business model. In particular, the strategy was centered around replicating the original store in each new location,

making only few adjustments to better adapt it to the specific community. We will hereafter denote this strategy as the replica strategy. Our proposal The replica strategy is necessary but not sufficient to sustain Kiehl's differentiation and identity in the long term. The risk indeed is that Kiehl's will be eventually perceived as a kind of upper-scale franchising thus losing its cult brand appeal. For this reason the existing strategy needs not only to be strengthened but also to be integrated with a new strategy specifically tailored on the global scale. The key point is to promote and implement the idea that many different people sharing a common, positive, vision are still a community and not a mass. We therefore propose an approach where the small and the big scale get combined to strengthen the brand attributes and fulfill its mission in a more effective way. As Kiehl's customers are very sensitive to the philosophy of the brand, this will foster their sense of belonging not only to a local but also to a global community which they, along with Kiehl's, contribute to improve. The integrity and the cult status of the brand will thus be maintained and eventually strengthened. On top of that, this strategy might also be used by L'Oreal as a test bed for future development and innovation policies at L'Oreal. We therefore propose the following: Small scale: boost replica strategy The overall purpose of this part of the strategy is to further strengthen Kiehl’s identity and deepen its connection with the customer base regardless of its size and specific location. Research and development: as Kiehl’s success depends largely on its original formulas, L’Oreal’s should allocate substantial resources on R&D. This would grant Kiehl’s more freedom to experiment and seek for innovative solutions thus consolidating and improving its product reputation. Alongside the innovative lead, L’Oreal should also enlarge the range of Kiehl’s products by for example strengthening its offer for men and kids (the whole family becomes part of the Kiehl’s community) as well as venture into the realm of Mineral/Organic makeup and natural hairstyling products (where L’Oreal expertise might be highly beneficial). Such initiatives, while still consistent with the brand’s philosophy, would contribute to

instill within the customers the idea that for Kiehl’s going bigger means improving its offer and building a whole universe around them. Communication and Innovation: In order to promote innovation and sustain the sense of community around Kiehl’s, communication between the brand and its customers should be prioritized. The idea here is to make each customer feel part of the creative and growth process of the company. To this end, the role of the shop assistants should be reinforced: they should not only assist the customers but also act as their ambassadors to the company. Virtual and physical spaces (see the two following paragraphs) should be dedicated to the dialogue between the brand and its customers. Customer’s experience in store: one of Kiehl’s distinguishing features is the storeexperience it offers to its customers. We believe that this experience could be further enhanced (at least at selected stores) by providing special workshops not only to learn about Kiehl's products (see next section) but also about healthy and natural living in general (e.g. nutrition). Such initiatives would be aimed at elevating Kiehl's stores to local informative and meeting place, thus at fulfilling even better its mission of improving the quality of life of its customers. Those services will strengthen Kiehl’s value proposition and sustain its differentiation within the luxury category.

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addition, each store should have a Suggestion/Comments corner where customers could give their feedback. Customer’s Online experience: Kiehl’s should use its website not only as an online store but as a virtual meeting place for its community. To this end the website should contain a dedicated area where customers can upload reviews of their products as well as an online forum where customers can interact with the company. In addition, in order to take the neighborhood feeling to the next level, Kiehl’s website might also host an online magazine giving healthy tips and suggestion as well as, for each Kiehl’s store location, provide information about interesting places and activities. Big scale: create shared value and inform This part of the strategy is specifically designed to make use of the improved resources brought in by L’Oreal and of the global scale as a mean to fulfill Kiehl’s mission on a higher level. The idea is to make the customers take active part, together

with the company, in the improvement of the quality of life of the global human community. Global community: since one of the main distinctive features of Kiehl's products is the use of natural ingredients, the brand should engage itself into adopting (and/or enforcing on suppliers) sustainable and environmental friendly sourcing practices. Whenever its ingredients are sourced in disadvantaged contexts (e.g. low income countries), Kiehl's should sponsor programs (and/or trusted third party organizations) to support the local communities and to protect workers. This could be accomplished both by directly investing on innovation and education at the local level and by choosing only suppliers which agree to do so. Finally, by redesigning and optimizing, where needed, its supply chain and by adopting initiatives both to reduce and to compensate for its pollution, Kiehl's should aim, on the long term, at becoming a zero-impact company. Customers should be informed, both in stores and online, about all these initiatives as well as achievements and proximity to the goals. Even if on the short term these initiatives might lead to an increase in production costs (which L'Oreal has sufficient resources to sustain) on the long term their economic return might be significant. By proving Kiehl's effective commitment to fulfill its mission, customers would be strongly motivated both to remain and to become loyal to the brand. Indeed by the very act of purchasing at Kiehl's they would not only get a superior quality product but also they would help improving the global community. From the global to the local communities: the second level of the big-scale strategy is to tighten the relationship between the local and the global community so to further strengthen the tie between each local community and the brand. This could be accomplished by further enhancing the consumer experience at Kiehl's stores (at least at selected ones) by organizing initiatives (e.g. workshops, learning corners) aimed both at adults and children to promote knowledge about the natural ingredients used by the brand, their seasonality, their farming/sourcing practices and about the communities living on those products.