L’Oréal in China: Marketing Strategies for Turning Around Chinese Luxury Cosmetic Brand Yue Sai

authorsPierre Chandon, INSEAD, tackles the complex cultural challenges involved in marketing a struggling cosmetics brand in China. As Pierre and his co-author, Haiyang Yang, Johns Hopkins University, explain in this case, a fundamental reappraisal of the brand’s target customers flagged up the need to make changes that were far more than just skin-deep.

Mushrooms or supermodels? This is probably a question that could only be asked in China when faced with the task of turning around the troubled L’Oréal brand, Yue Sai.

Yue Sai, the first modern cosmetic brand in China, was founded in 1992 by Madam Yue-Sai Kan, an Emmy-winning TV host, socialite and entrepreneur. She sold the company to Coty in 1996, and by 1998 Yue Sai was the leading luxury cosmetic brand in China. It was acquired by L’Oréal in 2004. However, the post-acquisition years were less smooth than anticipated: the brand was associated with older consumers, sales were fading, and it had lost its marketing and R&D edge.

The L’Oréal team had to make some key decisions and decided on a new campaign featuring Chinese supermodel Du Juan. The case tracks the outcome of this strategy and how success was finally achieved.

The changing Chinese consumer

China is no longer just a manufacturing giant and is fast becoming a giant consumer market. I wanted to write a case that would allow us to better understand how large multinational companies are learning to adapt their marketing strategy to serve this hugely important customer base, and how Chinese consumers are themselves evolving.

The L’Oréal case sheds light on these important issues by examining the history of the Yue Sai brand. We chart its pioneering debut in 1992; the troubled post-2004 years, during which it oscillates between a mass and luxury positioning; and its eventual success based on the use of traditional Chinese medicine.

Key differences

The case shows that change happens very quickly in China. For example, there is a new generation of consumers every five to ten years, not every 30 years. This requires companies to learn how to adapt and implement their strategies very quickly. It also means that the past, for example a brand’s heritage, is often less important in China than it would be in Europe.

At the same time, the case also highlights how parts of Chinese culture, like traditional Chinese medicine, have survived the drastic changes that the country has experienced and still shape people’s decisions in ways often unexpected by foreign firms. In fact, what we call traditional Chinese medicine is simply called Chinese medicine in China.

Writing support

One of the main challenges I faced when writing this case was that I was unfamiliar with China. Fortunately, I had a great co-author, Haiyang Yang, an INSEAD PhD alumnus who grew up in China and has been researching the country for many years. We were also helped tremendously by Stéphane Wilmet, the French-American Managing Director of Yue Sai, who learned Chinese at 13, has lived in the country for more than 20 years, and engineered the great turnaround that is discussed in the case.

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Flexible support materials

I believe that the teaching note and additional instructor-only pedagogical material are at least as important as the case itself. Haiyang and I, with the help of L’Oréal and a professional filming crew, created video interviews with the management team, consumers, retailers, and opinion leaders. Filmed on location in Shanghai and Hefei, the videos are cut into short segments to cover each particular topic. This allows instructors to pick and choose the clips that suit their specific teaching needs. We have also uploaded a complete PowerPoint presentation and added additional videos that can give non-Chinese students a feel for some of the unique aspects of today’s China.These additional instructor-only pedagogical materials are available at http://cases.insead.edu/loreal-china/ (using the username and password mentioned in the teaching note).

Teaching the case

The case requires students to choose a positioning, product development, communication, and distribution strategy for Yue Sai by analysing extensive information about the Chinese cosmetic market and the history of the brand. In doing so, students learn about the challenges that even leading multinational firms can experience when doing business in China, including how cultural beliefs and rising national pride influence Chinese consumers’ acceptance of Chinese and Western luxury brands. Many students are curious about China and want to learn more about how firms can succeed there. This case also challenges the widespread belief among students that a functional value proposition cannot provide a sustainable competitive advantage, forcing them to think more deeply about this important issue.

The case can be used in an undergraduate, MBA, or executive education course on marketing management, marketing strategy, brand management, international marketing, international business, business strategy, or other related subject. A Chinese version will be available shortly.

Prescription for success

In addition to the other supporting materials, instructors could also obtain some traditional Chinese medicine ingredients, like ganoderma mushrooms or cordyceps (mummified caterpillar) available from online pharmacies around the world. Juxtaposing these with the glamour images of top models and actresses typically used by L’Oréal and its competitors will help create a lively discussion and a fun-filled, memorable class session!

An insider’s view: Stéphane Wilmet

Here, Stéphane Wilmet, General Manager, L’Oreal Luxe Division, Yue Sai, explains the benefits of being involved in the preparation of a field-based case study.

An excellent opportunity

The benefits for the Yue Sai team were multiple. The INSEAD case writers were remarkable in their complementarities and insights. The pace of business in China is particularly frantic and some people argue that, from a business viewpoint, a month in China is the equivalent of a year in more mature markets elsewhere. This case provided an excellent opportunity for us to think over all our decisions and actions of the past two years, review them with the INSEAD team, and analyse the key facts and insights gained during that important timeframe for the brand.

Understanding key issues

The process helped us to understand in a more systematic way some of the key issues and their resolution and will help us address future changes with more confidence. The key new insight from our involvement is that when we take this brand into new markets, we will need to consider issues that were not essential in China. This became clear from the case writers’ questions and the reactions and analysis of the non-Chinese students at INSEAD.

A wider perspective

I participated in the first two classes during which the case was taught at the Fontainebleau campus in France. It was a fascinating experience to watch the professor successfully condense in less than an hour and a half all the analysis, materials, processes, thoughts and actions that defined our business case for the brand. Watching the class reminded me of the importance of being able to use an objective sounding board to run through a complex new project or idea. As a business leader, one doesn’t always have the luxury of time and/or access to a wide network of professionals to discuss and review important decisions. It was interesting to watch the students, all seasoned professionals, debate the business case and different options.

I also learned from the teaching methodology with regards to my own future organisation and management of internal meetings.

Nothing to lose

If you have the chance to take part in writing a case, go for it! There is nothing to lose by opening up one’s team, operations and results to the keen eyes and great minds of an external team from INSEAD. It can be time-consuming and somewhat disruptive, but it is very much worth whatever inconveniences (all minor) the process may involve. 

Case details

Click on the case title to view further details and, where available, an inspection copy.
L’Oréal in China: Marketing Strategies for Turning Around Chinese Luxury Cosmetic Brand Yue Sai

Pierre Chandon
INSEAD
Haiyang Yang
Johns Hopkins University, Carey Business School
Ref 513-038-1
Also available:
Teaching note

Ref 513-038-8

Read more here on the INSEAD website.

Watch a video presentation of the case

This video presentation is available here in English:

You can also choose to watch the Chinese language version:

About the authors

Pierre Chandon is the L’Oréal Chaired Professor of Marketing, Innovation and Creativity at INSEAD, Fontainebleau, France.
pierre.chandon@insead.edu

Haiyang Yang is Assistant Professor of Marketing at Johns Hopkins University, Carey Business School, US.
haiyang.yang@jhu.edu

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