As world leader in cosmetics and beauty, l’Oréal has to create barriers to entry against a major source of threat: pharmaceutical laboratories. These have the potential to innovate in cosmetics, thus endangering l’Oréal’s market share. This threat was exemplified by Johnson & Johnson launching a new active ingredient Retinol in a number of its brands (such as Neutrogena and Roc).
L’Oréal bought a niche brand called La Roche Posay (LRP), named after a town known for its dermatological water and spa. The town hosts more than 10,000 patients per year, including about 3,000 children as young as five months. LRP’s business model was based on medical expert prescription. When working with dermatologists, it takes two or three years before any new product can safely be introduced to the shelves of pharmacies. But the brand faced growth problems:It was imprisoned in its therapeutic niche, and limited to patients rather than the general public.It was remote from the public. A user might be satisfied by the performance of, say, Antelios XL (an LRP product prescribed by dermatologists), but without another prescription, he or she would not buy a different LRP product.As a consequence the brand was below the minimum critical size. LRP sold 560,000 units in 1998, while it needed to sell at least 1 million units.
L’Oréal’s strategy is to build its growth on truly global brands, and this requires a minimum sales level of s150 millions per brand. LRP was intended to be the eleventh global brand of the l’Oréal Group, but as it was, it was not easily exportable. To thrive against modern competition it is necessary to move quickly in global markets with promising growth potential. L’Oréal’s target markets were Europe, Brazil and Argentina in 2000, Scandinavia and Asia in 2001, and India in 2002.
It needed the brand to have a presence in four market segments: hygiene, facial care products, solar protection and make-up. These last two categories were intended to release the first two sources of limitation in the brand’s growth, and make it truly attractive to pharmacists all around the world.
In some markets pharmacists’ shops were not appropriate outlets. The strategy here was to create another form of outlet, such as a concession in a department store (the solution in Canada), with a qualified pharmacist in attendance.
Because LRP did not have existing products in the solar protection and make-up categories, strategic extensions were planned for these. This was done by means of a brand transfer. LRP took over the products sold under another l’Oréal brand, Phas, which had been positioned on non-allergenic products.