L Oral of Paris: Bringing Class to Mass with Plnitude

02/29/2012

1 1. Looking back, how has the brand done so far in terms of? a. Financial Performance Overall:  Good financial back-up: 49% shares were held by Nestle and 51% by Liliane Bettencourt (founder s daughter)  1995: Sales of 53.4 billion French Francs (around $11.36 billion)  1996: high technology focus is shown by $300 million R&D expenses (with 300 new patents worldwide) France:  1983: sales of one million units with 30% price premium over incumbents (for upscale packaging, premium quality and technologically advanced products)  1987: Market leader with 19.6% dollar share vs. Diadermine (13%) and Nivea ((8.8%) USA  1988: Positive results in test markets (Atlanta & Dallas) moisturizer s shares reaching 14%  1989: $32.5 million spent on advertising  1990 (first full year on the American market): sales were $31.7 million; high advertising and promotion costs ($35.5 million) extremely high pre-tax loss of $25.4 million  1995: $1.5 billion sales in the US ( USA and Canada generated 16.2% (=.81*.2) of L Oral s overall sales); continuing rise of high advertising and promotion costs to $38.3 million still high pre-tax loss of $12.5 million didn t achieve the break-even-point or even operate in the black within 5 years after market entry  1995 (Dollar Shares): Plnitude only accounted for 14% dollar share in the moisturizers category; Olay held 28.2% and Pond s 15.1% Plnitude spent the most on ads proportional to its Dollar Shares but that was only 60.7% of Olay s ad spending ($29.2MM/$48.1MM=.607)  1995 (Moisturizer Units Sold): 35% of Plnitude sold units were daily care & 65% were treatment care (vs. Olay 88% daily care and 12% treatment care or Pond s 51% daily care and 49% treatment care)  September 1995: Revitalift quickly successful; representing 20% of Plnitude sales, supported with 5million in TV advertising more than twice as successful as the second best Plnitude product
b. Trade Franchise France  1982-87: launch of the first product that was a general purpose moisturizer (1982) followed by sequential line extensions by launching special purpose products & cleanser products  Strategy: brand represents high end, superior performance and at the time same time accessibility class to mass : created high sale volumes that were invested in R&D to develop new & better products  Distribution: Plnitude established a new relationship with different buyers L Oral created a department store environment at mass accounts by supporting it with strong advertising, merchandising and promotions USA  1989: after two market tests Plnitude entered the skin care market with the entire product line (14 SKU's) alongside with one-linear-foot merchandising unit that had been developed in France Some product adjustment to U.S consumers (lighter in texture and less heavily perfumed)  Strategy: the same as in France  Distribution: same as in France but packages showed a lots of information & products were placed at the same aisle & eye-level next to Oil of Olay (strict regulations but enforceable by using L Oral s reputation) Benefits through parent brand (L Oral) that was famous, successful, trust worthy and able to live up to its commitments (spending $30 MM in R&D, historically good profit generators for the trade, built consumer franchise, brand equity, and good trade relations) c. Consumer Franchise France  Market situation: many high end brands but few significant mass market brands (Nivea, Diadermine, Oil of Olay)  Consumers: women were sophisticated in their use of skincare no need to educate at point-of-purchase  Cumulative image: L Orel was well-known for many other products (2000 in 1995) and sub-brands (500 in 1995) in the beauty industry

2 USA  Market situation: several existing high (Estee Lauder, Clinique) end and low end (Olay, Pond s, Nivea) brands (different competition than in France) higher competition than in Europe Plnitude saw Oil of Olay and Pond s as main competitors but the Facial Skin Care Market Study shows that Nivea is the #1 brand imagery competitor, and Clinique the #1 brand user imagery competitor  Consumers: did not know much about skincare need to educate them at point-of-purchase possible in department stores by salespersons but not in retail stores since they are self-service Plnitude s solution: good in-store presentation (all 14 SKU s, one-linear-food merchandising , at eye-to-eye level to Oil of Olay) and packaging with very detailed information about the product  Cumulative image: Facial skincare market study: Low brand awareness (78%) compared to Oil of Olay s 96% (trail, conversion, usage and retention rated lower as well) Facial skincare market study: shows that the Stressed Out (22%) and the Age Focused (18%) that belong to Plnitude s benefit segment similar to the competitor Alpha Hydrox Acceptor/Rejector Studies: L Oral brand name is primary motivator for trial (especially for the good quality) All of the existing retail customers signed up and at least gave it a try
2. What has L Oral done right and wrong in the launch of Plnitude in the U.S.? (numbers) The smashing success of the Plnitude in France validated L Oral decision to introduce the product in the U.S. market. The introduction in 1988 was very strong and they quickly reached #2, behind Olay and sales grew well. However, spending was higher than the revenue stream. Further, L Oral reached a sales-plateau after 4 years and lost its #2 position. 9 years after introduction they were still not making money. Nonetheless, success on the U.S market is essential to become a global brand. Right steps:  Did good research on consumers shopping and usage behavior  Knew that they needed more advertising, merchandising and promotion if they sell the product through selfservice retails also knew that American women had to be educated on the P-o-P  Except for the extensive product information, the packaging was appealing and looked expensive  Premium pricing = sense of exclusivity and high quality and they offered technologically superior products  Spending on star product helped to support the awareness and increase equity for the whole brand  Focus on the mass market generate money for R&D and next product generations  Used as many benefits through parent brand as they could (L Oral s brand awareness by placing the name on Plnitude s products, relationships and reputation with the retailers, overall impression of good quality)  Introduction of Revitalift was a great success and the best performing product of Plnitude brought 40% new customers to the line Wrong steps:  From the launch date on too many different products under one line lead to costumer rejection/confusion smoother product launch like in France could have been more successful  Loaded packaging with lots of information apparently too much information for the majority of customers target group modern women didn t have time to study 14 different product descriptions  Distribution: Put high pressure on retail to take the whole product-line and place it next to Oil of Olay could also harm L Oral s existing and future relationships with retailors  Usage of L Oral brand name was good but very few people knew about the brand Plnitude & naming of the individual products (Excell A) was not guiding and even worse they were confusing  Made wrong assumptions of the target market (e.g. Revitalift, a success, was for people who have a problem and not for their planned target group ) applied market strategy based on those assumptions continuing to do so for a long period despite the bad results  French class to mass formula couldn t work the same way for the U.S.: American perception of beauty and high end/luxury products is completely different from the French perception Rich Americans couldn t imagine that high end products could be sold in retail stores and especially that cheap Average Americans (=mass) were pragmatic and more price sensitive and preferred traditional (Oil of Olay) and down-to-earth (Pond s) brands

3 Moisturizer Units Sold table: Plnitude is better than Olay in the treatment category, but worse in the daily category contributes to the fact that Plenitude did not have the mass-market appeal which it needed for the class of the mass strategy to work Wrong definition of competitors shows their misunderstanding of the whole American market: Plnitude saw Oil of Olay and Ponds as main competitors but the Facial Skin Care Market Study shows that Nivea is the #1 brand imagery competitor, and Clinique the #1 brand user imagery competitor Advertising: followed the French plan just translated the commercials ignoring the cultural differences even they knew about the American perception of beauty1 and high end/luxury products E.g. the slogan: Reduces Signs of Aging scared younger women off Product Ingredients: younger women found the product too heavy not satisfied with the quality L Oral stuck to premium price and was equal or even more expensive than competitors ignoring the fact that many customers might not be willing to pay more for less perceived quality Generally: Plnitude was successful but the spending on advertising and promotion was too high and thus the line didn t manage to break-even for 9 years

3. What is your recommendation for an action plan to make Plnitude profitable? The company needs to decide how to improve Plnitude's position in the US, in terms of promotion, product offerings as well as names and packaging that consumers see it as a premium and an easy-to-choose brand. 3 possible strategies: Continue with the star strategy for Revitalift or develop a younger franchise by improving the position in the cleansing and moisturizing market (not strong, yet) or follow both strategies simultaneously. Strategy recommendations:  Stay with the tickle down fire up-, the premium price- and the star - strategy for Revitalift and improve the top-line since already successful in the market (although Olay seems to attack the treatment sector soon)  Also, stay with the tickle down fire up-, the premium price- and the star - strategy for Plnitude but wisely target different costumer groups adopt the products and advertising define the competitors reasonably  I believe that Plenitude and its Revitalift can succeed in the market and have large market shares by implementing the following changes/ideas Packaging: It s important to reduce the amount of information on the package, as it seemed to be confusing provide the customers with help at point-of-purchase  Establish a quick guideline (brochure or leaflet) for which skin needs which product start with questions about the age, the skin type etc. helps the customer to quickly find the matching product  Nowadays: provide the retail stores with small tablets that are able to diagnose the skin type through a few questions and recommend the right products (Clinique has that and it takes 5 min max.) Product:  Costumers are overwhelmed with the variety and no quick help take away some unsuccessful products such as Clarify A3 Cleanser and the Hydra-Renewal Cream Tube to make the choice easier  Products were heavy or greasy adopt the ingredients and the formulas more to the American liking Product names:  Costumers don t know what they mean and they are no help at the point-of-purchase descriptive/significant names can speed up the decision-making process that is obviously too long and not worth it for many costumers Advertising:  Brand awareness and the knowledge were not as good as the competitors need to continue with advertising also at the point-of-purchase  Adopt advertising to American perception of beauty and premium products Because I m worth it worked very well for L Oral something similar could solve the problem slogan should target the right costumers (age range!) and show that an average person can afford luxuries products for everyday life  Star strategy seemed to work out in the past adapt the message to the different target markets  Use ads to educate the costumers about the products
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Dr. G Clotaire Rapaille did a market research for L Oral and uncovered the American Code/perceptions for beauty and seduction that was completely different from French perceptions (RAPAILLE, The Culture Code, p. 49).