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L'ORÉAL USA: DIGITALLY OPTIMIZING CONSUMER INSIGHTS Dennis Paris, Sheri Lambert, and Amy Lavin wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Our goal is to publish materials of the highest quality; submit any errata to [email protected]. Copyright © 2021, Ivey Business School Foundation

Version: 2021-04-15

Nima Gohil, head of the new digital and creative consumer research (DCCR) department at L’Oréal USA (L’Oréal), was preparing for the upcoming January 2016 board meeting at L’Oréal’s research and innovation headquarters in Clark, New Jersey. Gohil focused on the hair care consumer segments, where she thought it was critical for L’Oréal to address and fully commit to the digital transformation that was being adopted by many other industries. She had become a fierce advocate for joining a technology movement that would enhance the L’Oréal customer experience and hedge the competitive threat of L’Oréal losing customers and market share. The manner in which industry connected with consumers in the beauty market was changing rapidly. L’Oréal’s competitors were using new digital media, including YouTube how-to videos, online communities, and augmented reality applications (apps), to showcase beauty products to current and new users. Adding to the challenges presented with embracing the emerging digitalization of the beauty industry, top management also urged Gohil’s department to reduce time and costs when collecting insights from consumers. Gohil realized that before she could present complete and credible recommendations to the board, she would need to assess L’Oréal’s current technical and research capabilities to successfully transition to a digital company. Based on the chief digital officer’s 2015 strategic direction to focus on digital transformation on all fronts, L’Oréal was under pressure to develop a better way to connect with consumers and to maintain—if not grow—market share. Gohil had only a few weeks to complete her assessments of L’Oréal’s digital strategy and assets and to prepare a functional recommendation to upper management. L’ORÉAL

L’Oréal SA was established in 1909 in France and was considered a mega global brand. Its strategy was built around various products and brands, and it was now considered the number one cosmetic group in the world (see Exhibit 1). Through launches, acquisitions, and the openings of new subsidiaries, L’Oréal SA was “involved in the adventure of beauty.”1 L’Oréal USA was a wholly owned subsidiary of the L’Oréal Group. Its products were available in mass-market department stores and in salons in the United States. In 2015, L’Oréal USA maintained over 32 product lines. 1

“Our History,” L’Oréal, accessed June 20, 2020, http://www.loreal.com/group/history.

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L’Oréal USA’s product performance evaluation department was part of the global research and innovation division. L’Oréal’s US research facility was operated in Clark, New Jersey, and was responsible for the development of colour cosmetics, hair care, skin care, and fragrance.2 L’Oréal was passionate about fully understanding its target consumers and the digital relationship that brands were developing with consumers. Lubomira Rochet, chief digital officer of L’Oréal Paris, stated, L’Oréal is putting digital at the heart of its business model, since today it is at the heart of consumers’ lives. By adapting its marketing, media and distribution models to match the new opportunities opened up by the digital era, L’Oréal is reinforcing its competitive edge and its beauty market leadership. With a highly pragmatic “test-and-learn” approach, applied in hundreds of initiatives worldwide, the group is amassing practical know-how. We now roll out our best practices transversally across all brands and countries.3 In 2015, with the cosmetic and beauty aid industry undergoing a shift in digital transformation,4 it was abundantly clear that L’Oréal needed to modernize how it obtained information from its customers and do so in a cost- and time-effective manner, while optimizing the use of such information.5 NIMA GOHIL

Gohil joined L’Oréal Research and Innovation as group leader in 2010. Gohil came to L’Oréal with over 12 years of experience in the market research industry. One of her many responsibilities at L’Oréal was to find more ways for the company to take a consumer-centric, fast, and agile approach to thinking of creative solutions to uncover consumer needs. A key contribution of hers was the development of tools to help L’Oréal evaluate products in a new manner and through a new lens. INDUSTRY

Hair health and care was an ever-expanding industry that serviced virtually all demographics. The hair care market was segmented by consumers of the following product categories: shampoo, conditioner, colouring, oils, and styling products. The competition was intense, with particular focus on product portfolio differentiation and pricing strategies. L’Oréal, Revlon Inc., Unilever plc, and Avon Products Inc. represented some of the major companies that constantly battled for market share.6 While the 2015 global market for hair care was expected to garner US$81 billion, the future outlook was equally promising, with US$102.49 billion projected by the end of 2024.7 Shampoo led the global share of the hair care market. Simultaneously, the demand for hair colouring products, driven by an aging population of adults, had become sizable. 2

“L’Oréal USA,” L’Oréal, accessed June 20, 2020, https://www.lorealusa.com/group/discover-l'or%C3%A9alusa/l%E2%80%99or%C3%A9al-usa-facts-and-figures. 3 L’Oréal SA, Annual Report 2015 (interactive digital presentation), https://www.loreal-finance.com/en/annual-report2015/digital-speech. 4 Signifyd, The Beauty Industry’s Digital Transformation: Risk & Reward, accessed June 20, 2020, https://cloud.kapostcontent.net/pub/566ade1a-c750-4b74-b576-4b8dff09accb/cosmetics-and-perfume-industry-e-book. 5 Nima Gohil (director, digital and hair consumer category, L’Oréal), interview with the case authors, December 16, 2019. 6 Consumer Goods & Services, “Consumers in Hair Care Market Becoming More Aware of Ingredients Used, Paving Way to Naturally Sourced Formulations,” Transparency Market Research, September 19, 2019, accessed May 19, 2020, https://www.transparencymarketresearch.com/pressrelease/hair-care-market.htm. 7 M. Ridder, “Global Hair Care Market Size 2012–2025,” Statista, April 2019, accessed May 19, 2020, https://www.statista.com/statistics/254608/global-hair-care-market-

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Across age populations, a relationship likely existed between environmental contaminants, particularly in urban areas, and an increase in hair loss and damage. This had led to the hair care industry executing creative marketing tactics that targeted millennials, who were more likely than older consumers to make purchase decisions based on environmental factors. Men were also spending more time and money on keeping their hair healthy and full. This trend was viewed as positive for the future of the hair care industry but represented a switch from the traditional consumer base. In addition, luxury hair care and beauty products were undergoing an anthropological shift from purely functional products to key fashion products that communicated something about the identity of its users. Also, brand name and recognition were gaining importance as consumers shared more information about their personal preferences to a wider audience. With the growth of social media, consumers were sharing more intimate details about their product usage with an audience that was much larger than just a circle of close friends. With the rise of environmentally conscious buying, consumers were becoming more sensitive to ingredients used by hair care product manufacturers. Therefore, scientists were developing new formulations that were expected to be approved for market entry over the next few years. These new products were anticipated to generate even more interest and use by the hair care market. A primary research objective of the industry was to enhance consumer well-being and quality of life. Even more so today, consumer researchers focused on issues that were “socially meaningful and impactful.”8 The industry now had the advantage of many tools and methods that provided a more personal view of consumers. Large amounts of data fed analytics that allowed industry marketers to understand target consumers as individuals and as segments with similar needs and wants. The Internet and the pervasiveness of mobile devices allowed the industry to reach consumers directly with surveys and communications, and also allowed for digital applications that consumers could interface with on personal and intimate levels. The hair care and cosmetics industries were also recognizing the importance of consumer behaviours as well as the context within which consumers evaluated choices. It was crucial that the right information about consumers’ needs, wants, and expectations was understood. Social media influencers held a great deal of power and were able to encourage brand switching more than ever before. The rise of social media platforms enabled niche and independent (indie) brands such as Drunk Elephant, Function of Beauty, and Strands Hair Care to become the most important brand drivers of prestige beauty growth (see Exhibit 2). It was the age of digital differentiation. Customers expected tutorials, in-store digital playgrounds (found in specialist retailers such as Ulta Beauty Inc. and Sephora), and mobile apps for makeovers and hairstyles (such as L’Oréal Paris’s Makeup Genius app, which allowed users to virtually “try on” beauty products).9 Indie hair was the new makeup. Indie brands, in general, had small budgets. Their go-to-market strategy was centred around running social media accounts—a form of digital marketing that was a cost-efficient way to reach potential customers. Indie brands had leveraged social media to build extremely personal relationships with their customers. They had gained momentum and were more readily able to collaborate with influencers and bloggers (see Exhibit 3). Experts at L’Oréal believed that the rise in hair products was analogous to greater consumer interest in makeup and visual transformation. size/#:~:text=This%20statistic%20depicts%20the%20estimated,about%2087.9%20billion%20U.S.%20dollars.&text=Hair%2 0care%20products%20are%20formulated,%2C%20pollution%2C%20and%20other%20factors. 8 Julie L. Ozanne, “Transformative Consumer Research,” Journal of Consumer Research, Spring/Summer 2015, accessed May 21, 2020, https://academic.oup.com/jcr/pages/transformative_consumer_research. 9 Deloitte LLP, Shades for Success: Influence in the Beauty Market, 2017, accessed January 6, 2021, https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-france-beautymarket-en-2017.pdf.

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MARKET RESEARCH INDUSTRY AND CONSUMER INSIGHTS

Brand researchers were spending increasingly more time with customers in any way possible, including face to face as well as virtually. It was believed that the amount of time spent with a brand’s target audience correlated with the brand’s relevancy. When a brand remained engaged with a consumer, trust was built, and a flow of valuable information was produced between the brand and its consumers. This type of activity influenced new product development, sales, and marketing. Most importantly, innovation allowed brands in the hair care and cosmetics industry to stand out.10 By 2015, perhaps one of the most important developments in the market research insights industry was the ability of consumers to provide their product and brand evaluations readily and easily through technology. Market researchers understood this and realized the importance of gaining insights directly from the consumer in the context of the consumer’s world. It was also important to incorporate insights gleaned from the study of consumer choices and behaviours.11 Traditionally, in-home usage tests (IHUTs) were one of the most effective ways for brands to test products with consumers prior to a product launch. During an in-home test, products (generally unlabelled) were shipped to study participants for use in everyday practice in the comfort of their homes. Consumers (i.e., research respondents or study participants) recorded their reactions and opinions via a diary, either in an online log or a paper booklet. It became apparent to researchers that using video to obtain insights from consumers was a valuable tool for understanding context. With the rise of technology, a video diary methodology was rapidly augmenting or replacing traditional IHUT methods. The video diary method allowed study participants to share their interaction with a product while actually using it. Users recorded and shared their experience through use of a desktop webcam, tablet, or smartphone. Participants were able to share all aspects of the product’s use as well as record the environment in which the interaction had occurred—in this case, the everyday use and application of hair care products. Video diaries used a relatively low-cost technology and were ideally suited for learning directly from the respondent (i.e., consumer) in the moment. In addition, online (or insight) communities provided a targeted group of stakeholders, recruited into an online discussion-board environment to interact with a brand and provide feedback on an ongoing basis. Traditional methods to obtain customer ideas tended to be slow, expensive, and certainly not agile. This alone made traditional market research methodologies cumbersome for daily decision-making. For these reasons, L’Oréal had considered more advanced digital options to generate customer insights that would enable the company to remain a market leader. L’ORÉAL’S OPTIONS AND CONSIDERATIONS

In 2015, Gohil was tasked with developing additional ways to deepen the consumer relationship with technology and for L’Oréal to take a consumer-centric, fast, and agile approach to thinking of creative solutions to uncover consumer needs. After assessing everything that had been accomplished to date and 10 Andrew Griffiths, “The Biggest Challenge We All Face Is Staying Relevant to Our Market,” Inc.com, August 14, 2017, accessed May 21, 2020, https://www.inc.com/andrew-griffiths/are-you-staying-relevant-to-your-audience.html. 11 Kuba Kierlanczyk, “A Brief History of Market Research,” Kelton, February 4, 2016, accessed May 21, 2020, https://www.keltonglobal.com/perspectives/a-brief-history-of-market-research.

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thinking about L’Oréal’s opportunities for deeper relationships with consumers, it became apparent to Gohil that there was a great opportunity to develop a holistic program that included the trues voice of the marketplace. Gohil suggested further augmenting video with other forms of digital applications as a means of enhancing the collection of consumer insights data while giving L’Oréal a competitive advantage. However, Gohil was unsure of exactly how this could be accomplished. Nevertheless, she had to act quickly to meet the board’s demand to make L’Oréal digitally driven. L’Oréal Beauty Babble Program

One of Gohil’s first items was to propose enhancements to the established Beauty Babble program,12 which included in-environment recording of product use. Gohil envisioned a program that encompassed video, influencers, social media, and other digital channels (see Exhibit 4). Gohil explained the rationale for this approach: We wanted to expand our reach to new consumers and better understand how much they engage with, or listen to, social media influencers, so we thought it would be helpful to introduce a customer relationship management technology that would enable L’Oréal to capture, track, and manage their relationships with not only social media influencers but their followers as well. Most of the industry’s current user incentive programs were set up around discounts, but our goal was to build a program around perks. We offered an incentive to our Beauty Babblers and gave them first looks at products before launching to the market. This program was new to the market, and consequently it exceeded expectations, with tons of sign-ups within the first year. In return for these perks, L’Oréal required a one-year commitment from video bloggers (vloggers), as well as their consent to post their product experiences online and to generate a minimum following of 35,000 followers. L’Oréal planned to invite influencers (specifically women) to join the Beauty Babble program, where L’Oréal would review the influencers’ content and chat with them about their habits, beauty routines, and what makes them influencers. Gohil commented, “Based on the criteria for the category in beauty we were working on, they were then invited to review products for us.” The call to action for the influencers came in the form of an email, in which L’Oréal outlined “the ask” as well as the perks that the vloggers would receive (see Exhibits 5 and 6). L’Oréal wanted the potential members to feel as though they were part of a club whereby they would have an impact on the future of L’Oréal’s products and its marketing strategy. THE IMPORTANCE OF DIGITALIZATION TO L’ORÉAL Digital and Social Media Considerations

L’Oréal’s initial foray into digital market research began by allowing its consumers to post product ratings and reviews on the L’Oréal website (www.loreal.com). Gohil then pushed to have social media and influencer activity, both of which were on the rise, added to L’Oréal’s research and innovation initiative. This would enable L’Oréal to understand the power of influencers and their ability to assess L’Oréal’s products before they were launched into the market. L’Oréal was able to add a layer of authenticity to its brand voice because consumers could connect with the influencers in their homes.

12

Beauty Babble was an affectionate program namesake for participants who loved talking continuously about beauty.

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The D...