L’Oreal: Failing to Adapt to New Markets?

“To L’Oreal, Brazil’s Women Need Fresh Style of Shopping,” by Christina Passariello, is from the January 21, 2011 issue of The Wall Street Journal. The article discusses how the French company L’Oreal decided to begin doing business in Brazil in 2009. This was because the financial crisis was hurting the cosmetics industry in the European and American markets, and Brazil is home to the world’s third largest cosmetics market, just below the United States and Japan. However, the company has not realized success as it hoped, which is mainly due to the fact that Brazilian women like purchasing their skin creams, mascaras, and other cosmetics from door-to-door salespeople, not in shops, which is L’Oreal’s current method.

The French company is remaining stubborn, however, and Jean-Paul Agon, the chief executive, says that L’Oreal will not be using the door-to-door sales approach. Instead, the company hopes to increase sales by providing personal beauty advisors in stores where L’Oreal products are sold. Mr. Agon is convinced that the market will continue to develop, and direct sales will become less popular. It appears that Mr. Agon is attempting to make Brazilian women just forget about part of their culture. Because of door-to-door selling, millions of Brazilian women have found jobs and pulled themselves out of poverty. Out of the 42 million women that are employed in Brazil, 2.5 million of them work as a direct salesperson. The chief executive for Natura, a cosmetics company that has one million salespeople across the country, predicts that door-to-door selling will remain strong for at least another ten years.

Mr. Agon still believes that the strategy his company has come up with will work best. He says that it is all about creating the appropriate atmosphere for Brazilian women to want to buy L’Oreal products. The company’s main focus will be on department stores, such as Lojas Americanas, which is similar to Kmart. The company is in the process of negotiating with Lojas Americanas to expand its makeup walls in stores across the country. L’Oreal also hopes to increase its skin care products by selling them in pharmacies and drugstores nationwide.

Mr. Agon has a very ethnocentric view on how to sell cosmetics. He says that it is all about creating the appropriate atmosphere, but he has failed to recognize that the “appropriate atmosphere” might be very different depending on in which country the products are being sold. Brazilian women like the whole experience of communicating with a salesperson in their own homes and being able to try out the different products being offered. If L’Oreal can afford to spend so much money on sales representatives in stores and in having Lojas Americanas expand its makeup walls, the company should be able to spend money on door-to-door salespeople instead. When a company enters a new market, it should not expect to be able to change the culture to its liking. Companies must adapt to new markets. A cosmetics brand will probably not be incentive enough to change traditions in Brazil, especially when there are competitors that are willing to sell products in the way that the consumers prefer. Even if the market is changing to become more retail-based, L’Oreal should invest in some door-to-door salespeople so that they can pick up sales while the market is in transition.

Although L’Oreal is not adapting its sales techniques for the Brazilian market, at least it is altering its products to meet local tastes. Research centers have been opened, and the company has made some discoveries. For example, foundation is a huge seller for L’Oreal worldwide, but Brazilian women believe it makes their skin oily. Because of this, Mr. Agon has directed its research team to develop products that have more natural ingredients. This is a step in the right direction, but Brazilian women would probably want to hear about the product improvements from friendly salespeople who come directly to their doors.

Elena Rudzinski

Source:

Passariello, Christina. “To L’Oreal, Brazil’s Women Need Fresh Style of Shopping.” The Wall Street Journal. 21 January 2011.

“Starbucks Brews Coffee Plan for India”

“Starbucks Brews Coffee Plan for India,” written by Paul Beckett, Vibhuti Agarwal, and Julie Jargon, is an article from the January 14, 2011 issue of The Wall Street Journal. It explains that Starbucks, a company from Seattle, is planning on expanding into India for the first time, using a strategic alliance with India’s Tata Group as an entry strategy. Tata Group owns a wide variety of companies in India, as well as Eight O’Clock Coffee Co. in the United States, and is also a big coffee producer in India. Although India has been viewed primarily as a tea-consuming nation, it is the fifth largest exporter of coffee in the world, and its citizens are beginning to consume more coffee themselves.Starbucks has a lot to gain by forming an alliance with Tata Group. The first benefit is that Starbucks can begin to use Indian Arabica beans in Starbucks stores worldwide. This alliance would allow Starbucks to open up in Tata locations, such as in retail stores and hotels, and strengthen the brand’s international presence. In turn, Tata Group hopes to learn from the unique experience that Starbucks possesses on store format. Starbucks is also trying to spread brand awareness using other methods, such as by selling its coffee in grocery stores and creating a new logo, but the key to success in India for foreign investors really lies in joint ventures. In India, a foreign single-brand retailer can only hold up to 51% of a joint venture with a local partner. Because of this, Starbucks is looking to form another alliance in order to do more business in the country. The article goes on to mention other companies that have expanded into India, including Yum Brands, Inc., Domino’s Pizza, and McDonald’s.

Even though Starbucks does not have much of a choice in entering India using a joint venture, it could result in positive consequences anyway. Many foreign companies fail simply because they have not performed adequate research on the country into which they are expanding. Starbucks has a lot to learn about India’s laws regarding business and culture if they are going to succeed in the new market. Tata Groups is already an expert on Indian business practices and can help Starbucks increase profits. By tying itself to a well-known organization like Tata Group, Starbucks ensures that people in India will already trust the brand name being introduced.

The article mentions some interesting failures and successes of businesses that began doing business in India. For example, Coca-Cola Co. was banned from doing business in India for sixteen years in the 1990’s because it refused to share its secret recipe. KFC was protested against, because the Indian people believed the company was a threat to India’s rich culinary culture. These companies can serve as a warning to Starbucks. Companies cannot go into a country thinking that they do not have to make adjustments. All governments have different rules and regulations that must be adhered to, and cultures should be respected.

Luckily for Starbucks, India’s demand for coffee has been increasing. In 2008, domestic consumption of coffee rose to 94,400 metric tons, which was up 90% since 1998. Since the demand for Starbucks’s coffee is already present, the efforts of marketers should be focused on positioning the brand against competitors and also adapting the products and shop environments offered to appeal to local tastes. All companies must make some adjustments to their original plans in order to succeed in a new market. Domino’s Pizza Inc. made a special pizza for India called the Peppy Paneer Pizza, which contains bland Indian cheese and spicy red peppers. McDonald’s cannot serve beef, because the Hindu people of India believe cows are sacred, so Chicken Maharaja Macs are made. Understanding this concept, Starbucks is considering offering  vegetable puff pastries for breakfast and chicken tikka sandwiches for lunch, both of which are popular in India. Starbucks is also trying to market itself to young Indians and make the local shops a great place to stop in between home and work.

Since Starbucks has a lot of experience marketing the brand name overseas, they will probably also succeed in India with the help of Tata Group. The company has a sound marketing strategy and has performed useful market research on the consumer culture and demand. It will be interesting to see what other products besides the vegetable puff pastries and chicken tikka sandwiches the company comes up with specifically for India and if the people in India will welcome the brand as part of their communities.

Elena Rudzinski

Source:

Agarwal, Vibhuti, Paul Beckett, and Julie Jargon. “Starbucks Brews Coffee Plan for India.” The Wall Street Journal. 14 January 2011.

Green logo used from 1987-2010, still being used as a secondary logo. (Photo credit: Wikipedia)

 

“From Trash Heap to Store Shelf”

The article “From Trash Heap to Store Shelf,” by James R. Hagerty and Paul Glader, is from the January 24, 2011 issue of The Wall Street Journal. It describes the advantages challenges of the remanufacturing industry, which is seeking to make products in a more environmentally friendly fashion.  Some of the remanufacturers mentioned include Caterpillar Inc., General Electric Co., General Motors Co., and Xerox Corp., and they are all seeking government support in the way of funding for research and development and also free trade of their products. However, before the industry’s desires are met, it must first prove itself to be worth the time, money, and effort by winning over the skeptics. Remanufactured products, although better for the environment, are not trusted as much as brand new products. For example, China, Japan, and Brazil have all restricted the imports of used medical equipment for fear that they are being sent harmful or outdated supplies.

Despite this hesitance, the remanufacturing industry is still growing and employs approximately 500,000 workers. In the U.S., it is a multi-billion dollar industry. Supporters argue that not only are the products environmentally friendly, but the industry can create jobs in a time of economic downturn and also offer customers lower prices. In some cases, this last point is true. Since the costs of materials such as copper and steel are rising, it makes sense that lower prices can be offered if the life of these materials is extended. However, inexpensive imports from Asia provide cheap, brand new products to consumers, meaning they would not be saving much by purchasing remanufactured products. Some products are already so inexpensive that remanufacturing them would just end up costing more money.

These industry leaders are doing the right thing by asking the government for R&D funding. By developing even cheaper ways to remanufacture products, the industry would be able to justify itself and be able to compete with the cheap Asian imports. More research would also shed light on just how much the industry is helping the environment. A lot of pollution is caused when a nation is developing, and if trade was less restricted in the industry, remanufactured products could be sold at low costs to developing countries so that they have the materials they need to grow in a more environmentally friendly way.

What these companies really need is a new international marketing plan. Even if the U.S. government is willing to support freer global trade, it does not necessarily mean that other countries will suddenly welcome the used products. As the article stated, China, Japan, and Brazil are working to ban imported remanufactured products, because they do not want foreign countries selling them inadequate materials. This is understandable, because countries should be very cautious with something as important and potentially dangerous as medical equipment. The new funding for R&D should help companies prove their claims that the remanufactured products work just as well as the new products but also provide the benefits of lower costs to the consumer and cause less pollution. Promotions should be set up so that the industry is fully accepted in the U.S. Other countries will not accept used products from companies that their home country will not even support. Once the companies have gained a strong local following, they can reach out into the global market. The companies should run campaigns based on the different cultures in each country. If the economic situation is bad, the marketing strategy should lean toward the economic advantages of purchasing remanufactured products. If there is something in the environment that the country finds especially important, the strategy should lean toward the environmental benefits of the remanufactured products. The main thing to remember is that the Earth is home to everyone, and if these companies can come up with a campaign portraying unity in the protection of the environment, a lot more people would be open to the idea of purchasing remanufactured products over new products.  

Elena Rudzinski

Source:

Glader, Paul and James R. Hagerty. “From Trash Heap to Store Shelf.” The Wall Street Journal. 24 January 2011.

“The Crucible of Print”

An article from the January 8-January 14, 2011 issue of The Economist, titled “The Crucible of Print,” (also available online at http://www.economist.com/node/17853358) explores three major innovative techniques used by marketers working for a variety of British newspapers and their attempts at increasing profits. Because of the Internet, less and less people are purchasing and subscribing to print copies of newspapers. Competition forces many newspapers’ websites to offer their articles for free viewing for fear that readers will simply switch to another website upon being asked to pay. Paying a staff to write articles and then giving those articles to the public for free is obviously not a good way to make money. Many marketers for these British newspapers have taken this challenge and come up with creative ways to solve the problem. News Corporation (which also owns the Wall Street Journal) decided to charge people to view British articles online, which caused a drop in traffic. However, subscribers to the newspaper have access to other services and offers, such as a wine club, encouraging them to read the paper. The second technique is being tested by The Daily Mail, which owns the world’s second biggest newspaper website and relies on online advertising to bring in money. The final strategy discussed is that of The Independent and The Evening Standard, both owned by Mr. Lebedev and his father. These newspapers do not have impressive websites, and they are given away for free. They rely solely on revenue from selling print advertisement space. It is currently unclear which of these strategies, if any, will be successful.

The article describes British newspapers as leading the world in innovation, suggesting that other countries might also need to become more creative in order to keep print newspapers alive. This issue has been recognized in the United States, because many people get their news from their televisions, smartphones, or computers. Although this article was mainly about Britain, there were some key examples of globalization also mentioned. For example, News Corporation owns not only British newspapers, but the Wall Street Journal valued in America. Furthermore, News Corporation actually started out in Australia but realized it wasn’t limited to doing business within those borders. Another example is that The Daily Mail competes with the American online site Yahoo! It is important to remember that, due to new technologies and globalization, companies must worry about both local and global competition. This also means that consumers have more choices.

Although it is not directly stated, this article can also serve as a word of caution to those looking to expand their business into Britain, or promote their company there. The importance of marketing research and understanding a target market is universal, and much consideration should be put into the development of an international marketing strategy. It is worthwhile to study statistics, but the company should also do some of its own studies. Statistics can always be twisted to satisfy an agenda, which might not help the company’s own agenda of understanding its target market and meeting the needs of its customers. The company must study its external environment when going overseas, because the culture might be very different. If an American company is looking to advertise in another country, it does not really matter which strategy worked best in America if the other country’s politics, culture, and economy are completely different.

If a company based internationally or locally is looking to spend money on advertising in British newspapers, there are a few options that should be considered. The article states that more money has been spent on internet advertising than on newspaper advertising since 2009, but this is a choice companies must make. On one hand, they can choose to promote themselves in print newspapers, spending more money and risking less people seeing the advertisement. On the other hand, they can spend less money on an internet advertisement, relying on the likelihood that many people will come across it. The problem with this is competition. In the vast World Wide Web, competition does not need to even be a company selling a similar product. With the number of online ad spots increasing, all advertisements are competing for the attention of customers, because a person cannot possibly absorb and understand all of the marketing stimuli he is exposed to.

As for the three innovative strategies listed in the article, the best way to go might be a mix of the strategies adopted by the News Corporation newspapers and The Daily Mail. It is good that The Daily Mail is excelling online, but print articles are also important to keep customers not ready to adjust to the change. By adding special benefits to buying print newspapers, News Corporation ensures that more people will want to subscribe, which brings in money besides that collected from advertisers. The problem with Mr. Lebedev’s strategy is that he is bringing in no money by selling the newspapers themselves. Because they are free and people are okay with leaving them behind on trains, advertisers will eventually become wary of buying ad space, because it is hard measure exactly how many people are actually reading the paper. Also, Mr. Lebedev is failing to embrace new technology, because he is not developing impressive websites that many people would seek out for information.

Elena Rudzinski

Sources:

“The Crucible of Print.” The Economist. 6 January 2011. Web 29 April 2012. http://www.economist.com/node/17853358

“The Crucible of Print.” The Economist. 8-14 January 2011.