Strategic Management

Strategic ManagementWriting 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 Poor1)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 prioritization2) 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 case3) 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, GlobalResearch Group, Executive Director Vincent Dessain, and Research AssociateAnders Sjoman of the HBS European Research Office prepared this case. HBS cases are developed solely as the basis for class discussion. Casesare not intended to serve as endorsements, sources of primarydata, or illustrations of effective or ineffective management.Copyright © 2005 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call1-800-545-7685,write Harvard Business School Publishing, Boston, MA 02163, or goto http://www.hbsp.harvard.edu. No part of this publicationmay bereproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,photocopying, recording, or otherwise—without the permission of Harvard Business School.GEOFFREY JONESDAVID KIRONVINCENT DESSAINANDERS SJOMANL’Oréal and the Globalization of American BeautyOn a muggy summer day in 2004, Philip Clough, president and CEO of Kiehl’s Since1851, a smallupscale cosmetics maker, was directing the placement of moving boxes around his business’s newoffice in a renovated warehouse on Hudson Street in lower Manhattan’sGreenwich Village. AsClough gave a tour of the group’s spare fifth-flooroffice space, there was little evidence that Kiehl’srepresented one of the most radical experiments inthe 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 acquisitionstrategy. The U.S. buildup was critical to the globalization of L’Oréal’s business, which had grownfrom 25,000 employees and $4 billion in revenuesin 1988 to 50,000 employees and $14.3 billion inrevenues in 2002. By adding popular American brands such as Maybelline, Redken, Matrix,SoftSheen-Carson, and Ralph LaurenFragrances to its portfolio of French brands, L’Oréal had createdan international brand portfolio for consumers with a wide range of incomes and tastes in 140countries.In the early 1980s, achieving such a high level ofglobal distribution was barely in the sights ofL’Oréal senior managers. L’Oréal was France’sleading beauty company, but its internationalpresence was limited. Many believed that the conception of Parisian beauty as being expensive andhigh culture—the image of all L’Oréal brands atthe time (e.g., Lancôme in cosmetics and L’OréalProfessional in hair care)—limited the company’s ability 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 anything that we thought had world potential.That was a major problem because to develop in many of the newer markets in the world, ourL’Oréal brand was simply too premium for the level of affluence of those countries. We hadsome of the products we needed, but there were some huge parts of the business missing,mainly cosmetics. We really needed in our portfolio a more attractively priced proposition, notjust to fill a hole in the States and in Europe, but to go around the world and in all the newmarkets.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 Beauty2Moreover, few senior managers at the time believed that even Lancôme, one of L’Oréal’s mostsuccessful brands, could compete effectively in the U.S.—one ofthe world’s largest markets forbeauty 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 enabledthe evolution of L’Oréal’s internal organization, which eventually split into three main productdivisions:•TheConsumer Products Divisionsold hair-care, skin-care, makeup, and perfume productsthrough mass-market retailing channels at competitive prices (2003 revenues increased 7.7%on a like-for-like basis to $9.4 billion).•TheProfessional Products Divisionsold colorants and hair-care, texture, and stylingproducts to hairdressers and salon professionals worldwide (2003 revenues increased 8.6% ona like-for-like basis to $2.4 billion).•TheLuxury Products Divisionhoused L’Oréal’s prestige cosmetics and perfume brands.Products were distributed through selective retail outlets, such as department stores,perfumeries, travel retail outlets, and thegroup’s own boutiques (2003 revenues increased4.2% 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 thesedivisions. (SeeExhibit 1for 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 renownedfor their high quality, effectiveness, and cultfollowing among celebrities. Customers made pilgrimages from around the world to the originalKiehl’s location in New York’s East Village, where samples were handed out liberally to anycustomer. Its customer base was loyal and youngerthan the traditional luxury cosmetics consumer.Its Generation X employees elicited gasps of “Oh myGod!” when they told friends that they workedat the Kiehl’s store in Manhattan.Kiehl’s represented a significant departure from the other offerings in L’Oréal’s product mix. “Webought it precisely because we thought it was interesting to see a brand dothings successfully thatwere contrary to what we would have done,” said L’Oréal CEO Lindsay Owen-Jones.1L’Oréalbrands had million-dollar advertising budgets. Kiehl’s did no advertising at all, and its productswere, at the time of the acquisition, notably hard tofind. L’Oréal owned no stores, no salons, no spas,nor any other point of sale. Kiehl’s, by contrast, had done much of its business from a singleneighborhood store that offered attentive service, a few retail outlets in upscale department storessuch as Bergdorf Goodman and Neiman Marcus, and mail order.As Clough explained, L’Oréal intended to expandKiehl’s and sell its original products in storesaround the world:When L’Oréal bought Kiehl’s, it was a small family company. Celebrities touted ourproducts in the media. And demand was swamping the only store we had. Part of Kiehl’sallure was that few people outside of New Yorkhad access to our products. In the past severalyears we have opened quite a few stores around the globe, created a website, and expandedour business several times over. The issue goingforward is: Are there any limits to how far wecan take Kiehl’s in the global marketplace? Forinstance, how do we preserve the integrity ofthe 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.

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