Lessons behind L’Oréal’s about-face; China redraws the line between luxury, premium, affordable and mass market weekly

January 13, 2014 1:07 pm

Lessons behind L’Oréal’s about-face

By Andrew Hill

China redraws the line between luxury, premium, affordable and mass market weekly

When L’Oréal said last week it would stop selling Garnier products in China, many outsiders assumed the French cosmetics group was joining a wholesale retreat by big western brands, led by Revlon of the US, which last month closed all its operations in mainland China, eliminating 1,100 jobs, including those of 940 beauty advisers. It all looked pretty ugly.But the Garnier story has as many wrinkles as a Middle Kingdom matron before using its “skin brightener” PS Cream 5s. Beneath the make-up lies a more complex picture of how (and how not) to sell big consumer brands into rapidly evolving markets.

Lesson one: choose your category carefully. China’s demanding consumers redraw the lines between luxury, premium, affordable and mass market products virtually weekly. As Gucci and Louis Vuitton know to their cost, it is hard to balance expansion and exclusivity.

Beauty products ought to be different. Once the foundation is on, or the shampoo applied, who, other than the user, knows which pot it came from?

Not so fast. As Tarek Farahat, Procter & Gamble’s president for Latin America, told a recent conference, consumers in the growing emerging market middle class are “not going to buy a Porsche or a Ferrari”, but they still want “a visible and tangible upgrade in their daily life”, which cosmetics and haircare products can provide.

These consumers are also acutely aware of the balance between price and value. Since launching Garnier in China in 2006, L’Oréal has offered its branded creams and hair colourings through supermarkets, while distributing the higher-end L’Oréal Paris range, first introduced there in 1997, through department stores. But Garnier still fell between categories. Snubbed by Chinese consumers looking for a premium product, its skincare and hair colouring products proved too expensive for those seeking a cheaper alternative.

Lesson two: you may need to sacrifice global brand consistency to local tastes. Get the scent or consistency of your creams and conditioners wrong for specific markets and your products will fail. Beyond beauty, Mondelez (formerly Kraft) changed the recipe, colour, and even shape of its Oreo cookies to win over Chinese customers, prompting some philosophical debate about when an Oreo is not an Oreo.

Lesson three: do not assume you can apply brand and marketing power in the same way, or with the same effect, across borders.

Despite the importance of Garnier to L’Oréal globally – and in Asia as a whole – it ended up accounting for only 1 per cent of the group’s total China sales. (L’Oréal says both L’Oréal Paris and Maybelline products have a strong future there.)

As Mondelez chief executive Irene Rosenfeld told investors last November, in a volatile developing economy, multinationals need to assess returns on any marketing campaign far more frequently than in developed countries.

Lesson four: act local, which means watching out for local rivals.

Take P&G’s experience in Brazil with Pantene. According to Mr Farahat, half of all Brazilians shower at least twice a day, and Brazilian women use three or four times more conditioner than Americans or Europeans. It is already the world’s second-largest market, behind the US, for haircare products. Yet on a research trip to the store, a customer told Mr Farahat she did not buy Pantene because she believed the (locally manufactured) products were imports.

While such a perception might benefit a brand in a higher category – such as the one L’Oréal Paris occupies in China – it opens it up to competition from more manoeuvrable local rivals in the supermarket. P&G had to call on Brazilian model Gisele Bündchen – persuading her to stop showering long enough to declare publicly that she lathered up using Pantene – to bolster sales.

Finally – lesson five – keep an eye on the basics. After a strong run with Oreos in China, Mondelez last year had to take action to offset “weak biscuit performance”, which had created an overhang of Oreo inventory. After years handling strong demand, local managers were simply unequipped to deal with crumbling growth. You can have the best brand, the biggest publicity budget and the cleverest strategy for positioning yourself locally but, whether you are selling cookies or cream, sometimes you simply cannot outrun the market.