French cosmetics giant L’Oreal (PINK:LRLCY) has adopted a dual pricing strategy to get closer to the Indian ‘masstige’ beauty market. The strategy is aimed to make its hair care range under the brand L’Oreal more affordable while retaining the premium price tag and image for its skin care and cosmetics products. At the same time, its other popular brands like Garnier and Maybelline will be positioned in the lower-priced segments of the remaining categories. It competes with Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL) and niche players such as Estée Lauder (NYSE:EL) and Revlon (NYSE:REV) in the beauty care market.
As part of its dual positioning strategy in India, L’Oreal’s hair care products are now priced much lower than the previous premium price tag in order to better compete with rivals Procter & Gamble and Unilever that currently dominate the mass hair care segment. L’Oreal reduced its hair care range prices by 25% in 2010 after it began local production and resorted to another 4% price cut this year. Nonetheless, the pricing is still at a slight premium to its mass market competitors like P&G’s Pantene and Unilever’s Dove to maintain its premium image. It has also introduced sachets for its shampoos and conditioners with the hope of taking its distribution beyond the urban markets.
- Why Is L’Oreal Trying To Sell Off Its Natural Beauty Brand, The Body Shop?
- Key Takeaways From L’Oreal’s 2016 Annual Earnings
- What To Watch For In L’Oreal’s Q4 2016 Earnings
- Here’s How L’Oreal Is Benefitting From A Higher Digital Spend
- Here’s Why L’Oreal USA Might Have Made Some Major Management Changes
- Some Of The Key Trends That Will Drive Sales In The Skincare Segment In 2017
L’Oreal has historically carried a premium image and price tag, which has led to limited traction in India. With $200 million in sales, India currently contributes to less than 1% of L’Oreal’s overall global sales of around $25 billion, but it has been growing at over 30% annually. It has set a target to drive up its Indian customer base 4-5x from 30 million up to 150 million over the next decade and plans to achieve this growth by rolling out products covering a wide range of consumer needs and price points as well as introducing smaller pack sizes. To meet the expected volume growth, it has doubled the capacity of its Pune factory to 200 million units per year, and recently opened a new R&D center in Mumbai.
L’Oreal is also aggressively expanding its distribution network to support sales growth. With a network of 250K outlets across India in 2009, L’Oréal now has presence in 700K sites across 2,300 towns. It plans to further increase its network to 1 million outlets by expanding distribution to 2,000 more towns by 2015.
We have a Trefis price estimate of $26 for L’Oreal, 10% ahead of the current market price.