A 4-step process that is applied both for
extensions of existing product lines (not innovation, but rejuvenation) as well
as for genuine innovations.
Phase 1: Qualitative sounding
A market research articulated around an
unfinished product and specifically designed for the consumers to enrich
the content. The following techniques might be used:
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Mood boards
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Image projections
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Blank packaging – name only
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No name, packaging only
Usually carried out on a target group of 50
to 100 people. Consumers are stimulated to provide as much feedback / feelings
and potential upgrade to the product.
Extensive use of verbatims: to figure out a
first sketch of communication strategy / story telling as well as product and
image improvement potential.
Such process is conducted locally in a few
“typical markets”. Feedback is centralized with a Paris-based product
development team.
Initiatives may come from the head office
or from local branches. As our informant put it:
“In
l’Oreal’s culture, marketers at all level of the organization, and all premises
are stimulated to make things move. Ideas are generated on a continuous basis.”
Phase 2: Quantitative study
Any product entering phase 2 will generate
costs to the tune of 10 times more than phase 1’s related costs. Therefore, whether
a product makes it the phase 2 is a strategic decision.
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R&D was consulted on the
feasibility
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Manufacturing has provided
insight on the Cost of good sold pertaining to such products. Such costs are
bearable
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The production tools currently
available can deal with mass production of such product
In phase 2, market research firms are
recruited to conduct a thorough analysis (circa 1000 people sample) of product
feedback and purchase intention. As a result, the product may still evolve,
depending on customer feedback.
Such research leads to results to purchase
intentions vis-à-vis a statistical norm for the sector. Such norm is calibrated
on a much larger sample, stemming from a database that is constantly enriched
by the market research firm.
When the candidate product shows below
–norm result, the product idea is abandoned. When the candidate product’s
quantitative results are at the norm, normally the experiment would not be
pursued, unless this product represents a reasonable substitute to a slow-mover
product of L’Oreal’s spectrum (“dog”).
When the product is beyond the norm,
normally the product enters phase 3.
Phase 3: Global feedback
All l’Oreal local office around the world
(at the exception of such offices where the head office or local management
decides not to pursue for local reasons – such as regulation, lack of appetite,
barriers to entry) are requested to conduct a local market appetite assessment.
Local marketers normally have a thorough understanding
of their local market. Therefore, in
some instances, previous similar product experience, locally internal available
data and internal salespeople feedback are considered sufficient to size the
opportunity.
Sizing the opportunity means to determine a
product’s potential in terms of units over a particular horizon.
Some local markets are considered as good
trendsetting benchmarks. Therefore, market research is very often conducted
locally in such markets.
At the end of phase 3, all local offices
grant their local finance people the numbers necessary to size of the
opportunity in monetary terms.
Phase 4: Go / No Go decision based on NPV calculations
Local finance people use all assumptions
provided my marketers to calculate the NPV of the investment and future cash
flows.
Such NPV is then communicated to the head
office, who in turn, sums up all numbers communicated by the local units,
brings in the cost of development, manufacturing, transportation and overheads.
The final decision to launch the product is
based on such comprehensive calculation.
