Loreal Luxury Case Study

L'Oreal Luxury Brand Case Study CM00056-008/Published 12/2010
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CASE STUDIES
L'Oreal Luxury Brand Case Study
Serving the post-recessionary affluent market
Reference Code: CM00056-008
Publication Date: December 2010
DATAMONITOR VIEW
Catalyst
After a sharp drop in global demand for luxury cosmetics following the economic recession, sales of premium brands now
appear to be recovering. LOreal, the world's largest cosmetics firm, reported higher than expected profits of 1.2bn in the
first half of 2010, and in addition displayed its fastest pace of organic growth for three years, both of which were driven by
accelerated sales of its luxury lines. This case study will examine the ways in which LOreals premium brands have
responded to the changing demands of a new affluent consumer base, and in doing so have achieved market success
amid a post-recessionary landscape.
Summary
Following last year's spending slump, the latest sales figures suggest that consumer demand for luxury
cosmetics is on the rise. Although wealthier consumers are out shopping again, a shift in their brand values
following the recession has served to redefine the concept of "luxury." Affluent consumers are moving away
from conspicuous consumption, and instead are searching for brands that are innovative and authentic,
while providing a unique brand experience.
L'Oreal, the world's largest cosmetics maker, has bounced back from the global economic crisis, with higher
than expected first-half profits that were driven by its professional and luxury divisions. Sales of brands
such as Yves Saint Laurent (YSL) and Lancme were up nearly 10% in the first six months of 2010, making
L'Oreal's premium brands the company's star performers.
L'Oreal's recent success in the luxury cosmetics division largely stems from the ability of its premium brands
to meet the changing needs of the affluent consumer base. Through product innovation and investment in
digital marketing and social media, L'Oreal's premium brands are providing consumers with more bespoke
product offerings. Following L'Oreal's success, many other premium cosmetics brands look set to capitalize
on the luxury cosmetics market during 2011.
Analysis
ANALYSIS
Although the cosmetics and beauty industry proved to be more resilient than most to the effects of the global economic
crisis, the market did not escape the recession without experiencing some decline in sales. Top-end luxury products
suffered the most, with manufacturers in many regions witnessing increased numbers of consumers either down-trading or
"testing the waters" with lower priced luxury brands.
However, the latest sales figures and market trends suggest that luxury cosmetics spenders are now back and that the
premium cosmetics market is set for a full recovery by 2011. L'Oreal, the world's largest cosmetics company, reported
significant first-half growth in its luxury products division, with brands such as YSL and Lancme becoming the company's
star performers this year.
L'Oreal's recent success in the luxury and professional product divisions can be accounted for by the ability of its premium
brands to adapt to the changing demands of affluent consumers. Following the recession, the brand values of wealthier
consumers have shifted. These consumers are now less concerned with buying expensive products in an attempt to
maintain overall social status, and more interested in brands that provide innovative, authentic, and bespoke brand
experiences. L'Oreal's investment in research and innovation, as well as digital marketing and social media, has ensured
that its premium products successfully meet the demands of this new generation of "nouveau riche."
Luxury products have emerged this year as "star performers" in the cosmetics and beauty
industry
A resurgent demand for luxury cosmetics reflects a more optimistic consumer base
If one thing is clear from the recent economic downturn, it is that cosmetics are something that consumers are not willing to
sacrifice in the face of a recession. There is a unique relationship between make-up and a declining economy, whereby
cosmetics sales rise as the economy sours. This is more broadly known as the "lipstick effect," and refers to the idea that
during financial instability, consumers continue spending on cosmetics even while economizing on everything else.
Cosmetics serve as a relatively inexpensive treat, which make consumers feel good. As a result, global beauty markets
have continued to grow despite the recession.
Although the cosmetics and beauty industry has proven to be more resilient to the financial crisis than most other sectors,
the market has not been completely immune to change. At the height of the crisis, demand for top-end premium products
dampened, which manifested itself in declining sales for leading cosmetics companies in the first two quarters of 2009.
Even LOreal, the world's largest cosmetics firm, saw global demand for its premium brands, such as Lancme and Kiehls,
drop sharply to 225.3m in 2009, down from 354.1m in 2008. Contractions in the luxury market were noted in North
America and Western Europe, while large drops in luxury consumption were also felt in Russia and Dubai. In contrast, the
mass market products division of the group rose by 3.2% in Q3 2009, indicating that some consumers were trading down
and migrating away from luxury cosmetics. With the effects of last year's spending slump being felt even by the number one
luxury cosmetics business, the reality of shifting consumer purchasing habits was confirmed.
The decline in sales of luxury cosmetics was not as strongly felt across all countries, however. A demand for L'Oreal's
luxury brands persisted in parts of Asia Pacific, with South Korea and China showing particularly rapid growth in the luxury
division. Unlike Western countries, consumers in the Far East appeared more reluctant to trade down in the cosmetics
Analysis
segment during the recession. The urban middle classes of China, for instance, were seen to use conspicuous
consumption as a means of differentiating themselves throughout the downturn, continuing to attach a level of importance
to material wealth. As a result, the Lancme brand actually managed to strengthen its number one position in the South
Korean and Chinese markets. The impressively quick recovery of the Chinese economy served only to encourage this
trend.
Ultimately, 2010 has presented an optimistic picture of the global luxury cosmetics market. The latest market trends
suggest that luxury cosmetic consumers are coming back to the segment in regions other than Asia; these trends also
suggest that the premium cosmetics market is on track for a full recovery by 2011. Amid a post-recessionary landscape,
global confidence in the economy continues to strengthen, and sales of luxury cosmetics products look set to stabilize,
reaching annual growth figures similar to those seen before the recession. Indeed, Datamonitors consumer survey data
from 2009 and 2010 support the notion that consumer confidence in their own unique financial situations is increasing. The
percentage of consumers that say they are satisfied (i.e. answering that they are "satisfied" or "very satisfied") with their
financial situations has significantly increased since 2009 in 14 of the 17 countries surveyed, relative to those that claimed
to be dissatisfied (i.e. "dissatisfied" or "very dissatisfied"). Among these, France, Italy, and the UAE displayed some of the
largest percentage increases. These are the counties that, according to L'Oreal, showed some of the largest drops in luxury
cosmetics demand in 2009. A more optimistic consumer base is driving a stronger global cosmetics market, both in the
luxury and mass market segments.
Analysis
Figure 1: A significantly larger proportion of global consumers feel satisfied with their current financial
situation in 2010 compared to last year
QUESTION: How satisfied are you currently with each of the following?
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Source: Datamonitor D A T A M O N I T O R
Sales of LOreals luxury brands were up nearly 10% in the first half of 2010
As a direct result of the recovering luxury cosmetics market, L'Oreal reported a first half growth in sales in its luxury
products division this year. With sales of brands such as YSL and Lancme up nearly 10%, it appears that L'Oreal's stated
Analysis
strategy of focusing on higher margin luxury products to ride out the recession is paying off. All geographical zones
recorded good growth in terms of luxury cosmetics sales this year. This success is largely due to the dynamism of brands
like Lancme which has developed new products this year (such as its Gnifique skincare range) which have
successfully served to excite affluent consumers through product innovation. LOreal has therefore reported higher than
expected profits of 1.2bn for the first half of 2010, and its fastest pace of growth for three years.
As well as once again seeing positive growth in the luxury products segment across the US and Europe, demand for
L'Oreal's luxury brands is also being driven by the emerging markets. For the group as a whole, the new markets of Asia,
Latin America, the Middle East, and Eastern Europe have continued to move ahead since the end of the H1 reporting
period. Sales in these regions now account for a significant portion of the company's revenue. L'Oreal has predicted that by
2011, China will become the group's third largest market, behind only the US and France. The launch of the L'Oreal China
Research and Innovation Center this year illustrates the importance that L'Oreal now attaches to this market.
China's recent ranking as the second largest market for luxury goods, ahead of the US, is indicative of the growing demand
for luxury cosmetics in developing Asian countries. Chinese consumers are becoming increasingly aware of international
prestige brands, and as their standard of living continues to rise, consumers in these markets are making more and more
aspirational purchases. Luxury cosmetics, and to a lesser extent fragrances, are perfect purchases for the Chinese
consumer wishing to enter into the luxury space. The emergence of a new class of affluent consumer in China (particularly
comprised of working women) is providing a generation of financially stable consumers with a taste for comfortable
lifestyles. These consumers are using luxury products as a mark of status, and a means of differentiating their personal
wealth from the rest of society.
The aspiration for luxury that currently prevails in the emerging markets is what has helped drive L'Oreal's recent market
success, and is expected to help fuel the future growth of the luxury cosmetics market. As a result, luxury cosmetics has
been predicted to be the fastest growing segment within the luxury goods market up to at least 2015.
Mass market brands have focused on upmarket products to boost sales
Due to returning demand for luxury and prestige products, the 6% organic growth of the L'Oreal group (driven
predominantly by its extensive luxury cosmetics offering) in the first half of 2010 is higher than that of mass-market players
such as Procter & Gamble Co. (P&G) and Unilever, which came in at around 4%. With the luxury consumer back in force
across many global regions, the mass and prestige markets appear to have decoupled, with the latter now growing much
faster in many parts of the world.
In an effort to enhance its growth rates by reaching out to a wider consumer base, P&G has started to focus its marketing
on products that appeal to the affluent consumer. In the last quarter of 2010, P&G launched a new campaign for its upscale
men's grooming brand, The Art of Shaving. By acquiring The Art of Shaving's 36 US stores in 2009, P&G intended to
strengthen its dominance in the men's shaving market by gaining greater exposure to men's prestige personal care. This
forms part of P&Gs longer-term strategy of enhancing its presence in all personal care channels, particularly prestige. To
accompany this luxury brand and encourage men to shave more, P&G even launched an iPhone app back in 2009 to give
the bearded man a visual look at how they would appear were they clean-shaven.
P&G has also recently added new ranges to its Dolce & Gabanna "The Make Up" brand, which was first launched last
March and marked its first foray into luxury cosmetics. New launches include a range of luxury Volumized Lashes Mascara
Analysis
and Shine Lipsticks, which were made available to UK consumers last month and are available exclusively through
Harrods. P&G has recently extended its marketing focus to include luxury fragrances, with the launch of a massive retail
display campaign in every international airport in the US and Canada. This campaign, covering Dolce & Gabanna, Hugo
Boss, and Gucci fragrances, aims to capitalize on the impulse purchase market in the luxury retail channel, an area that
proved to be particularly profitable in Q3 2010 for Estee Lauder.
Figure 2: Procter & Gamble aims to capitalize on resurgent consumer demand for luxury cosmetics by
placing a greater focus on its prestige brands
Source: Datamonitor Product Launch Analytics D A T A M O N I T O R
A new affluent consumer segment is serving to redefine the concept of luxury
Affluent consumers have replaced old brand values with new, contemporary ones
Although wealthier consumers are once again spending money, their brand values have changed, and they are now using
very different criteria to make product choices. This shift in values has been exaggerated by the global economic crisis. A
recent study carried out by Dwell Media's recently created Dwell Strategy and Research Division, entitled The New Face of
Affluence, has identified a new segment of the US population termed "new affluents." These consumers are defined as
households whose average age is 45, with an income of nearly $200,000. They are believed to represent nearly 9 million
Americans, who spend as much as $303bn annually on their favorite brands. After surveying over 2,230 people regarding
their buying habits, brand loyalties, and concerns, the study concluded that this affluent segment of US consumers has
changing expectations as far as products are concerned, and is in turn forming new relationships with brands. This
generation of "nouveau riche" has redefined "luxury," in that they are now moving away from conspicuous consumption and
in search of brands that are innovative, authentic, and high quality, while also being able to perform well. These same
Analysis
consumers are no longer concerned about maintaining their social status by purchasing expensive products, but instead
have the economy and environment at the top of their minds when making purchasing decisions.
In addition, this influential class of wealthy Americans is now looking for brand interaction. After all, this is a generation of
consumer that has become dependent on mobile phone applications and social networking sites as a way of engaging with
and evaluating brands. For marketing teams promoting luxury cosmetic brands, this now means that in order to convince
this new generation of wealthy consumers that their brands are worth purchasing, they must create a brand experience and
personal connection with their target audience. For brands that can produce authentic, functional, and design-centric
products, while also being able to cultivate a genuine relationship between the brand and the consumer, these new
affluents will represent an important source of revenue.
Moving forward, affluent US consumers are likely to be buying fewer things of higher quality, with their brand choices
reflecting their newfound desire for self-expression rather than status. Indeed, Datamonitors 2010 consumer survey has
revealed that the majority of consumers across all 20 countries surveyed are now in search of beauty products that cater to
their personal needs, which indicates that consumer demand for more bespoke product features may not be limited to just
the US. This newly defined and lucrative consumer segment is actively using the Internet to learn about products, and to
connect with brands that appeal to them. Therefore, instead of selling wealthy consumers a product, manufacturers of
luxury cosmetics must now offer them an entire brand experience. Brands that successfully connect with consumers at
every level will be the brands that wealthier consumers gravitate towards.
Figure 3: Consumers across the globe are demanding beauty products that cater to their specific needs
QUESTION: How concerned are you about the following factors relating to beauty
products and your appearance?
Whether a product is formulated specifically to match your needs
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Source: Datamonitor Consumer Survey 2010 D A T A M O N I T O R
Analysis
Luxury cosmetics brands now face the challenge of maintaining customer loyalty
Not only are manufacturers of luxury cosmetics faced with the challenge of shifting consumer demands, but following the
economic turmoil of the last few years, a less loyal and more open-minded luxury consumer has emerged. Consumers are,
in general, demanding greater value for money from products and services, which for the luxury cosmetics sector has
meant that an increasing number of people are evaluating the value and quality of premium brands.
As a result of heightened levels of consumer scrutiny for luxury brands, the premium cosmetics market has suffered the
effects of a decline in customer loyalty. During the recent economic instability, consumers have been more tempted by
mass market cosmetics that offer a greater level of professionalism through more sophisticated packaging, improved
formulations, and added innovation. Although the appeal of mass market cosmetics among affluent consumers has
undeniably improved following the recession with some consumers starting to experiment with mass market brands
consumers are more frequently turning to alternative products within the luxury sector usually those with a lower price
than completely rejecting luxury products.
Luxury cosmetics brands now face the challenge of retaining the loyalty of a more promiscuous and knowledgeable affluent
consumer base. Their main task is to emphasize the relevance of their products to consumers, primarily focusing on how
the unique features of their products will specifically match consumer demands. The effectiveness of brand communication
will be crucial in securing customer loyalty and persuading consumers that luxury products are worth the extra money.
Focused messaging, clear labeling, streamlined (less is more) design, and the innovative delivery of goods appear to be
resonating with consumers of luxury cosmetics everywhere.
LOreal's success in the luxury cosmetics business stems from its ability to adapt to the
new face of affluence
L'Oreal's ability to bounce back from the recession and achieve impressive sales levels this year can be accounted for by
the investments made in its luxury and professional product division. To repair the fall in demand for its premium brands
experienced in many global regions, L'Oreal has created a plethora of new luxury products that successfully respond to
growing consumer demand for innovative and bespoke product features. What is more, L'Oreal has also capitalized on
digital and social media opportunities when marketing its brands.
"To weather this crisis, and indeed emerge stronger than before, the group is implementing five main strategic thrusts:
developing accessible innovation to broaden the consumer base, opening up new product categories, accelerating
globalization, ensuring sustained advertising and promotional investments, and lastly reducing costs."
Jean-Paul Agon, L'Oreal CEO quoted in The Moodie Report, 2009
Analysis
LOreals investment in research and innovation has fueled the success of its luxury brands
After 10 years of research and seven patents later, Lancme launched Gnifique Youth Activating concentrate, which
claimed to be the world's first skincare product that can revive the activity of the genes of youth for visibly rejuvenated,
smoother, and more luminous skin in just seven days. As a result of its research, L'Oreal discovered a protein profile
specific to young skin, and also recognized specific genes that are responsible for skin's youthfulness. The Lancme brand
used in-vitro reconstructed skin models to demonstrate that the active ingredients contained in Gnifique help to promote
the expression of specific "youth genes," and in turn boost the presence of proteins that promote younger looking skin.
Since its launched 18 months ago, three million bottles of Lancme's Gnifique Youth Activator have been sold, making it
the most successful skin care product in the 75 year history of the L'Oreal-owned brand.
The global success of this product supports L'Oreal's prediction that in 2010 and beyond, key beauty innovations will stem
from advancements in genomics (the study of genes) and proteomics (the study of proteins), as well as stem cell research.
Through investment in these areas, L'Oreal believes that it can produce "highly tailored products which best respond to an
individual's skin age to slow the aging process." In addition, aging populations around the globe will help drive the need for
scientific research into skincare products like Gnifique. Consumers in countries with aging populations are likely to
continue purchasing premium-priced skincare products that claim to slow down the visible signs of aging, in particular
products that are supported by scientific findings relating to genes and proteins of the skin. When it comes to anti-aging
skincare products, Lancme's Gnifique proves that despite the recession, consumers are not always willing to downgrade
from premium to mass-grade products.
Following on from the success of Lancme's activating serum, it has extended the range, and launched products such as
Youth Activating Eye concentrate in a gel-cream formulation, which contains the same activating ingredients as the original
serum (Bio-Lysat, which stimulates gene expression of the identified youth proteins, and Phytosphingosine, which
reestablishes protein synthesis and promotes the development of more youthful skin). The Lancme Gnifique range has
successfully tapped into consumer demand for innovative skincare products that influence the biological performance of the
skin (a market estimated to be worth close to 150m). For some consumers, products like this are seen as a far cheaper
alternative to cosmetic surgery.
Lancme's success in the luxury skincare market looks set to continue as it gets ready to launch the next innovative
Gnifique products in January 2011 in the UK, those being Gnifique Nutircs, a cream for dry skin, and a Nourishing Youth
Activating Cream.
"I used it morning and night and about the second week I really did notice a difference in my appearance. Difficult to define
but my skin seemed more refined and maybe a little more plumped up I have to say it, it appeared younger looking."
J. Clarke, 56 year old blogger on www.makeupally.com, 2010
Analysis
Figure 4: After 10 years of research, Lancme launched the world's first gene-activating skincare product,
which proved to be the most successful skincare product in its 75 year history
Source: Datamonitor's Product Launch Analytics D A T A M O N I T O R
LOreal is using social media to provide affluent consumers with the brand experience they are looking for
Although the cosmetics and beauty industry has at times been less receptive than other sectors to the use of digital and
social media for marketing purposes, in recent months L'Oreal has shown its intention to be the leading cosmetics brand in
the digital platform. As the luxury cosmetics sector becomes increasingly competitive, it is no longer enough to use TV
advertising, glossy print, and retail experience to target an audience. Instead, as more and more luxury consumers begin to
use the web to research and then purchase a product, brands can no longer ignore the role of digital marketing and social
media as an effective means of engaging with consumers.
L'Oreal's luxury division has been particularly successful in providing more bespoke marketing strategies for each of its
luxury products. Following the appointment earlier this year of the agency Skive as a digital strategic planner, L'Oreal has
managed to replace its piecemeal initiatives with a more integrated marketing approach for individual luxury products such
as the YSL Touch clat. In time, this will serve to replace any ad hoc digital activity with a more aggressive marketing
strategy.
L'Oreal's marketing of luxury products through social media has been hugely successful in China, particularly for the
Lancme brand. Through the establishment of several social media assets, L'Oreal has managed to engage with China's
vast online population (now standing at more than 368 million, including 221 million who update blogs). The first initiative
was launched in 2006, in the form of Lancme's own Chinese Internet community (www.rosebeauty.com.cn). Here,
Chinese consumers can learn about, buy, and rate Lancme products. The website also allows consumers to closely
engage with the brand and use forums to interact with other customers. The provision of product information and interaction
with the target market enables Lancme to get closer to its consumer base.
Lancme's social media campaign intensified earlier this year, and has played a role in the recent success of L'Oreal's
luxury division. In January, the brand began using the popular Chinese social network site (SNS) Kaixin001 as a way of
driving consumer traffic to the Lancme e-community. Lancmes overall marketing strategy was to use one of the most
Analysis
popular SNS sites in China to reach out to people with interests in beauty and related areas, and lead them to the direct
sale area of its official website. Lancme uses a homepage banner and brief descriptions at key positions on the SNS site
to introduce its official website. In order to get Kaixin001 members interested in the group, Lancme has cleverly
incorporated two key site features:
An online beauty contest This took place from May 25 to July 15 this year, and targeted middle-class
women across different industries. Participants were asked to place their picture on the Lancme group
home page, or to recommend a friend. Based on the number of votes polled, the winner received Lancme
products as prizes. With 18,038 participants and 1,232,459 votes received, this strategy of promoting
interest in the Lancme group was a big success.
Online skin and personality test These two online tests also targeted middle-class women. Not only
were they able to take the test themselves, they were able to see their friends' test results as well as the
beauty contest participants' test results.
Figure 5: In January 2010, the Lancme brand began using the popular Chinese SNS Kaixin001 as a
means of driving consumer traffic to its official Chinese Lancme website
Consumer traffic is
directed here, to
Lancme's official e -
community
The popular China SNS site, Kaixin001, has helped broaden Lancm e's consumer appeal
Consumer traffic is
directed here, to
Lancme's official e -
community
The popular China SNS site, Kaixin001, has helped broaden Lancm e's consumer appeal
Source: Datamonitor, www.littleredbook.cn D A T A M O N I T O R
Analysis
The beauty contest not only helped people to engage with the brand, but it also generated word of mouth, which proved
important in creating a brand following. The online tests also connected consumers with their friends. In this way, the SNS
site provided added value concepts that have given Chinese Lancme consumers the brand experience they are looking
for. In the short term, the e-community and SNS campaign have served to increase Lancmes interaction with its target
market of middle class Chinese women, enabling them to feel both engaged and involved with the brand. In the long run,
the Lancme community will keep on growing, providing a solid platform for any future promotions. With women who earn
more than $1,400 a month (Lancmes target audience) spending more time per day online than watching TV, the social
media marketing effort was a valuable step in helping the Lancme brand encourage consumer spending on luxury
cosmetics.
Figure 6: Lancme has been ranked first in The Digital Genius and Gifted ranks (with the highest Digital
IQ) ahead of other luxury cosmetic brands such as Estee Lauder and Clinique
Source: Datamonitor, www.europeanbusinessreview.com D A T A M O N I T O R
"From the other brand groups we reviewed before, usually the brand does most of the "talking" open a blog, put up
images, show people some videos, etc. But in Lancme's group, almost all the talking is done by members."
User of the China SNS site, Kaixin001, quoted on www.littleredbook.cn, 2010
Analysis
LOreals luxury products have tapped into consumers individualistic needs
L'Oreal's attempts to provide consumers with more bespoke product offerings have proven particularly successful in China.
Due to rising disposable incomes, increased beauty consciousness, and a growing desire among aging consumers to look
younger, the Chinese demand for luxury beauty and cosmetics products is particularly high. Chinese consumers
increasingly believe that spending time and money on their personal appearance is an important aspect of achieving a
state of wellbeing. As a result, the value of the skincare products market has increased by over $20bn between 200209,
with facial moisturizers currently occupying just under 70% of the sales market. Chinese consumers display unique needs
when it comes to skincare products. Their fear of tanning, along with rising annual temperatures, is driving increases in sun
care demand, particularly products with added claims such as waterproofing and whitening function. Furthermore, with the
40+ age bracket of Chinese consumers predicted to make up more than 30% of the entire population by 2013, demand for
anti-aging products is likely to remain high.
With these market-specific needs in mind, L'Oreal has launched a series of luxury skincare products this month under its
Lancme brand. These include:
A whitening serum that contains anti-aging ingredients.
An SPF 50 make-up base which provides 12 hours of UV protection while also giving an even skin tone.
A Hydrazen Neocalm range that is said to hydrate and protect skin from environmental stresses and
pollution (including creams, cream gels, and essence).
Figure 7: Lancme has recently launched a range of luxury skincare products that successfully cater to
the specific needs of the Chinese consumer base
Source: Datamonitor's Product Launch Analytics D A T A M O N I T O R
Analysis
Following L'Oreal's success, a plethora of brands are looking to capitalize on the luxury
cosmetics market in 2011
With spending on luxury cosmetics expected to return to pre-credit-crunch levels next year, it comes as no surprise that
numerous brands are getting ready to enter the expanding luxury cosmetics market with the launch of new premium
product ranges at the beginning of next year. With the growth of the luxury cosmetics industry being fueled by growing
demand in emerging markets such as developing Asian countries and Latin America, many manufacturers look set to focus
their efforts on these regions.
Shiseido will relaunch its luxury skincare range in January 2011
It is not just L'Oreal that is focusing on boosting luxury beauty sales as part of a post-recessionary business strategy. The
Japanese brand Shiseido is planning to relaunch its luxury skincare brand Cle de Peau Beaute, in an attempt to strengthen
its competitiveness in the global luxury cosmetics market. In January 2011, Shiseido will consecutively launch 21 new
products in both the US and eight countries in the Asia Pacific region; the focus is on markets where an ultra-affluent
segment is emerging, one that consists of consumers that are demanding the highest level of product quality. With its
current target markets being in North America and China, this new range serves to promote the development of its loyal
customer base. This newly innovated range of products will be marketed without the Shiseido name, so as to build a new
luxury image, and form a second pillar for the brand.
To promote innovation of brand communication, the new range of products will employ the actress Amanda Seyfried as the
new image model and face of the brand. Shiseido considers Seyfried to be popular among its target market, and also
believes that as a spokeswoman, she will help attract those women in their 30s who do not compromise on paying a
premium for the sake of beauty. This is an emerging segment in regions like Japan.
The product range is formulated using an innovative "illuminating complex," which is a novel moisturizing ingredient derived
from natural silk and pearl. This ingredient helps align the skin's corneocytes (cells in the outer layer of the skin) and
improve its nanostructure, thereby enhancing the radiance of the skin.
Analysis
Figure 8: Amanda Seyfried is the image model for the new Cle de Peau Beaute skincare range that will be
launched by Shiseido in January 2011
Source: Datamonitor, www.shoppingblog.com D A T A M O N I T O R
Sephora will tap into the luxury beauty market through a joint venture with Grupo Axo
Sephora is planning on entering Mexico's luxury beauty market next year though a joint venture with Grupo Axo, which
distributes, operates, and promotes prestigious brands in Mexico. This forms part of Sephora Americas' expansion plans for
the Latin American market, where Mexico represents one of the most highly developed fragrance and cosmetics markets in
the region. In addition, Sephora's parent company Louis Vuitton Moet Hennessy (LVMH) has this year acquired a major
state in Sack's, the leading online retailer of fragrances, cosmetics, and toiletries in Brazil.
This partnership between Sephora Americas and Grupo Axo is a strategically wise move on both accounts. Sephora's
extensive experience in the global fragrance and cosmetics market perfectly complements Grupo Axo's 15 years of
experience in the field of commercial and strategic development of luxury brands in Mexico. As a result, Sephora will be
able to successfully capitalize on the brilliant growth opportunity that exits in Mexico, starting with the opening of two initial
retail stores in the second half of 2011. To date, no retail store comparable to Sephora is present in Mexico. Sephora offers
a unique store design, sales consultants that can offer expert advice on beauty, and an unparalleled selection of classic
and emerging brands. It is therefore predicted that the beauty retail experience that Sephora offers will be well received by
Mexican consumers.
Analysis
Conclusions and recommendations
The issues explored in this case study bear some important points for consideration:
Manufacturers of luxury cosmetics may benefit from going "green" Given that, by their very nature,
luxury cosmetics tend to involve lavish and excessive packaging, the recent emergence of a new affluent
consumer segment that has a growing awareness of green issues now presents an interesting challenge to
premium cosmetic brands. As the eco-consciousness of luxury consumers continues to develop,
manufacturers of luxury cosmetics will have to look into improving sustainability to ensure long-term
profitability. Although some may argue that going green will dilute luxury brand image, it actually appears
that the values associated with luxury brands such as timelessness, innovation, and durability perfectly
align with the goals of sustainability. There exists a market opportunity for luxury cosmetics brands to
capitalize on being both sustainable and profitable, reaching out to this new generation of wealthy
consumers. If luxury brands do not attempt to move away from needless, indulgent packaging they are
likely to drive away the increasing number of eco-conscious consumers.
Mobile advertising will become a platform that luxury cosmetics brands cannot afford to ignore It
has become clear that in order to succeed in the luxury cosmetics market, companies must create the most
meaningful connections between the brand and the customer. Mobile advertising networks look set to join
social networking as a favored digital marketing strategy used to enhance brand names. iAd, Apple's mobile
advertising network, allows cosmetic companies to launch their own campaigns and, in doing so, reach out
to millions of iPhone and iPod Touch users around the globe. L'Oreal will be one of the first to utilize this
advertising platform when it launches its own campaign in December 2010 led by the Lancme brand.
Although mobile advertising will not make or break luxury cosmetics companies in the immediate future, the
accelerated growth of this advertising medium means that, moving forward, the platform cannot be ignored
by companies.
The biggest opportunity for luxury cosmetic brands will be the emerging Chinese market
Consumers in emerging markets are armed with disposable incomes and a growing appetite for luxury
goods, with China offering the greatest market opportunities for luxury cosmetics brands. In 2009 it
surpassed the US as the world's second largest luxury market, and in the next five years its luxury
consumption is forecast to increase to $14.6bn. What distinguishes China from other emerging markets is
the vast number of Internet users (384 million, growing to 840 million within three years) and the marketing
opportunities that this provides. For luxury cosmetic brands to fully capitalize on this lucrative emerging
market, they will have to optimize their digital competence by embracing as many digital marketing
opportunities as possible.
Analysis
APPENDIX
Case study series
This report forms part of Datamonitor's case studies series, which explores business practices across a variety of
disciplines and business sectors. The series covers a range of markets including food and drink, retail, banking and
insurance, pharmaceuticals, and software.
Each case study provides a concise evaluation of a company that stands out in some area of its strategic operations,
highlighting the ways in which the company has become one of the best in its field or how it deals with different problems
encountered within that sector.
Methodology
This case study draws upon a mix of primary and secondary research, including Datamonitor's Market Data Analytics
(MDA) database and Product Launch Analytics (PLA) database, alongside an extensive review of secondary literature and
other in-house sources of information. Data have also been selectively extracted from the findings of the consumer
fieldwork conducted for the purpose of Datamonitor's New Consumer Insight (NCI) research.
Secondary sources
Rebecca Mann (2010) L'Oreal sales edge ahead despite tough trading conditions; Luxury Products and
travel retail struggle, May 2010, http://www.moodiereport.com/document.php?c_id=29&doc_id=20641
Andrew Roberts (2010) L'Oreal Sales rise 12 Percent on Luxury Cosmetics, July 2010,
http://www.businessweek.com/news/2010-07-12/l-oreal-sales-rise-12-percent-on-luxury-cosmetics.html
Zoe Wood (2009) All smiles at L'Oreal and Boots as cosmetics buck recession, August 2009,
http://www.guardian.co.uk/business/2009/aug/28/boots-loreal-recession-makeup
L'Oreal (2010) L'Oreal Half-year Report at June 30th, 2010, http://www.loreal-
finance.com/_docs/us/half_year_report_2010/Rapport_Semestriel_va.pdf
Sherry (2010) Lancme; China social media campaign offers optimized engagement, August 2010,
http://www.littleredbook.cn/2009/08/12/lancome-china-campaign-offers-optimized-engagement/
Tim Arnold (2010) Is Luxury Dead? Maybe Not, June 2010,
http://www.theadvertisingshow.com/en/art/1448/
Leah Armstrong (2010) 'Consumer infidelity' is biggest problem for the luxury sector, May 2010,
http://www.cosmeticsdesign.com/Products-Markets/Consumer-infidelity-is-biggest-problem-for-the-luxury-
sector
Katie Bird (2010) China set to become the world's largest market for luxury goods, July 2010,
http://www.cosmeticsdesign.com/Financial/China-set-to-become-the-world-s-largest-market-for-luxury-
goods
Analysis
Scott Galloway and Maureen Mullen (2010) The biggest opportunity for luxury brands in a generation, 2010,
http://www.europeanbusinessreview.com/?p=2391
Jing Daily (2010) L'Oreal Expects China to become Third-Largest Market This Year, July 2010,
http://www.jingdaily.com/en/luxury/loreal-expects-china-to-become-third-largest-market-this-year/
Fibre2fashion (2010) Grupo Ax to bring leading French beauty brand, October 2010,
http://www.articlesbook.com/grupo-axo-to-bring-leading-french-beauty-brand/
Guillaume Gauthereau (2010) Sustainable Luxury Presents New Opportunities, November 2010,
http://luxurysociety.com/articles/2010/11/sustainable-luxury-presents-new-opportunities
Katie Bird (2008) Emerging markets and the internet are the future for luxury, April 2008,
http://www.cosmeticsdesign.com/Products-Markets/Emerging-markets-and-the-internet-are-the-future-for-
luxury
Further reading
Datamonitor (2010) Product Insights: Skincare in China, July 2010, DMCM4756
Datamonitor (2010) The Future of Skincare: Capitalizing on Emerging Trends and Changing Preferences,
March 2010, DMCM4720
Datamonitor (2010) The Future of Makeup: Capitalizing on Emerging Trends and Changing Preferences,
March 2010, DMCM4721
Datamonitor (2010) Shiseido Tsubaki Case Study: Breaking into the luxury hair care market with an
effective marketing strategy, February 2010, CSCM0294
Ask the analyst
The Datamonitor Knowledge Center Writing team can be contacted at askfs@datamonitor.com
Datamonitor consulting
We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If you
have further requirements, Datamonitors consulting team may be able to help you. For more information about
Datamonitors consulting capabilities, please contact us directly at consulting@datamonitor.com.
Disclaimer
All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor.
The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the
findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith
from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such
Analysis
Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be
incorrect.
Copyright of L'Oreal Luxury Brand Case Study: Serving the Post-Recessionary Affluent Market is the property
of Datamonitor Plc and its content may not be copied or emailed to multiple sites or posted to a listserv without
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