Two historic French brands, Peugeot and Citroën, have just been dragged back from the brink of disaster with the support of a Chinese investment. Meanwhile, another Gallic name, L'Oréal, goes from strength to strength, conquering global markets. Few in Canada will have much idea of the former – Peugeot and Citroën never made their mark in North America – but L'Oréal's goody bag of branded shampoos, lipsticks and hair colouring is known to shoppers everywhere. It's a lesson about how large commercial enterprises thrive, not through great technology and invention, but by understanding the tastes and attitudes of their customers. It's a lesson that one Canadian business with global ambition, BlackBerry Ltd., also learned at a terrible cost.
A cash injection of €1.6-billion ($2.4-billion), half from Dongfeng, the Chinese car maker, and the rest from the French government, is a watershed in the fortunes of a century-old motor company. It's a humiliation for the Peugeot family, which loses control of PSA Peugeot-Citroën, but it is also a troubling moment for French industry. Peugeot-Citroën made a net loss of €2.3-billion last year, an improvement over the €5-billion deficit of 2012. Car production in France has been in rapid decline from a peak of 3.5 million vehicles in 2005 to 1.5 million in 2013, a level that is expected to rank it just behind the U.K. in car output for the first time since 1968.
But even as the terms of the Peugeot-Citroën rescue were being thrashed out, a separate financial restructuring was underlining the commercial power and financial success of a very different French enterprise, L'Oréal. Last week, Nestlé, the Swiss food giant, agreed to sell back to L'Oréal a 6 per cent shareholding in the cosmetics group for €6-billion. Nestlé acquired a quarter share of L'Oréal in 1974, when Liliane Bettencourt, daughter of L'Oréal's founder, feared a nationalization by the French government. The investment has been hugely profitable for Nestlé, earning on average double digit annual returns as L'Oréal went on a world tour, buying up cosmetic brands and dispensing glamour and glitz with a gaggle of pouting models uttering the ruthless marketing message, "Because I'm worth it."
Yet the French are curiously uninterested in L'Oreal itself and its extraordinary financial success (operating profits of €3.9-billion in 2013). In a recent article, Les Echos, the financial newspaper, laments that while Americans cover Apple and Google with plaudits and Germans laud the fortunes of Daimler and Volkswagen, the French seem indifferent to the exploits of their most successful enterprise.
The femininity of L'Oréal business may lack appeal in a macho business world but L'Oréal is also a technology company, investing huge sums in research into biochemistry and pharmaceuticals. Then there is politics. L'Oréal remains resolutely outside the French political-business establishment. Unlike the French engineering giants, L'Oréal has never sought state aid, nor appointed its leaders from the elite cadre of French management that glides effortlessly from government ministry to boardroom and back again. Indeed, L'Oréal's great period of expansion occurred during the tenure of the previous CEO, Lindsay Owen-Jones, a Briton of Welsh origin.
So why do some consumer-facing companies thrive and grow each year and decade after decade while other companies with great technology, such as Peugeot-Citroën or BlackBerry, fall into decline? If L'Oréal or indeed Apple or Microsoft are any guide, the answer lies not in the laboratory but on the street or, in the case of the French cosmetics firm, in the bathroom. The French company spends almost a third of its turnover on marketing. When L'Oréal launched in China, it invited women off the street to wash their hair in specially prepared rooms while researchers observed and recorded their behaviour on video to test whether their interaction with the product differed to consumer behaviour in L'Oréal other markets. This sort of research is not unusual for companies selling fast-moving consumer goods, but it is the intensity of the focus on customer idiosyncracy that is often lacking in less successful enterprises.
Consider BlackBerry: Much of the debate about its recent travails has focused on a failure of innovation. In other words, the problem arose in a dearth of good ideas in the lab and in product development. However, the evidence suggests it is more likely that the failure was earlier and far more prosaic, a lack of understanding of what consumers wanted and in particular, a failure to acknowledge that BlackBerry's fan club of middle-aged businessmen might be influenced by what their teenage children were doing: Playing with apps. A comment by a BlackBerry executive in a recent Globe and Mail investigation into the firm's troubles is revealing:
"The problem wasn't that we stopped listening to customers . . . We believed we knew better what customers needed long term than they did. Consumers would say, 'I want a faster browser.' We might say, 'You might think you want a faster browser, but you don't want to pay overage on your bill.' "
Peugeot, too, had a core market of middle-class, mid-market business customers, mainly in Western Europe, to which it sold mid-priced saloon cars. The company failed to develop a sports utility vehicle, or a convincing luxury car. Oddly, Citroën, the brand brought into the Peugeot corral in the1970s once boasted a flagship luxury car, the DS and the iconic low-budget 2CV but instead of building on those strengths, the firm rammed Citroën into the same mid-market straitjacket.
It was not a technology gap that brought low the French car maker or the Canadian smartphone inventor. It was a lack of old-fashioned commercial savvy, a failure of management that is worrying for France and Canada, countries that are both too small in market terms to survive alone. There are plenty of good technology ideas, just not enough people who can spot the meeting place between ideas and market opportunities.