loreal case a

CEMS Case Study“L’Oréal (A): Fighting the Shampoo Battle”

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Case Study“L’Oréal (A): Fighting the Shampoo Battle”

At the end of June 1997, L’Oréal’s Chairman and CEO, Lindsay Owen-Jones, called ameeting to study the European shampoo market. Although L’Oréal had severalshampoo brands, among them Elsève, the shampoo market had never been one of thecompany’s main priorities because margins were extremely narrow. In addition to that,consumers perceived very few differences and therefore positioning and differentiatinga particular brand was a trying task.

Still, Lindsay Owen-Jones was convinced that L’Oréal’s Elsève brand had a lot ofpotential. It was the market leader in France and the challenge was to make it a leaderthroughout Europe. This would involve constant research on new formulas, targetingnew market segments, introducing new packaging, a new communications strategy andmaybe even changing the trademark, typography and colours.

L’Oréal couldn’t ignore the competitive environment that surrounded the firm.Competitors were very active and aggressive. Procter & Gamble had recentlyintroduced Wash & Go, a 2-in-1 shampoo and conditioner. One of the meeting’s mainsubjects of discussion was the high penetration rate that this product had achieved in itsintroduction. Would the 2- in-1 concept be valid in the long term or was it just anotherpassing fancy? How should Elsève react to their competitor’s new product?

Neither could L’Oréal overlook the fact that there was serious competition from othermajor brands –among them Pantene, the European market leader– which were veryinternational and increasingly using global marketing strategies. The question waswhether Elsève could become part of this international group of brands. Elsève’sexperience and the keys to its success in France were very likely points to keep in mindwhen designing a global strategy for the rest of the world...

Copyright © 2000 CEMS.This case was written by Josep Franch, Professor of Marketing at ESADE (Barcelona), and NeusQuintana, Teaching Assistant. The authors would like to thank L’Oréal for their information andassistance.The case is intended to serve as a basis for discussion and not as an example of appropriate orinappropriate management of a particular situation.No part of this material may be reproduced without written authorisation from CEMS.


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L’Oréal: Company Background

L’Oréal was founded in 1907 by chemist Eugène Schueller when he invented the firstnon-damaging synthetic hair dye. Since its beginnings L’Oréal’s policy has been one ofconstant innovation, research and hard work in a field which would eventually come tobe known as marketing. The fact that its founder was a chemist still influences thecompany’s research orientation, as witness the 300 new patents L’Oréal takes out everyyear, enabling the company to launch 200 new products annually.

The first hair colour dyes were called Auréale. In 1909, Eugène Schueller created LaSociété Française de Teintures Inoffensives pour Cheveux1, which subsequently becameL’Oréal. The name was intended for products, not for the company itself. It is acombination of two of the endings most used in French company names in the early 20th

century: “or” and “al”. “Or” was also the name of one of Auréole’s range of warm-coloured tints. Joining “or” et “al” produced the name L’Oréal, which was reminiscentof the company’s first brand of hair colour: Auréale.

During the 1930s L’Oréal extended its product portfolio to include skin care andsuntanning products. Following World War II, the company diversified its products andbrands to gradually include all types of cosmetic products and conserve its position inthe distribution networks. Steady growth soon made L’Oréal a world class operation.

In 1997, L’Oréal was a leader in beauty products, selling 500 brands and 2,000 differentproducts (80,000 SKUs2) throughout the world. The company had more than 47,000employees, and operations in 150 countries handled by 400 subsidiaries, 100 importagents, 60 offices and 42 factories. L’Oréal’s export sales increased from 50% in 1987to 80% in 1997. Although 58.6% of the company’s sales were made in Europe, therewas enormous growth potential in Asia, where sales amounted to only 6.8% of totalbillings. Forecasts for future growth there were very optimistic (See Appendix 1 forcompany figures). While still a European company, L’Oréal was becoming increasinglyglobal, as witness its acquisition of the US Maybelline brand in 1996, for which thecompany paid $758 million.

The holding company Gesparal owned 53.7% of L’Oréal’s capital. Gesparal was 51%owned by Madame Bettencourt –daughter of L’Oréal’s founder, Eugène Schueller– and49% owned by Nestlé. The remaining 46.3% of L’Oréal’s shares were traded on theParis Stock Exchange, and through the London SEAQ and American DepositoryReceipts in the United States.

1 Literally, The French Non-damaging Hair Dye Company.2 Stockkeeping Units.


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How L’Oréal Was Organised

L’Oréal was divided into five functional areas, four divisions and three geographicterritories, all of which answered directly to Chairman and CEO Lindsay Owen-Jones.

The functional areas were Communications and Public Relations, Human Resources,Finance and Administration, Manufacturing and Logistics (which supervised thecompany’s 42 factories), and R&D which had more than 2,000 employees and a budgetequal to 5% of group sales.

The four divisions were organised on the basis of the four main distribution channels forcosmetics and beauty care products: Salon Division, Consumer Division, Perfumes andBeauty Division and Active Cosmetics Department.

The Salon Division (Coiffure) was world leader, with 25% of the market. 1997 billingsamounted to around 7,000 million French francs, up 12% over the previous year. Thedivision manufactured and marketed hair care products for use by professionalhairdressers and products sold exclusively through hairdressers’ salons. The leadingbrands were Kérastase, L’Oréal Professionnel, Inné and Redken.

The Consumer Division (Produits Public) registered 31,700 million French francs insales in 1997, up 18.1% from a year earlier. This division handled all products andbrands distributed through mass-market channels, making L’Oréal products available tothe largest possible number of consumers (see Appendix 2 for the Consumer Division’sorganisation chart). The division was made up of several companies, each of whichmarketed its own brands: L’Oréal Paris (Elnett, Plénitude, Elvive/Elsève/El’Vital,Studio Line), Laboratoires Garnier (Neutralia, Belle Color, Ambre Solaire, Fructis,Ultra Doux), LaScad (Dop, Fluoryl, Narta), Gemey Paris (Gemey, Kookaï, Naf Naf,Club Méditerranée), Maybelline New York and Jade.

The Perfumes and Beauty Division (Parfums et Beauté) registered 15,600 millionFrench francs in sales in 1997, an increase of more than 12% over 1996 sales. Thedivision commercialised a range of up-market international brands selectivelydistributed through perfume and cosmetics shops, department stores and travel retailshops throughout the world. Leading brands were Lancôme, Biotherm, HelenaRubenstein, Cacharel, Guy Laroche, Ralph Lauren, Paloma Picasso, Giorgio Armaniand Lanvin.

The Active Cosmetics Department (Cosmétique Active) registered 2,800 million Frenchfrancs in sales in 1997. It produced and marketed several brands of cosmetics, skin careproducts and hair treatments, which were distributed to a select group of pharmacies.The division’s leading brands were Laboratoires Vichy, Phas and La Roche-Posay.

The four divisions were independent of one another. Each division consisted of differentbusiness units, among which there was also a certain degree of independence.Occasionally, various businesses belonging to a single division competed with oneanother. For example, Elsève and Fructis, produced by Laboratoires Garnier, competedin the mass market. But this competition was actually encouraged by L’Oréal as itallowed the group to sum up the sales of all its brands, making it the market leader.


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The different business units also competed among themselves when a new formula wasdiscovered and sometimes it was difficult to decide which business would benefit fromthe discovery.

Outside of Europe L’Oréal was divided into geographic territories. The three territorieswere North America, Latin America and Asia. The managers of each one of theseterritories were in charge of all L’Oréal’s activities in their particular zone, keeping inconstant touch with the managers of the four operating divisions.

In 1997, L’Oréal was the world leader in hair colour, styling agents and home perms,with market shares of 35.1%, 17% and 12.9%, respectively. It ranked second in salonhair care products, with a world market share of 13.6%. Market shares of 8.4% inshampoos and 8.2% in conditioners made L’Oréal the third-ranking company in theworld. Its position in 2-in-1 products was not as good, with a 5.2% market share,making it the fourth ranking company in terms of sales.

In 1997, L’Oréal’s share of the European market amounted to 30%. Market shares inLatin America and Eastern Europe were also fairly strong, amounting to around 15% inboth zones.

Corporate Culture

L’Oréal group employed 47,242 people, 38,308 of whom worked in cosmetics. 2,100 ofthem were cosmetics researchers. L’Oréal’s corporate culture was rooted in dynamics,teamwork, growth and research. As the company’s CEO put it:

“I am personally attached to this melting pot of individual dynamism,openness and entrepreneurial skills. It’s what makes L’Oréal strong.”

(Lindsay Owen-Jones)

L’Oréal tried to make employee relations as personal as possible. The company cutthrough red tape and kept paper work to a minimum, encouraging oral communicationthrough numerous meetings and team work. It was not surprising to note that many ofthe company’s employees were on a first-name basis.

The company shaped loyalty and efficiency by making employees thoroughlyacquainted with the company, its structure, its management methods and objectives,ensuring that they understood not only the company’s corporate culture but also themany different cultures that made up the organisation.

L’Oréal looked for employees with an innovative, pioneering spirit, ready to travel tonew countries and open new markets. The company looked for people who wereindependent, had initiative, creativity and were willing to take responsibility.


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L’Oréal: Elsève and other brands of hair care products

Elsève's history dates back to 1971 when a conditioner in small green bottles wasintroduced. The conditioner was applied directly to the hair in order to revitalise it.Indeed, the word “sève” means “sap” in French, referring to the hair’s natural oils.L’Oréal's strategy was to start by targeting a specialised segment in order to create agood brand image.

In 1972, L'Oréal launched the first Elsève shampoo, using the slogan: "The shampoo forpermed hair". When the brand had gained a solid foothold in France, it began goinginternational. The strategy was to introduce a product for the mass market, but with anoriginal, innovative formula. The company therefore developed “Balsam”, a newformula which was used in a conditioner. Elsève thus managed to position itself as ahair care product.

As of 1978 the company began to expand its range of Elsève products. This was not soeasy because the brand had such a strong position as a shampoo for damaged hair. Atthis time, the market was experiencing very important changes: the frequency in the useof shampoos increased dramatically and shampoos that were claiming to be gentle andmild enough to be used every day became more appealing to consumers. Timotei, UltraDoux and Mixa Baby –a baby shampoo that became the market leader in France in thosedays because it was seen as so mild that it could be used every day– became the mostpopular brands. Elsève had a positioning as a shampoo for damaged hair and was seenas too rich, too nourishing and too heavy to be used on a daily basis. When planningElsève’s brand extension, L’Oréal decided to offer separate products for frequent andless-frequent shampooing, and later move into products that would produce a certaindesired effect subsequent to shampooing. This gave rise to products such as ElsèveBalsam, Elsève Fréquence, Elsève Volume and Elsève for oily hair. Although the brandwas introduced in several different countries, the brand name used was not always thesame. In the USA the brand was called Vive and in Germany it was called El’Vital, togive just two examples. In the UK, it was called Elsève but the brand was to disappearfrom the market within a few years.

The communications strategy was based on enhancing the value of each product,emphasising its distinctive characteristics. The strategy focused on individual productsrather than on the umbrella brand, enabling the company to publicise all thetechnological innovations applied to each product. Unfortunately, this very strategy keptit from creating a strong, unified brand. The name of each product was better knownthan the name of the brand in general.

In 1987, following a new product introduction by Timotei, the market registered a newtrend: active ingredients were in fashion and products started to introduce naturalingredients and reason-whys in their product ranges. The Elsève product range wasrenewed and L’Oréal decided to target new market segments. The idea was to offerproducts for all types of hair, enriching the formula with a different active ingredient foreach hair type: Elsève Protein, Elsève Jojoba for long hair and Elsève Vitamines wereintroduced. The company had to look for segments that would be large enough to beprofitable and, at the same time, make sure that the products complemented one anotherso they wouldn’t cannibalise each other’s sales.


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In 1995, L'Oréal made two very important strategic decisions: The company launchedElsève Multivitamines and added the Technicare line to the Elsève product range.

Elsève Multivitamines used a silicone-based formula that tested better than thecomposition of Procter & Gamble’s silicone-based Pantene which at the time was theEuropean market leader. Launching Elsève Multivitamines enabled Elsève to increaseits target segments, addressing not only consumers with damaged hair or other hair careproblems but also people with normal hair. Moreover, the new formula allowed L’Oréalto increase the prices of Elsève products by 20%. Increased revenue meant that Elsèvecould spend more on advertising.

Until 1995 L’Oréal’s products had included the Technicare line, which was especiallyfor damaged hair. The products were fairly expensive, targeted at a highly specialised,very specific market segment. There were three lines of Technicare products: Energance(for permed hair), Rayonnance (for tinted hair) y Fortifiance (for damaged hair).Lindsay Owen-Jones wondered if it was worthwhile to have two brands with suchsimilar characteristics, strategies and product positioning. He therefore decided to mergethe two to achieve a critical market share, maintaining the colours used in theTechnicare packaging to identify the different product lines. The brand name wasgradually changed: first it was called Energance Elsève, then it became ElsèveEnergance and finally Elsève for permed hair. The same process was also applied to theother two product lines. Internally, the switchover was handled as it would have beenhad L’Oréal acquired an external company. With the addition of Technicare, Elsèvemanaged to acquire 10% of the hair care market.

Sales increased and so did prices, due to the use of new formulas. Billings went up andthe brand was able to increase its advertising budget. This enabled Elsève to addressmore segments with differentiated messages, thereby further increasing its market share.

Elsève/Vive/El’Vital (see Appendix 3 for the Elsève product range) aimed to furtherstrengthen its competitive position by adopting three key strategic decisions: address allpossible market segments, add highly innovative technical features to the "stars" of theproduct range and reinforce the product image by making the brand name more visibleon packaging. The product range was launched in the UK in 1997 under the brand nameElvive (see Appendix 4, for Elvive products in the UK).

L’Oréal also commercialised other brands of hair care products, among them StudioLine and P’tit L’Oréal. It also marketed Ultra Doux, Fructis and Neutralia throughLaboratoires Garnier, and the J. Dessange brand through LaScad. L’Oréal had launchedFormula Homme as a brand for men, hoping to break into a market segment which wasunderexploited but had a great deal of growth potential, and it was later re-branded asProgress Homme and reintroduced under Elsève’s umbrella brand. Competing with anumber of different L'Oréal brands enabled the company to position its products inmore market segments and compete for market leadership by adding together sales forits different brands. Although there was a bit of an overlap between segments, productcannibalism was avoided by designing different positioning strategies: every singleproduct invested in creating its own personality. Consumers identified each and everyone of the brands but did not relate them to L’Oréal.


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The Hair Care Products Industry

With European sales of 28,865 million French francs in 1997, hair care products rankedamong the leading branches of the personal grooming and beauty care industry. 1997figures represented a 4.9% increase in volume but a 6.2% increase in billings.Considering that these types of products were aimed at a market that was in its maturitystage in terms of both penetration and use, opportunities for future growth woulddepend on creating added value. Hair care products could be divided into three maincategories: shampoos, conditioners and styling agents, such as sprays, mousses and gels(See Appendix 5 for a breakdown of hair care product sales).

The amount of shampoo used in European countries was on the rise. The introduction ofshampoos for frequent use and the better evolution of the product formulas in terms ofusage quality and mildness helped increase sales tremendously in the 1980s. In 1989Procter & Gamble launched Vidal Sassoon Wash & Go, the first 2-in-1 shampoo andconditioner, which soon led the UK market. The silicone-based 2-in-1s wereparticularly popular with men because the combined product made shampooing faster.Silicone formulas were a technological breakthrough that produced hair which wasmore shiny and less tangled after washing.

During the 1990s it was discovered that, although silicone was a fast-acting hairconditioner, it was not nourishing. As a result, many brands changed their formulas, andother ingredients were added. In 1993, Pantene launched a shampoo enriched with Pro-Vitamine B5. A major advertising campaign soon placed it at the head of the UKmarket and led many other brands to revise their formulas. They began searching fornew, more sophisticated formulas that introduced cosmetic ingredients that perfumedthe hair or made it shiny as well as cleaning it. Other brands that were successful withthis more cosmetic approach were L'Oréal's Elsève, Elvive and El'Vital, as it wasknown in different countries, and as of 1996 Laboratoires Garnier's Fructis brand.Fructis included fruit acids, fructose and vitamins, ingredients which were very popularwith consumers, who associated them with healthy, shiny hair. This constant striving forimproved products had revitalised the entire hair care products industry. In 1997 anothertechnological breakthrough was about to come: a formula that combined both siliconesand polymers.

While most consumers used shampoo, the same could not be said of conditioners. In1997 conditioners were used by only 16.7% of the potential European market, thereforethey were far from being a standard product.

The introduction of 2-in-1s obviously affected the sale of conditioners. Consumers likedthe idea of getting both shampoo and conditioner in a single bottle and 2-in-1s begancannibalising conditioner sales. But when 2-in-1 sales began to decline, conditionersales started picking up because 2-in-1 advertising's emphasis on the conditioning agenthad impressed consumers. People were becoming receptive to the idea of conditioningagents and manufacturers began promoting the idea of a stronger conditioner to be usedonly once a week. The most recently introduced conditioners by Pantene, Elvive,Organics, and other brands made consumers aware of the importance of usingconditioning products to ensure healthy hair.


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Styling agents were brought to market in the 1980s when more elaborate hairstylesbegan to be popular. Many of these styles meant that some special product had to beused so that people with all types of hair could wear their hair in the latest fashion. Useof styling agents increased steadily and manufacturers began to introduce them in sprayand gel forms. From 1990 onwards, the popularity of elaborate hairstyles began todecline in the UK, giving way to a more natural look that did not require so much care.The rest of Europe adopted this more natural look as of 1992, causing sales of stylingagents to drop sharply. It is also important to note that in 1992 most European countrieswere in a recession period and consumers stopped using styling agents because theyconsidered them an unnecessary expense that could be eliminated when money wasscarce.

Mousses were the styling agent least affected by declining sales. They were the productthat adapted best to any kind of hairstyle and were less dependent on fashion fads. Gelswere also able to hold their own thanks to an increasing tendency among young people,particularly adolescents, to adopt a more extravagant look. In those days manufacturerswere trying to win back young people and reach new age groups. According to anarticle published in LSA Le Journal de la Distribution, thirty to fifty year olds wereparticularly interesting targets because they were so difficult to satisfy: women in thisage group considered themselves too old to use styling agents and too young to usestandard hair sprays. Therefore the slowdown in styling agent sales might also be partlydue to their extremely young product image.

The molecules discovered and added to shampoos and conditioners were also added tostyling agents. Although styling agent sales were on the decline in terms of both volumeand value, manufacturers saw the increase in the sale of gels as an encouraging sign.However, they were trying to redirect their advertising message and no longer talk onlyabout using styling agents in order to be able to wear a particular hairstyle, but alsoattempted to explain to consumers that styling agents could also make their hair moreattractive.

Among L’Oréal's most important competitors were multinationals like Procter &Gamble, Unilever and Henkel, to mention only a few (See Appendix 6 for data on thecompany's leading competitors).

As leader of the world shampoo and 2-in-1 market, Procter & Gamble embarked on astrategy of rapid growth in 1985, acquiring other companies in order to increase theirproduct portfolio, not only in the hair care products market but also in cosmetics.Procter & Gamble’s goal was to create and maintain customer loyalty to its brands,offering quality and value in innovative products backed by heavy investments inadvertising. Research and development and advertising were the pillars of Procter &Gamble’s strategy to develop truly global brands, such as Pantene Pro-V, Vidal SassoonWash & Go and Head & Shoulders.

Brand names for hair care products had also been one of the pillars of Unilever strategy,aimed at maximising the value of both established and new brands throughout the worldand making the company more global than ever. Organics was Unilever’s mostsuccessful hair care product. It was positioned as a shampoo that nourished hair fromthe roots to the tips, thanks to an ingredient called Glucasil Complex.


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The brand was first introduced in Europe and subsequently in other regions. It was thenavailable in seventy countries, with variations in order to adapt the product to consumerhabits in the different markets.

In 1995, Henkel purchased Schwarzkopf and became another major player in the haircare market. Although Henkel enjoyed a solid position in Europe, it was little known inNorth America, The acquisition of Schwarzkopf also opened the door to interestingbusiness opportunities for Henkel in Latin America and Southeast Asia.

The shampoo market

Shampoos were used by 83.5% of the population, although there was little brand loyaltyand it was extremely difficult to create any. There was a widespread belief in Europethat changing shampoos frequently was good for the hair because otherwise it would getused to a particular shampoo and the results would not be so satisfactory. As aconsequence, manufacturers –who could not explain the origin of these beliefs– hadserious problems getting consumers to repeatedly buy the same brand. The mainEuropean markets were Germany, France, UK, Italy and Spain (see Appendix 7 formarket volumes and Appendix 8 for Elsève distribution coverage).

The hair care product market was heavily influenced by the evolution of consumerhabits and technology. In the 70s, consumers wanted washing frequency, later theywanted to have more conditioning and detangling, and in the late 90s they wantedshinier hair. Product formulas had also evolved a great deal: Manufacturers launchednew products with new qualities, which consumers then demanded. Increasingly heavyinvestments in marketing and new product development had gradually shortened the lifecycle of the products which had not adapted themselves to the market. In contrast,Elsève was a successful example of brand renovation and long product life withabsolutely no sign of decline because it continuously offered new products in its ownrange. Still, manufacturers were continually launching new products and brands, whichwas a costly activity, in the hopes of making a strong and immediate impact on themarket.

The hair care product market had been traditionally female. However, during the 1990smanufacturers began increasingly addressing two segments with a high growthpotential: the male segment and the children’s segment. Many companies had launchedspecific lines for men, although not always successfully, as was the case with L’Oréal’sFormule Homme line. A number of companies had tried presenting their products asunisex brands, among them Procter & Gamble’s Wash & Go and L’Oréal’s Studio Line.In addition, the children’s market was particularly interesting in France, Germany andItaly. L’Oréal’s LaScad led the French market with P’tit Dop, competing with otherproducts that were directed exclusively at children and featured fun packaging andspecial fragrances. The German market for children’s shampoos doubled between 1992and 1997, with brands such as L’Oréal’s Laboratoires Garnier and Procter & Gamble’sVidal Sassoon for Kids. The children’s market in Italy began really taking off in 1996,with the introduction of L’Oréal’s Piccol’o.


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People were washing their hair more frequently than ten years ago. Europeans washedtheir hair on an average of 3.5 times a week. Expectations of clean, soft hair had givenway to demands for shiny hair with extra body. Demand for cosmetic features hadforced manufacturers to enhance their products with innovative value-added features inorder to position them as high quality products and increase their market shares. Theprincipal innovations were polymers, silicones, provitamin B5 and Ceramide-R.

Elsève’s competition

Elsève competed with other brands of cosmetic shampoos which also had such broadproduct ranges that they could reach all market segments. In order to do this,manufacturers basically used TV commercials as a way to position their cosmeticshampoo brands. Elsève’s most important competitors were Pantene, Organics, Timoteiand Wash & Go (See Appendixes 9, 10 and 11 for market shares and average prices ofthe leading brands in selected countries).

Most brands tried to position themselves carefully in order to differentiate themselvesfrom their competitors. As in any other industry, one of the problems was that therewere some competitors that were followers of the major leaders. They waited for theleaders to introduce some new innovation and then launched similar products at a lowerprice.

Pantene led the market for cosmetic shampoos and ranked second to Elsève inconditioners. Manufactured by Procter & Gamble, Pantene’s formula was based on Pro-Vitamine (B5). Pantene's technological progress was due to constant research andinnovation, which were key factors for success in this branch of industry. Panteneadvertising sought to reinforce its brand image, positioning itself as “specialists in haircare”. Its slogan was, “Hair so healthy it shines”, with Pro-Vitamine (B5) the reason-why. Pantene commercials demonstrated how the vitamin acted from the roots to thetips of the hair. Commercials usually featured “slice of life” scenes with which a broadsegment of the public could identify. Pro-Vitamine marketed itself as the solution forconsumers’ hair problems.

Wash & Go was another important Procter & Gamble brand. At first its advertisingmessage was that Wash & Go was fast and practical, but hair care and other featureshad gradually been introduced. The brand usually used active, sporty-looking models inorder to reach a mixed male/female market segment.

Organics was a Unilever brand that communicated the message that healthy hair wasvitally important and must be very well cared for. The product name had connotationsof natural animal or vegetable ingredients. Its principal ingredient was Glucasil, whichnourished the hair. Knowing this, one can understand its ads, which depicted hair assomething that had its roots in the earth. Organics attempted to position itself as ashampoo that made hair strong, healthy and shiny. At first Organics’ ads contained anessentially symbolic message, but this had gradually been revised and shampooingscenes added. The target public was exclusively female and more interested in cosmeticfeatures than in healthier hair.


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Unilever also marketed Timotei, which had traditionally related shampoo with nature.Its message was that the hair was nourished and protected thanks to natural ingredientswhich made it more beautiful, stronger and resistant. Timotei was directed excusively atwomen and did practically no advertising for its conditioners. Timotei’s advertising wasbecoming increasingly global and institutional, emphasising the brand rather than theindividual products. Its advertisements usually did not mention why the products giveusers such strong and shiny hair.

Although it was marketed by one of the L’Oréal companies, Laboratories Garnier, UltraDoux had to be also considered one of the Elsève competitors. Ultra Doux waspositioned as the ultra-mild shampoo, targeting all the people in the family. It was ashampoo for frequent use, made of natural ingredients. Its advertising message was“Extrême douceur puisée au coeur des plantes”3.

Everyone in the industry invested heavily in advertising. Advertising and sales wereclosely correlated: the more advertising was done, the more products were sold. Themain advertising medium was television, followed by press advertising. Since 1995shampoo advertising had been increasing at a slower pace, unlike advertising for haircolouring and permanents, which had registered an increase (See Appendix 12 for theadvertising budgets of the leading brands).

A constant technological challenge

Research and development was essential in order to discover new ingredients whichcould be added to product formulas, giving them an extra value that would be perceivedby consumers and enable the manufacturer to secure a larger share of the hair careproducts market.

But not just any innovation translated to an increased market share. Industrymanufacturers had to find ingredients that gave consumers added value and enabledthem to differentiate a particular product from its competitors. Market research showedthat after shampooing consumers wanted their hair to be soft –detangled and fluffy– andsmell nice, and that the trend for healthy and shiny hair had gained popularity.

All shampoos had some more or less common ingredients, such as water, perfume, andcleansing agents. Before 1994, a polymer compound was added to the product in orderto revitalise the hair. Polymers acted on the most damaged parts of the hair fiber,revitalising and restoring its health. But this type of molecule was more revitalising thancleansing, so when used by people with normal –or only slightly damaged– hair theresult was hair that was somewhat lank and rough, which consumers did not like.

3 “Extreme mildness coming from the heart of the plants”.


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From 1994, L’Oréal developed a silicone-based formula that replaced polymers.Silicones treat each stand of hair individually, leaving it very soft and easy to comb as itwas thoroughly detangled. Consumers noticed this immediately and Elsève successfullyentered the normal hair segment of the market. But silicone also had a drawback: it wasnot nourishing. By combining polymers and silicones, L’Oréal was able to profit fromthe advantages of both ingredients: the nourishing action of polymers and the soft,detangled hair that was produced by silicone. Combining the two ingredients in theshampoo formula gave L’Oréal a major advantage over its competitors.

Whenever there was a technological innovation industry competitors were faced with analternative: they could either launch a new product concept that contained the newingredient or they could introduce the new ingredient in an already-existing product andinform consumers of the change through advertising and new package designs.

But introducing an innovation could sometimes be a risky business. If it was not assuccessful as hoped it could affect the entire brand image. So when L’Oréal was notabsolutely certain of the outcome it introduced new formulas under a secondary brandname. L’Oréal Paris was the group’s flagship brand. It focused on the long term andalways sought sustainable product concepts because the L’Oréal brand was too highlyvalued to risk launching anything whose success was not assured.

These were the sorts of issues that the marketing team at L’Oréal was facing in theirstrategic design to become the European shampoo market leader…


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Appendix 1: Key figures for L’Oréal

L’Oréal Group 1993 1994 1995 1996 1997

Net sales (million FF) 40,163 47,624 53,371 60,347 69,120Operating profits (million FF) 4,493 5,352 5,886 6,632 7,762Net profits (million FF) 2,936 3,472 3,796 4,225 4,739Number of employees 32,300 38,972 39,929 43,158 47,242Earnings per share (FF) 44.4 46.2 50.0 55.2 62.2

Cosmetics & Toiletries

Net sales (million FF) 32,238 38,858 43,280 48,988 56,163Operating profits (million FF) 3,711 4,452 4,649 5,120 5,878

Net Sales % of total % growthYear 1997 (million FF) sales 1994/1997

Western Europe 40,472 58.6% 25.5%North America 15,872 23.0% 171.0%Asia-Pacific 4,730 6.8% 33.9%Rest of the world 8,047 11.6% 34.3%

Total 69,121 100.0% 45.1%

Regional shares North Latin Western Eastern Africa &(% value) America America Europe Europe Asia M. East Australasia

Colorants 28.2% 35.7% 54.8% 22.3% 4.6% 31.0% 28.9%Conditioners 3.9% 3.9% 24.1% 19.3% 0.4% 10.2% –Home perms 4.0% 6.6% 33.4% 11.9% 2.5% 2.6% –Salon hair care pdts’ 8.2% 48.3% 27.4% 0.2% 9.9% 19.2% 48.3%Shampoo 4.4% 3.7% 18.4% 15.2% 0.4% 8.7% –Styling agents 5.5% 27.8% 30.4% 12.5% 1.4% 24.3% 3.5%2-in-1s 1.8% 0.3% 15.4% 8.6% 0.1% 7.5% –

Total hair care 9.3% 14.4% 30.2% 14.5% 1.4% 11.8% 4.8%

Source: Euromonitor, based on company records


–14–

Appendix 2: Organisation chart


–15–

Appendix 3: Elsève product range


–16–

Appendix 4: Elvive product range for the United Kingdom


–17–

Appendix 5: Hair care industry data

Industry sales Million FF Million unitsWestern Europe 1996 1997 1996 1997

Shampoos 12 068 13 194 853 912Conditioners 4 359 4 600 247 261Hair sprays 6 870 6 993 410 411Mousses 2 173 2 249 120 123Gels 1 607 1 829 97 108Industry total 27 077 28 865 1 726 1 816

Source: AC Nielsen


–18–

Appendix 6: Financial highlights for L’Oréal’s main competitors

Procter & Gamble 1994 1995 1996 1997

Net sales (million $US) 30,385 33,482 35,284 35,764Operating profits (million $US) 3,670 4,244 4,815 5,482Net profits (million $US) 2,211 2,645 3,046 3,415Number of employees 103,000 96,500 99,200 106,000Earnings per share ($US) 1.54 0.85 2.14 2.43


Net sales (million US$) 5,912 6,507 6,914 7,108Operating profits (million US$) 570 728 966 1,066

Source: Euromonitor from company records

Unilever 1993 1994 1995 1996 1997

Net sales (million £) 27,863 29,666 31,516 33,522 29,766Operating profits (million £) 1,944 2,526 2,526 2,874 2,386Net profits (million £) 1,296 1,559 1,473 1,610 3,335Number of employees 294,000 304,000 308,000 306,000 287,000Earnings per share (£) 17.36 20.90 19.66 21.47 44.55

Personal Grooming Products

Net sales (million £) 4,018 4,433 5,986 6,940 6,852Operating profits (million £) 343 472 658 770 801


Henkel 1993 1994 1995 1996 1997

Net sales (million DM) 13,867 14,069 14,198 16,301 20,065Operating profits (million DM) 550 671 725 1,011 1,373Net profits (million DM) 385 464 488 555 1,127Number of employees 40,470 40,590 41,728 46,377 53,753Earnings per share (DM) 3.20 3.35 3.35 4.00 5.35


Net sales (million DM) 1,410 1,404 1,377 2,677 2,972Operating profits (million DM) n.a. n.a. n.a. n.a. n.a.



–19–

Appendix 7: Total hair care sales by country

(Million US$) 1993 1997

US 5,770 7,177Germany 2,063 2,287France 1,791 2,072UK 1,055 1,328Italy 1,037 1,055Spain 430 529Netherlands 388 438Greece 166 291Sweden 217 258Switzerland 178 218

Source: Euromonitor


–20–

Appendix 8: Distribution coverage

Distribution coverage (June 1997) France UK Germany SpainMarket total

Numerical distribution 100,0 96,0 86,0 96,0Weighted distribution 100,0 100,0 100,0 100,0

Elseve / Elvive / ElvitalNumerical distribution 99,0 30,0 34,0 n/aWeighted distribution 100,0 91,0 89,0 n/a

Source: AC Nielsen /IRI Infoscan

Note:

Numerical distribution measures the percentage of outlets that sell a particular brand ora product category. Weighted distribution is the market share (in value) of these outletsin the overall product category.


–21–

Appendix 9: Market shares for the main shampoo brands

Market shares (%) Volume Value

Western Europe 1995 1996 1997 1995 1996 1997

Alberto 1,2 1,3 1,2 1,2 1,5 1,3

VO 5 0,7 0,8

Beiersdorf 2,9 2,9 2,9 2,8 2,7 2,6

Nivea 2,8 2,8 2,9 2,7 2,7 2,6

Bristol Myers 0,4 0,5

Clairol Herbal Essence 0,4 0,4

Colgate 4,7 5,0 4,6 3,6 3,6 3,3

Gard 0,8 1,1 1,0 0,6 0,7 0,6

Palmolive 2,6 2,8 2,6 1,6 1,8 1,7

Respons 0,9 0,9 0,8 1,0 1,0 1,0

Henkel / Schwarkopf 7,8 8,6 9,0 6,8 6,9 6,9

Henkel 2,7 2,7 2,8 2,6 2,4 2,4

Poly Kur 1,4 1,4 1,3 1,2 1,1 1,0

Schwarzkopf 5,1 5,9 6,2 4,2 4,5 4,4

Schauma 2,9 3,6 3,9 2,1 2,4 2,5

Glem Vital 0,7 0,6 0,6 0,5 0,5 0,5

Gliss 0,6 0,7 0,7 0,6 0,7 0,6

Johnson & Johnson 3,0 2,6 2,5 3,7 3,3 3,2

L'Oréal 20,2 20,2 21,6 19,3 19,3 21,4

Elsève 5,9 6,2 7,3 6,1 6,2 7,6

Studio Line 1,0 0,7 0,5 1,0 0,7 0,5

P'tit L'Oréal 1,1 1,0 0,9 0,8 0,8 0,8

Ultra-Doux 4,2 4,4 4,4 3,6 3,8 3,9

Fructis 0,0 0,3 1,7 0,0 0,3 1,8

Neutralia 1,5 1,3 1,1 1,5 1,3 1,2

J. Dessange 1,5 1,4 1,1 1,7 1,6 1,3

Procter & Gamble 19,2 19,3 19,3 23,2 23,2 23,4

Vidal Sassoon 5,4 4,1 3,1 6,5 4,9 3,7

Pantene 8,9 10,7 11,8 11,0 12,7 14,0

Head & Shoulders 2,3 2,4 2,7 3,3 3,6 4,1

Shamtu 0,9 0,5 0,3 0,6 0,3 0,2

Petrol Hahn 1,1 1,1 0,9 1,0 0,9 0,7

Revlon 1,3 1,1 1,1 1,5 1,2 1,1

Unilever 13,6 12,9 12,2 14,0 13,4 12,5

Timotei 4,8 4,2 3,6 4,5 3,9 3,3

Sunsilk 0,7 0,4 0,3 0,7 0,4 0,3

Organics 3,1 4,2 4,3 3,7 5,0 4,8

Clear 1,2 1,0 1,0 1,2 1,0 1,1

Dimension 0,7 0,6 0,7 0,5

Wella 2,7 2,7 3,1 3,1 3,1 3,5

Wella Balsam 0,6 0,5 0,6 0,8 0,6 0,7

Crisan 0,8 0,8 0,7 1,0 0,9 0,8

Source: AC Nielsen and IRI Infoscan


–22–

Appendix 10: Market shares in selected countries

Market shares 1997 France UK Germany Italy Spain(% in volume and value) vol. val. vol. val. vol. val. vol. val. vol. val.

Alberto 4,8 4,8VO 5 2,3 2,3

Beiersdorf 0,2 0,2 10,0 9,7 0,2 0,1Nivea 0,1 0,1 10,0 9,7 0,2 0,1

Colgate 7,7 5,5 0,1 0,1 4,9 3,5 2,9 2,3 0,3 0,3Gard 4,3 2,8Palmolive 6,8 4,7 0,1 0,1 2,3 1,7Respons 0,7 0,6 0,6 0,7

Henkel / Schwarkopf 1,8 1,9 2,1 1,7 23,5 18,2 4,0 3,3 2,4 2,4Henkel 1,8 1,9 4,5 3,9 4,0 3,3 2,4 2,4Poly Kur 4,5 3,9 1,7 1,7Schwarzkopf 2,1 1,7 19,0 14,2Schauma 16,5 11,8Glem VitalGliss 0,3 0,3 2,0 1,9

Johnson & Johnson 4,7 6,5 0,2 0,3 5,6 6,3 6,2 7,1L'Oréal 57,1 59,3 8,6 8,6 11,1 11,9 26,4 26,4 11,4 11,6

Elsève / Elvive / Elvital 10,5 11,1 6,3 6,4 5,9 6,5 7,7 7,7 5,4 5,5Studio Line 1,8 1,9 1,1 1,0P'tit L'Oréal 2,9 2,4 1,9 2,1Ultra-Doux 8,0 8,0 3,6 3,3 9,6 8,9 5,1 5,1Fructis 7,4 7,9 1,8 2,1 0,5 0,6Neutralia 2,8 3,1 2,3 2,3 0,8 0,8 0,3 0,3J. Dessange 5,6 6,9

Procter & Gamble 10,5 12,5 25,6 31,8 18,5 20,7 18,5 22,0 27,0 33,2Vidal Sassoon 1,7 1,8 4,7 6,0 3,5 3,8 6,9 8,1Pantene 2,8 3,2 14,2 17,1 13,3 15,0 16,9 20,3 13,9 17,0Head & Shoulders 1,8 3,8 6,7 8,8 0,5 0,9 6,2 8,1Shamtu 1,1 1,0Petrol Hahn 4,2 3,8

Revlon 1,6 1,9 10,3 9,2Unilever 8,4 8,5 15,2 15,1 7,8 7,3 12,9 14,0 12,0 12,9

Timotei 3,4 3,0 3,7 3,6 5,1 4,2 1,5 1,2 6,3 7,6Sunsilk 1,2 1,2Organics 2,6 2,9 8,7 8,8 2,8 3,0 3,0 3,4Clear 1,2 1,5 6,6 7,9Vasenol 2,6 1,9Dimension 4,7 4,8

Wella 0,1 0,2 5,7 5,5 4,8 5,9 1,0 1,1 1,9 1,8Wella Balsam 0,1 0,2 1,7 1,5Crisan 2,7 3,3



–23–

Appendix 11: Retail prices in selected countries (figures in French francs)

Average retail prices (FF) France Germany UK SpainBeiersdorfNivea 13,4 13,6 12,4HenkelPoly Kur 12,1 14,8Schwarzkopf 10,6 14,8L'OréalElsève/Elvive/El'Vital 14,5 15,6 18,0 15,2Fructis 14,8 17,3Ultra Doux 13,8 14,5Procter & GambleVidal Sassoon/Wash & Go 14,7 15,3 21,2 17,4Pantene 15,7 15,8 21,2 17,8Head & Shoulders 28,4 23,7 23,1 18,8UnileverTimotei 12,0 11,7 17,4 17,6Organics 15,2 15,4 17,9 16,3



–24–

Appendix 12: Share of voice in selected countries

Share of voice 1997 (%) Europe France UK Germany Italy Spain

BeiersdorfNivea 2,1 7,3Other brands 0,3 1,1

HenkelSchwarzkopf 4,0 0,1 15,0 2,3Other brands 1,6 0,7 5,7 1,0

L'OréalElsève / Elvive / El'Vital 10,9 14,0 10,6 11,5 9,3 8,9Fructis 3,6 10,8 7,8 2,6Ultra Doux 4,3 5,2 5,0 4,8 4,3Other brands 5,1 23,1 0,5 0,1 7,8 3,5

Procter & GambleVidal Sassoon/Wash & Go 4,8 0,8 6,6 5,0 12,2Pantene 20,9 12,6 24,9 25,5 15,6 22,7Head & Shoulders 6,9 6,6 8,4 5,9 14,2

UnileverTimotei 2,4 2,3 0,1 2,0 8,8Organics 6,6 5,5 18,0 3,9 4,9Other brands 3,1 7,8 5,9

Other manufacturersAlberto Culver 0,8 3,8Bristol Myers 0,6 0,3Colgate 0,3 0,1 0,3Eugene Perma 1,5 8,7 0,4Johnson & Johnson 1,2 2,5 4,4Revlon 0,3 0,4 1,5Wella 3,5 5,3 5,1 4,8 2,1

Industry expenditures (million FF) 4 182,6 614,2 828,6 865,8 837,6 723,7

Source: Adex (AC Nielsen)

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