Marketing Case Study

Marketing Case Study
1. Why is new product development so important for a company like L’Oreal?
Driven by consumer demands and with the development of new technology, many companies have to bring some new products to the market, if they want to remain their competitive advantage and sustain the profitable growth. That is why new product development can become the most important business process.
In this L’Oreal case, innovation is its driving force, in terms of both technology and fashion, L’Oreal has invest so much in innovation, innovation is quite important and essential to L’Oreal which wants to keep continuous growth and perform well in the global market, and there are many forms of innovation, new products and services are one aspect of them, it is very important for L’Oreal to know how to identify innovation opportunities and transform some good and useful ideas into new product development.
There are several items to consider about why L’Oreal has to develop new products.
1. Customers
Because N.P.D is a Customer-Driven Process. So a discussion of customer need analysis is necessary. Generally speaking, N.P.D can offer superior value to customers compared with the existing products. L’Oreal spends much time and capital on R&D every year in order to understand customer needs, because customer needs can generate much important information for L’Oreal to decide if there are some value opportunities in developing new products, especially appealing to different segments in a global market. Through R&D, market segment identification and analysis can help L’Oreal to identify which segments can offer opportunities to develop new products, and who are L’Oreal’s existing and potential customers, and what are the gaps between the existing products and customers’ expectation. From customers’ points of view, they always have demands for new products, because there are demands for differentiation, especially for cosmetics like L’Oreal; consumers who often use L’Oreal products are usually professional enough, therefore, it requires that L'Oreal has to be at the fore¬front of fashion and has to have new products and services ready to offer when the market wants them. For L’Oreal, taking its consumers into consideration will help it to adapt its strategies for launching new products.
Normally, women are the main consumers of L’Oreal, and women are different across the world, women in Asia may need different cosmetic, there are several reasons, because they may have much more difference in taste, and the nature of skins are not the same either, if L’Oreal still offer the same products as what it offers in the west markets and cannot offer new products to women in the east countries, L’Oreal will definitely lose the Asia markets. Therefore, marketing research is quite useful for L’Oreal to identify the difference between women across countries. This is one of the reasons why L’Oreal spends quite a lot of money on R&D every year.
2. Culture
Culture is another issue that we should consider to launch a new product. Obviously, consumers worldwide are not the same, and there are differences in consumers’ behaviour between countries, the differences are increasing, Culture is part of the external influence that will impact consumers’ behaviour. Is this particular case, because culture in west and east world is different, people in Asia may have a local culture's sense of beauty, therefore, they may demand products different from the west countries, so it is necessary for L’Oreal to offer new products to meet their needs. As mentioned in this case, Japanese people want to make their hair colourful, no more black, so these are culture influences, R&D can help L’Oreal realize these culture differences and it will understand what kinds of new products can offer the best value and benefits to different consumers.
3. Competition
There are so many cosmetic brands worldwide, such as Lancôme (France), Shiseido (Japan), Chanel (France), Clarins (France), and so on, the cosmetic industry competition is high, normally, competition will bring stable prices and better products or services, compared with its competitors, L’Oreal should show its competitive advantage to its target consumers, because of competition, L’Oreal has to launch many new products to show its additional benefits and value to draw consumers’ attentions. In the cosmetic industry, there are multiplicate products in the marketplace, so every company cannot survive if it can’t design and produce new products real time. And consumers’ taste will change from time to time, if L’Oreal does not offer new products, its competitors will do, once L’Oreal loses market share due to the lack of new products, it will take much more efforts and pains to get it back, it will be a serious problem then.
Therefore, competition is another important item that L’Oreal should think over. If a cosmetic company has identified a particular need in the marketplace according to marketing research, and can come out new products real time, usually it will gain advantage over its competitors.
Competition also can create innovation, we live in a world of change; companies have to need the ability of innovation to offer new products, innovation is the soul of a company, if they fail to innovate, then companies will inevitably lose out in the marketplace, Indeed, companies which fail to innovate as rapidly and effectively as their competitors in today’s markets will find themselves fighting to survive. Therefore, innovation is really quite important for companies especially like L’Oreal which needs to launch up to nearly 2000 products to the markets according the changes of the external environment and diversities of consumers’ need.
4. Product Life Cycle (PLC)
A company’s positioning and differentiation strategy must change as the product, market, and competitors change over time, most product life cycle curves can be typically divided into four stages: introduction, growth, maturity, and decline (Kotler, et al, 2003). From PLC, every company should be clear that products have a limited life, different stages, companies will face different challenges, opportunities, and problems to the sellers, and the profits will rise and fall at different stages, actually, each stage L’Oreal can use different strategies. The PLC concept helps to interpret product and market dynamic; therefore, companies which want to keep the competitive advantage and retain market share in the marketplace have to consider developing new products at real time, according to the internal and external changes.
Sometimes, if L’Oreal’s sales decline, the reasons may be like this: technological advances, shifts in consumer tastes, and increased domestic and foreign competition, so L’Oreal has to consider that some products may be in the decline stage, if so, L’Oreal can use several strategies, it can increase investment to dominate the market or strengthen its competitive position or decrease its investment level by dropping unprofitable customer groups and aging products, therefore, it needs to develop new products to capture potential customers and gain the target market share.
Nowadays, because of diversities of products in the marketplace, so product life cycles are getting shorter and shorter, therefore coming out new products becomes important and necessary for most of companies, In the cosmetic industry, due to the tense competition and the changes of tastes, so the same situation for L’Oreal to develop new product.
2. What are the potential risks of launching up to 2000 products a year into global markets?
1. Costs and Benefits
The costs and benefits are important issues to consider. As mentioned above, the economies of scale of standardization can help to reduce costs of design and modification and low down the costs, while the adaptations maybe increase the costs. For example, in the first place, L’Oreal has to spend so much money on R&D, which is 3 percent of its turnover. According to R&D, L’Oreal can identify the different segments in the world markets so that it can adapt its new products to the individual market to gain benefits.
Launching 2000 products a year into the global market is a vast investment and the huge investment may result in the potential risks like whether all the 2000 products can perform very well in the global market, do the products can well deliver the benefits to your target customers? Can L’Oreal take back the costs and investment? All questions like this will be tested by the global markets. Therefore, L’Oreal cannot ignore the potential risks.
2. Market-Entry Timing
In commercializing a new product, market-entry timing is really critical; L’Oreal needs to launch its new products at the right time and real time. And there are some choices for L’Oreal to consider.
First entry: if the new product of L’Oreal is the one to enter a particular market, it usually can enjoy the “first mover advantages” of locking up key distributors and customers and gaining reputational leadership
Parallel entry: L’Oreal might time its entry to coincide with the competitor’s entry, the market may pay more attention and be interested when two companies are advantaging the new products.
Late entry: L’Oreal also might delay its launch until after the competitor has entered. Because there will be a chance for L’Oreal to observe the market and the performance of competitor’s products. Maybe its competitor’s products reveal faults which the late entrant can avoid. Therefore, L’Oreal can learn something from these faults. And the late entrant can also learn the size of the market that sort of thing.
So the potential risks maybe whether L’Oreal can launch its new products at the right time, this is an important issue when entering a market. And these need to do lots of R&D.
3. Marketing Strategy—products
In order to remain competitive, L’Oreal often has to think how to deliver its product’s benefits to consumers effectively. Usually the production of standardized products provides cost advantage, however this strategy is not as common or not successful all the time. A portion of the final product is standardized; however, the design retains some flexibility so that the end product can be tailored to the needs of individual markets.
L’Oreal can use the Core Product Strategy which can Involve using a standardized strategy for the core product worldwide, but varying certain aspects of the offering (product ingredients, advertising, promotion, packing etc.) from market to market. This also means a trend to standardize as much as possible those areas involving common components.
For launching 2000 products a year in to global markets, differentiating those products from markets to markets is not an easy thing to do, sometimes consumers may be confused about the core benefits that L’Oreal is trying to deliver. It is not good for L’Oreal to keep its brand image. To some extent, 2000 products are really a little messy to the global markets. Some of L’Oreal’s products no need to adapt, Adapting happens when there is a necessary. So if L’Oreal cannot control the degree of standardization and adaptation, it will result in potential risks.
3. What do you think are the problems of managing the R&D-marketing interface?
A significant amount of evidence has supported the concept that R&D-marketing co-operation increases new product development success, and if this interface is not managed efficiently, it might lead to an increased level of risk taken up by companies in the face of new product failures upon their market entry.
In order to launch new products successfully, companies like L’Oreal have to expend a great deal of time and energy in research and development. Thinking profitable/effective new ideas and implementing them are the core issues to be addressed and in this regard L’Oreal’s R&D performs the task of coming up with successful innovations while the implementation lies in the hands of how these innovations are marketed. If L’Oreal launches a new product that cannot be marketed effectively, the R&D efforts would inevitably be marked as inefficient and useless.
In order to launch new products successfully, companies like L’Oreal have to expend a great deal of time and energy in research and development. Thinking profitable/effective new ideas and implementing them are the core issues to be addressed and in this regard L’Oreal’s R&D performs the task of coming up with successful innovations while the implementation lies in the hands of how these innovations are marketed. If L’Oreal launches a new product that cannot be marketed effectively, the R&D efforts would inevitably be marked as inefficient and useless.
A number of studies have identified the main aspects of R&D and marketing cooperation in more successful firms. These include analysing customer needs; generating and screening new ideas; developing new products according to market needs; analysing customer requirements; and reviewing test market results.
Before launching or marketing any new product locally or internationally, a company has to be sure that its R&D will generate such a formula/innovation that would be differentiated from other products and is based on consumers’ preferences. Such ideas are most likely initiated by marketing and then R&D takes over the task. Once the R&D process is complete, the launch of new product requires the company’s scientists/engineers to observe the market reality and employ different ways of marketing their product. Any negligence in this context would not only result in product failures once they are launched, but would also shatter the company’s image.
A bulk buys advertisement of these products is required and this can only be done through a carefully selected marketing strategy that is in balance with R&D functions.
Research has considered the R&D-marketing interface as an information-processing sub-system of an organization. Problems emerge where this interface is overlooked resulting in increased customer, market and technological uncertainty during new product developments.
However, reality appears a bit complex because studies have shown that R&D and marketing tend to have different perceptions and interpretations of the characteristics of a new product, particularly in terms of its technical innovation and the extent to which it affects the established consumption patterns. In reality, marketing perceives a more critical role of a new product for positioning in a market segment than R&D.
Moreover, the need for long-term R&D always exists and the scientists need to be given some independence to design new formulas that are not unveiled unless desired.
The different views of R&D-marketing are influenced by their different personality, cultural background, time orientation, ambiguity, tolerance and level of detail of language used. Therefore for companies like L’Oreal the R&D-marketing interface needs to be managed in such a way that it satisfies both the needs of R&D as well as marketing.
According to a study conducted by Wang in 1997 the R&D and marketing functions were found to have collaborated in accomplishing tasks in three areas.
These were as follows:
Conceptual development à identifying and evaluating relevant information;
Strategic development à market positioning and product differentiation;
Implementation à Internal and external communication.
For L’Oreal these three functions are an important consideration in the process of new product development without which innovations might involve a high degree of risk, resulting in product failures. An important link also exists between the R&D-marketing interface and new product entry in the market which enhances the need for managing this interface efficiently.
The desired level of the R&D/marketing interface may differ from the actual level that characterizes a firm.
For instance, a strong mismatch between what is desired by customers and what is developed by L’Oreal would reduce the company’s ability to predict market response to its new product. This would result in a reduced level of confidence on the effectiveness of marketing. Therefore, in this context, a clear understanding of customer needs would be helpful in determining a company’s new product entry timing.
Research has suggested that when the market is particularly responsive to new product performance and the difference between the expected and actual levels of R&D/marketing interface is not significant, then a firm should enter the market quickly and with a high-performance product. In contrast, when the difference is significant, then the firm should delay its entry. This means that by effective management of R&D and marketing interfaces, firms can come up with better strategies both in terms of resource allocation and entry timing.
Do you think that L’Oreal has solved those problems?
L’Oreal continues to thrive on innovation because marketing and R&D depend on each other for necessary resources to perform their activities during the process of launching innovative products in the global market.
It has been seen that most companies that spend great deal of time and effort on their R&D in order to come up with new ideas, have created such products that resulted in a technological break-through, captivating a huge market share.In case of L’Oreal, the company has been spending a lot on its R&D department, (spending about 35% greater than its competitors’).L’Oreal employs 3000 chemists, biologists, pharmacists and the company’s R&D aims to deliver 2000 new ideas to its marketers in order to launch 2000 new products annually. It not only has to develop successful ideas, but also find a perfect marketing strategy that addresses the target markets for the new products, their positioning, sales, market share and profit goals at initial stages. It therefore tries to maintain the “delicate” balance between creative R&D - marketing.
The company not only analyzes the marketability of its new products but also tests its effectiveness through its careful R&D process. For e.g. when the marketers desired a fruit based shampoo for the European market, L’Oreal’s R&D took over the task and it took the company 10 years to come up with Fructis, which captured L’Oreal a 28% share in the European market alone. This was, in fact, a result of the long term R&D efforts of the company and L’Oreal tries to follow a three-level strategy for efficient management of R&D to marketing interface. Also the company launched a sun lotion exclusively for children, the Ambre Solaire Children's Sun Lotion, which took three years for its launch and development. Therefore L’Oreal has tried to solve most of the problems resulting from an imbalanced R&D-marketing interface and needs to lay a greater emphasis on satisfying the individual needs of R&D and marketing respectively. It needs to continue by having a clear focus of the technological innovations and fashion trends.
4. To what extent does L’Oreal follow a new product development process?
New product development (NPD) is a business process that needs to be managed as the other business processes. And the reason why we need a product development process is that it can help a company to control the costs and time which is taken to develop a new product. More importantly it helps your company to look on new product development as investment. When a company wants to be successful in the new product development, one important thing to consider is that the development is divided into several stages. Normally, there are six stages involved in N.P.D:
1. Idea Generation
This is the first stage of the N.P.D, usually a company can come out some new ideas through brain storming, but some of the ideas may not be feasible, ideas can come from customers, suppliers, employees, competitors, and scientists (according to this L’Oreal case), because customers’ wants and needs are the resources to be researched for ideas, and in addition, by researching competitors’ products and services, companies can find out what are consumers’ opinions about their competitors’ products, so this can help to generate some new ideas,
According to this L’Oreal case, its some new product ideas are initiated by marketing and R&D, the marketers do lots of marketing research on their customers so that they can understand much better about their customers’ needs and wants, what kinds of cosmetic products do consumers like? What benefits and value do they desire? Therefore, marketing research can help L’Oreal to create some new ideas, it is definitely true.
Scientists in this case play an important role in generating new ideas, scientists in the L’Oreal Company have some freedom to work on their own long-term ideas, and they can do lots of the laboratory research which is quite useful and necessary.
2. Idea Screening
Here the idea should be screened for its feasibility on the target market, because not all the new ideas have the chance to survive, only ideas that consumers consider and believe as new will, therefore, consumers’ opinions are important issue to be considered, obviously, the purpose of screening is to give up the poor and not reasonable ideas and keep the feasible ideas.
What is more, potential success for new product development depends upon three factors: the idea’s compatibility with the firm’s corporate strategy, the potential demand for the product, and the firm’s capability to exploit the product opportunity . the ideas should have the potential to become opportunities for L’Oreal in this case, the ideas ought to help to add significant value or benefits to consumers, it is important that every new L’Oreal product is exciting, offers a new and clear benefit and prove itself acceptable in use.
In the demand potential, some factors need to consider, such as customer need, market size, market growth, and profitability and so on, for L’Oreal, according to the advanced research, it can help L’Oreal to develop new ingredients, understand and improve the effectiveness of new ingredients and products much better. Scientists in L’Oreal can gain the advanced knowledge in the skin, hair and the other areas that are relevant to L’Oreal, because the scientists hope to solve a significant problem and meet a significant need. Through advanced research, L’Oreal can also evaluate the market size and market growth, in order to keep the most feasible ideas. Therefore, L’Oreal take much efforts to do research is quite necessary, due to all the three research levels, L’Oreal can identify and understand the market very well.
3. Concept Testing
Concept testing involves presenting the product concept to appropriate target consumers and getting their reactions (Koler, et al, 2003). Usually, there are several processes involved in the concept testing system, for L’Oreal, in the first place, it should define the purpose of the test, what objectives does L’Oreal want to archive, and secondly, L’Oreal needs to choose a survey population, such as some samples of its target consumers can be chosen. Thirdly, choose a survey format and communicate the concept, and next, measure consumer response, this step is quite important, because consumer responses directly affect the perspective of the new ideas. What is more, L’Oreal also needs to interpret the results and reflect on the results and the whole process in order to improve the new ideas in the future.
4. Business Development
For L’Oreal, after management develops the product concept, it can evaluate the business attractiveness. The management of L’Oreal needs to prepare sales, cost, and profit to determine whether they satisfy company objectives. And if they do, the concept can move to the development stage. In L’Oreal Company, the R&D, marketing and finance department can estimate those costs and profits.
5. Commercialization
This stage all ideas that survive will be developed into a full marketing plan including all areas of the marketing mix.
5. 1. When
In commercializing a new product, the time of market entry is important; L’Oreal can choose the right time to launch its new products.
5. 2. Where
In addition, L’Oreal must decide to what extent to launch the new products in a international market, company size is an critical factor to think about, as a large company, L’Oreal has the ability to cover the whole global market, from the European markets to the Asian markets and so on.
5. 3. To whom
L’Oreal should target its initial distribution and promotion to the best prospect groups. And rate the various prospect groups on the characteristic and target the best group consumers. The purpose is to generate strong sales as soon as possible to make further success.
5. 4. How
In brief, L’Oreal must develop an action plan for introduce the new product into the rollout markets.
6. Market Entry
There are a variety of ways in which L’Oreal can enter foreign markets. The three main ways are by direct or indirect export or production in a foreign country. Usually, the market entry strategy includes: Licensing, Joint Venture, Franchising, etc. L’Oreal should identify which is the best method of delivering its products to the market and of distributing them there.

Marketing Case Study 9.1 of 10 on the basis of 2437 Review.