L'Oreal Nederland B.V.
Situation Analysis
Identification of Alternative Solutions
Decision Criteria
Recommendation and Implementation
Exhibit 1. Alternatives Analysis
The managers of the Dutch subsidiary of the L'Oreal Group wrestled with a decision about whether to introduce additional products into the Netherlands market. L'Oreal, headquartered in Paris, was the largest cosmetics manufacturer in the world. With a heavy corporate investment in research and development, Paris expected each of the 100 country subsidiaries to distribute the new products; but the country managers were required to take the decision on whether to introduce each product based on the particular situation in their country. The French labs made unilateral decisions about all new product developments and the country managers had no input into the R&D process. Any new product line introduction had to be financed by the current operations of each subsidiary.
Some years earlier, L'Oreal had acquired a rival French company called Laboratoires Garnier. In France, with a population of 60 million people, Garnier operated as an independent company in direct competition with the L'Oreal products. However, in smaller markets such as Holland, with a population of 15 million people, the Garnier products would be marketed by the regular L'Oreal sales force, competing for their time and attention. Madame Yolanda van der Zande, director of the Netherlands subsidiary, and her marketing manager, Mike Rourke, were considering the introduction of two Garnier product lines into the Dutch market: the Synergie skin care line and the Belle Couleur permanent hair colorants. Synergie was a new line -- recently introduced in France -- made with all natural ingredients, which was a new trend in Holland. Belle Couleur had been on the French market for 20 years, but had no presence in Holland. Madame van der Zande gave Rourke two weeks to come up with a marketing plan to decide which if any of the new Garnier products to embrace in Holland and how to preserve the existing L'Oreal products that might be impacted by the introduction.
Rourke had been in the business long enough to know that any new product launched in the Dutch market would have to present a strong concept and high market potential. Therefore, the products had to offer unique, desired and identifiable differential advantages to Dutch consumers in order to overcome the customers' natural loyalty to their existing brands. Rourke was aware that without that edge new products would be at a competitive disadvantage and would not only fail, but would tarnish the Garnier name and poison the well for future Garnier products introductions.
At the time of this decision, 40% of the Dutch population was under 25 years old, but the population as a whole was aging; the fastest growing segments were those over 25 years old. The population surveys also revealed that Dutch women were getting out of the house in growing numbers. Twenty nine percent of the women had entered the labor force and there was reason to believe that percentage would rise. The percentage of working women in the United States and the United Kingdom was over 50%, but the Dutch working women segment was growing faster than those countries. Dutch women were also delaying the decision to have children, exhibiting greater self-reliance and independence. These women also had more disposable income and could afford to buy more cosmetics for daily use. These statistical observations led Rourke to believe that the market was right for products that promised to delay the aging process.
Even though the Dutch women had more money to spend, they continued to exhibit their long-held habits of shopping for value, especially for cosmetics. European Union surveys showed that while the Netherlands ranked fourth in per capita income, they were sixth in spending on personal care products. Dutch per capita spending on personal care products was only 60% of the amounts spent in France or Germany, therefore, the Dutch market for cosmetics was only four percent of the total European Union sales.
The Dutch market for cosmetics and toiletries was led by the skin care segment, which was growing at an annual rate of 12% on a unit basis and 16% on a value basis. This segment included hand creams, body lotions, all-purpose creams and facial products. Skin care products were often divided by retailers into the care and cleansing products. Care products were further categorized into day and night creams; cleansing products included milks and tonics. Noticeable as a faster growing segment was the anti-aging and anti-wrinkling creams. A corollary to that trend was the keen awareness of natural ingredients and the attention paid to claims of scientific formulations.
The competitive landscape for skin care...
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