Strategic Management Analysis of L'Oreal

The assignment provides an in-depth analysis of L'Oreal's strategic management, utilizing various frameworks and theories. It includes a review of relevant literature, such as Porter's Five Forces, SWOT analysis, and business research methods. The document also examines the influence of business strategy on tax aggressiveness and the impact of corporate community involvement on strategic direction. A contingency theory perspective is applied to quality management in enabling strategic alignment. The assignment aims to provide a comprehensive understanding of L'Oreal's strategic management practices.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1. Analysis of PESTEL and SWOT of L’Oréal and analysis of its capabilities.........................1
2. Analysis of competitive environment of L'Oréal using Porter's Five Forces model..............4
TASK 2............................................................................................................................................6
1. Evaluating different type of strategic direction available to L'Oréal......................................6
2. Justification and recommendation of the most appropriate growth platform and strategy....8
3. A strategic management plan with strategies, objectives and tactics......................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business strategy can be termed as the course of action or set of decisions that help the
entrepreneurs in achieving business objectives and goals. It can be said that it a master plan
which the management of an organisation uses in order to gain competitive advantage in market,
to carry out its business operation more efficiently, assist in attracting customer and gain their
loyalty so that they can achieve their desire goals of the business. It is foremost essential for a
business to set its strategy which assist in defining the goals and direction of organisation. The
present report will assist in making analysis of business environment and strategy growth
management plan of L’Oréal. It is the French based cosmetic and beauty company, which is the
second largest cosmetic producer in industry and is operating in around 150 countries. Present
report will assist in understanding the analysis of internal and external business environment of
L’Oréal with effective strategic tool. It will also be included the various strategic direction
available for L’Oréal. Further, a strategic management plan will be presented.
TASK 1
1. Analysis of PESTEL and SWOT of L’Oréal and analysis of its capabilities.
Business strategy can be defined as the course of action or set of decisions that assist the
entrepreneurs in achieving business objectives. It can be said that it is a master plan which the
management of an organisation uses in order to remain competitive in market, to carry out its
business operation more efficiently, assist in attracting customer and gain their loyalty so that
they can achieve their desired goals of the business (Scholes, 2015). L’Oréal is a French personal
care and cosmetic company founded in 1990, headquarter in Clichy, Haunts-de-Seine and
registered in Paris. It is world's largest cosmetic company which is operating around the world.
In order to remain competitive in cosmetic and skin care industry, L’Oréal needs to
regularly formulate its strategy. It will assist to have guidelines and structure in order to develop
the business plan and helps it to achieve its business goals. Internal and external analysis of
L'Oréal will assist the management to prepare the base for the strategic planning. PESTEL
analysis is an effective tool which assist in analysing the external factors of business
environment which affect the growth and success of L'Oréal. The PESTTLE analysis of L'Oréal
are as follow:
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 Political: This factor includes the rules and regulations that is framed by the government
of the country where, it operates. The government policies and instability of political
condition in France will directly affect the manufacturing plant in Paris (Verbeke, 2013).
The political interference in company's operation are some other factors. There are
several laws and policies regarding imports of goods which assist in smooth operations in
France. The political stability after globalization has assist the company in operating in
several countries. This political factors will leads to impact the operational and marketing
strategies in that particular country.
 Economical: Such factors are related to the countries economical condition like
economic growth, interest rates, exchange rates and the inflation rate in the country
where it operates. L'Oréal has been affected from the weaken dollars rate and other
currencies of country where it operates. This will leads the management to change its
strategies like pricing, operational cost and increase the maximum optimization of
resources to maintain the profitability of company. Inflation rate in country affects the
cost of goods which leads to make change in business operations and its decision making
process.
 Social: it can be said that, it is one of the main factors that can affect the growth and
success of L'Oréal, as the company's product are centred towards people (Campbell,
Edgar and Stonehouse, 2011). The modern society is more conscious of their appearances
and fashion trend will help in increase in sales of L'Oréal products. Where, today's
generation is most leaned towards the ingredient, which can affect the sell of company.
It would affect the strategies as the management has to change its product manufacturing
as per the requirement of customers There are various countries where the cultural and
ethical beliefs will hinder the use of such products because its ingredients.
 Technological: The attributes of the technology such as innovation, research and
development plays a huge role in the success of the company in cosmetic market. The
adaptation of technological attributes by the competitors can affect the business
operations. Technology assist the L'Oréal in order to determine the factors like barriers in
entry, to minimize the efficient production level which will contributes to make
outsourcing decisions of the company.
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 Environmental: this factors includes the climate, weather which can affect the
operations of the company in many countries. It also includes various safety laws that are
abides by the global level which includes pollution free manufacturing, reducing carbon
use (Blackburn, Hart and Wainwright, 2013). Being one of the leading cosmetic brand of
the world, L'Oréal has to make strategies to reduce the environmental threat that can
affect the growth of the company.
 Legal: there are various laws that has to be complied by L'Oréal to follow, which
includes, environmental laws, labour laws, minimum wages laws etc. In order to be
successful, the company has to follow all the legal aspects where it operates. It can leads
to impact the company's strategies of recruiting and hiring of new employees. L'Oréal is
the brand of the upper middle class or the elites of every society and they are very much
concerned about all the legit stuff.
These factors will assist the management to make the strategies so that these factors could
not affect the growth and success of L'Oréal in industry. In order to prepare the strategic plan, it
is equivalent important to analyse the internal strength and weakness of the company in order to
determine the area that needs to be improved. The SWOT analysis of L'Oréal are as follows:
Strength: L'Oréal is one of the leading cosmetic company which offers a variety of
beauty and cosmetic products in all over the world. It has a big supply chain network which
assist in making product available in all the stores crosses borders (SWOT Analysis of L’oreal,
2019). L'Oréal has outstanding product portfolio through which it clearly dominates the market
with such high profile brands. Apart from this, one of the biggest strength of L'Oréal is its high
quality products which assist in making customer loyalty and increasing revenue. It continuously
changes its product with high innovation and customer research.
Weaknesses: L'Oréal has to face competition from various debuting names in market
specially in hair care industry which are affecting L'Oréal (Slater, Olson and Finnegan, 2011).
The company is regularly investing in research and development in order to meet up the
demands and preferences of customers. But is leads to increase the cost of the company as they
invest huge on research work. It leads to reducing in its profit as compared to other competitors.
The company also depends too much on their suppliers as there are such high range of products.
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Opportunities: Having such good image, L'Oréal can expand its industry from beauty and
skin care to health care also. As people are always looking for new products that best for their
body. L'Oréal can expand its products in such division as it has means and brand recognition
which assist it. It is now more important for L'Oréal to consider and give emphasis to the niche
consumers and offering new products to them. It can be said that customers have perceptive that
has product range for everyone and not focused in the desired of some specific demographic.
L'Oréal should be focused on that in order to change consumers mind with its high brand value.
Threat: With sudden change in the consumer demands and choices, that leads to rapidly
changing cosmetic industry is one of a threat to L'Oréal. With such high range of products that
are divided in such various segments will affect the profit (Spender, 2014). If the economic
condition of any company declines, the profit from such country will get affected and will also
affect the cash-flow of business. As the beauty product is not a necessity for the consumers,
change in the spending power of customer will affect their purchasing of cosmetic and skin care
products.
From the above analysis, it can be said that L'Oréal has strength which can be useful for
overcoming its strength and grasp the various opportunities available for them. The strength of
L'Oréal helps in identifying the capabilities of the company. High innovative and quality
products, effective distribution network with having efficient supply chain over 150 countries it
has effective mass media advertising which assist in communicating to various customers that
helps in providing right information. Being market leader it can extent its operation to Africa and
Middle east countries which allow it to grasp various opportunities available to leads the
business of L'Oréal to achieve its objective through strategic planning.
2. Analysis of competitive environment of L'Oréal using Porter's Five Forces model.
With the increase in the competition in cosmetic and skin care, L'Oréal has to make an
analysis for the competitive environment in order to prepare a strategic planning for the
company. Porter five forces model is an strategic tool which assist in determining the
competitive factorsin business environment. This tool assist in preparing corporate strategy
(Business Analysis Of L’Oréal , 2019). Porter's five forces model of L'Oréal are as follows:
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Illustration 1: Porter five force model
Source:(Porter’s Five Forces of Competitive Position Analysis , 2019)
Bargaining power of suppliers: They are the individual, group or company which supply
material and other products to L'Oréal. If suppliers have a high range of bargaining power than
they will demand high price from L'Oréal. It will leads to reduce the profit of L'Oréal. As there
are lots of suppliers in market, L'Oréal can opt for different supplier in order to maintain its cost.
Hence it can be said that L'Oréal has low threat from the suppliers.
Bargaining Power of Customers: As L'Oréal has various high society products, the
customers are certainly less sensitive to the price. Even if L'Oréal will increase its price of
certain products, the customers will still buy their products. It will positively affect L'Oréal. With
large number of customers, there is no or less bargaining power and it will lead to help company
in gaining profit in market.
Intensity of external rivalry: the degree of competition among rivalry is consistently
high. The existing company that are much competitive to L'Oréal includes Unilever, Avon,
Henkel etc. the impact of such competitive market will leads to affect the profit margin and
success of L'Oréal.
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Threat of Substitutes: It can be refers as the existing products of the competitors which
are smiliar to the L'Oréal's products.. The price and innovation of the substitute product can
affect the sales and profit margin of L'Oréal (Higgins, Omer and Phillips, 2015). The decrease in
the price of the substitute will leads the customers to switch to other products which can affect
the demand of L'Oréal products.
Threat of New Competitors: in cosmetic and skin entry, there are very low barriers to the
entry of new company. The important entry is for barriers quality, pricing and marketing which
can leads to overcoming from barriers in many different ways. The new firm with high quality
products, lower prices and maximum marketing resources can enter the market. They are the
main threat to L'Oréal. The products offered by L'Oréal are luxurious that have threat from
economic downturn.
TASK 2
1. Evaluating different type of strategic direction available to L'Oréal.
Strategy of an organisation is the mean to achieve the organisational goals. It assists the
business to respond to the various business environment over a time. It can be termed as the
course of action of business in order to reach the goals and objectives. Strategy can be termed as
the large-scale future-oriented plans for competing in designating products and markets to
achieve organisation's objectives.
For L'Oréal, strategy assist in creating a direction for the company in terms of its many
objectives, and helps in guiding the operation of the firm towards those objectives (Eden and
Ackermann, 2013). These strategic direction for the management in order to exploit
environmental opportunities, overcome threat and to make full use of their strength and to offset
the weaknesses in order to make corporate decisions. It can be said that effective strategies of
L'Oréal will assist the company to promote a superior alignment of L'Oréal and its environment
and the achievement of strategic goals. The different type of strategic direction that are available
for L'Oréal are as follows:
Growth Strategy: This strategic direction implies introducing new products or adding
new features to the existing products. The company is facing threat from new entries as well as
the competitors in cosmetic industry. As the products of L'Oréal are luxurious, it can be replaced
by the substitute products in the market (Liu, Eng and Ko, 2013). The company needs to make
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and develop more innovative products, with reasonable prices in order to attract more customer.
L'Oréal has a strength that it is a most innovative company and has done heavy investment in
research and development. There is an opportunity for company to start a product line in organic
products. The company has to make strategies in order to introduce new product range of herbal
and organic cosmetics products. The customers are attracting for chemical free and herbal
product, a new herbal-organic product of cosmetic and skin care will help L'Oréal to differentiate
itself in market which assist the firm in gaining more sales and revenue.
In order to achieve growth, the company can also make strategies in order to expand its
business in other industries also. Technology attributes like innovation and constants research is
plays an essential role in the success of L'Oréal. With the help of proper research of market trend
L'Oréal can expand its operations to industry also and to different new segments such as in
Africa and middle East countries (Wilson and Gilligan, 2012). They can make strategies to
utilised this attributes in order to minimize efficient production level to increase their product
efficiency and could also make decisions that assist in influencing outsourcing decisions.
Product Differentiation Strategy: It can be defined as the strategic direction that assist
in differentiating the products from the competing offering. It assists the company to bring the
focus of the target market to their product with its distinct and unique features. The products of
L'Oréal has made its differentiate position being the market leader of cosmetic industry. The high
quality products with different and unique cosmetic and skin care products help it to gain
competitive advantage in market. As the company has the strength of being one of the leading
brand and with such high profit margin (McAdam, Miller and McSorley, 2019). The company
should make its strategy to exclude the chemical ingredients, ensures the safety and security in
cosmetic products. The company has to innovate and introduce new products in order to remain a
marker leader. The company can focus and make strategies to develop 2-3 shadow darker
choices for their make-up products. Apart from this, L'Oréal can also make strategies in order to
target the niche market in order to obtain stronger market position than other competitors (Ansoff
and et.al., 2019). As the company weaknesses where some customer make perception that
L'Oréal make product for everyone, this strategy will help in changing the mind of customer
through making strategy which focus on being differentiate in product with different
demographic segments.
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Price-Skimming strategy: It can be termed as the product pricing strategy in which a
firm charges high price at the initial level. After fulfilling the customer demand or make a good
customer base, company will lower its price thereafter in order to attract new customers and to
win over the competition. In order to attain the growth and success, L'Oréal has making different
pricing strategy for different range of products in different demographic market (Price
Skimming, 2019). As the products of L'Oréal is premium with high price, but because of high
quality it still gains competitive over others. With the different range of products like cosmetic
and make-up products, L'Oréal should make strategies for pricing like changing in price structure
with change in demands, order level etc. as L'Oréal has threat from new entry in market and
faces competition from other brand such as MAC, Revlon, Maybelline New York etc. When
company will achieve its customer loyalty, it will help to make strategies to attract new
customers in market by adopting different strategies like discounts etc.
Acquisition Strategy: In order to continuous growth in industry, L'Oréal is focusing on
the acquisition strategy by taking over brands that have good market share in different
demographic locations (Spee and Jarzabkowski, 2011). L'Oréal has planned to acquire the
skincare brands like CeraVe, AcneFree, and Ambi from Valeant Pharmaceuticals as the company
strength of high profit margin and a leading brand over the world. It would help the company to
expand its business operation and sales in east countries. As the company has opportunity to
expand in niche segment customer, this strategy will be beneficial in order to grow. CeraVe,
AcneFree, and Ambi from Valeant Pharmaceuticals has also planned to acquire ModiFace, it is
considered as the industry standard in beauty and artificial intelligence. Acquiring Modiface will
assist in supporting the reinvention of the beauty experience by customer through which they can
try and choose products (Quinlan and et.al., 2019). As L'Oréal invested huge amount on its
technology and invention, acquiring strategy will help in taking over the technology
advancement in beauty and skin care industry.
2. Justification and recommendation of the most appropriate growth platform and strategy.
As per analysis of internal and external business environment and competitive
environment of L'Oréal. It can be said that the most appropriate growth platform and strategy for
L'Oréal is its growth strategy of expansion or introducing new product-line or adding new
features in existing product in order to differentiate its product from other competitors in market
(Grant, 2016). It can be said that it is the most appropriate strategy in order to attain the business
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objective of reaching 1 billion customers up to 2020. As the products of L'Oréal are luxurious, it
can be replaced by the substitute products in the market. The company needs to make and
develop more innovative products, with reasonable prices in order to attract more customer.
Effective political stability in French will assist in having greater efficiency in manufacturing the
products. It will assist L'Oréal to reduce its cost in order to attract more customer.
The technological attributes play an important role in success of L'Oréal as it ease the
process of innovation and research. L'Oréal can also expand its product line in another industry
like natural beauty. As per analysing the social factors, it can be said that expanding the product
line in natural beauty products, like chemical free herbal-organic skin care and cosmetic products
will assist in attracting more customer (Fay, 2012). Through internal analysis, it has been
identified that L'Oréal has strength of having profit margin, company can invest this in
expanding its operation in Africa and Middle east countries. This strategy is important in order to
target the niche customer segments and increase its selling.
It can be recommended to L'Oréal that it should make emphasis on its diversification of
product as well as market to attract more customer overall the globe. L'Oréal, being such high
brand value, should focus on expansion its market segment to niche customers. It will assist in
changing the perception of customer regarding the same product for everyone.
3. A strategic management plan with strategies, objectives and tactics.
Strategies Objectives Tactics
Market Expansion: L'Oréal
can expand its market by
starting selling its product in
east countries. It is a well
known name over the world
and has efficient supply chain
which will assist it.
Market expansion will assist
L'Oréal to target more
customer and increase in sales
which leads to increase the
revenue of company.
It help the company to achieve
its goals on increasing sales to
1 billion, maximizing
profitability.
Product diversification:
L'Oréal can innovate new
product line or change the
Through product
diversification, company can
achieve in offering new
Product diversification leads to
established brand value of
L'Oréal in market. High
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existing product by adding
new unique features which
assist it to be differentiate from
other products.
product line to its customers,
which assist in increase
customer base and market
share by 8%.
innovation and research will
help in achieving the
diversifying the product which
leads to fulfil the company's
objective of customer
satisfaction and profit
maximization.
Acquisition strategy: it is the
growth strategy that an
acquisition of another
company in order to expand its
operation.
By acquiring or taking over
competitors, it aims to reduce
the competition in market,
expansion in new industry.
This strategy helps in making
customer base in east
countries.
This strategy will assist
L'Oréal to well establish in all
over the world. It leds to make
L'Oréal world's leading
cosmetic and skin care
company.
CONCLUSION
By summing up the above report, it can be concluded that business strategy is essential in
order to get structure and guidelines to achieve the determined goals and objective of
organisation. Present report has concluded the business strategy of L'Oréal, French cosmetic and
beauty care company. It can be concluded from the report that internal and external and
competitive analysis of L'Oréal is essential in order to prepare the strategic and management plan
for L'Oréal.
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REFERENCES
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Eden, C. and Ackermann, F., 2013. Making strategy: The journey of strategic management.
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Fay, M., 2012. Inclusive green growth: The pathway to sustainable development. World Bank
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Grant, R. M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley &
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Higgins, D., Omer, T. C. and Phillips, J. D., 2015. The influence of a firm's business strategy on
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Liu, G., Eng, T. Y. and Ko, W. W., 2013. Strategic direction of corporate community
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Quinlan, C. and et.al., 2019. Business research methods. South Western Cengage.
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Spee, A. P. and Jarzabkowski, P., 2011. Strategic planning as communicative
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Spender, J. C., 2014. Business strategy: Managing uncertainty, opportunity, and enterprise.
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Online
SWOT Analysis of L’oreal. 2019. [Online] Available Through:<https://pestleanalysis.com/swot-
analysis-of-loreal/>.
Price Skimming. 2019. [Online] Available
Through:<https://www.investopedia.com/terms/p/priceskimming.asp>.
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Business Analysis Of L’Oréal. 2019. [Online] Available
Through:<http://customwritings.co/business-analysis-of-loreal/>
Porter’s Five Forces of Competitive Position Analysis. 2019. [Online] Available
Through:<https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html>
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