2. 
A corporate growth strategy in which a firm expands its
operation by moving into a different industry

Many reasons or motives for diversification

Two major types of diversification
◦ Related (concentric) diversification
◦ Unrelated (conglomerate) diversification

3.  Risk
reduction and/or spreading
 To
make use of surplus cash flows
 To
build shareholder value
 To
Grow
 To
more fully utilize existing resources and
capabilities

4. Diversification implies two levels of
strategy
1. Business-Level
Capabilities/resources to create
competitive advantage within each
business
-low cost
- differentiation
-focused low cost
- focused differentiation
- integrated low cost/differentiation
2. Corporate-Level
Capabilities/resources needed to create
value across businesses
4

5.  Related Diversification
◦ share activities
◦ transfer core competencies
◦ Eg. Kraft foods

Unrelated Diversification
◦ More efficiently allocate internal capital
◦ restructure
5

8. Key Facts and Figures
1st cosmetic group worldwide
1century of expertise in cosmetics
23international brands
19.5billion euros of sales in 2010
130countries
66,600employees
612patents registered in 2010

9. DIVERSIFICATION STRATEGY
“Clo s e ly -re la te d ”
De rm a to lo g y
Entering three kinds of industry:
Co s m e tic s
The Bo d y Sho p

10. COSMETICS INDUSTRY
Offering different product lines through four market lines:
Pro fe s s io na l Pro d uc ts

11. COSMETICS INDUSTRY
Co ns um e r Pro d uc ts

12. COSMETICS INDUSTRY
Lux ury Pro d uc ts

13. COSMETICS INDUSTRY
A tiv e Co s m e tic s
c

14. THE BODY SHOP
A chain of cosmetic stores
specializing exclusively in
hair and skin care products
based on natural
ingredients.
Operated a total of 2,550
stores in 62 countries
worldwide by the end of
2009.

15. DERMATOLOGY
Galderm L
a aboratories: a
joint venture with Nestle. It
boasts three of the top 25
best-selling drugs.
It specializes in skin
diseases and skin
infections.

16. REASONS OF DIVERSIFICATION
1
Part of L’Oreal Long Term
Strategy
2
Exploiting Relevant
Economies of Scope
S
trengthening E
xternal Growth
3
Meet Consumer Needs

17. STRATEGIC CHOICE
Internal
Growth
Resources
E
xternal
Growth
Diversification
(M & A)
Asset
Alliances

18. GROWTH STRATEGY
“M
erger and Acquisition”
Objectives:
Reaching a critical size for exploiting
econom of scale.
ies
Satisfying local needs.
Creating a portfolio of distinctive but
complementary products and brands.
Quickly acquiring new resources and
technologies.
Overcoming the entry barriers.

19. CHARACTERISTICS OF
COMPANIES ACQUIRED
Operating in
different geographical m
arkets from those in
which L’oreal is already operating.
The Body Shop: Enters India Easily
Offering products that com
plete the L
’oreal
portfolio
brands or products.
ROGER&GALLET: Produces Pharmacy Fragrance

20. CHARACTERISTICS OF
COMPANIES ACQUIRED
Operating in geographical markets in which L’oreal intends to
reach leadership position.
Inneov: Number 1 in Spain
Having high technology and com
pet
L’oreal products.
h
Vichy: Advanced Skincare Technology

21. ACQUISITION PREPARATION
FLOWCHART
Preparation
(Gather
information)
Decision
(Implementation)
Final
Preparation
Similarities
with L’oreal
Characteristics
What is the
Objectives?

22. IMPLEMENTATION
L’Oreal has acquired m
ore than 25 brands with different
market segments (see acquisition timeline).
Each brands contributes a different advantage for
L’Oreal long term strategies.
The Body Shop makes L
’Oreal distribution broader.

23. ACQUISITION TIMELINE
1990
1995
2000
Professional
Products
Consumer
Products
Luxury
Products
Active
Cosmetics
The Body
Shop
2005
2010

24. RISK MITIGATION STRATEGY
Increasing patent rights on its inventions.
Innovation and P
atent
Rebuild the products to get customers’
attention.
P
atents, R
&D E
xpenditures and E ployees at L
m
’Oreal
2001
2003
2005
2007
2009
Registered
patents
493
515
529
576
674
R&D
expenditures
(mill. Euros)
432
480
496
560
609
2,743
2,921
2,903
3,095
3,313
R&D employees

25. MARKETING MITIGATION
Market different product with different target m
arke
Develop a clear positioning statem
ent as a current market leader.

26. MARKETING MITIGATION
Try to be the first m
over - to gain more market share before other.

27. PRODUCTS STRATEGY
Collaboration with Channel P
artners
Licensee
Hair Salons
Mass Market
Retail
Partners
Stores, Department
Perfumeries
Market Research Agencies
Pharmacies,
Dermatologists

28. ALIGNING WITH NATURE’ STRATEGY
Com itm to
m ent
S
ustainable Developm
ent:
R
educing im
pact on natural capital.
R
esponsible sourcing.
E
co-designing new ingredients.
Addressing controversy on ingredients.
P
rotecting the global system.
Biomethanisation Unit at Libramont Plant:
100% Green Energy
-50%
GREENHOUS
E
GAS EMISSION
Target for 2015
-50%
WASTE
GENERATED PER
FINISHED
PRODUCT
Target for 2015
-50%
WATER
CONSUMPTION
PER FINISHED
PRODUCT

29. NEWEST ACQUISITION:
PACIFIC BIOSCIENCE LABORATORIES
Date of Acquisition: Dec 15 , 2011
th
.
Intermediated by L
’Oreal US (the
A
franchisee).
Products: S
onic S Care Devices
kin
(Patented).
Channels: Derm
atologists and
P
restige R
etail.
Main Market: US
.
Reasons behind Acquisition:
P
acific B
ioscience L
aboratories’
E
xpertise in Devices.

30. 
Size alone does not guarantee firms an advantage.
◦ Coordination required to exploit economies of scale and scope is not
without cost.
◦ Size creates additional challenges and difficulties, including problems
of communication and coordination.

Higher levels of diversification are not incompatible with high
performance -- nor do they necessarily imply that firms will
suffer lower performance levels.

31. 
Critical factor in determining success is the level of
management expertise in formulating and implementing
corporate strategy.
◦ More difficult for diversified firms.
◦ Managers of large diversified firms possess a variety of welldeveloped mental models that provide them with powerful
understandings of how to manage their firms.