Method

Information was collected both from on-line resources (see webography) and an interview with a marketing manager at L’OREAL.The interview method used is that of the “long interview” which is designed to maximize the value of the informant’s time through the use of an open-ended questionnaire.

Background

L’OREAL has been active for over one century in the beauty and cosmetics markets, ranging from sunscreens to high end perfumes. It is the number one company in its sector.  Its mission is “to offer populations all around the world, products attuned to their needs, their cultures and their aspirations” (L’OREAL annual report 2009).

L’OREAL dynamically manages a portfolio of circa 25 brands.

Defining Balanced Portfolio

A huge probelm that many companies' new product portfolios face is that they are ubalanced, they feature a wrong mx of projects. Probles bcause of poor protfolio balance are:

1. Too many small projets leads to the "death" of major breakthroughs, necessary for the the growth of the company
2. Disproportionate amount of the resources in the various markets and business arenas

In the evaluative dimension of balance, managers evaluate projects based on the extent to which they ensure that the mix of NPD projects is proportional  across multiple concerns such as project completion date, technical risk, return on investment and project innovativeness (i.e incremental vs. radical). Ensuring that the new projects to be implemented align with available resources also is a factor in balance. Balance, too, is a critical NPPM dimension as it is the second most strongly  correlated practice with superior NPD performance (Cooper et.al, 2004).

The concept of finance is applied in PPM: 

"Consider an investment fund where the fund manager seeks balance in terms of high risk versus blue chip stocks, domestic versus foreign investments and across industries in order to arrive at an optimally diversified investment portfolio." (Cooper et al pg 74)

Goals of Product Portfolio Management

    Goals:

                                                        

                                                                         

Portfolio Management practices in industry reveals three goals: 

1.  Max the value of portfolio. The maximization of the portfolio is achieved by the use of financial tools such as ECV (expected commercial value), PI (Productivity Index).
2.  Achieving the right balance (with the use of Scoring Models) 
3. Linking the portfolio to the business strategy. The company assess its strengths and weaknesses and the industry (Porter's 5 Forces). 

Brand Positioning

L’OREAL has products for various categories of consumers, both mass, medium and high end. The pricing strategy is based on consumers’ perception of value (mass + prestige = Mass-tige market).

L’OREAL sells cosmetics through various channels from department stores to professionals in the industry.

L’OREAL spends 3.5% of its revenues on R&D.

L’OREAL’s portfolio management is inseparable from its brand positioning strategy. Chailan (2010) sees 3 main attributes to L’OREAL’s brand positioning strategy:

·         Radicalization: Brand multiplication makes it necessary for each brand to emerge with its own DNA, and to render brands completely discriminatory from each other.

·         Arbitration: dynamic and balanced network of complementary brands

·         Expansion matrix: globalization strategy, innovation attribution

R&D is centralized at L’OREAL, which induces high economies of scope but conflict may arise when attributing innovation to brands.

Bubble Diagrams

 “Ensuring that high-risk projects receive their fair share of the resources requires a different approach to portfolio management and different analytical tools” (Cooper  2013)


Bubble diagrams is a very popular technique used for balancing portfolio. A typical diagram shows
development prohects on a two dimensional X-Y plot. Each bubble represents a project and the size of he bubbles the resurces that this specific project absorbs.  There comapnies that chaneg the color as well. The concept of  evaluating the projects is the same with the BCG strategy mmodel or the GE and McKinsey one. These models used "market attractiveness versus business position" dimensions.

An example: 

     Source: cdn.slidesharecdn.com/


However, these dimensions are not appropriate for new product development. Some parameters that are frequently used are:

• alignment with business strategy (low, medium, high)

• inventive merit

• strategic importacne to the business

• durability of the competetive advantage

• reward based on financial expecations

• competitive impact of technologies

• probabilities of success

• R&D costs to completion

• time to completion

• capital and marketing investment required to exploit  (Cooper et al. 2001)

Other useful descriptors that could be used in bubble diagrams are: 

• market or market segments
• product categories or product lines
• project types
• technology or platform types

The most popular bubble diagrams are variants of the risk return diagram as we can see above.  The two dimensions that are used are:

• project's reward for the company
• probability of success

The four quadrants are:

Bubble diagrams and other visual  charts are helping senior management to get an idea of the project development fast and  thus are used a lot at gate or review mmeetings.

Introduction

“If you can explain success, then you can predict success” (Cooper et al., 2001, p. 47).

A number of criteria are widely used by companies to forecast the profitability / revenues of a candidate project.

Net Present Value (NPV), discounted Payback period, Internal Rate of Return (IRR), Expected Commercial Value (ECV) are most popular.

Such metrics are useful in 2 distinct processes:

•      Product Go/Kill decisions or gate decisions (intermediary steps in the New Product Development process)
•    Portfolio Reviews