The Luxury division years (2006-2010)
But the “Chinese L’Oreal Paris” strategy did not produce the intended results and the brand lost sales and awareness, while at the same time L’Oreal Paris was booming (see Exhibit 15). The provide the brand with a new strategy and new set of eyes, Yue Sai was transferred from the CPD division to the smaller luxury product division (LPD) in 2006. LPD immediately promoted Yui Sai featuring a famous Taiwanese movie star, Shu Qi, to re-establish the brand’s luxury image (see Exhibit 10).
To deliver Yue Sai’s longstanding brand promise that “Nobody knows Chinese skin better than Yue Sai,” L’Oreal’s Shanghai Research and Innovation Centre focused on creating products specifically designed for Chinese skin. For example, the Vital Essential line launched in 2007 incorporated extract of ganoderma mushroom, a traditional Chinese medicine ingredient believed to foster internal balance and boost internal energy, with a fragrance evocative of the distinctive smell of traditional pharmacies. This product was the most-liked of the Yue Sai line-up, with above-average repeat purchase scores.
LPD then hired a reputable Paris-based branding agency and together they close to reposition Yue Sai as “the first brand to stand for Chinese women’s beauty”. They built on the insight that modern Chinese women were radically changing, were proud and self-confident, and had a clear vision of their future and their new role in society. Although they treasured their families, they wanted to build for themselves a new professional, artistic and cultural environment.
To communicate the new “modern Chinese women” positioning, L’Oreal invested in a major television and print advertising campaign featuring Chinese supermodel Du Juan. These ads used such lifestyle taglines as “I hold my future in my hands” and “I look forward to every day with confidence” to bolster the image of Yue Sai as the brand for modern Chinese women (see Exhibit 11 and Exhibit 12). Consistent with the new positioning, Yue Sai’s prices were notched higher than L’Oreal Paris.
LPD tried to compensate for the volume decline brought by higher prices (see Exhibit 14) by entering new distribution channels such as Sephora (see Exhibit 16), while pushing for better deals with distributions in order to enter more cosmetic stores. Meanwhile, the increasing number of foreign premium brands entering the Chinese market led department stores to push Yue Sai’s counters further back in the stores, reducing their visibility and exposure to traffic. Some department stores even delisted the brand.
Turning around Yue Sai
Alexis Perakis-Valat, who became CEO of L’Oreal China in 2010 at the age of 39, had big ambitions. He wanted to make L’Oreal the No.1 cosmetics firm in China, and turn China into L’Oreal’s No.1 market by continuing to push into smaller cities and introducing L’Oreal’s luxury brands, including Kiehl’s and Yves Saint Laurent.
Yue Sai’s lackluster performance was spoiling the picture. Despite a booming market, it had never turned a substantial profit and sales had barely improved (35 million Euro in 2010 vs 31 million Euro in 2005). In Alexis’ own words, it was “the pebble in L’Oreal’s shoe”. Internally, it was becoming difficult to motivate talent to work on the brand. Externally, it blemished L’Oreal’s reputation as a masterful integrator of acquired brands and companies, which could hamper L’Oreal’s future acquisition endeavours.
Alexis and Stephane, with the help of Ronnie Liang, Yui Sai’s new marketing director needed to move fast and on all fronts.