10,000 words to dismantle the L’Oreal brand!

As the wave of new brands cools down, the spotlight has once again returned to “old brands”: entrepreneurs generally realize that compared to going from 0 to 1, how to go from 1 to 100 is a more worthy topic to study and learn, and “explosive growth” is just a small step in “long-term success”.

Recently, the L'Oréal Group has aroused our great interest. The latest annual report in February this year showed that the group's revenue growth rate in 2021 hit a 33-year high (16.1%), and the operating profit growth rate also reached a 14-year high (18.3%). From 2019 to the present, the average growth rate of the group's revenue has been twice that of the global beauty market, and the Chinese market has maintained a growth rate of nearly 30% for many consecutive years. This is indeed an astonishing achievement for a company with annual revenue of RMB 230 billion[1].

After going through many trials and tribulations, L'Oréal Group still maintains its position as a king. What is the secret behind its continued growth? How does it resist the invasion of new brands at the turning point of the times?

Our research team spent a month reviewing nearly 100 historical documents, conducting a large number of expert interviews, data analysis and field investigations, and clarified the context of growth: L'Oréal had also fallen into a trough eight years ago, but its successful digital strategy has become its most powerful weapon, helping L'Oréal to reverse the decline and return to the top.

Next, this study will start from the following dimensions to dismantle L'Oréal Group's digital expedition:

Facing difficulties: Why is the century-old giant in trouble?

Strategic structure: What is the development process and framework of digital transformation?

Omni-channel operations: How do the three core elements of digital transformation work?

1. The King is frustrated: Changes under the wave of digitalization

Over the past few decades, L'Oréal Group's position in the beauty industry has been unshakable. The driving force behind its growth has always been its scale advantage.

Among the more than 40 brands under the L'Oréal Group, only "L'Oréal Paris" was not acquired, and its revenue only accounts for 25% of the group's total revenue. As the originator of the "beauty group", L'Oréal has four different business units: Professional Products, Consumer Products, L'Oréal Luxe, and Active Cosmetics, which almost cover the "beauty" needs of all consumer groups.

When L'Oréal was founded in 1909, its real name was "French Harmless Hair Dye Company" and its only product was hair dye. It was not until 1939 that it was officially renamed "L'Oréal" and its product line was gradually expanded to the entire daily chemical field. Since 1957, L'Oréal has embarked on a frenzy of strategic acquisitions and once adopted "Savoir saisir ce qui commence" (Seize new opportunities) as the company's creed.

In 2019, then-CEO Jean-Paul Agon explained the secret of the acquisition model in an interview: "Choose brands that have the potential to succeed globally and buy them at a very early stage." For example, when it acquired Kiehl's in 2000, it only had one store in the United States and its annual revenue was less than 20 million US dollars. However, 20 years later, Kiehl's revenue has reached 1.37 billion US dollars, a 68-fold increase. [2]

In Angon's view, L'Oréal's model can be summarized as "buy and grow" - that is, the spiral of acquisition behavior and group growth, rather than the segmented form of "buy or grow".

(Source: L'Oréal Group official website)

From another perspective, the acquisition not only enriches the product matrix, but also further enhances the channel advantage. In 2003, in order to open up the Chinese mass cosmetics market, L'Oréal acquired Little Nurse and directly took over its 280,000 offline outlets. Through this, L'Oréal was able to introduce its main brand Garnier into the Chinese market. [3]

The powerful product matrix + channel coverage + brand marketing enable the L'Oréal Group to continuously penetrate people from all walks of life, allowing consumers to see and buy at any time. This seems to have formed an indestructible business closed loop. For many years, the L'Oréal Group has maintained a relatively high revenue growth rate (LFL, Like for Like), far ahead of the average growth rate of the global cosmetics market.

However, after the financial crisis in 2008, the L'Oréal Group's growth rate has continued to decline.

(Source: Morgan Stanley Research)

By 2014, L’Oréal’s performance had become even more bleak, and it looked like it was about to fall below the industry average:[4]

L'Oréal said 2014 was its worst year since 2009 and subsequently adjusted its full-year growth rate to 3%.

As a strategic location for the Group, the Chinese market saw single-digit growth for the first time in 13 years, with a declining growth rate and underperforming the market.

The Chinese brand Magic, which L'Oréal acquired in 2013, did not bring ideal returns in the future. Instead, its performance plummeted in 2016.

If we compare the performance of L'Oréal with that of other fast-moving consumer goods giants during the same period, we will find a surprising consistency:

Since 2014, P&G's revenue and net profit have continued to decline;

In the third quarter of 2014, Unilever’s underlying revenue in China fell by 20%;

In 2015, Estee Lauder experienced a rare negative growth, with the group's sales falling 1.7% and net profit decreasing 9.6% year-on-year.

What is the reason for this?

We believe that if traditional fast-moving consumer goods groups start from their scale advantages, no matter how they expand their brands or penetrate their channels, they are essentially profit-oriented and have a "producer-centric" model. This means that the brand is strong in "goods", but its response to "people" and "place" is conservative and delayed, which makes it impossible for the brand to adapt to new changes in consumers and the environment. This conflict between brands and consumers reached its peak in 2014.

Let’s first look at the dimension of “people”. Around 2010, the structure of the consumer population underwent a dramatic change, which was first reflected in European and American countries. Taking the United States as an example, the population proportion of millennials (born between 1981 and 1996) has increased rapidly, surpassing the baby boomers (born between 1946 and 1964) in 2014, and finally becoming the largest labor and consumption group in 2016. [5]

(Source: PEW research center)

The lifestyles and consumption habits of millennials are very different from those of their parents. One of the most important characteristics is that they are the first "natives" of the mobile Internet. This also echoes the changing trend of the "field" - for young people of this period, shopping online and obtaining information through mobile phones has become a ingrained habit of life. In 2014, the online time of global mobile users exceeded that of PC website users for the first time, and the daily active users of various social platforms also showed explosive growth.

(Source: Statista)

In contrast, the L'Oréal Group did not respond as quickly to consumer changes back then. In 2010, only 5% of the company's marketing expenses were invested in digital media, and even in 2014, the proportion did not exceed 16%. For a long time, the L'Oréal Group has been heavily dependent on offline department store channels. Taking the Chinese market as an example, before 2010, L'Oréal did not have any e-commerce layout. More than 70% of the group's products were sold through department stores, and shipments mainly relied on hundreds of distributors across the country. [5][6]

After 2010, traditional offline supermarkets, as the main channel for skin care products sales, have been in a downward trend worldwide, while e-commerce channels have shown explosive growth. In the Chinese market, the department stores and grocery retailers that L'Oréal originally relied on have seen their share of sales continue to decline, while China's e-commerce penetration rate has increased more than tenfold in 10 years. However, until 2014, L'Oréal's e-commerce channel revenue accounted for only 3% of the group's total revenue.

It seems that the contradiction facing L'Oréal is the mismatch between the old growth model and the new consumers. Brands should go wherever consumers are - obviously the traditional offline model and old consumers are not enough to support future user growth, and brands need to establish a brand new relationship with consumers in the digital age.

Our past research also shows that industry giants such as GUCCI, NIKE, and Procter & Gamble all launched their digital transformation strategies around 2014 and achieved amazing results in the following years. This is not a coincidence - the future trend is for traditional companies to transform into "consumer-centric" with the help of digital means and cater to the needs of the younger generation.

As a result, the L'Oréal Group carried out drastic reforms in 2014, and its digital expedition began.

In fact, L'Oréal's then CEO Jean-Paul Agon had long ago foreseen the coming wave of digitalization. But changing the trajectory of an empire requires more than simple decisions made on a whim. Therefore, since 2010, the L'Oréal Group has made some initial attempts in the field of digitalization, such as entering e-commerce platforms, investing in online marketing activities, establishing its own apps, etc.

It was not until March 18, 2014 that L’Oréal Group officially announced the appointment of 36-year-old Lubomira Rochet as Chief Digital Officer. At the same time, it also made a bold statement at the strategic conference: Becoming the leader in digital beauty.

(Source: L'Oréal 2014 Financial Report)

Digital Beauty’s strategy is divided into three major modules:[7]

E-commerce: Expand users’ purchasing channels and penetrate emerging countries and younger populations;

Data technology: helps brands better understand consumers and optimize digital advertising and ROI measurement;

Consumer Operations: Help brands establish more private and personalized connections with consumers, and generate richer emotional interactions with consumers.

To this day, these three core elements have remained basically unchanged.

In line with the strategy, the organizational structure of the L'Oréal Group has undergone significant changes since 2015:

Direct CDMO (Chief Digital & Marketing Office) teams have been established at the headquarters and branches to fully support the operation of the digital system.

Each major business unit has set up a subordinate CDO (Chief Digital Office) team to play the role of the middle office

Each brand under the division sets up a digital team to be responsible for the specific work of brand digital marketing and products

If we fully review the digital development history of the L'Oréal Group, we can see that the transformation stages are constantly evolving: from "Digital Beauty" to "Beauty Tech", and then to the "HUGE Better Life Plan" extended to the Chinese region in 2020.

So, how does L'Oréal Group advance digital transformation? What is the strategy of Beauty Tech?

We analyze the three major modules of digital strategy: e-commerce channels, customer experience and data technology - focusing on the Chinese market and exploring the key elements behind it.

2. E-commerce channel: DTC model creates higher profits

Since launching its digital strategy, e-commerce has always been the module that L'Oréal Group attaches the most importance to. From 2014 to today, the group's e-commerce revenue share has increased eightfold. As the second largest market of L'Oréal Group, China's e-commerce growth rate far exceeds that of other countries.

It is impossible to build a business worth tens of billions of dollars just by saying so. There must be huge interests behind it. According to JP Morgan's research, if you compare the earnings before interest and taxes (EBIT) of L'Oréal Group's online and offline channels, the online ones are 1.7 times higher than the offline ones!

(Source: JPMorgan)

The key factor in creating profits is the DTC model: it improves conversion rate and commodity circulation efficiency through first-hand consumer insights, saves channel costs of traditional distribution, and optimizes the pallet structure.

L'Oréal Group's e-commerce channels can be divided into three types: DTC, e-retailer, and ecommerce pure player. According to Goldman Sachs research, DTC can bring gross profit growth that is 50% higher than the group's average gross profit. Every time the group converts 1% of its revenue to the DTC model, it can bring a 2% increase in earnings before interest and taxes (EBIT).

Therefore, from the figure below, we can see that the DTC model has the fastest revenue growth in the L'Oréal Group's e-commerce channel, and the DTC model also accounts for the highest proportion of total revenue.

This trend becomes even more obvious when we turn our attention to the fastest-growing Chinese market. Taking L'Oréal Paris, the largest brand, as an example, the revenue share of e-commerce in China in 2021 has reached as high as 80%, of which Taobao accounted for 50%, JD.com accounted for 15%, WeChat private domain accounted for 8%, and other online channels such as Douyin, Xiaohongshu, and Vipshop accounted for about 7%. According to the L'Oréal Group's definition, these are all DTC channels that are directly facing consumers and operated directly by brands.

On the other hand, L'Oréal's global chief digital officer Daniel Chan once publicly stated that the acceleration of e-commerce DTC gives higher priority to high-end product lines.

In terms of product nature, the user data insights and personalized services achieved by DTC can greatly enhance the full-link consumption experience of high-end people, thereby promoting product sales. He mentioned a very representative example: through the optimization of the official website and the adjustment of the marketing plan, the sales of Lancome Little Black Bottle on the official website increased 30 times in early 2020! [8]

The revenue structure data of L'Oréal Group shows that since the digital transformation, the proportion of high-end product lines has been increasing, while the proportion of mass lines has been declining - this not only strengthens L'Oréal's competitive advantage in research and development, but also greatly increases the group's gross profit margin and net profit margin. Our research found that the gross profit margin of L’Oréal’s mass-market products is about 70%-80%, and the net profit margin is 15-20%; while the gross profit margin of its high-end products is about 80%-90%, and the net profit margin is >20%. The difference is quite obvious[15].

Therefore, for the L'Oréal Group, the importance of the DTC model will continue to increase in the future.

From 2014 to 2018, through the vigorous layout of e-commerce + DTC, L'Oréal not only penetrated the consumption channels of the new generation of people/fourth- and fifth-tier cities, but also continued to create profits, thus achieving the dual growth momentum of scale and efficiency.

But objectively speaking, the explosion during this period is still largely dependent on the industry dividends of e-commerce, and everything must be based on the premise that the cost of acquiring customers is not that high. However, after 2018, with the fading of the Internet dividend, the customer acquisition costs of various e-commerce platforms have become increasingly high, and the growth rate of active buyers has begun to slow down, which has led to an increase in the platform's monetization rate and an increasing "tax" paid by brands.

Therefore, it is becoming increasingly difficult to obtain excess returns from a single channel, and the "wild growth" state will soon reach its ceiling.

Therefore, the L'Oréal Group also maintained the "consumer-centric" principle and transformed its original e-commerce business oriented towards "profit and scale" into a "new retail model" of full-domain operations - combining online and offline, and linking public and private domains. In the past, the other two modules in the strategy were centered around e-commerce, but today they are expanding to a broader scope.

In November 2018, the CEO of L'Oréal China delivered a keynote speech titled "The New Golden Age of Beauty". The report pointed out that L'Oréal will deploy supermarkets, department stores, chain stores, e-commerce, social media, entertainment and other fields based on both online and offline scenarios, with touchpoints covering all ecosystems. [9]

(Photo source: L’Oréal China’s “The New Golden Age of Beauty”)

3. Customer experience: Social commerce + scenario empowerment to enhance barriers

Since the official launch of the Digital Beauty strategy in 2014, the proportion of L'Oréal Group's digital media investment has increased year by year, from 16% in 2014 to 63% in 2020. In China, L'Oréal's online marketing expenses account for more than 80%.

We have noticed that in recent years, the L'Oréal Group has continuously increased its investment in off-site social media and is no longer focusing on a single e-commerce platform channel. This shows that L'Oréal is increasingly attaching importance to using digital means to enhance consumer experience, and wants to have global and personalized interactions with consumers to further enhance the brand's competitiveness.

3.1 Social commerce’s all-round attack

Under its global concept of “more than ecommerce”, L’Oréal places the most emphasis on social commerce. Officials have repeatedly stressed that this is the future trend of the beauty industry: leveraging the power of social media to achieve exposure and conversion across the globe[11].

We believe that there are three key areas in the Chinese market:

Planting and live streaming based on the public domain

Refined operations based on private domain

Service linkage based on O+O

From the perspective of the public domain, L'Oréal pays special attention to live streaming. As early as 2015, L’Oréal took the lead in launching the “BA Internet Celebrity Transformation” plan in the UK. A year later, it reached its first cooperation agreement with the Chinese MCN agency Mei ONE: to train counter BAs into Internet celebrities and send them to online live broadcasts to sell products[12].

(Photo source: Yiou.com-Ali Double 11 Merchant Conference)

Everyone probably knows the story that followed: Li Jiaqi, known as the "Iron Lip Brother", stood out from an audition of more than 200 people and became an anchor, and finally ascended to the throne of the live broadcast king. In the first half of 2018 alone, Li Jiaqi generated tens of millions of yuan in revenue for L’Oréal[13].

The newly emerging Tik Tok has also become another major battlefield for L'Oréal. On May 1 this year, L’Oréal officially joined Douyin e-commerce. Through the Douyin Super Brand Day joint event[14], it achieved a total GMV of over 22 million, with the brand’s own single-broadcast GMV exceeding 3 million. The number of followers on the L’Oréal Paris official account increased by 473% month-on-month. In addition, L'Oréal only collaborated with celebrity Zhu Zixiao on one live broadcast, and the GMV of the special event reached 16 million.

In response to the rise of Generation Z consumers in China, L’Oréal has proposed a new concept in the past two years: retailtainment[15]. Simply put, it means implanting the product into games, variety shows and other content forms that are popular among young people, and spreading it through live streaming.

This brings us to Tencent, a major player in games and variety shows. In April 2021, L'Oréal sponsored the youth talent show "Creation Camp 2021", and collaborated with the trainees of the Creation Camp to launch a live streaming sales event on Video Account + Taobao, reaching young consumers in an all-round way based on the extension of variety shows. In 2021, L'Oréal's brands Lancôme and Armani also sponsored the "KPL King of Glory Professional League", bringing huge influence.

We also found that, unlike emerging brands, L’Oréal, as a household name, actually has 60% old customers[15]. Therefore, in addition to the exposure and penetration of the front link, it is even more important to provide more in-depth back-link services to repeat users and improve LTV and repurchase rate.

Therefore, L'Oréal also attaches great importance to utilizing the Chinese-style "WeChat private domain" ecosystem to carry out refined operations. Taking L'Oréal's two representative brands, L'Oréal Paris and Lancôme, as examples, by disassembling the operation system of WeChat private domain, we can see that direct purchase, adding fans and offline experience are the three most common service links adopted by L'Oréal. For the popular brand Baou, it mainly uses direct purchase and adding fans to provide services directly online. The high-end brand Lancome pays more attention to guiding customers to enter offline stores for experience. In order to provide more humane services, like Perfect Diary's "Xiao Wanzi" and Yuanqi Forest's "Xiao Yuanzi", L'Oréal Paris has also set up a unified private domain IP "Ou Xiaoya".

On the other hand, L'Oréal Paris also upgraded its private domain system in 2021. Through video accounts, official accounts, and mini programs, it segmented user data based on fan-adding channels and personal attributes, and pushed content in different categories according to user characteristics, so that the content seen by fans is "different for each person", and the offers provided can be flexibly changed from 9.9 yuan for a sample to 145 yuan for a package. These refined operational actions made the value of Baou’s fans who joined on the same day greater than 2.5. After 30 days, the value of fans increased to more than twice that before the transformation. The repurchase rate of private domain users remained between 10% and 30%, and the conversion rate was 12% to 15%[15].

Through the promotion of various strategies, the private domain operation results of L'Oréal Group are also improving: currently the private domain revenue of the entire group accounts for about 8-10% of the group's total revenue, while private domain-related marketing expenses only account for 5-6% of off-site investment.

As a brand under the mass product line, L'Oréal Paris' private domain revenue accounts for 6%-8% of all online revenue, with an ROI of 5-8. The private domains of high-end brands such as YSL can account for 12-15% of online revenue. Overall, L’Oréal’s top priority in operating its private domain is not the short-term GMV and ROI, but rather the accumulation of high-quality user assets and the improvement of ROI through long-term refined operations. Based on the data, we speculate that the private domain of the group’s largest brand, “L’Oréal Paris,” is profitable.

In order to better leverage its existing offline advantages and connect online and offline, the L'Oréal Group also attaches great importance to the O+O model.

In 2021, Ma Zheng, National Sales Director of Shelf Channel of L'Oréal China's Mass Cosmetics Division, shared L'Oréal's two major strategies for O+O at the "CBE2021 China Cosmetics Retail Conference": one is to use offline stores and counters' own live broadcast platforms for live broadcasts; the other is to conduct "Air Salon" marketing through WeChat groups. [10]

In the "Air Salon" which is mainly based on social networks and live broadcasts, shopping guides will preheat and promote products through their Moments. L'Oréal China has produced a series of high-quality promotion videos and skin care techniques videos in its content center. Shopping guides can distribute these videos to users online to help them better understand products and skin care knowledge. L'Oréal has also set up an "Air Sword Forging Pool". Shopping guides and anchors can initiate training requests to the instructors in the Sword Forging Pool at any time if they encounter problems they don't understand, so as to further improve their knowledge system.

Image source: CBE China Beauty Expo "2021 China Cosmetics Retail Industry Conference"

Offline, L'Oréal not only retained the "Beauty Salon" in each counter to help users put on makeup, but also set up a new "Beauty Care Salon". Users can experience SPA-level hair and skin care services in real time at L'Oréal's offline counters. L'Oréal China has also set a goal called "Million SPAs", aiming to make "Beauty Salons" cover more than one million consumers.

In 2020, L’Oréal carried out live broadcasts and social media marketing at every important promotional event, and held more than 6,000 “O+O” online salons, offline salons and live broadcasts. The GMV generated by these activities accounted for more than 10% of L’Oréal China’s total sales in 2020[14].

3.2 Dimensionality reduction attack of “black technology”

Although the social commerce model has greatly improved customer experience and covered a wider range of omni-channels, new problems also exist: due to the characteristics of beauty brands, no matter how sophisticated the operational methods are, it is difficult to fundamentally differentiate the customer experience. For example, Perfect Diary can implement the strategies mentioned above, Estee Lauder can also do it, and even many new brands can do it better.

It seems that the return on investing huge amounts of money in optimizing "operational tactics" will become lower and lower in an environment of internal circulation, and the ceiling will also be very obvious.

So in 2018, L'Oréal Group simultaneously launched a "dimensionality reduction attack" strategy: Beauty Tech, which pushed the group's digital transformation to a new stage - "beyond digital".

We believe that the core of Beauty Tech is to add a layer of high-tech applications on the original three modules, so that consumers' sensory experience is not limited to the dimensions of "seeing", "listening" and "buying" provided by traditional online services, but has an additional dimension of "trying", which is even more convenient and accurate than offline.

For example, other restaurants can only let you see the names and pictures of dishes on the menu, but I can let you taste the flavors without ordering, and can automatically adjust according to your preferences. Then you will definitely be more willing to come to my place for dinner - this is the so-called dimensionality reduction attack. This new type of customer relationship that breaks the boundaries between the physical and virtual worlds sounds a bit like the metaverse.

So why is it called scene empowerment? Because this additional dimension is based on various scenarios in the user life cycle such as makeup trial, diagnosis, and evaluation, it empowers the entire front-end consumer experience.

In this way, the L'Oréal Group has built a strong barrier using hard technology. No matter how inward-looking the operating methods become, the differentiated experience + personalized service brought by technology cannot be easily caught up with or surpassed. The longer the accumulation time, the smoother the integration of these technologies with consumers will be, and the wider the moat will become. From another perspective, technological means only play a 70% role on the front end, and the other 30% is used in back-end product development: based on consumer data, deep insights into demand pain points can be gained, thereby improving the efficiency of new product development in reverse.

In March 2018, L'Oréal acquired Canadian cosmetics technology company ModiFace, firing the first shot in its entry into Beauty Tech. The company has developed an augmented reality product that can add cosmetic effects to the face and hair in selfies, allowing people to change their makeup with just one click. This technology was first applied by L'Oréal on social media and retail platforms such as Facebook, Youtube, Amazon, Sephora, and Watsons. More than 20 artificial intelligence technologies derived from Modiface have also been applied by L'Oréal to major brands.

In addition to virtual makeup trials, L'Oréal has also extended the boundaries of tech to e-commerce and packaging, fully leveraging its tradition of deep pockets and laying out a strategic roadmap of acquisition + investment + cooperation around three major modules.

(Source: CBinsights)

According to official information provided by L'Oréal, as of 2018, in the Chinese market, 14 L'Oréal brands have provided offline reservation services, 11 brands have used virtual makeup trial technology, 6 brands have launched beauty consultant apps, and 12 brands have launched unmanned vending machines. L'Oréal's online makeup trial service for 13 brands and 3,500 products has reached 20 million consumers. In the figure below, we have compiled L'Oréal's "black technology" applications in recent years:

So, how do these advanced-sounding concepts come to fruition? What is the effect? Let’s go back to the Chinese market and see: WeChat private domain is becoming an important battlefield for scene empowerment and has achieved good returns.

In 2019, Modiface technology entered China. L'Oréal Group cooperated with Tencent to launch the AR dynamic makeup trial function on the "Armani Beauty Official Boutique Mall" applet, which led to a 38% increase in Armani's online sales during the same period.

Also in 2019, L'Oréal launched the first mobile artificial intelligence detection application for acne problems - EFFACLAR SPOTSCAN. This technology is mainly used in the pharmaceutical cosmetics brand La Roche-Posay. Consumers can log in to the La Roche-Posay mini program, take three selfies and upload them according to the prompts to obtain a test report and understand the severity of the acne problem based on the score.

After self-testing, the La Roche-Posay mini program will also provide personalized skin care suggestions based on the different skin problems of consumers, recommend targeted care product combinations, and support online ordering. If more serious skin problems are detected, Aifika can also make an appointment with a dermatologist for a one-on-one online consultation based on consumer needs. This technology helped La Roche-Posay achieve a 40% increase in new customers in a single month, and the brand's overall average customer spending also increased by about 15%.

4. Data technology: Accumulating user assets to optimize business

The two core modules analyzed in the previous article undoubtedly provide L'Oréal with profits and greater market space, and build barriers. As for the data technology module, it plays the role of underlying support and improves the operational efficiency of the group's business.

The stronger the customer experience, the more customer interactions there are, which generates a large amount of user data. If an independent "profile" can be established for each user to record their behavior and preferences, and it is fully controlled by the brand, it will constitute a unique "user asset". This not only helps brands gain insight into customer needs, but also optimizes the effectiveness of marketing campaigns.

The L'Oréal Group has established a complete customer data platform (CDP), which enables it to accumulate "user assets" over the long term. It not only imports a large amount of e-commerce sales data, but also collects all sales data from stores across the country through the POS system and enters it into the data center in a unified manner. On the other hand, after obtaining user authorization, L'Oréal will also use shopping guides to manually record consumers' age, skin type, preferences and other customer attributes, and enter them into the data center together with online membership information.

Thanks to the unique ID of consumers in the data platform, L'Oréal has achieved matching of sales data with user portraits. In this way, L'Oréal not only obtains sales trends of pallets, but also obtains deeper insights into consumer behavior habits, which can ultimately guide personalized sales activities.

Secondly, in order to accumulate user assets more efficiently, L'Oréal adopted the "sampling" method: offline customer flow is limited, and there are various obstacles to online data collection. Therefore, L'Oréal placed advertisements on public platforms such as Tmall, WeChat, and Douyin to attract consumers to receive samples offline. After the user's authorization is passed, the shopping guide can also record the user's personal information through the offline service process and match it to the data middle platform.

These user assets can be applied to all links of the L'Oréal Group's marketing chain and can be mainly divided into three categories: user insights, strategy execution, and effect evaluation. Among them, the role of data in user insights is more significant.

The first step in user insights is to determine the brand’s growth goals, and then break down this determined growth target into sales targets for each channel. For example, in order to achieve this goal, what proportion of online and offline contributions are required. In the online channel, what are the performance targets of each channel such as Tmall, JD.com, Douyin, WeChat Mini Programs, etc.

In the subsequent strategy execution phase, L'Oréal will also carry out social media layout and advertising. Screening influencers, determining content distribution direction, checking the rate of viral posts and interaction rates...all of these require a large amount of data for analysis and verification. In the effect evaluation stage, L'Oréal will look at the most common indicators such as the contribution rate of each channel, conversion rate of on-site and off-site delivery, CPM, CPC, ROI, etc., and use data to evaluate marketing effectiveness.

Finally, from a technical perspective, L’Oréal has built a very complex data-driven system around the business level. There are also differences between each brand, and what we have discovered is only the tip of the iceberg[15]:

Use public opinion monitoring, CEM and other systems to gain insights into marketing campaign feedback and consumer demand: on the one hand, measure brand-effect integration, and on the other hand, explore new market opportunities;

Collect consumer data using offline POS machines and online platform DMP: strictly abide by data security laws and accumulate user assets across the board;

Use CDP to integrate various data sources: Build a unique ID for consumer identity, including first-party and non-first-party data, and try to connect data between different brands of the group;

Use CRM and SCRM systems to operate consumers in different layers: build complete tags and user portraits, and implement accurate push notifications on different platforms to meet different needs of different users;

Use BI to analyze data: optimize ROI and marketing strategies.

5. Summary

The digitalization of the fast-moving consumer goods industry has become a global trend, and major fast-moving consumer goods groups around the world are rushing to start digital transformation. But the L'Oréal Group can be said to be one of the most successful ones - not only has it achieved counter-cyclical growth in performance, but it has also established a systematic and process-based digital talent and organizational structure, forming a "data-driven growth" corporate flywheel with reusable data and more agile response.

We believe that the core value of L'Oréal Group's digital transformation is to act as an "amplifier" of L'Oréal's brand capabilities. By leveraging full-domain integration, the group's original advantages are multiplied in digital channels, avoiding the severance of the relationship between the online and offline systems, thereby bringing incremental growth. This is achieved by changing the way of communication and service relationship with consumers, truly achieving "consumer-centricity" and customer experience as the goal: it not only includes marketing methods and sales channels, but also involves a series of back-end systems such as management, product development, and supply chain. This study only covers the three most significant modules in the strategic framework.

From the above summary, it is not difficult to find that L'Oréal Group does not stick to a certain field in the implementation of its digital strategy, but uses the mutual cooperation of e-commerce, customer experience and data technology to achieve a step-by-step improvement:

The DTC model of e-commerce creates higher profits and a larger market space;

Superimposing social commerce creates stronger reach, and using the upgrade of beauty technology to create a multi-dimensional experience;

Finally, through the accumulation of user assets, we continuously guide business optimization and improve operational efficiency.

Combined with the existing brand and product R&D advantages, the data + high technology + operation system constitutes a stronger competitive barrier.

But behind the rapid development of digitalization, there are still risks and uncertainties.

First, L'Oréal Group is increasingly relying on e-commerce channels, but the growth rate is slowing down. This is more obvious in the Chinese market, where the year-on-year growth rate has dropped from 35% in 2019 to below 20% in 2021.

Taobao Live accounts for the majority of the entire public e-commerce. For example, for the high-end brand Lancome, we estimate that more than 30% of Tmall’s revenue comes from Taobao Live, of which a quarter is contributed by top anchors such as Li Jiaqi. However, due to the end of the traffic dividend, the average GMV contribution of top anchors is declining, and ROI is also declining. The growth space will become increasingly limited, and growth can only be driven by increasing the average order value.

However, the long-term competitive environment in e-commerce channels has led to a large number of price cuts and buy-one-get-one-free promotions, which may not be conducive to the increase in unit prices and ultimately affect profit margins.

Secondly, although L'Oréal Group has acquired leading technological innovation capabilities after implementing the Beauty tech strategy, the application of beauty technology is still within a small range and has not yet penetrated into a wider population. In the process of any technological innovation, from a niche to a public, it is inevitable that it will "cross the gap", and L'Oreal Group still has many challenges.

Third, the rise of emerging shopping channels has put more pressure on L’Oreal’s traditional offline business and it takes a certain amount of time to adjust. For example, L'Oreal Paris has started a large-scale withdrawal of counters since 2018, and by 2020, it has withdrawn 70%-80% of department stores, and Yuxi also announced the withdrawal of counters in 2021. In 2020, Populare Cosmetics also announced that it would withdraw from all department store channels and turn to online and offline experiential boutique stores.

Finally, although the digital marketing across the region has brought great results to L'Oreal, on the other hand, it has been the rapid increase in marketing expenses since 2014. In 2021, its marketing expense ratio has increased to 32.8%, and its marketing expenses have increased by 22.5%, which is a very high growth rate in the entire industry.

Can L'Oreal Group continue to maintain its kingly attitude in the era of digitalization and bring more innovation and breakthroughs? Let's wait and see!

Author: Growth Black Box Growthbox

Source: Growth Black Box Growthbox