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Beauty Inc issue 08/12/2011

Over the last 25 years, globalization built the modern beauty industry. But Jean-Paul Agon, the recently appointed chairman of L’Oréal, sees the global business entering a new realm. He is reaching for the universe.

The 55-year-old Agon assumed the mantle of full leadership of the industry’s largest company upon the retirement of Lindsay Owen-Jones on March 17. But the new chairman, who continues as chief executive officer, has been at the helm since 2006 and he has been busy probing new directions and testing ideas. More than just turning the page on another era in corporate history, Agon has shaped a new philosophy of global marketing with his doctrine of universalization: beauty for all.

This story first appeared in the August 12, 2011 issue of WWD. Subscribe Today.

“I want to express a new concept, which goes beyond globalization,” says Agon. The idea, he says, is to create global brands that market localized products geared towards the needs and mores of the major emerging geographies, such as China and India. “In order to conquer and loyalize all these consumers around the world, the idea is to build from the [international] brands that we have,” Agon explains. “The second step is to make sure that these brands, in every part of the world, have ranges of products that are completely specifically designed, formulated and adapted to the needs and demands of the local consumers.”

Agon adds that he strongly believes that this is “the strategy for the next 20 years, because consumers in these parts of the world want and deserve the best quality and efficacy—designed for them.” While this concept was percolating, Agon was steering L’Oréal through the recession—from a 21.9 percent spike in net profits for the first half of 2006, when he took charge, to a 13.7 percent plunge in the first half of 2009 to a 24.9 percent jump for all of 2010. He attributes the rebound—in part—to a gutsy decision to raise advertising and brand support from 30 percent of sales in 2008 to 30.8 percent in 2009 and 30.9 percent in 2010, at a time when other companies were slashing their budgets. R&D spending also increased to rev up innovation.

Adding the chairman title to ceo may seem like a corporate formality, but within L’Oréal it speaks volumes. “It is a big vote of confidence,” says Guy Peyrelongue, a top L’Oréal veteran who retired in 2001 after 14 years as president of L’Oréal USA. “L’Oréal is a company that has always been driven by strong leaders like Lindsay Owen-Jones and Francois Dalle. You need to be a full boss; it’s a very important step.”

During a February presentation to security analysts, Agon hailed Owen-Jones, not only his predecessor but his mentor, as “the great architect and the great builder of the international success of the L’Oréal company.”

For his part, Owen-Jones, who remains honorary chairman and chairman of the L’Oréal Foundation, harnessed the rising power of globalization more than two decades ago to build L’Oréal into the industry powerhouse and leader, by developing an interlocking matrix of international brands. The Welshman took a traditional French export-driven company and molded it into a multinational, multichannel, multi category and multicultural behemoth.

“[Agon] is the right man at the right place,” declares Robert Salmon, who retired in 1998 after 37 years with the firm. Salmon’s last position was in the inner management circle as vice president of strategic planning. “Jean-Paul has a clear vision of what should be done,” he says, adding that Agon is uniquely qualified. Describing him as a child of the company, Salmon maintains, “no other guy in L’Oréal has been trained so properly,” considering that he has run or reshaped businesses in France, Germany, Asia and the U.S. “He has confronted so many situations that he is extremely capable to face the challenges.”

Referring to Agon’s skill at striking a chord with others, Salmon calls Agon “the chief of the people” and a strong motivator.

Agon is going to need those skills. As a seasoned sailor, the executive is navigating through worlds that have just begun to form. “What we see around the world is really the unbelievable emergence of the middle class in new countries, like China, India, Indonesia, Mexico, Turkey—in fact, in two-thirds of the world,” Agon says. “In all these countries, the middle class is really emerging right now.”

L’Oréal estimates that an additional two billion people will move into the middle class in the next 10 years, prompting Agon to reiterate his previously stated goal of doubling L’Oréal’s user base by adding another 1 billion consumers of its products in the next 10 to 15 years. China alone is expected to generate 300 million new consumers. To do this, he is adapting L’Oréal’s global brands to the local tastes of these newly aspiring consumers. As an example, Agon points East. “Today more than ever, our brands in China are definitely made for Chinese consumers,” he says, during a recent interview in his 10th floor office at L’Oréal’s headquarters in the Paris suburb of Clichy.

“The L’Oréal Paris brand is the same brand in China that it is in the USA or in Europe, but the products are different. The products are invented, designed, formulated and tested to satisfy the Chinese consumers,” says Agon.

In order to localize product formulation around the world, L’Oréal has set up a network of R&D centers in the U.S., Japan, China and Brazil. Plans call for opening a center in Mumbai, India. Still, Agon notes that he does not intend “to adapt to every country of the planet.”

“The idea is to adapt to the great markets,” he says. “So one, for example, is greater China, another one will be India and probably all Southeast Asian countries. Another one will be Latin America. It’s not country-by-country. It is continent-by-continent.”

A secondary aspect to universalization is the often-mentioned “reverse innovation,” in which a product is developed locally for a far-flung market and eventually finds traction in other markets in the world. Such was the case with L’Oréal’s Brazilian Total Solution 5 hair product. “Sometimes we take advantage of an innovation that has been created in a country and we realize that this [product] could be a huge innovation for the world,” Agon says. This is a departure from what has become known in the industry as the “L’Oréal model,” under which products are developed by pooling market requirements from the major continents, then creating a product in France that fulfi lls all those diverse needs. Under reverse innovation, the creative process happens in the outlying markets.

The marketing linkage between these two concepts is social networking, which plugs the consumer into the process. “With digital techniques today you are closer to the consumers. You can have really direct contact with millions or billions of consumers, and you can share with them the complete universe of a brand . . . which is the dream of any brand,” says Agon.

This is all part of a tectonic movement, he asserts, noting that “the first one is the big shift of the world and this universalization move, and the second one is this digital world that changed completely the way we can market our brands.” While L’Oréal has been spending more and more on digital, as a percentage of the total it is still only between 3 percent and 5 percent, Agon estimates. As proof that these concepts work, Agon points to “the fantastic success” of Men’s Expert, the male skin care wing of L’Oréal Paris. Its appeal did not develop so much in Europe, the market it was intended for, but on the other side of the world, in China. Agon says the reception in Europe “has been good but not extraordinary because, to be honest, European men are quite conservative.”

However, in Asia, especially China, the brand has been “absolutely rocketing,” as L’Oréal shifted gears to remake the brand for Chinese consumers in terms of the range, the products, the visual displays and advertising.

“It was, in a way, reinvented for the Chinese market,” Agon says. “For Asian men, looking good—or looking great—is as important as for women. For Asian men— Chinese, Korean, Indian also—having great skin is as important as being well dressed. There is absolutely no taboo on this kind of thing. Unfortunately, it’s not yet the case for Caucasian men in Western Europe or North America.

“The universalization of Men’s Expert is completely changing the destiny and the scope of the brand,” Agon continues, adding that “the future of men’s skin care or hair care is going to probably come from Asia.”

Agon also points to Garnier in India, where the brand has been dramatically adapted. “The brand equity is still the same but the products, the formula, the innovations, the advertising, even the formats of the product, everything has been made for India.”



World Wide Watch: Jean-Paul Agon’s Game Plan

Reach for the Stars Agon’s doctrine of universalization posits the idea of beauty for all, manifested by global brands that market localized products. In the Middle of It All To achieve his goal of adding 1 billion consumers to L’Oréal’s user base, Agon is squarely focused on the emerging middle classes.

Localize Innovation With R&D centers on almost every major continent, product development is no longer the sole purview of HQ in France.

Invest, Invest, Invest Spending increases in R&D and advertising have allowed the company to gain market share despite the worldwide recession.

Social Studies L’Oréal is aggressively using social networking to improve its communications with consumers around the world.

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