La roche posay target market

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Senior Lecturer Jill Avery, Executive Director Vincent Dessain (Europe Research Center), and Research Assistant Mette Fuglsang Hjortshoej (Europe Research Center) prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2019 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

J I L L A V E R Y

V I N C E N T D E S S A I N

M E T T E F U G L S A N G H J O R T S H O E J

La Roche-Posay: Growing L’Oréal’s Active Cosmetics Brand

As 2018 neared its end, Laetitia Toupet, international general manager of L’Oréal’s La Roche-Posay brand reflected on the brand’s achievements over the past year. At €1 billion in revenue, La Roche- Posay had recently become the number one dermocosmetics brand in the world. 1 While Toupet was pleased with this feat, she believed that the brand was at a critical juncture. It was time to make some significant marketing decisions to try to accelerate La Roche-Posay’s future growth trajectory.

La Roche-Posay was one of the core pillar brands of L’Oréal’s Active Cosmetics Division, which was devoted to dermocosmetic skin care brands that were selectively distributed through pharmacies and other healthcare-related channels and enjoyed strong relationships with dermatologists, who often prescribed these over-the-counter, non-prescription products to their patients as part of an overall treatment regimen. Dermocosmetics were cosmetic products with active ingredients (such as retinol or alpha-hydroxy acids) that were applied topically to the skin. Typically, the effectiveness of these active ingredients had been established through scientific clinical testing.

Consumer interest in dermocosmetics was growing rapidly and, as a result, new competitors were aggressively entering the segment. As Toupet analyzed the changing landscape of the category, she realized that the market potential for dermocosmetics was quickly moving from a niche segment of patients with pre-existing pathological skin conditions to a broader swath of consumers interested in overall skin health and skin pathology prevention. As a result, La Roche-Posay had the opportunity to adjust its customer value proposition. With strong scientific grounding based in clinical research and close connections with 90,000 dermatologists worldwide, La Roche-Posay occupied an enviable quasi- medical position in the skin care marketplace. Each of La Roche-Posay’s five sub-brands had been specifically designed to address a particular medical indication, and targeted consumers suffering from that particular skin pathology. This created a medicalized, clinical brand value proposition based in science, delivered to niche target segments. Toupet explained,

Historically, our brand has targeted consumers suffering from dermatological skin conditions with the distribution of our products in a prescription-like manner from health professionals. Our medical heritage is still an important part of the way we market our products and drive brand advocacy, but our target clientele has expanded due to various

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trends that are having an impact on consumer behavior. We observe that consumers are increasingly health-conscious and place emphasis on environmentally- friendly products, which influences their lifestyle choices and thus shopping patterns… While we want to continue to leverage our heritage and history, it does raise questions as to how ‘clinical’ La Roche-Posay should be in our branding.

Toupet was also struggling to decide whether and, if so, how to execute a unified marketing strategy and brand expression across geographies. While La Roche-Posay’s close relationships with dermatologists in markets such as France helped the brand reach consumers within a medical context, in other countries, consumers’ access to and usage of dermatologists was quite limited (globally, only 10% of consumers had access to a dermatologist), making it more challenging for the company to rely on dermatologist recommendations to drive sales. She explained,

La Roche-Posay is distributed in more than 60 countries, where each has local context differences in terms of competitors, consumer behavior, and access to dermatologists. These context differences affect how the brand is perceived and what it can deliver. While we would like to address this fragmentation in our local marketing and distribution strategies, we also want to maintain a cohesive and uniform global brand expression that maintains the integrity of our brand. This is one of our biggest challenges.

As she considered the future, she wondered whether the brand needed to shift more investment into direct-to-consumer branding efforts, maintain that investment in dermatologist outreach and support, or use it to mobilize new types of purchase influencers, such as its existing customers who were passionate advocates for the brand.

Digital technologies were offering new opportunities and La Roche-Posay was actively pursuing the development of tools that could help consumers recognize and diagnose their own skin pathologies and seek treatment solutions. Her team had been experimenting with connected beauty applications and mobile health technologies, such as a wearable UV patch that monitored real-time sun exposure, transmitted the data to a smartphone application, and recommended a personalized sun protection routine. Would these types of digital initiatives help La Roche-Posay gain a competitive edge in the category or would they jeopardize the brand’s close relationships with the medical community?

During 2018, L’Oréal had successfully acquired the Société des Thermes de la Roche Posay, one of the leading European thermal stations and the historical birthplace of the La Roche-Posay brand. It was the original source for the pure, natural thermal spring water that had provided La Roche-Posay with a unique and inimitable ingredient for its product formulations since the brand’s inception. Located in the picturesque town of La Roche-Posay in Western France, the thermal station provided hydrotherapy to more than 7,500 patients each year. Patients, under the care of nine resident dermatologists, benefitted from the thermal source’s water, which contained an unusually high concentration of selenium, a mineral with immunomodulating properties proven to reduce skin irritation. The station contributed €3.6 million in direct sales from patient treatment in 2017, but Toupet also saw it as a unique experiential asset that could be further leveraged to support and expand La Roche-Posay’s brand, and an important way to preserve and protect the brand’s most valuable ingredient, its water source.

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Flowing from an Ancient Thermal Source

The Thermal Center

The discovery of the source of pure, natural, thermal water that powered La Roche-Posay’s skin care products dated back to the thirteenth century. According to local legend, the constable, Bertrand du Guescelin, stopped at the springs of La Roche-Posay to quench his thirst. His long-suffering horse, afflicted with chronic eczema, took a dip in the water and, reportedly, was miraculously cured, much to the astonishment of the inhabitants of the tiny French village. Three centuries later, Pierre Milon, doctor to Kings Henry IV and Louis XIII, conducted the first formal analysis of the water’s composition, and official written documentation of its beneficial effects became available. The reputation of La Roche-Posay’s unique thermal water spread throughout France and in the nineteenth century, General Napoleon Bonaparte ordained the construction of a thermal hospital to treat his soldiers’ skin diseases.

Eventually, in 1905, a thermal center opened to the public to treat various kinds of skin disorders. Eight years after its inauguration, the French Academy of Medicine declared the city of La Roche-Posay a “Thermal Spa Town” and certified the therapeutic effects of its unique water. The thermal center provided hydrotherapy for patients to assuage skin irritations associated with various pathologies. These treatments included filiform showers, massaging jets, dermatological wraps, or simply consuming filtered thermal water to cleanse and detoxify the body from the inside. The current patient portfolio suffered from the following skin pathologies:

• 35% had eczema/atopic dermatitis, an inflammatory skin condition resulting in very dry thickened, cracked, scaly skin, redness, and itching,

• 31% had psoriasis, a chronic skin condition in which skin cells, driven by an overactive immune system, build up and cause scaly, itchy, dry patches,

• 10% had burn-related skin injuries and scars,

• 16% had skin-related adverse effects from cancer treatments including dryness, rashes, hand foot syndrome, cracks, tingling, and burning sensations.

Expenses related to an extended stay and treatments at the thermal center were fully reimbursed by the French national social security system, making the thermal center a popular destination for French patients who would receive a prescription for its services from their dermatologists. However, the center also welcomed patients from other parts of the world, who paid out of their own pockets for the healing experience.

The History of La Roche-Posay Laboratoire Dermatologique

In 1975, French pharmacist René Levayer created the brand “La Roche-Posay Laboratoire Dermatologique” with a mission to develop therapeutic skin care products that could be recommended by dermatologists to their patients for the treatment of pathological skin conditions. The foundational ingredient in his products was the soothing natural thermal spring waters of La Roche-Posay, with its unique active natural ingredients, loaded with antioxidants to nourish, heal, and rebalance the skin.

In 1989, the brand was acquired by L’Oréal as part of an overall strategy to consolidate its dermatological expertise and expand its presence in pharmacy networks. Since then, La Roche-Posay had served an integral role in the Active Cosmetics Division, alongside complementary skin care brands Vichy, Skinceuticals, Roger&Gallet, and Sanoflore, which were selectively distributed across

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healthcare channels worldwide (see Exhibit 1 for L’Oréal’s and the Active Cosmetics Division’s financial information). Due to its recent success, La Roche-Posay was the biggest revenue generator of the Active Cosmetics Division, whose brands collectively achieved €2.28 billion in sales in 2018.

The La Roche-Posay Brand and Product Portfolio Every La Roche-Posay product was designed to create a better life for those with the most sensitive

skin by alleviating their suffering from skin pathologies. Originally prescribed as adjunctive therapy to counter the skin-related side effects of prescribed drugs, the brand today offered a wide range of hypoallergenic skin care products with ingredients selected for compliance with sensitive skin specificities. The common denominator in all formulations was the inclusion of soothing antioxidant, natural, thermal spring water with demonstrated therapeutic properties to relieve skin inflammation.

La Roche-Posay offered a complete range of skin care, cleansing, hair care, and corrective make-up products (see Exhibit 2 for the product portfolio). All products were safe and hypoallergenic with minimalist yet effective formulas benefitting from patented active ingredients. The large array of efficacious products, centered on five sub-brands with full product lines that accounted for 80% of La Roche-Posay’s sales, was heralded for its healing properties, safety, and good value. Collectively, the five sub-brands addressed the most common reasons for dermatologist consultations: Effaclar for oily, blemish, acne-prone skin; Toleriane for sensitive, allergic, and reactive skin; Lipikar for dry and eczema-prone skin; Cicaplast for healing and skin repair; and Anthelios for protective sun care. “We are very much a problem-solver brand,” Toupet noted. “La Roche-Posay’s skin care range represents the five solutions that we want to push and emphasize as the key pillars of our brand. People buy our products because they know that they work to alleviate the problems they have.” Each sub-brand received the endorsement of the La Roche-Posay brand on its packaging (see Exhibit 3).

When developing the products, La Roche-Posay worked to reduce the environmental impact of its packaging which did not contain any PVC plastic. 2 All raw ingredients were meticulously screened to assess biodegradability, impact on aquatic life, renewability, and the use of green chemistry. Ecotoxicology experiments had demonstrated that 100% organic sun filters used in the Anthelios range did not have any bleaching effect on coral in sea water.3

Research and Development

Each sub-brand included regimens with moisturizers, cleansers, and treatments that had been developed in compliance with the strictest dermatological laboratory standards. On average, a La Roche-Posay product took two years to develop and was backed by the most rigorous of scientific standards. A dedicated team of toxicologists, researchers, and developers conducted up to 80 different trials to deliver state-of-the-art formulas favoring ingredients compliant with reactive, sensitive, or allergic skin types. More than 600 clinical and observational studies on 50,000 patients worldwide ensured the products’ safety and scientific efficacy.

A renowned pioneer in the latest advances in dermatology, La Roche-Posay strived to provide tailored and effective treatments for its target clientele. In order to remain at the forefront of skin care advancement and to develop relevant products that addressed consumers’ needs, the brand team conducted 50-60 consumer studies to better understand the needs of consumers across different continents. The dermocosmetics market had evolved significantly since the La Roche-Posay brand was established, and consumer and clinical research helped the company develop a continuously improving understanding of skin pathologies and corresponding treatments. 4

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Recent market studies had concluded that there was a clear correlation between skin complaints and various adverse effects, such as feelings of negativity, disrupted sleep patterns and decline in work, school or life achievement. By tracking the negative repercussions of skin concerns, the La Roche-Posay team had been able to scientifically measure positive change brought to the lives of patients by testing them before, after, and during a tailored treatment program.

In 2017, L’Oréal allocated €914 million, 3.5% of its total sales, to its research and innovation (R&I) activities, one of the highest research expenditures in the industry.

Dermatological Partnerships

The life-changing mission of La Roche-Posay was shared by the 90,000 dermatologists who recommended the products, all linked by a common goal of finding solutions for patients suffering from numerous skin conditions. Through the La Roche-Posay Foundation, the brand had long been committed to working alongside dermatologists as a helpful ally. Created in 1995, the Foundation supported research and scientific advances in the clinical, biological, and pharmacological fields of dermatology. In addition, it facilitated partnerships with medical professionals who, in return for helping conduct observational studies of La Roche-Posay’s products and their effects on their patients, were granted access to a wide range of training programs on the latest scientific innovations, developments, and methods. A scientific committee had been set up as part of a knowledge-sharing initiative, gathering dermatologists from Europe and Brazil to discuss trending topics in the field. An unprecedented collaboration between the president of the Spanish Dermatology Society and the La Roche-Posay Dermatological Laboratory in 1999 had led to the establishment of a Residents Course aimed at providing theoretical and practical education to junior dermatologists.

Its relationship with dermatologists was an integral part of La Roche-Posay’s skin cancer prevention mission. In this context, the brand organized seminars, workshops, and knowledge databases to provide dermatologists with up-to-date information related to UV damage and training in dermoscopy to assess pigmented skin lesions and moles using specialized equipment to determine if they might be suspicious or not. If detected and diagnosed in a timely manner, 90% of skin cancer cases could be cured.5 The brand also worked alongside dermatologists and oncologists to propose adapted skin care able to decrease the severity of cutaneous side effects of cancer treatments.

In 2013, to support dermatologists who held a desire to become involved in community-oriented projects, La Roche-Posay launched its “Dermatologist from the Heart” program. This fund allocated grants to projects related to making dermatological care accessible to underprivileged populations, to practitioner training, and to free mole screenings for the general public.

Developing the La Roche-Posay Brand Reinforced by the brand’s active involvement in the science and advancement of dermatology, the

core values of La Roche-Posay’s brand revolved around trust and authenticity. The mission of La Roche-Posay was encapsulated in its brand communications that highlighted the life-changing potential of its products:

We understand that having sensitive skin, a pathological condition, or a skin disease is about so much more than just clinical symptoms. It is about the face you greet the world with, about the way you carry yourself, and the effect your personal well-being has on those around you.

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We know that the benefits of better skin care can be far reaching not just for the patient, but for their friends and family too, who are too often also affected by the distress of their loved one’s skin issue. Whether soothing an irritation or blurring a scar, at La Roche-Posay we want to be an ally to all those who face the myriad issues caused by these concerns, lending them a helping hand as they learn to live better with the impact of the condition.

Brand communications emphasized an important aspect of La Roche-Posay’s value proposition-- providing increased confidence to patients suffering from clinical symptoms due to sensitive skin, a pathological condition, or a skin disease. Recognizing the negative repercussions of such skin concerns in the life of its customers enabled the brand to create sensitive appeals that generated demand for its life-changing, minimalist, safe, and effective formulas. The brand message was broad reaching and embodied that no one should be left aside because of skin problems. It was vital to help patients manage their diseases on a daily basis and help them overcome the feeling of exclusion to improve the quality of their life.6

La Roche-Posay’s brand ethos was evident throughout its brand communications, which featured things like visuals of babies’ skin sprinkled with drops of pure thermal water to demonstrate that its products were compatible with even the most sensitive skin (see Exhibit 4 for examples of photographs used in branding material). Insights from market research revealed that consumers’ common brand associations of La Roche-Posay included constructs such as “efficacy,” “medical,” and “trustworthy” (see Exhibit 5). In general, customers’ purchase decisions were motivated by both functional, identity, and emotional factors.

Toupet described La Roche-Posay’s historical and evolving selection of target markets (see Exhibit 6) as follows:

We have historically chosen to carve out a niche and focus on patients with specific skin problems such as acne, sun intolerance, allergies, scars, and eczema. As a result of this decision, our brand naturally attracts consumers suffering from allergies and pathologies. But, more recently, we have a desire to expand our target communities. Today, we’re considering adding parents who might first buy our products to relieve diaper rash and other skin irritations of their children and then start integrating them into their own skin care routines. We’re considering oncology patients. We witness directly how they benefit from our healing products to combat the harmful side effects of chemotherapy and restore their confidence. Further, we’re considering so-called safety seekers. This consumer segment is incentivized to buy products as a result of an emerged health-consciousness trend. Lastly, we’re considering athletes to address risks associated with outdoor sports activities such as skin blisters or UV-related skin damage.

Toupet lamented,

We want to emphasize our value proposition for our niche communities of patients with indications, but at the same time become a universal brand that is associated with general skin care benefits. How do you address and reconcile the fragmented needs of our diverse target communities in a global marketing strategy? These are all factors that we need to figure out in our brand management strategy.

La Roche-Posay marketed its brand via digital channels, social media, and community events, with very limited investments in print and no television advertising. Leveraging its medical positioning and

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the life-changing potential of the products was important when communicating the brand story to consumers. Norma Taylor-Ladousse, international digital and communication director, explained,

From a marketing point of view, our number one priority is the awareness issue—to a certain extent, we are unknown to the general public. There is a fine balance between creating massive awareness, but at the same time ensuring that consumers associate us with being a brand for sensitive skin. We are perceived as a highly medicalized brand due to our partnerships with health professionals. While this part of our awareness strategy has been very successful, the emotional angle is less prevalent. We do not want people to just buy our products. We want consumers to talk about how our products have changed their lives. The emotional link can help us distinguish our brand from competitors.

However, she remarked, “There is always a balance that represents a trade-off between having huge awareness campaigns and actually targeting the right people who can benefit from our products.”

Toupet had to decide how to allocate the marketing budget of La Roche-Posay in order to further increase consumer awareness. In this aspect, she wanted to target the right groups and leverage their stories in order to drive brand advocacy. Therefore, La Roche-Posay had recently invited influencers to engage and partner with the brand. Activating consumers on social media platforms such as Instagram or Facebook brought La Roche-Posay closer to its consumers and allowed the brand to build a community around each of its products. Ladousse explained, “In order to create authenticity, targeting the right people as influencers is key. We want to collaborate with top and micro-influencers who are affected by the skin issues that we target. Therefore, we do not reach out to the traditional beauty and fashion bloggers with large followings who collaborate with the other beauty brands.”

Toupet underlined the importance of maintaining a cohesive brand expression. While influencers enabled La Roche-Posay to reach a broad audience, Toupet worried about the risk of losing a coherent brand story through the use of this channel. She explained, “We have no control of how influencers deliver the brand story of La Roche-Posay and educate other consumers. How do you push a digital spontaneous advocacy while at the same time controlling your image? This is a paradox for us.”

In an attempt to curate user-generated content on social media, La Roche-Posay hosted live “Derm Classes” in various markets, which gathered influencers together to educate them about its products. While these events fueled a feeling of community amongst participants, they also enabled the brand to encourage the use of appropriate tag lines and other specific visual approaches when creating content on social media. Each class was led by dermatologists, who provided influencers with information related to a specific dermatological topic such as sun care, allergies, or acne. Places were limited in order to make the experience more intimate and to allow participants to jump into the conversation and share their stories.

The Increasingly Competitive Dermocosmetics Market In 2018, the global beauty market including bath and shower, fragrances, hair care, makeup, and

skin care, was a €200 billiona global industry.7 Fueled by consumer preferences that were shifting towards a more holistic and preventive view of health, the skin care category had experienced a 6% growth rate in 2018.8 “Consumers are aware of the damage caused to the skin by diseases such as acne

a In the case study, data has been converted using the average exchange rates for 2018 (1 USD = 0.847541 EUR) provided by the OFX Average Converter, available at https://www.ofx.com/en-gb/forex-news/historical-exchange-rates/yearly-average- rates/.

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https://www.ofx.com/en-gb/forex-news/historical-exchange-rates/yearly-average-rates/
https://www.ofx.com/en-gb/forex-news/historical-exchange-rates/yearly-average-rates/
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and eczema, but are becoming more concerned about external factors, such as antibacterial products and pollution. As awareness increases, consumer demand for products that can prevent or guard against this damage are growing rapidly in popularity,” noted an industry report. 9

A survey conducted in 2017 concluded that consumers’ perceived value of skin care products had shifted from solely cosmetic towards a new preference for products that supported the long-term health of the skin (see Exhibit 7 for consumers’ self-reported drivers for purchasing a skin care product and Exhibit 8 for the beliefs and attitudes of health-conscious consumers).10 Increased access to online educational tools that highlighted factors that could result in skin damage was believed to be one of the reasons behind this shift.11 (See Exhibit 9 for top five influencers leading to dermocosmetic skin care purchases).12

The dermocosmetics segment comprised 10.7% of the global skin care market (see Exhibits 10 and 11 for segment information) and included over-the-counter drugs, cosmetic products, and prescription skin care.13 The segment was currently valued at €15 billion in terms of sales which reached end consumers in the distribution channel (sell-out).14 The dynamism of the market was particularly present in Europe where the dermocosmetics segment had grown 1.2 times faster than the overall beauty market.15 Dermocosmetics had traditionally been more developed in Western Europe; however, increasing internationalization had led to increasing dermocosmetic sales in countries such as Brazil and China where medical claims were increasingly becoming determinant purchasing factors. 16 Dermocosmetics had been bolstered by a consumer interest in overall health, and a demand for products suitable for sensitive skin was growing, particularly in the Middle East, Africa, Europe, and Asia Pacific.17

Dermocosmetic products could both complement and substitute for dermatological procedures, such as Botox treatments. The medicalized images of dermocosmetic brands attracted consumers who desired health-focused solutions without having to resort to pharmaceutical treatments that required a doctor’s visit, such as Accutane for acne, or in-office procedures that potentially came with side effects.18 As a result, many products were prescribed by medical professionals or dermatologists, thereby communicating expertise and efficacy.19 Consumers were drawn to pharma-inspired brands, which were among the fastest growing in the skin care category. 20

With a leading market share, La Roche-Posay was ranked as the top brand in the dermocosmetic segment. Fueled by consumer preference for products positioned for health and prevention, dermocosmetic brands such as Bioderma, Caudalie and SkinCeuticals had experienced annual growth between 2012-2017.21 The best performing brands were those that had launched products aligned with the shift in preference towards preventive skin and sun care.22 Many newer entrants, such as Rodan Fields, Murad, and Cetaphil, shared the trait that they offered prevention products with medical grounding.23

Several large brands claimed a stake in the increasingly crowded dermocosmetics market. Avène, owned by the second largest pharmaceutical group in France, was formulated with natural thermal spring water extracted from the Cévennes Mountains in Avène, France and offered skin care products rooted in dermatology and hydrotherapy to address the needs of sensitive skin. 24 The hero product of its range, with a sales rate of one sold every two seconds, was a thermal spring water spray that could be dispensed directly on the skin to deliver the benefits of the therapeutic water.25 In its brand communications, Avène highlighted its medical approach and value proposition of soothing sensitive skin through its array of natural products with beneficial ingredients. 26 From 2010-2015, La Roche- Posay reported a 3.6% CAGR while Avène reported a 2.5% CAGR. Ranked by brand awareness, La

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Roche-Posay exceeded Avène in their home French market.27 In 2018, Avène gained a market share of 6.9% in the dermocosmetic skin care segment.

Geographical Differences

While exhibiting very different local market environments, the U.S., France, Brazil, and China ranked as the four top selling countries for La Roche-Posay.

The U.S. In 2017, the market value for skin care in the U.S. recorded growth of 5% and sales of €15.6 billion, and was forecasted to reach €18 billion by 2022.28 Positive market developments were driven by an increased consumer awareness of prevention by means of taking vitamins, adopting healthy sleep patterns, or using skin care products to maintain healthy skin. 29 In the U.S. market, La Roche-Posay used doctors as a direct distribution channel. The brand provided free samples to medical professionals that could be passed on to consumers in order to incentivize them to buy the products. Additional distribution channels included drug stores such as CVS, mass merchandisers such as Target, and beauty supply stores such as Ulta.

The growth of the dermocosmetic skin care category had led to increased competition amongst market participants, who were continuously seeking to differentiate themselves to attract consumers.30 Analysts expected future product releases to be influenced by the emergence of digital-engagement technologies and an emphasis on advanced and active ingredients. U.S. consumers were becoming more environmentally aware, which incentivized them to purchase skin care products with a high degree of traceability of the listed ingredients on the packaging.31

With a 10% value share, L’Oréal remained the leading company in the U.S. market for skin care followed by Johnson & Johnson (9.6%), and Estée Lauder (8.0%).32 L’Oréal’s skin care business had shown strong growth in the North American market in particular, which had been attributed to the purchase of the dermocosmetic brand Cerave in 2017. With a growth rate exceeding 20% in two years, Cerave had been one of the fastest growing skin care brands in the U.S.33

France The dermocosmetics market had traditionally been strongest in France, a country that had the leading share of pharmacies and the highest growth rate for skin care in Western Europe. 34 With a retail value of €3.4 billion, the French skin care market had declined 1% in value in 2017 and was expected to grow by a CAGR of 1% through 2022. According to Euromonitor, the average unit price in the mass skin care segment was dropping, while premium skin care rode a rising trend with innovation being a main growth driver. 35

One third of the French population, around 16 million people, suffered from skin pathologies, and the prevalence of allergies was increasing as a result of environmental changes and unhealthy lifestyle choices. 36 In France, the relationship between consumers and their dermatologists had traditionally been strong and personal and resembled that of consumers and their hairdressers in other countries. 37 As a result of the strong dermatological authority in France, a high number of La Roche-Posay’s sales stemmed from a doctor’s recommendation of the products. The French pharmacy network played a key role for distribution of dermocosmetics.38 Consumers often bypassed the makeup counter and deferred to pharmacies to help them purchase their skin care products.39

France was considered to be a market leader of dermocosmetics followed by the neighboring countries Italy, Germany, and Spain.40 The French approach to skin care had been gaining momentum on the international scene as legacy brands, such as La Roche-Posay, Avène, and Embryolisse, became available outside of France. 41

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Brazil In 2018, Brazil ranked as the fourth largest global consumer of personal care and beauty products following the U.S., China, and Japan.42 With a retail value of €2.5 billion in 2017, the market for skin care had experienced a 7% growth and was projected to record a 4% CAGR over the next five years.43 Despite the popularity of beauty products, skin care had traditionally not been prioritized by local consumers who preferred solutions capable of giving immediate results instead of opting for a daily skin care routine to prevent skin damage on a longer term. 44 The decline in skin care sales was also a result of the national economic slowdown. 45

In recent years, generational shifts had started to propel market growth. Younger consumers were becoming better educated about the beneficial effects of preventative skin care. As a result, many local competitors chose a direct-to-consumer model with dedicated sales teams going door-to-door to educate consumers about the advantages of skin care. 46 La Roche-Posay predominantly distributed its products in a prescription-like manner in local pharmacies.

The brand was mostly known in Brazil for its Anthelios sun care range rather than its other four sub-brands. The growing popularity of sun protection stemmed from rising concerns about the potential dangers of high sun exposure amongst Brazilians who perceived the use of sun care as the main remedy to prevent skin damage such as lines, wrinkles, and dark spots.47

While L’Oréal’s premium pharma brands, buoyed by the particularly strong performance of La Roche-Posay, had experienced double-digit value growth through 2015, sales started to decline in 2016. This was attributed to strong competition from smaller brands investing heavily in innovation.48

China In 2017, China was projected to become one of the largest markets for cosmetics and skin care and was expected to grow with a CAGR of 6%.49 An increase of disposable income among the Chinese middle class and the rapid development of digital tools to engage with brands online were believed to be the main dynamics behind the fast growth of the market. 50

In the Asian region, demand for dermatological products was rising due to climate factors that affected the skin and an emerging consciousness of health and beauty. 51 According to Toupet, these trends were aligned with the movement towards a more holistic and preventive view of health that was prevalent in many Asian countries. Environmental changes, such as the onset of colder winter months, more intense allergy seasons, and environmental pollution, led many dermocosmetic brands to specifically target sensitive skin. 52 High-tech and customized skin care products were becoming increasingly popular to cater to consumers’ individual needs. 53

Many companies were competing in the booming Chinese skin care business. With a market share of 9.3%, L’Oréal led the field due to the popularity of its diverse product offerings in premium skin care. Local consumers tended to refer to international companies for premium skin care, while domestic companies recorded more sales for mass products. 54 With a limited presence of dermatologists and a more narrow pharmacy network, La Roche-Posay’s products were mainly distributed through department stores where L’Oréal sales clerks were trained to sell the brand.

Distribution Channels In markets such as France, independently-run pharmacies or apothecaries were strong distribution

partners for La Roche-Posay and carried their full line and offered sales assistance to consumers seeking the advice of pharmacists as they made their purchases. These outlets also filled the skin care prescriptions written by dermatologists to their patients for La Roche-Posay’s products. La Roche-

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Posay’s products were distributed to the pharmacies through wholesalers who also sold them prescription medications, over-the-counter drugs, and other dermocosmetic products.

Another important channel, particularly in Europe, was the parapharmacy, outlets halfway between traditional pharmacies and superstores, dedicated to selling dermocosmetic products. Two- thirds of parapharmacies were located inside supermarkets, while the remainder operated as independent outlets. With a strong presence in supermarket chains such as Carrefour and Auchan, La Roche-Posay was able to reach consumers from the mass market.

However, consumers in other geographies where traditional pharmacies were less prevalent preferred to shop in self-service drugstores, food stores, mass merchandisers, and department stores, all channels that did not provide the opportunity for medicalized sales assistance. These types of outlets offered a broad range of products including toiletries, snacks, cards, nutritional supplements, mass and premium cosmetics as well as over-the-counter drugs. These chains were often characterized by a convenience store atmosphere, a wide selection choice, and large spaces with little sales assistance.

With 42,000 practitioners in North and South America and in Asia, dispensing dermatologists and doctors were also a direct medical distribution channel of the brand. As a provider of non-invasive aesthetic procedures and medical services, these doctors had a direct interest in selling complementary cosmetic products to patients to increase their offices’ sales and profits.

According to Claire Huguet, international medical development and communication director, the partnership with dermatologists since the creation of the brand was at the core of La Roche-Posay’s business model and the reason of its success. With an objective of becoming the number one brand to be recommended by all specialists, La Roche-Posay had gradually expanded the scope of its medical partnerships to include general practitioners, pediatricians, and oncologists. Huguet explained,

Implementing a multichannel strategy allows us to increase awareness, reach out to new doctors, and boost our medical authority. On the other hand, we want to spread dermatology expertise through dermatologists, and these other health practitioners are not necessarily specialized in dermatology, La Roche-Posay want to ‘dermatologize’ them to improve quality of life of patients who have no access to dermatologists. To address this paradox, we attempt to bring our dermatological expertise to doctors without an expertise or specialization in dermatology by providing them with educational tools, e- learning, clinical cases, services, and accessible science. For instance, we have launched an internal website for all of our medical partners to provide them with access to up-to- date scientific content in the dermatological field.

To ensure further growth, the brand attempted to divert from its traditional distribution channels to focus on an increased digital presence, which enabled an appealing direct-to-consumer model. In 2018, e-commerce accounted for 13% of the division’s total sales which represented growth of nearly 30% compared to 2017. According to Brigitte Liberman, worldwide president of L’Oréal Active Cosmetics, the division was “no longer defined by distribution channels, but by a vision of beauty driven by health.” 55

Connected Beauty and Digital Transformation La Roche-Posay’s tests of connected beauty appliances and applications were aligned with a

growing trend of consumers engaging with brands through digital technologies. 56 Artificial intelligence, augmented reality, and other digital technologies enabled a new approach to marketing

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and to health. The pace of change prompted traditional beauty industry leaders to invest in building digital organizational capabilities at the same time that the market for digital healthcare was also moving towards greater consolidation and scale. 57 Research revealed that patients worldwide had become more at ease using digital health applications even for complex and sensitive issues.58 Mobile health and related technologies presented the advantage that they were scalable and required little or no physical involvement by healthcare professionals. 59 While doctors would continue to be relevant and important within the field of healthcare, digital engagement tools had the potential to facilitate and support their traditional ways of working. For instance, technology-enabled healthcare could be used to connect practitioners with patients remotely, resulting in direct savings in cost and time.60

La Roche-Posay had already begun its journey towards increased technology adoption in the new digital landscape (see Exhibit 12 for an overview of its technology products). In 2018, the brand’s next generation of innovative wearable tech devices arrived. Sold exclusively by Apple, La Roche-Posay’s wearable clip-on sensor that tracked UV exposure, pollution, humidity, and pollen levels, was the world’s first. 61 The device worked in tandem with a mobile application that collected data and provided users with personalized skin care recommendations based on observations of local, environmental aggressors affecting their skin health. 62 At the time of the launch, a L’Oréal researcher stated, “We believe that the future of beauty is closely tied to health and incorporating technology to give people personalized ways to take better care of their skin.” 63

According to a survey carried out by McKinsey & Company, more than 75% of respondents worldwide “would like to use digital healthcare services, as long as those services meet their needs and provide the level of quality they expect.” 64 Within the field of dermatology, smart algorithms for skin care diagnosis, online patient consultations, and high-tech machines with skin mapping systems were projected to become game changers. 65

In 2019, La Roche-Posay planned to launch its new Effaclar Spotscan service. Powered by artificial intelligence and patented algorithms, the application was capable of detecting and diagnosing the severity of acne based on photographs of the skin taken on a smartphone. Depending on the severity of the results, users would either be directed to a dermatologist for further diagnosis or, for those with less severe cases, recommended a personalized skin care regime featuring La Roche-Posay products. Brand communications described the new service as a “dermatologist in your pocket.”

Developing new technologies was expensive and some wondered whether these types of digital devices were a good use of the brand’s resources and whether they should be offered to consumers for free or as paid products or services. Others worried that they might change La Roche-Posay’s relationship with dermatologists. However, the brand team was quick to defend the continuing importance of its dermatologist partners. Said Othman Bennis, global marketing and consumer innovation director,

Despite increased technology adoption, the doctor will always remain the authority. When we develop new technology products, we always involve them actively in the process. For instance, dermatologists help us to source the data, check the accuracy of algorithms, and support us with medical research. We will not launch a service that compromises our relationship with the dermatological community. Doctors remain our core pillar and authority.

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Facing the Future As Toupet applied her La Roche-Posay Toleriane Ultra moisturizer, she stared into the mirror

pondering the marketing decisions that confronted her team:

• As the brand team prioritized its messaging strategy, which of the company’s priorities should shape the core brand message: therapeutic claims about performance and safety, emotional appeals, and/or information about the company’s environmental sustainability and social mission programs?

• Was La Roche-Posay’s decision to widen its target audiences wise? Could the brand handle targeting such diverse target markets as patients with specific skin pathologies such as eczema and psoriasis as well as outdoor athletes and new mothers?

• Could the La Roche Posay brand build upon its medical heritage and therapeutic products with a clinical brand value proposition focused on specific indications (e.g., acne, psoriasis) and concurrently expand to add new products targeting non-pathological audiences with a more generalized and emotional skin care message? Or, should the company invest in developing non-therapeutic brands and/or sub-brands to distance these types of products from the La Roche Posay brand?

• Given low brand awareness levels, what was the right balance between building a global brand identity and leveraging differences through brand customization across local markets? Did different market contexts preclude a global brand identity and marketing strategy?

• How could La Roche-Posay best compete in markets and in distribution channels where dermatological prescription and pharmacist-assisted sales were not possible or scarce?

• And, finally, once the other elements of her branding strategy were determined, what role should dermatologists, other medical professionals, customers, digital devices, and the thermal center play in helping her communicate the La Roche-Posay brand to new consumers? How should the business model evolve to incorporate advocacy by consumers and influencers without jeopardizing the brand’s dermatological DNA?

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Exhibit 1 Financial Comparison of L’Oréal and the Active Cosmetics Division

Consolidated Sales (€ billion) Operating Profit (% sales)

Active Cosmetics Division

L’Oréal Overall Active Cosmetics

Division L’Oréal Overall

2013 1.60 22.98 21.7% 17.0% 2014 1.66 22.53 22.7% 17.3% 2015 1.82 25.26 22.8% 17.4% 2016 1.86 25.84 23.2% 17.6% 2017 2.08 26.02 22.6% 18.0% 2018 2.28 26.94 23.0% 18.3%

Source: Company data.

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