Business Strategy: PESTLE, SWOT Analysis, and Growth Strategies of L'Oreal

This assignment discusses the business strategy of L'Oreal through PESTLE and SWOT analysis. It also explores different growth strategies available to the organization using Ansoff's Matrix. The assignment provides insights into L'Oreal's capabilities and competitive advantage using Porter's five forces model.

Business Strategy

INTRODUCTION
Business strategy is regarded as high level plan in order to reach
particular objectives of organisation. It is very important for firm to make
proper plans and strategies in order to run operation and activities successfully.
The strategy should cover each and every aspect for success of organisation.
The given assignment is based on L’Oreal which was founded in 1909 at
France. It is personal care cosmetic which provides variants of products such as
hair colour, make up, perfume, sun protection, hair care, men’s skincare. In this
report, there is discussion about PESTLE, SWOT analysis of L’Oreal along
with its capabilities. Porter’s five forces have been discussed and strategies
adopted by firm are clearly mentioned in report. According to chosen strategy,
objectives and tactics should be made.
TASK 1
a) PESTLE and SWOT analysis along with capabilities
In order to run business in competitive market, it is very important to
analyse their external and internal factors. These factors help in growth and
sustainability of organisation. The PESTLE and SWOT analysis of L’Oreal are
discussed below:
PESTLE Analysis
It is called PESTLE or PESTEL tool designed for analysis and monitor of
macro environmental factors which has impact on performance of organisation.
Such framework is mainly used when firm is entering international market or
starting new business. PESTLE analyses of L’Oreal are as given below:
Political Factors- It includes policies and rules of government where
L’Oreal has been working. The factors include trade policy, government rules
and regulation and others. It is France company so all government policies
affect its manufacturing.
 Opportunities- France have import policies which plays vital role in
success of firm.
 Threats- If L’Oreal does not follow all legal regulation for manufacturing
then it has to pay fine and penalty.
Economic Factors- It means performance of economy that impact company.
It includes foreign exchange rate, growth, interest rates, inflation. GDP and

purchasing power of France people is more as they prefer branded products like
L’Oreal.
 Opportunities- It has an opportunity to expand its market in different
parts of world which helps in maximizing its share and profits.
 Threats- When value of dollars decline, profits of L’Oreal also decrease
as purchasing power of consumer is low.
Social Factors- The social environment factors of market such as cultural
trends, population, gender, age. Nowadays, people prefer high branded and
quality cosmetic products for their skin. As L’Oreal produces high quality
products for their consumer.
 Opportunities- L’Oreal has an opportunity to use latest technology for
manufacturing products for their consumers. This leads to increase in
profit as consumer want latest and innovative products.
 Threats- If L’Oreal is stick to same product and technology then it cannot
survive in market as consumer taste and preferences changes frequently
which is threat for organisation.
Technology Factors- The factors which affect operations of firm with
innovations in technology that includes automation, research and development
and others. This play great role in innovation and creating trust among
consumers. L’Oreal is the first company which has manufactured ageing cream
and it follows contemporary trends.
 Opportunities- The technology provide opportunity to spread innovation
in their products for fulfilment of needs and demand of consumers.
 Threats- If competitors of L’Oreal are using more new and innovative
technology, then it should update their own technology otherwise they
cannot survive in market.
Legal Factors- These factors includes safety standards, labour laws,
consumer laws and others. L’Oreal needs to follow all legalities of their region
to get success. It needs to follow all legal standards for manufacturing goods
and services.
 Opportunities- By following all legal standard and laws, L’Oreal can
earn maximum profits and sustain in market. It has also an opportunity to
produce organic products for their consumers.

 Threats- If legal laws are not followed while manufacturing products
then it cannot sustain in market. The consumer views all legal standards
while purchasing products.
Environmental Factors- When there is influence of surrounding
environment on firm then it is environmental factors. It includes weather,
climatic, geographical locations and others. In order to make environment
pollution free, L’Oreal is playing significant role and supporting it. It is
international brand which understand both internal and external factors and
paying attention toward it.
 Opportunities- L’Oreal has opportunities to produce chemical free
products for their consumers which lead to cleaning of environment. It
can contribute towards CS for creating brand value and goodwill in
market.
 Threats- In case of not following such environmental factors it can
decrease value and goodwill in market as consumer want eco-friendly
products for use.
SWOT Analysis
It is strategic tools that is designed to assist organisation or person to
identify their strengths, weaknesses, opportunities and threats which is related to
project planning or competition of business. The SWOT analysis of L’Oreal are
as follows:
Strengths- It is internal analysis of company which has power or
influence over others. L’Oreal is the largest beauty and cosmetic firm which has
various product lines. It believes in continues research and development in order
to understand need and demand of consumers. L’Oreal provides high quality
goods and services to their customers and they have strong marketing
communication channels. This brand is currently present in 130 countries which
has widespread distribution channel in market.
Weaknesses- There are some weak point of L’Oreal as they have many
sub divisions but number of employees is less for proper management of those
divisions. The hair care product of L’Oreal is degrading because of competitors
such as HUL, P&G and others. Profits of firm are low because of high
investment in research and development.

Opportunities- There is several opportunities lie with L’Oreal for
increasing profits and share of business. It can increase market potential as
beauty care and personal care is increasing day by day. It can expand product
lines as well as new products in market. There is high demand for organic
cosmetics so it can manufacture such products for fulfilment of need and
demand for consumers.
Threats- With increase in demand of consumer, cosmetic industry is
changing frequently. It is not possible for L’Oreal to make each and every
consumer happy and competition is increasing day by day. L’Oreal has also
threat of cash crunch as there are many sub brands which require cash.
After analysing PESTLE and SWOT, the capabilities of L’Oreal can be
identified that can be described with help of VRIO model.
VRIO Model
It is analytical techniques that are used for evaluation of resources and
capabilities and gain competitive advantage. There are four elements of this
model such as value, rareness, imitability and organisation. The resources and
capabilities of L’Oreal are widespread distribution, research and development,
high quality of products and manufacturing process. The VRIO model of
L’Oreal is explained below:
Value- The valuable resources of L’Oreal are widespread distribution,
high quality of products, manufacturing process and research and development.
These are valuable assets of organisation through which it can gain competitive
advantage.
Rareness- When resources can be acquired by only few companies then
it is called rare capabilities. The rare resources of L’Oreal are research and
development and manufacturing.
Imitability- If resources cannot imitate, buy or substitute by other
organisation then it is called to imitabiltity. High quality of products is the
imitiate resources of L’Oreal.
Organisation- If resources are not managed properly then it does not
provide any advantage to organisation. All system and process should be
organised effectively and efficiently. L’Oreal needs to manage each and every
resources and capabilities in effective manner.

Resources Value Rareness Imitiabilit
y
Organisation
Widespread Distribution Yes
Research And
Development
Yes Yes
High Quality Of Products Yes Yes
Manufacturing Process Yes Yes
b) Competitive advantage using Porter’s five force Model
Competitive analysis is the identification of competitors and evaluation of
their strategies in order to determine own strength and weaknesses of goods and
services. It is part of marketing plan while bringing new products in market.
Each and every factors need to evaluate properly such as threat, substitute,
competitors, new entrants and others. Here, L’Oreal has used Porter’s five force
model for analysing competitive advantage which are described below:
Porter’s Five Force Model
It is tool designed for analyses of competition of business. It helps in
determining competitive intensity and attractiveness of industry. There are five
fore which are explained in context of L’Oreal such as:
Threat of New Entrants- L’Oreal has very less or no threat of new
entrants. As it is moving according to new trends and fashion which leads high
profits. It spends lots of money on research and development to know about
need and demand of consumers. As there are already existing companies in
market where new entrants face difficulty in survival that includes Avon, Olay,
Estee Lauder. It is very important for firm to analyse such factors for better
results. Thus, L’Oreal faces low power for threats.
Threat of Substitute- L’Oreal produces ageing cream for their consumer
as it helps in increasing goodwill and value of firm. There are few companies
who produce such creams. Threat of substitute products for L’Oreal is low as it
can easily earn maximum gains and profits.
Bargaining Power of Supplier- There is many suppliers from where
L’Oreal can purchase raw materials. It is giant which has huge capacity to do
production that exceeds 45 billion units each year. So, supplier has little
opportunity to pose threat on L’Oreal. It has huge capacity in world to supply

quantity where suppliers does not have chance to bargain with firm. Thus,
L’Oreal does not have to face many threats from suppliers so bargaining power
of organisation is high.
Bargaining Power of Consumers- There are many companies which
provide similar types of goods and services such as Avon, Olay, Shiseido and
others. The price and quality is better than L’Oreal so bargaining power of
consumer is very high in market. L’Oreal is facing threat of lack of consumer as
they have option to switch brand from one to another without any cost. In order
to maintain market share, it is very important for L’Oreal to produce high
quality goods and services.
Competitions among Rivalry- There are various competitors of L’Oreal
existing in market such as Proctor and Gamble, Avon, Estee Lauder and others.
It is facing rivalry in business of skin care and cosmetics products. This
organisation keeps on adopting new strategies in order to increase market
shares. Here, L’Oreal needs to improve their quality in every production in
order to beat competition. Also they need to ensure marketing channels with
help of innovation and technology for obtaining market share and targeted
market.
TASK 2
a) Different growth strategies available to organisation
In order to survive in competitive market it is very essential for
organisation to adopt new strategies and plans. This helps in survival and
sustainability of business. L’Oreal also needs to make new plans and strategies
for surviving and gain competitive advantage. In order to make growth
strategies, Ansoff’s matrix has been used by corporation which is explained
below:
Ansoff’s Matrix
It is a strategic planning technique which is designed to provide
framework in order to assist executives, marketers, senior managers and devise
strategies for growth of future. This concept is designed by Russian Igor Ansoff.
There are four strategies under this model which are described below:
Market Penetration Strategy- It is strategy in which organisation sell
same products in existing market. The main aim of firm is to increase market

share through penetration. This can be done by decreasing prices in order to
attract existing or new consumers. Also, organisation can increase promotion
and distribution efforts at same market place. For example, L’Oreal can apply
such strategy where they can cater same market of cosmetics and employ it
through penetration by introducing prices and increasing promotion.
Market Development Strategy- It is strategy where firm can enter new
market with help of existing product. Here, the expansion should be done on
geographies, region and segment for new market. This can be done by catering
various consumer segments and entering into new and foreign market. For
example, L’Oreal can implement such strategy by doing expansion in new
market with same products to new demographic.
Product Development Strategy- It is defined as that strategy where firm
develop new product with same existing market. Both expansion and extensive
research and development are required in this strategy for betterment. Such
strategy can be done in various ways if firm adopt research and development for
new products, acquiring resources of competitors and partnership with other
firm for gaining access. For example, in order to meet changing need and
demand of consumers, L’Oreal can develop new and innovative products. This
helps in gaining competitive advantage for firm so that they can survive in
market.
Diversification Strategy- Firm manufacture new product in new market.
This strategy is more risk than other as market and product both are new which
can be reduced through related diversification. They are synergy among existing
business and new market and product. Similarly, unrelated diversification
means no potential synergy among existing business and new product.
After analysing different types of growth strategies, it can be concluded
that L’Oreal can adopt market penetration. In this strategy, organisation requires
existing market and product. L’Oreal has various category of product so it can
focus on those existing product in same market by creating promotion activities.
b) Justification and recommendation for chosen strategy
There are four types of strategy options for L’Oreal out of which it has
chosen market penetration. It is strategy where firm sell existing product in
same market. This strategy can be done in various ways such as increasing
current product market shares which can be achieved through advertising, sales

promotion and others. Growing market with existing products and restructuring
market by driving out competitor and increasing usage of existing customers.
The recommendations given to L’Oreal regarding such strategy are as follows:
 It can increase market share and profit through market penetration
strategy as it can provide discounts, offers and schemes to their loyal and
regular customers.
 L’Oreal should do more promotion and advertising in various social
media, networking in order to attract large number of customers.
 As it selling products in various countries so it has huge opportunity to
reach to all existing places and sell their products.
 Market penetration can be done through selling products to established
consumers or finding new within existing markets.
c) Strategies, objectives and tactics for chosen strategy
L’Oreal has chosen market penetration strategy for their growth and
survival in market. For that it needs to make strategies, objectives and growth
regarding that strategy. It can be given below:
Strategies
L’Oreal should make strategies for market penetration which are
described below:
STP (Segmentation Targeting Positioning)- Segmentation is dividing
consumers into different group with similar needs and characteristics. It helps in
meeting each groups need and demands effectively and efficiently that provide
advantage over competitors. Different approaches can be use for segmentation
such as:
 Demographic- On basis of age, gender, marital status, education,
occupation and other, consumers are segmented.
 Psychographic- According to risk aversion, lifestyles and values,
consumers are divided for providing goods and services.
 Geographic- When customers are divided on basis of region, city, state
for products and services.
 Behavioural- The frequency of use of products, loyal towards it and
benefits which they can get from it.

Marketing Mix- It is collection of marketing tools which firm uses for
pursuing marketing objectives in particular market. There are 4P’s of
marketing mix which need to be evaluated while adopting strategy which
is described below:
 Product- The category of product which can be supplied by
L’Oreal need to be made clear in advance.
 Price- L’Oreal is providing high quality of goods and service to
consumer so it pricing strategy is premium as compared to others.
 Place- The products of L’Oreal are available in different part of
world. It included market, areas, country where products can be
found.
 Promotion- There is different promotional channels which can be
used by L’Oreal for creating awareness regarding goods and
services.
Objectives
The main objective of L’Oreal is to increase sales by 20% in next three
years by providing high quality goods.
Tactics
The tactics for market penetration strategy are as follows:
Cash Management- It means requirement of cash for various activities
and operation running in business. The cash required for paying salary to wages,
promotional activities and others. L’Oreal needs to maintain such cash in
organisation or can borrow from different sources such as banks, financial
institutions.
Market Research- In order to adopt such strategy market should be
analysed properly for providing goods and services to their consumers.
CONCLUSION
From above report, it can be concluded that business strategy are the
guideline to any organisation which helps in achieving goals and objectives.
The PESTLE and SWOT analysis has been done by organisation in order to
know about their strength, weaknesses and factors which can affect business.
Porter five force models have been used before adopting any strategy in market
so that proper actions can be taken. Here, organisation has adopted market

penetration strategy in order to increase their market share and sustainability of
business. The objectives, tactics need to be set by firm so that strategy provides
growth to business. Thus, it is very important for corporation to analyse each
and every factors so that better outcome can be achieved.