L’Oréal in China: Marketing Strategies for Turning Around
Chinese Luxury Cosmetic Brand Yue Sai
Who – the protagonists
Alexis Perakis-Valat, CEO, L’Oréal China, and Stéphane Wilmet, General Manager, L’Oréal Luxe Division, Yue Sai
L’Oréal, founded in France in 1909, is the world’s largest cosmetics company and the second largest beauty and skincare player in China.
Yue Sai, acquired by L’Oréal, was China’s first modern cosmetics brand, founded in 1992 by Madam Yue-Sai Kan, an Emmy-winning TV host, socialite and entrepreneur.
L’Oréal CEO, Jean-Paul Agon, declared that adding an established Chinese brand like Yue Sai alongside European brands such as L’Oréal Paris, American brands like Maybelline New York, and Japanese brands like Shu Uemura fitted perfectly with L’Oréal’s ‘beauty for all’ mission.
L’Oréal acquired Yue Sai in 2004. However, despite a booming market, Yue Sai did not make a substantial profit for L’Oréal and sales barely improved from €31 million in 2005 to €35 million in 2010.
L’Oréal has established a Research and Innovation Centre in Shanghai and has manufacturing centres in Suzhou and in Yichang, where it produces most of its mass and professional brands. Luxury brands, with the notable exception of Yue Sai, are still imported.
‘Yue Sai is the pebble in L’Oréal’s shoe.’ – Alexis Perakis-Valat, who became CEO of L’Oréal China in 2010 at the age of 39.
Alexis Perakis-Valat, who became CEO of L’Oréal China in 2010 at the age of 39, had big ambitions. He wanted to make L’Oréal the No.1 cosmetics firm in China, and turn China into L’Oréal’s No. 1 market. However, Yue Sai’s lacklustre performance was spoiling the grand vision. In his own words, it was 'the pebble in L’Oréal’s shoe'. Alexis needed to have the brand rejuvenated right away.
Stéphane had always been passionate about China – teaching himself Chinese as a teenager – and had looked forward to coming back to China after an assignment with L’Oréal USA. But the challenge ahead was enormous. Yue Sai was one of the very few brands that had managed to lose volume and money in China’s booming cosmetics market – a sore point for L’Oréal. Stéphane had to turn the situation around and strengthen L’Oréal’s reputation in China.
A fundamental reappraisal of the brand’s target customers and advertising campaigns demonstrated the need for fundamental change, and a key question arose following : mushrooms or supermodels?
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L’Oréal in China: Marketing Strategies for Turning Around Chinese Luxury Cosmetic Brand Yue Sai
Haiyang Yang and Pierre Chandon
The authors explain why students enjoy this case so much and the important lessons to be learnt about marketing in emerging markets.
The case addresses an important business issue – marketing in emerging markets, and illustrates how even proven strategies need to be fundamentally reshaped to achieve success.
The relatively short case and the multiple short video interviews with the case protagonists available on the case website allow students to fully immerse in the business situation L'Oréal was facing and experience the role of the business executives who needed to make critical decisions for the firm.
The dilemma highlighted in the case – whether to feature a top model or an ugly mushroom in the ad – is surprising and L’Oréal’s eventual decision forces us to think more deeply about the merits of a functional and emotional value proposition.
East versus West
Students enjoy the case hugely. It’s an opportunity to learn about one of the largest and fastest-growing markets in the world and understand how Chinese consumers may differ from consumers in other markets and how brands must operate differently to achieve success.
In addition, you get to discuss how beauty criteria and routines differ in the East and in the West, which typically lead to fascinating and surprising insights. To get a feel for the case, watch this teaser:
Creating successful cases
First, work with a company like L’Oréal that understands the value of cases and is willing to share information not just about what happened, but how it happened and why. Second, choose a topic that combines a fundamental business problem (like functional vs. emotional differentiation) with an exciting context (marketing to today’s Chinese consumers).
Finally, focus on the teaching note and provide a lot of additional pedagogical material for instructors. For example, instructors can register on http://cases.insead.edu/publishing/ to unlock access to a detailed teaching note, PowerPoint presentations, additional video clips to illustrate specific points, and a video of Pierre teaching the case to INSEAD MBAs.
Meet the protagonists...