Strategic Management

Strategic Management Writing an case analysis based on the case of L’Oréal and the Globalization of American Beauty. The analysis will be evaluated along the following dimensions: (a) Identification and prioritization of the central strategic issues in the case (b) Use of facts from the case (no external research) to support your identification and prioritization (c) Professional quality (clarity, grammar, spelling) of written work. Excellent Fair Poor 1)Your Identification and prioritization of the central strategic issues in the case was: Clear identification and prioritization of the main and the secondary themes in the case Reasonably good sum-mary of the main themes, you missed a few, and you attempted some prioritization Spotty and inconsistent, you presented an in-complete picture of the central themes and the secondary themes with little or no prioritization 2) Your use of the facts of the case to support your identification and prioritization was: Meticulous use of facts from the case and per-suasive arguments to support all the themes identified You made an attempt to support your analysis with facts from the case but your arguments were weak or incom-plete Scant: you asserted themes and their impor-tance without support-ing facts from the case 3) The professional quality of your written work was : Smooth, clear and per-suasive writing style. Evidence of meticulous proofreading: no dis-cernible errors in gram-mar and spelling Overall, reasonably clear writing style with a few confusing parts. A few errors in grammar and spelling Line of reasoning was often unclear and con-fusing. Several errors in grammar and spelling. Professor Geoffrey Jones, Senior Researcher David Kiron, Global Research Group, Executive Director Vincent Dessain, and Researc h Associate Anders Sjoman of the HBS Europe an Research Office prepared this case. HBS case s are developed solely as the basis for class dis cussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2005 President and Fellows of Harvard College. To orde r copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, us ed in a spreadsheet, or transmitted in any form or by any means—electronic, mechani cal, photocopying, recording, or otherwise—without the permission of Harvard Business School. GEOFFREY JONES DAVID KIRON VINCENT DESSAIN ANDERS SJOMAN L’Oréal and the Globalization of American Beauty On a muggy summer day in 2004, Philip Cl ough, president and CEO of Kiehl’s Since 1851, a small upscale cosmetics maker, was directing the placem ent of moving boxes arou nd his business’s new office in a renovated warehouse on Hudson Str eet in lower Manhattan’s Greenwich Village. As Clough gave a tour of the group’s spare fifth-floor office space, there was little evidence that Kiehl’s represented one of the most radical experiments in the 97-year history of its corporate parent, Paris- based L’Oréal, the world’s largest beauty firm. L’Oréal USA purchased Kiehl’s in 2000 as part of a seven-year, carefully planned acquisition strategy. The U.S. buildup was critical to the globalization of L’Oréal’s business, which had grown from 25,000 employees and $4 billion in revenues in 1988 to 50,000 employees and $14.3 billion in revenues in 2002. By adding popular American brands such as Maybelline, Redken, Matrix, SoftSheen-Carson, and Ralph Lauren Fragrances to its portfolio of French brands, L’Oréal had created an international brand portfolio for consumers wi th a wide range of incomes and tastes in 140 countries. In the early 1980s, achieving such a high level of global distribution was ba rely in the sights of L’Oréal senior managers. L’Oréal was France’s leading beauty company, but its international presence was limited. Many believed that the concep tion of Parisian beauty as being expensive and high culture—the image of all L’Oréal brands at the time (e.g., Lancôme in cosmetics and L’Oréal Professional in hair care)—limited the company’s ab ility to expand into international markets. Jean- Paul Agon, president and CEO of L’Oréal USA, explained: We did not have an accessibly priced, genuinely popular [brand] with a global potential. We had a couple in Europe, but we didn’t have an ything that we thought had world potential. That was a major problem because to develop in many of the newer markets in the world, our L’Oréal brand was simply too premium for the le vel of affluence of those countries. We had some of the products we needed, but there were some huge parts of the business missing, mainly cosmetics. We really needed in our portfo lio a more attractively priced proposition, not just to fill a hole in the States and in Europe , but to go around the world and in all the new markets. For the exclusive use of D. Lu, 2015. This document is authorized for use only by Duo Lu in Strategic Mgmt - Spring Semester 2016 First Half taught by Rajan Kamath, University of Cincinnati from December 2015 to April 2016. 805-086 L’Oréal and the Globalization of American Beauty 2 Moreover, few senior managers at the time belie ved that even Lancôme, one of L’Oréal’s most successful brands, could compete e ffectively in the U.S.—one of the world’s largest markets for beauty products—against American foes such as Estée Lauder and Revlon. The acquisition of U.S. brands not only bolstered L’Oréal’s international presence but also enabled the evolution of L’Oréal’s internal organization, which eventually split into three main product divisions: • The Consumer Products Division sold hair-care, skin-care, makeup, and perfume products through mass-market retailing channels at competitive prices (2003 revenues increased 7.7% on a like-for-like basis to $9.4 billion). • The Professional Products Division sold colorants and hair-care, texture, and styling products to hairdressers and salon profession als worldwide (2003 revenues increased 8.6% on a like-for-like basis to $2.4 billion). • The Luxury Products Division housed L’Oréal’s prestige cosmetics and perfume brands. Products were distributed through selective re tail outlets, such as department stores, perfumeries, travel retail outlets, and the group’s own boutiques (2003 revenues increased 4.2% on a like-for-like basis to $4.3 billion). By 2004, more than 94% of L’Oréal’s revenues were coming from 17 core brands spread across these divisions. (See Exhibit 1 for a breakdown of brands by division.) Kiehl’s was considered a key addition to L’Oréal’ s luxury collection: its skin-care, body-care, fragrance, and hair-care products were renowned for their high quality, effectiveness, and cult following among celebrities. Customers made pilg rimages from around the world to the original Kiehl’s location in New York’s East Village, where samples were handed out liberally to any customer. Its customer base was loyal and younger than the traditional luxury cosmetics consumer. Its Generation X employees elicited gasps of “Oh my God!” when they told friends that they worked at the Kiehl’s store in Manhattan. Kiehl’s represented a significant departure from th e other offerings in L’Or éal’s product mix. “We bought it precisely because we thought it was inte resting to see a brand do things successfully that were contrary to what we would have do ne,” said L’Oréal CEO Lindsay Owen-Jones. 1 L’Oréal brands had million-dollar advertising budgets. Kieh l’s did no advertising at all, and its products were, at the time of the acquisition, notably hard to find. L’Oréal owned no st ores, no salons, no spas, nor any other point of sale. Kiehl’s, by contrast , had done much of its business from a single neighborhood store that offered a ttentive service, a few retail outl ets in upscale department stores such as Bergdorf Goodman and Neiman Marcus, and mail order. As Clough explained, L’Oréal intended to expand Kiehl’s and sell its original products in stores around the world: When L’Oréal bought Kiehl’s, it was a smal l family company. Celebrities touted our products in the media. And demand was swampi ng the only store we had. Part of Kiehl’s allure was that few people outside of New York had access to our produc ts. In the past several years we have opened quite a few stores around the globe, created a website, and expanded our business several times over. The issue going forward is: Are there any limits to how far we can take Kiehl’s in the global marketplace? For instance, how do we preserve the integrity of the brand as we take it worldwide? For the exclusive use of D. Lu, 2015. This document is authorized for use only by Duo Lu in Strategic Mgmt - Spring Semester 2016 First Half taught by Rajan Kamath, University of Cincinnati from December 2015 to April 2016.