International University of Monaco

Master in Business Administration

Case Study Report:

Professor: Dr. MHLBACHER, Hans
MBA Students: GUALDI, Giulia
KUZMINA, Victoria
SAEZ, Andy
WOSZCZYNSKI, Martin

University Campus, October 2014

International University of Monaco

The big picture

In 2001, as part of its US acquisition strategy, LOreal bought Kiehls, a small familyowned cosmetic company based in New York which was then included in its luxury
brand portfolio. Under many aspects this was a peculiar acquisition for LOreal as
Kiehls reached a cult status by essentially applying a business model opposite to that
of LOreal. Kiehls business was in fact small-scale (their products were notably hard
to find), local (mainly centered around their NYC shop, and few other high-end
retailers) and based on the creation of strong ties with the local community of
customers rather than on advertising. This approach to business, together with the
high-quality, natural-origin and effectiveness of their products earned Kiehls a strong
reputation as a cult brand. Four years after the acquisition, in 2004, the question that
arises is how L'Oreal can preserve the status, the integrity and the cult following of
the brand while at the same time making it grow and taking it worldwide. This
problem can be more concisely formulated as following: how can Kiehls become a
large-scale brand without losing the small-scale features which have determined
its success? In order to address this question we briefly recall some key elements
about Kiehls and LOreal which will be useful for our analysis.
About Kiehls: Kiehls mission is not only to make profit but also to improve the
quality of the community it is embedded in. This commitment reflects not only at the
level of the products and of the customer service but also in the companys will to
entertain fair, just and trustful relations with its stakeholders.

Kiehls

typical

customer is in general very sensitive to the companys mission and enjoys being part
of a community as opposed to belonging to a mass.
Kiehls within LOreal: Kiehl's addresses a market segment previously not
significantly covered by LOreal brands. Using L'Oreal's jargon, within is Luxury
division, Kiehl's could be considered as a calf as opposed to the fragrance brands
playing the role of the cash cows. Consistently with its general acquisition policy,
L'Oreal puts a major focus in preserving Kiehl's identity. To this end, until 2004,
L'Oreal's growth strategy for the brand had been mainly focused on respecting and
exporting as much as possible of Kiehl's original business model. In particular, the
strategy was centered around replicating the original store in each new location,

making only few adjustments to better adapt it to the specific community. We will
hereafter denote this strategy as the replica strategy.
Our proposal
The replica strategy is necessary but not sufficient to sustain Kiehl's differentiation
and identity in the long term. The risk indeed is that Kiehl's will be eventually
perceived as a kind of upper-scale franchising thus losing its cult brand appeal. For
this reason the existing strategy needs not only to be strengthened but also to be
integrated with a new strategy specifically tailored on the global scale. The key
point is to promote and implement the idea that many different people sharing a
common, positive, vision are still a community and not a mass. We therefore
propose an approach where the small and the big scale get combined to strengthen
the brand attributes and fulfill its mission in a more effective way. As Kiehl's
customers are very sensitive to the philosophy of the brand, this will foster their sense
of belonging not only to a local but also to a global community which they, along
with Kiehl's, contribute to improve. The integrity and the cult status of the brand will
thus be maintained and eventually strengthened. On top of that, this strategy might
also be used by L'Oreal as a test bed for future development and innovation policies
at L'Oreal. We therefore propose the following:
Small scale: boost replica strategy
The overall purpose of this part of the strategy is to further strengthen Kiehls identity
and deepen its connection with the customer base regardless of its size and specific
location.
Research and development: as Kiehls success depends largely on its original
formulas, LOreals should allocate substantial resources on R&D. This would grant
Kiehls more freedom to experiment and seek for innovative solutions thus
consolidating and improving its product reputation. Alongside the innovative lead,
LOreal should also enlarge the range of Kiehls products by for example
strengthening its offer for men and kids (the whole family becomes part of the Kiehls
community) as well as venture into the realm of Mineral/Organic makeup and natural
hairstyling products (where LOreal expertise might be highly beneficial). Such
initiatives, while still consistent with the brands philosophy, would contribute to

instill within the customers the idea that for Kiehls going bigger means improving
its offer and building a whole universe around them.
Communication and Innovation: In order to promote innovation and sustain the sense
of community around Kiehls, communication between the brand and its customers
should be prioritized. The idea here is to make each customer feel part of the creative
and growth process of the company. To this end, the role of the shop assistants
should be reinforced: they should not only assist the customers but also act as their
ambassadors to the company. Virtual and physical spaces (see the two following
paragraphs) should be dedicated to the dialogue between the brand and its customers.
Customers experience in store: one of Kiehls distinguishing features is the storeexperience it offers to its customers. We believe that this experience could be further
enhanced (at least at selected stores) by providing special workshops not only to learn
about Kiehl's products (see next section) but also about healthy and natural living in
general (e.g. nutrition). Such initiatives would be aimed at elevating Kiehl's stores to
local informative and meeting place, thus at fulfilling even better its mission of
improving the quality of life of its customers. Those services will strengthen Kiehls
value proposition and sustain its differentiation within the luxury category.

In

addition, each store should have a Suggestion/Comments corner where customers

could give their feedback.
Customers Online experience: Kiehls should use its website not only as an online
store but as a virtual meeting place for its community. To this end the website should
contain a dedicated area where customers can upload reviews of their products as well
as an online forum where customers can interact with the company. In addition, in
order to take the neighborhood feeling to the next level, Kiehls website might also
host an online magazine giving healthy tips and suggestion as well as, for each
Kiehls store location, provide information about interesting places and activities.
Big scale: create shared value and inform
This part of the strategy is specifically designed to make use of the improved
resources brought in by LOreal and of the global scale as a mean to fulfill Kiehls
mission on a higher level. The idea is to make the customers take active part, together

with the company, in the improvement of the quality of life of the global human
community.
Global community: since one of the main distinctive features of Kiehl's products is
the use of natural ingredients, the brand should engage itself into adopting (and/or
enforcing on suppliers) sustainable and environmental friendly sourcing practices.
Whenever its ingredients are sourced in disadvantaged contexts (e.g. low income
countries), Kiehl's should sponsor programs (and/or trusted third party organizations)
to support the local communities and to protect workers. This could be accomplished
both by directly investing on innovation and education at the local level and by
choosing only suppliers which agree to do so. Finally, by redesigning and optimizing,
where needed, its supply chain and by adopting initiatives both to reduce and to
compensate for its pollution, Kiehl's should aim, on the long term, at becoming a
zero-impact company. Customers should be informed, both in stores and online,
about all these initiatives as well as achievements and proximity to the goals.
Even if on the short term these initiatives might lead to an increase in production costs
(which L'Oreal has sufficient resources to sustain) on the long term their economic
return might be significant. By proving Kiehl's effective commitment to fulfill its
mission, customers would be strongly motivated both to remain and to become loyal
to the brand. Indeed by the very act of purchasing at Kiehl's they would not only get a
superior quality product but also they would help improving the global community.
From the global to the local communities: the second level of the big-scale strategy is
to tighten the relationship between the local and the global community so to further
strengthen the tie between each local community and the brand. This could be
accomplished by further enhancing the consumer experience at Kiehl's stores (at least
at selected ones) by organizing initiatives (e.g. workshops, learning corners) aimed
both at adults and children to promote knowledge about the natural ingredients used
by the brand, their seasonality, their farming/sourcing practices and about the
communities living on those products.