Reference no: EM131283838

The world's best-known cosmetics companies are setting their sights on a lucrative new market segment: the emerging middle classes in countries such as Brazil, Russia, India, and China. For example, the Chinese spent $10.3 billion on cosmetics and toiletries in 2005; that figure has doubled in the last few years. Not surprisingly, marketers at L'Oréal, Procter & Gamble, Shiseido, and Estée Lauder Companies are moving quickly. William Lauder, president and CEO of Estée Lauder, calls China a "$100 billion opportunity." Noting that there is no "one-size-fits-all" ideal of beauty, cosmetics marketers pride themselves on sensitivity to local cultural preferences.

As Jean-Paul Agon, chief executive of L'Oréal, explains, "We have different customers. Each customer is free to have her own aspirations. Our intention is just to respond as well as possible to each customer aspiration. Some want to be gorgeous, some want to be natural, and we just have to offer them the best quality and the best product to satisfy their wishes and their dreams." For example, many Asian women use whitening creams to lighten and brighten their complexions; in China, white skin is associated with wealth. L'Oréal responded by creating White Perfect; Shiseido offers Aupres White. "You can't just import cosmetics here. Companies have to understand what beauty means to Chinese women and what they look for, and product offerings and communication have to be adjusted accordingly.

It's a lot harder than selling shampoo or skin care." Daisy Ching, regional group account director for Procter & Gamble, Grey Global Group Market research is critical to understanding women's preferences in different parts of the world. According to Eric Bone, head of L'Oréal's Tokyo Research Center, "Japanese women prefer to use a compact foundation rather than a liquid. Humidity here is much higher and the emphasis is on long-lasting coverage." Armed with this knowledge, L'Oréal devotes more development time to compacts rather than liquids. The researchers have also learned that the typical Japanese woman cleanses her face twice a day. In China, L'Oréal and its competitors have an opportunity to educate women about cosmetics, which were banned prior to 1982. Each year, L'Oréal observes and films 6,000 Chinese women applying and removing makeup.

Alice Laurent, L'Oréal's skincare development manager in Shanghai, says, "In China, the number of products used in the morning and the evening is 2.2." At its Shanghai Innovation Centre, L'Oréal is also studying how to incorporate traditional Chinese medicine into new product lines. L'Oréal and Procter & Gamble offer a wide range of products in China, including both mass-market and premium brands. By contrast, Estée Lauder's focus is on expensive prestige brands such as Estée Lauder, Clinique, and MAC that are sold through upmarket department stores. One research analyst cautions that Estée Lauder's targeting and positioning may be too narrow for China.

According to Access Asia, Estée Lauder "is in danger of becoming too exclusively placed at the top end of the market and it may have to reposition itself more in the mass market to compete for a larger part of the Chinese market." Estée Lauder's Carol Shen disagrees with that assessment. She views her company's brands as aspirational. "Chinese consumers are price sensitive but at the same time are willing to invest in products that are relatively expensive versus their income levels because they are so confident about the future," she says. CEO William Lauder echoes those thoughts. As he explains, "The Estée Lauder brand in China is exploding right now because it represents aspirational luxury but at a price that's much more affordable than Louis Vuitton."

In India, L'Oréal has recently shifted from a low-price, massmarket strategy to a premium price, upscale strategy. Competitor Hindustan Lever rings up nearly $1 billion in annual sales by targeting the hundreds of millions of people who must live on the equivalent of $2 per day. This means body lotion priced at $0.70 and $0.90 bottles of perfume. Upon first entering India in 1991, L'Oréal used a similar strategy.

However, its low-priced Garnier Ultra Doux shampoo failed to catch on with consumers. Offering no particular advantage relative to local brands, it was, in the words of Alain Evrard, L'Oréal's managing director for Africa, Orient, and the Pacific, "an absolute flop." Some shopkeepers were stuck with unsold inventories. In the mid-1990s, Evrard was determined to gain a better understanding of the Indian market. He noted several different trends. The number of working women was increasing dramatically, and consumer attitudes were shifting. Thanks to cable television, CNN and MTV were finding large viewing audiences. To learn more about women's preferences, Evrard spoke with advertising executives and fashion magazine editors as well as L'Oréal's local employees.

In doing so, Evrard arrived at a keen insight: Women in their 20s concerned about gray hair were not satisfied with existing do-it-yourself hair color products. Evrard responded by launching L'Oréal Excellence Crème in India. An innovative but expensive product popular in Europe, Excellence Crème was priced at $9 and positioned as a luxury purchase. To gain support among shopkeepers, a local L'Oréal staffer named Dinesh Dayal mounted an education campaign and went door-to-door to promote the product at local shops. Today, Excellence Crème is widely available in India. In 2004, after more than a decade of losses, L'Oréal's Indian operations became profitable.

Brazil is another important market for the global cosmetics giants. On a per-capita basis, Brazilian women spend more on beauty products than their counterparts elsewhere.

Overall, Brazil is the third-largest global cosmetics market, after the United States and Japan. Natura Cosméticos, a Brazilian company, and Avon are market-share leaders here; traditionally, Brazilians buy their cosmetics from sales representatives who work door-to-door. This creates a challenge for L'Oréal and other companies that distribute their products through department stores, drug stores, and pharmacies.

Although L'Oréal has operated in Brazil for decades, the focus has been on hair-care products. Worldwide, makeup and skin care represent about 50 percent of L'Oréal's sales; by contrast, in Brazil these categories represent only about 15 percent of sales. To build its presence in makeup and skin care, L'Oréal has hired personal beauty advisors to offer shoppers in-store consultations about Maybelline and other brands. As L'Oréal CEO Jean-Paul Agon notes, "Our big bet here is to create a makeup business in retail from scratch. The more the market develops, the less important direct sales will be." Meanwhile, Shinzo Maeda, president and CEO of Shiseido, does not intend to stay on the sidelines as Western cosmetics marketers penetrate deeper into emerging markets. Shiseido is Japan's secondlargest cosmetics company;

however, domestic sales are expected to grow only about 2 percent annually. Maeda notes, "The need to globalize our organization has come at an accelerated pace." Throughout the region, consumers associate the Shiseido brand with a company that understands skin issues specific to Asian women. The company also has a reputation for advanced research and development in key areas such as anti-aging products. In China, Shiseido uses a selling strategy that has been extremely effective in Japan. Highly trained beauty counselors offer advice on color coordination, moisture levels, and related topics. As one beauty counselor said, "It's a real delight to see my customers become happy."

Discussion Questions

1. How do women's preferences for cosmetics and beauty care vary from country to country?

2. Assess Estée Lauder's strategy for China. Does it make sense to focus on premium brands, or should the company launch a mass-market brand?

3. What is the best positioning strategy for Shiseido as the company expands in Asia? High touch? High tech? Both?

4. Do you think LOréal will succeed in changing the buying habits of Brazilian women?