Question

Your textbook states that, in the long run, representative firms in monopolistically competitive markets will just break even --- that is, earn zero economic profits. Yet some firms in highly competitive markets manage to continue to earn economic profits indefinitely. For example, perfumes, cosmetics, and hair care firm L’Oreal, in business since 1907, remains highly profitable today, despite competing in fiercely competitive product categories. How has L’Oreal managed to stay profitable for so long (clue: they have a research and development staff of over 1000 people

Answer 1

L'oreal is the biggest cosmetics company in the world and it has been able to maintain its position through innovation as well as sustainability programs. The company has maintained its quality and that earns the company a sizeable premium. The company owns a number of brands such as Maybelline, Lancome, Garnier, and L'oreal Paris. Through its constant R&D, it has been able to introduce products that are not only of higher quality but environmentally sustainable in nature.
The company is also active in corporate social responsibility which is always viewed as positively by customers as well as investors. If the company is concerned about the people and environment around then it assumed that the company is also concerned about the quality of its products and the people using it. The customers, in this case, pay preference as well as an extra premium for the products.

L'oreal, in recent years has adopted different sustainability initiatives. It has reduced the carbon footprint and carbon emissions from its facilities. They have achieved zero landfills in Philipines and replaced fossil-fueled cars with the hybrid in South Korea.
It has also taken a lead in women empowering and as a part of that, it has encouraged women in Burkina Faso to grow nuts from which shea butter is generated. This is one of the top products which are required in cosmetics. The company also trains women in their salons and part of them can be employed in the partner salons. This creates employment in developing countries.

These are the initiatives that are concerned with the people and environment which communicate the philosophy of the business to the customers and that increases brand equity as well as creates a great organization. It is not a surprise that the company is most profitable in its sector and clocked an operating profit of 18%.
Henry Ford once said that if any business is making only money then it is a poor business.
L'oreal is not only making money but it is also making all its stakeholders wealthy.