Marc Menesguen, president of L’Oréal’s luxury products division and vice president of L’Oréal SA, asked the charged question, “What could be the driving forces that will fuel the growth of the prestige beauty market in the years to come?

“Well, of course as you can imagine I don’t have a crystal ball,” he quipped, adding — much more seriously — that the industry is at a “turning point. In the last couple of years, we have seen the erosion of the traditional levers of growth. The large number of launches and the escalation of traditional promotions with endless gift-with-purchase have saturated our distributors’ shelves and counters. And I also believe they have saturated the minds of our consumers.”

Menesguen said that as president of Lancôme a decade ago, he realized that prestige consumers expected more than excellent products and exciting brands. Rather, the keys to making a strong luxurious brand are “innovation, proximity and modernity.”

“These three words became my guidelines during all my years at Lancôme, and I believe that they are still relevant as all our brands must integrate the best of today’s technology, build a strong relationship with our customers and, of course, be in line with the spirit today,” he said. “Now, is it enough for our customers in 2006 and beyond?”

Menesguen discussed today’s paradox of, on the one hand, brands’ globalization, and, on the other, consumers’ increasing desire to have a point of difference.

To drive business growth, he believes there are three main axes: sheer innovation, service and dreams.

Innovation-wise, he said that consumers “are looking for new experiences, and they expect new and different points of views on beauty.”

An example, said Menesguen, is Shu Uemura, the L’Oréal-owned Japanese cosmetics brand that now ranks among the top five in all the U.S. stores it is sold and is growing at more than 70 percent stateside. As a brand, Shu Uemura had to go back to its roots and take a cue from the original philosophy of Shu Uemura himself — “Beautiful makeup starts with beautiful skin.” Menesguen called it “a subtle combination of art, science and nature, which epitomizes the heart of Japanese culture.”

This story first appeared in the May 26, 2006 issue of WWD. Subscribe Today.

Its innovation stems from the brand’s choice of natural ingredients, technologies and applications, he said.

To illustrate his second point, the importance of service, Menesguen discussed Kiehl’s.

“It’s all about service,” he said of the L’Oréal-owned brand, which he likened to Japanese beauty brands, offering lengthy consultations and panoply of samples that can often result in a purchase.

“It’s not a marketing strategy,” he said. “It simply is an essential part of the brand. No service — no Kiehl’s.

“This value of service is universal,” continued Menesguen. “It also explains the immediate success of Kiehl’s in Hong Kong, in Korea or in Taiwan, and how an American brand made it very quickly in this very competitive Asian environment. In a way, it also illustrates my first point on sheer innovation, because Kiehl’s is as genuinely American as Shu Uemura is genuinely Japanese. And it creates the same excitement in Hong Kong as Shu Uemura in Los Angeles.”

Making people dream is the third element in developing the prestige market. Menesguen pointed to the Viktor & Rolf beauty license through which L’Oréal introduced the Flowerbomb fragrance, which ranks number one at Saks Fifth Avenue and in the top 10 in Europe where it’s carried.

“Why did we choose Viktor & Rolf?” he asked of the quirky Dutch duo. “Well, the obvious answer is their talent, their creativity and their art of reinventing fashion with a unique point of view. Viktor & Rolf do not only talk about beauty and fragrances, they bring us the vision of a better world and make a dream in doing so.”

Global high-end brands are feeling the pressure from such prestige names and are therefore being forced to up their quotient of innovation, service and dreams.

“I think that this is a very healthy competition for us all,” said Menesguen.

He added that another promising category is the men’s beauty market.

“We have been waiting for this segment to grow for more than 20 years, and it’s now happening in the prestige market,” he said. “Today, men represent 20 percent of our sales in L’Oréal’s luxury products division.

“After 10 years in this business, I realize how lucky we are because the prestige beauty industry is one of the few perfectly global industries and yet remains very close to people, culture and daily life because, of course, beauty is very much linked to culture,” he said.

Menesguen remains optimistic about the category, which has grown 40 percent faster than the total health-and-beauty business worldwide.

“I would like to share my strong belief in the high potential for growth of the prestige beauty market,” he confirmed.