Case Study: L'Oreal Marketing Strategies in India - MBA Knowledge Base (2023)

Before the facial cosmetics, L’Oreal was known as a hair-color formula developed by French chemist Eugene Schueller in 1907. It was then known as”Aureole”. Schueller formulated and manufactured his own productswhich were sold to Parisian hairdressers. It was only in 1909 that Schueller registered his company as “Societe Francaise de Teintures Inoffensives pour Cheveus,”the future L’Oreal. Scheuller began exporting his products, which was then limited to hair-coloring products. There were 3 chemists employed in 1920. In 1950, the research teams increased to 100 and reached 1,000 by 1984. Today, research teams are numbered to 2,000 and are still expected to increase in the near future. Through agents and consignments, Scheuller further distributed his products in the United States of America, South America, Russia and the Far East. The L’Oreal Group is present worldwide through its subsidiaries and agents. L’Oreal started to expand its products from hair-color to other cleansing and beauty products. The L’Oreal Group today markets over 500 brands and more than 2,000 products in the various sectors of the beauty business. Such includes hair colors, permanents, styling aids, body and skincare, cleansers and fragrances. Indeed, the L’Oreal Group have reached the peak that all cosmetic brands sought after.

L’Oreal has engaged in many forms of Market Segmentation in their venture in India, with different variables during different time periods. Firstly we will discuss the segmentation methods when it first entered the market in 1991, followed by what ensued after their makeover.

When it First Entered the Market

  • Gender Segmentation: L’Oreal first segmented the population into the different sexes as they thought their products’ “combination of low price and natural ingredients would fit India’s market, where women use plants and herbs as part of their beauty culture”. Their product specifically catered to the women of India, though later our group discusses how it should carve a niche market for itself in the Men’s sector as well.
  • Income Segmentation: L’Oreal segmented the market into 2 main segments: the poorer masses and the rest. It marketed its product as low in cost to attract the poorer masses, and her efforts in reducing ingredients to cut price reveals her aim to minimize costs as much as possible. At this point of time, it was not yet targeting the affluent middle class or upper class and thus did not make any distinct segmentation of the richer classes, preferring to regard them as a whole entity.

The “L’Oreal Makeover”

After a poor start, L’Oreal approached the market with a different concept. Presence of home brands posed problems as they had already captured a large proportion of the masses’ market share. They offered cheaper products to buyers at a price which L’Oreal was unable to match, and their long presence had established a strong sense of loyalty in the buyers, making it difficult to pry them away. With the understanding that it needed to capture a different market, it proceeded with a different from of segmentation in order to better identify its target segments

  • Income Segmentation: This time L’Oreal separated a new segment from the original 2 segments: the quickly rising middle class which was gaining in affluence. This was very specific compared to the original two broad segments it identified as they saw that this was the fastest growing income class that represented a highly untapped market potential due to their radically different mindsets from the masses.
  • Psychographic Segmentation: L’Oreal segmented India into different groups based on their thinking and behavior from the older, more conservative Indians who held conservative values of thriftiness more strongly and stubbornly, and the younger more impressionable generation who had developed a very different and westernized view on spending and culture. Influx of brands like Tommy Hilfiger, Benetton and even MTV in 1991 greatly emphasized Western values of luxury, beauty, and self-awareness leading to the rise of a new segment of people who did not view thriftiness with equal importance as their predecessors but were rather more willing to splurge on luxury goods which were previously considered too expensive and wasteful.
  • Age Segmentation: By segmenting the market into the younger middle class from the more conservative, often older Indians, it had also inevitably segmented the market based on age, and showed an increased interest in capturing the market share of the younger Indians.
  • Benefits Segmentation: L’Oreal further segmented the market on a benefits basis when it introduced Excellence Creme. Being in creme form, it [was gentler on hair] compared to the natural ingredients such as ammonia which damaged and dried up women’s hair. It thus segmented the market into those who needed the hair dying and strengthening benefits of Excellence Creme and those who did not. This was a crucial form of segmentation for L’Oreal as it underlined the core concept of its marketing strategy to promise superior products with additional benefits to consumers when choosing between L’Oreal and Home brands, and subsequently has led to the immense success that L’Oreal has experienced in India.

L’Oreal has made use of various variables to identify the segments it wishes to target, and also engaged in using Multiple Segmentation Bases (Age, Income, Psychographic and Benefits) to complement its Differentiated Marketing approach. This allows them to effectively identify several differentiated segments and design separate offers for each, translating into stronger sales and a stronger position within each market segment. In the following section we discuss which segments were targeted and the strategies employed by L’Oreal with its newly identified segments.

L’Oreal Products Targeting and Positioning

L’Oreal now targets the young affluent middle class females, especially those with graying hair, and also maintains some effort in targeting the masses. It saw a need to target this new untapped market for maximum profits as it not only possessed the purchasing power that masses lacked, but more critically a modernized mentality that made these people more receptive to purchasing L’Oreals’ more luxurious and expensive products.. While retaining their core values of thriftiness, [the young middle class were more willing to spend on luxuries and formed the heart of transformation of consumer spending in India].

L’Oreal also target women that sought benefits from using its products. Since there was previously no product that solved women’s hair greying problems, L’Oreal introduced Excellence: Creme that promised additional benefits apart from just dying of hair. It did not damage hair like henna or ammonia but even promised to strengthen it. The young middle class fit into this segment well because unlike their older predecessors, who did not mind using products that damaged their hair as long as they were cheap due to monetary problems, these women were more educated and concerned for the need to have healthy beautiful hair, as well as more equipped with the purchasing power to do so. Cheap harmful products would not appeal to them as much as high quality L’Oreal products which justified their higher price with higher benefits.

L’Oreal has not given up on targeting the lower income masses however. Demand for necessities have been increasingly driven by the rural rather than the urban sector, and as of 2008 only 29% of India lived in urban areas. Thus it has introduced new products like ‘Colour Naturals’ which be used multiple times and cost only $3.10, translating into increased value for the masses. Though difficult to capture, the masses’ market share formed too large a proportion of the total market share to be ignored, and L’Oreal maintains some effort in capturing their market share, thus inducing L’Oreal to introduce products in this sector of the market.

‘Excellence Creme’ was marketed as a ‘luxury purchase’ and a ‘high-end niche’ product(), positioning itself as higher quality and made of extensively developed ingredients with additional benefits. One of the most innovative and pricey products in Europe then, it was also gentler on the hair than local products such as henna or ammonia. L’Oreal hired Ms World in an advertisement to show that beautiful women use L’Oreal, thus positioning itself as not just a basic shampoo, but one that made women beautiful. This promise of beauty and benefits positioned L’Oreal higher in the market compared to the home brands which positioned themselves as cheap, value-for-money products which only served the most basic of functions of hair cleaning.

In terms of how L’Oreal differs from other brands, it employs a “more for more” marketing concept while home brands used a “less for less” concept. Home brands sought to sell the most basic shampoos with the lowest quality ingredients in order to offer the lowest prices, while L’Oreal justified their high prices by using high quality ingredients. While home brands used such a concept to attract the lower-income masses that only needed bare necessities, L’Oreal’s strategy targeted the more affluent that were more educated and had more disposable income to splurge on luxury items if they justified their price.

There was also a difference in how they captured loyalty. Home brands aimed to garner loyalty of existing users through brand familiarity as repeated use by generations of Indians would bring about feelings of trust and dependability. This attracted thrifty housewives who wanted the cheapest products, which translated into loyalty and substantial profits when their children grew up and also continued to use the same brands. L’Oreal however could not and did not try to establish brand familiarity in such a short time as it was very new in the market. It thus attempted to capture the loyalty of a new segment of the market by promising better quality products to the rising middle class, hoping they would realise L’Oreal’s higher price and better quality justified a move away from home brands to a new found loyalty in L’Oreal.

Finally, in L’Oreal’s attempt to re-enter the lower income market, it differs from home brands by offering good quality at lower prices instead of the home brands’ offer of low price and low quality. While still more expensive than home brands, it was considerably cheaper than its own up market products but retained much of its quality. This translates to greater value for the masses who might switch to L’Oreal when they realised the better quality shampoo offered at similar prices to the home brands.

Does any social responsibility play in L’Oreal’s marketing strategy in India?

Corporate Social Responsibility (CSR) plays a significant role in profitability in many companies, describing the relationship between businesses and the larger society surrounding it. It can also redefine the role and obligation of the private business within that society if deemed necessary. When L’Oreal first entered India, beauty education was absent, training seemed redundant and hairdressers were well satisfied with cheap local domestic brands. L’Oreal realized that its business operations in this case concerned a larger group than itself if it wished to increase profits. L’Oreal’s CSR thus began to be driven by the need to include social concerns into its business decisions and operations, and it focused on increasing its reputation as the leading beauty industry amongst the urban Indian middle-class. Since then, they have envisioned to differentiate themselves from the rest of its competitors and invested heavily in education and training to boost their status in the community.

L’Oreal’s social initiatives can be linked to 3 key areas: Education, Women and Science. Working with Aide et Action, a non-governmental organization whose aim is to promote access to education in rural areas, L’Oreal India launched the program “Beautiful Beginnings” on 7th July 2009, an initiative which aimed to train at least 200 unprivileged school drop-out girls every year to make them employable. It was even inaugurated by Bollywood actress Aishwarya Rai, an influential and popular female artist in Bollywood. Her patronage enabled the masses to identify L’Oreal more closely to the Indian community, and we believe this had far-reaching effects on how the masses perceived L’Oreal as a socially responsible and dependable brand. The initiative was very successful, with more than 200 students graduating within a year, and some even gainfully employed by L’Oreal. In January 2009, L’Oreal, in collaboration with Nehru Science Centre (NSC), set up an exhibition “Decoding the Hair” in Mumbai. An exhibition that is first of its kind in India, it showcased large magnified sculptures of the hair strands as well as other games and activities relating to hair care and products. Housed in a well-known exhibition point like NSC and reaching out to schools, college and the corporate sector, L’Oreal is able to position itself in India as a “true expert in hair care” with its focus on scientific research and development. In 1998, L’Oreal India started the “For Young Women in Science Scholarships” which awarded Rs 250,000 to 5 esteemed girl students each year from the state of Maharashtra, to pursue studies in a recognized college or university in India. By sponsoring these young women and their hopes for the future, the programme can increase the role of women working in scientific disciplines, empowering them with knowledge.

By empowering women with new skills and knowledge, female participation in the labour market can be increased, thereby increasing their disposable income and their financial independence. This translates to a larger pool of urban middle-class females with the purchasing power for L’Oreal products and thus a rise in profits for. Most importantly, with these initiatives, L’Oreal places itself in the light of possessing a genuine sense of responsibility via its contributions back to the community. Ultimately, this increases their reputation, image and reliability with not just the targeted female urban middle-class, but the rest of India and even the world.

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