[PDF] Strategic Positioning Analysis of L'Oreal

This document presents a strategic positioning analysis of L'Oréal, applying various business theories and concepts to understand the company's operations. The report analyzes the impact of macro-environment factors on L'Oréal's operations, conducts SWOT analysis, and uses Porter's Five Forces model to determine competitive advantage. By analyzing different market positions, including cost leadership, differentiation, focused differentiation, risky high margins, monopoly pricing, and loss of market share, the report recommends a differentiation strategy for L'Oréal, focusing on providing products with unique features at average costs to attract more customers and enhance sales.

BUSINESS
STRATEGY

INTRODUCTION
Business strategy refers to the working plan of company for attaining the vision,
prioritizing the objectives and also competing in a success manner with business model. It is
explained as high level plan of company for reaching at the specific goals. It is a means through
which it set out to attain set objectives (Burgess and Radnor, 2013). This present report is based
on the L’Oréal and it is a lading firm that provides accessories and skin care products. Under this
report will be discuss about the frameworks for analyse impact as well as influence of macro
environment on business firm and its strategies. Porter’s Five Forces model will be discuss here
to evaluate competitive forces of market.
TASK 1
P1 Frameworks analyse the impact and influence of the macro environment on a given
organisation and its strategies
Macro environment refers to situation that exist in an economy as whole as comparison to
specific industry. It is external environmental factors that more influence on success of business,
decision making and strategies. Company can not control the external factors and they develop
negative impact on business. L’Oréal is a largest cosmetic firm and it has developed the activities
in field on skin care, make up, hair colour etc. To analyse the external factors, L’Oréal will use
the PESTLE analysis. It is framework that used to analyse as well as monitor macro environment
factors which may have affect on performance of an organisation (Cepiku and Bonomi Savignon,
2012).
The PESTLE analysis mention below:
Political factor- United Kingdom is one of most power country in world. Under this
there is more political stability but Brexit has develop the political debates and uncertainties. In
order to attain the sustainability at market place, L’Oréal firm follow all rules as well as
regulations. This factor can be explained as degree of government intervenes in an economy of
UK. The government of UK, develop a regulations named European Cosmetics Regulations
1223/2009, Cosmetic products (safety) regulation 1996. L’Oréal deal in a cosmetic industry so it
follow these regulations in context to stay active in market of UK.
Economical factor- These factors consists taxation rate, inflation, deflation, interest rate
etc. These factors mainly impact on the buying power of the customers. If the demand of
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consumers will be high then it will help in enhance profit level of firm. In this, major consumer
products of L’Oréal are categories highly sensitive to the global scale of economies. It is
necessary that L’Oréal should adopt the various economic environments in a country it operate
its business (Cserháti and Szabó, 2014).
Social factor- These factors are encompasses technical trends in society. In this present
time period, people are becoming the conscious regarding product formulations. The people are
more conscious towards their skin care. So,. It is a main benefit for L’Oréal to provide the
chemical free and herbal products products to people.
Technological factor- UK country is one of more advanced country in world. The
business firms in UK developing the latest technology in order to provide the better solutions for
consumers. The main focus of L’Oréal is on innovation and research to drive the competitive
benefit and also maintain the leadership position. The technological factor develop the positive
impact on business of L’Oréal in United Kingdom because through this, it spread innovation
with in the seconds and also fashionist are available to buy trendy products.
Legal factor- This factors include competitive regulations, health and safety regulations,
employment regulations, product regulation, consumer laws and many others. These factors can
develop its impact on business in in several ways such as business operations, cost, demand etc.
In addition to this, L’Oréal fulfil all legalities of region under which it working. It is brand of
elites and upper middle class people and this firm is more concerned about legit stuff.
Environmental factor- It compasses the different global environment safety related
legislations which should be abide through global standards. The government of United
Kingdom made better improvements in minimizing negative impacts. The L’Oréal plays a
necessary role through supporting environmental campaigns and follow related norms (Eason,
2014).
Ansoff's growth vector matrix
It is strategic planning tool that gives framework to help the executives, marketers and
the senior managers to develop strategies for purpose of future development of business. It is a
beneficial tool that L’Oréal company can be used to help business and analyse the risk related
with the each kind of strategy. The Ansoff matrix of L’Oréal mention below as above:
Market penetration- Under this strategy, firm tries to develop its existing products in the
existing markets. It is helpful in enhance the market share in existing market segments. In
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addition to this, L’Oréal can enhanced the sales for existing products in present markets by better
distribution and attractive promotion.
Market development- In this kind of strategy, company enters in to the new market with
existing products. It is an effective way to expand the products in new market. With the help of
entering in to new market, L’Oréal can target new market and also enhance its profit level.
Product development- Under this strategy, company tries to develop the new services
and products that targets existing market in order to attain the growth. It involves the extended
research and development and also expansion of product. The L’Oréal company can innovate the
new skin care product with better features that help for skin of people and attract towards the
firm (Hoque, 2013).
Diversification- In this, firm tries to develop its market share through introducing the
new products at new market. It is risky strategy because there is a need to develop the market as
well as product both. L’Oréal can bring the new product in new market to get the better
opportunities in future.
These all are the effective strategies that help in developing the business of L’Oréal.
Among these strategies, L’Oréal can use the product development strategy because through this
it can provide something new to people in its products that can better for their skin.
TASK 2
P2 Internal environment and capabilities of a given organisation using appropriate frameworks
Internal environment of the business organisation is concerned with the internal abilities
and weakness of the company. It includes culture, expertise, resources and unique qualities
within the market place. For this purpose, organisation will conduct SWOT analyses. It is a
simple theoretical model for rendering situation analyses. The SWOT analyses has gain
widespread acceptance because of its simplicity and power in developing strategy (Kohtamäki
and et. al., 2012). This classifies the internal aspects of the company as strength and weakness
and external situational factors as opportunities and threats. The full form of SWOT is strength,
weakness, opportunities and threat. Following is the SWOT analyses of Lo-real discussed
below :
Strength
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 Largest beauty or cosmetic company : The L'Oreal is the worlds largest brand in cosmetic
and beauty industry. The main reason behind the success of the company is that it is
inclined towards the production of only beauty products and not involved in any other
sector or product line.
 Continuous research and development: Producing beauty products is not an easy work.
The organisation is required to get involved with various doctors, skin specialist,
cosmetology, dematology, etc. This requires constant and thorough research and the
L'Oreal is involved in regularly doing research.
 High quality of products: The customers are happy with the brand and its usage which
can be measured by the intensity of the customer to purchase the products of the L'Oreal
again and again. Thus, it has a stronger quality and is verified.
 Widespread distribution: The brand is serving its products and services globally which
means that it is selling the products in approximately 130 countries which has contributed
in developing economies of scale.
 Natural and organic in nature: The brand has stronger focus on serving natural and
organic products which are free from any kind of problems.
Weakness
 Many sub divisions: L'Oreal has many sub divisions and managing such a large
divisional head is very difficult and creates a problem in the long run of the company.
 Hair care is a degrowing segment: The company lacks the degrowing segment and faces
the stronger competition in this with garnier and other products.
 Profit margins are lower: As the company is involved in the research and development
department, it requires heavy investment which leads to the lower margins for profits.
Opportunities
 Market potential: The market of beauty products and cosmetics will never go out of vein
and it will kept on increasing day by day which provides immense opportunity for the
company to produce products and services.
 Product mix expansion: L'Oreal has an immense opportunity for expanding the product
line and this could help the company in generating the revenue and profits by serving
varied product and services to the customers.
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Threat
 Dynamic or changing nature of cosmetics industry.
 Cash crunch because of various sub divisions, it divides the cash earned by each segment
and this causes problem in overall cash flows and makes working capital management
difficult.
 Competitors like P&G, Avon, Revlon, Lakme, etc.
VRIO framework
This tool is used to analyse the firms internal resources and capabilities to find out that
whether it can be a source of sustained competitive advantage. It is an analytical technique for
determining the companies resources and competitive advantage (Pasquinelli, 2014). This was
developed by Jay B. Barney and evaluates resources like financial, human, material and non
material. VRIO stands for value, rarity, inimitable and organisation. Value : This framework determines that whether resources adds value by allowing a firm
to exploit opportunities and defend against threat. Resources are valuable if they are
useful for the organisation in maximising the perceived customer value. Lo-real can do
this by maximising differentiation and minimising the prices of the products. It is crucial
to continuously review the value of the resources because constantly changing internal
and external conditions will affect them and makes useless or invaluable in nature. Rare : Resources which are acquired by only one or few companies are treated as rare.
So, rare and valuable resources are regarded as temporary competitive advantage for the
lo-real. On contrary, when the situation arises in which more then few companies have
the same resources or uses the capability in the same way then it will lead to competitive
parity. This is due to the fact lo-real can use identical resources to implement the same
strategies such that no other organisation can attain the superior performance. Loosing
valuable resources and capabilities will affect an organisation because they are important
for the existence in the market (Peng, 2017). Costly to imitate : Resources can be costly to imitate when other organisations lacks them
and cannot imitate. Imitation occurs in two ways in lo-real, either by directly imitating
the resources or by providing the comparable products. If lore-al has valuable, rare and
costly to imitate resources then organisation will achieve the sustained competitive
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advantage. But sometimes resources are difficult to intimidate because of historical
conditions, causal ambiguity and social complexity.
 Organised to capture value : The resources itself do not confer any benefit or advantage
for lo-real, if it is not recognised to capture value from them. For this purpose, an
organisation must organise its management system, processes, policies, organisational
structure and culture to be able to completely realise the potential of its valuable, rare and
intimidate resources and capabilities. And this will help the organisation in attaining
competitive advantage.
Capabilities refers to the abilities of the company. So, it is a set of capacities, resources
and skills that create a long term competitive advantage for the company. The firm has various
capabilities like financial, strong brand name, valuable resources (Ryan and Wilson, 2013).
 McKenzie 7S model
This is a tool or technique which analyses the firms organisational design by considering
seven key elements. There are seven elements which are interconnected with one another and
changes in any one element will require the further alternations in all the elements. Lo-real will
use this model because it facilitates the organisational change and helpful in implementing new
strategies. The following are the seven key elements discussed below :
 Strategy : These elements are found in strategic planning of the organisation. It uses
mission and vision of the company to make people clear about the strategic objective.
 Structure : It represents the way, in which business units are organised and involves
information regarding who is responsible to whom.
 Systems : It includes the various processes and procedures of the company which reveal
everyday business activities and the manner in which decisions are made.
 Skill : It includes the various skills, knowledge, capabilities which are required by the
employees of the company to perform various functions effectively and efficiently so that
organisational goals and objectives are accomplished.
 Staff : This elements is concerned with the type and purpose of employees of an
organisation and the way they will be recruited, motivated rewarded and trained.
 Style : It represent the way in which the organisation is managed and controlled by the
top management.
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 Shared value : They are the norms and standards which channelises the behaviour and
actions of the company and also regarded as the foundation of the company.
TASK 3
P3 Porter’s Five Forces model evaluate the competitive forces
Porter's five forces model is an analyses tool which uses five industry forces to evaluate
the intensity of competition in an industry and its level of profitability. This model was created
by Michael porter in 1979 for the purpose of determining that how key competitive forces affects
the industry. This model is useful in determining and analysing the five competitive forces which
shapes every industry. This model is widely used to analyse the industry structure of a company
as well as corporate strategy. The strategic analyst of the company also takes into account this
model to understand the profitability of new products. Following are the five forces discussed
below of lo real :
 Competition in the industry : This force is important because it determines the number
of competitors and their ability to threaten a company. When competition is high then the
firm will exercise little or no control on the prices of their products and services. On the
other hand if industry is operating in monopoly then business will be able to fully control
the prices. In lo-real, the rivalry among competition in the industry is high because there
are many competitors like P&G, Avon, Es tee Lauder, etc. These companies attempts to
maximise more market share by keeping various strategies in their operations. Lo-real
needs non stop quality enhancements for every product line in order to guarantee survival
of the company in the same industry (Spender, 2014). They will enhance their marketing
channel with the assistance of highest technology and innovation which will be useful for
them in obtaining more market share by targeting their market worldwide.
 Potential of new entrants : A companies power is also affected by the force of new
entrant into its market. It will cost less time and money to the competitors to enter a
companies market and be an effective competitor and this will weakened the
organisations strength. An industry with strong entry barrier will be useful in restricting
the company to compete in the industry. So, lo-real faces low threat of new entrant and
does not appear that it will face too much threat with the entry of new entrants.
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 Bargaining power of suppliers : This force addresses how easily suppliers can
maximises the prices of goods and services. It influences the extent to which the suppliers
can influence the prices. When there are many suppliers then buyers can easily switch to
another supplier with lower cost and vice versa. The suppliers of lo-real will have low
bargaining power because their production doubling every year and it will not face any
threat from the suppliers.
 Bargaining power of buyers : This force is concerned with the ability of the customer to
influence the price of the products and services (Watson, 2013). Buyers have the power
to demand higher quality products or lower prices. So, in lo-real as there are many
competitors like P&G, Avon, etc. so bargaining power of buyers are high. Also the
usability of various companies products are high and customer has the various alternative
options available. Therefore, lo-real can face the threat of loss of customers.
 Threat of substitutes : This force is threatening when buyers can easily find the
alternative products with attractive quality and lower prices. In such cases customer will
switch from one brand to another because the switching cost will also be low. Lo-real
faces high threat of substitutes because there are many products and services available in
the market. For instance, there are shampoo of various other brands available in the
market which gives intense competition. Apart from this, there are various alternatives or
substitutes available in cosmetic also (Wright, 2014).
TASK 4
P4 Range of theories, concepts and models, interpret and devise strategic planning for
organisation
Bowman's Strategy Clock is model that help the firms to analyse competitive position of
firm in comparison to the offerings of rivals. This model was developed through two of the
famous economists David Faulkner and Cliff Bowman. Its main focus on make the firm to aware
about the position at market place as comparison to its competitors. With the help of using this
model, L’Oréal can analyse its positive and get the competitive benefit. The Bowman's Strategy
Clock model for L’Oréal mention below:
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Position 1. Low price and low added value:- It is not more competitive position and in
this service or product are not differentiated. Under this, company provide its products at low
cost but they are not differentiate and consumer perceive less value.
Position 2. Low price:- Under this, firms use this position to develop the large quantities.
L’Oréal can use this strategy to produce the large quantity of skin care products which are valued
in target markets. Under this, company provide goods are the low cost for sustain at market place
for long period of time (Wu, Santoso and Roan, 2017).
Position 3. Hybrid:- It is an effective strategy that added the value of product is
consistent and well offered on regular basis. This position include by only those firms which use
the product differentiation because in this goods are more valued. Alternatively, main focus of
this position is to provide good at minimum cost. For convinced to consumers, L’Oréal will
offer its products to customers in minimum cost that will provide them benefits.
Position 4. Differentiation:- Organisation opt this strategy to provide the products of
high quality at average cost. In this kind of position, there is a need to L’Oréal to focus on make
the quality of its product and adding some attractive features as comparison to its competitors.
Position 5. Focused differentiation:- It is mainly applicable to those brands which focus
on exclusive and luxury products with high quality and sold at the high cost. Under this, there is
a need to L’Oréal to conduct marketing better, develop segmentation stratifies, target the
promotion etc.
Position 6. Risky high margins:- Firms using this kind of strategy to charge the high
cost for those goods which are perceived as a bad in value through consumers (Burges and
Radnor, 2013). It is risky strategy and in this there is a chance to firm to fail in long term. In
addition to this, L’Oréal can develop high quality of products in same cost for meet with the
value for money objective.
Position 7. Monopoly pricing:- In this, the position of them itself as monopoly leader at
market as it provides the particular product. In this case, there is a no fear of competition to
L’Oréal company.
Position 8. Loss of market share:- It is not more desirable position for firm because in
this firm is not able to provide the service or product according to value of consumers. Due to the
high cost, buyers stay away from it.
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This model is fit for the organisation and it is helpful in provide the better strategic
direction to business in an effective manner. For L’Oréal, differentiation strategy is better
because in this, firm can provide the products with different features as comparison to its
competitors and sell at the average cost. It will help in attract more consumers and enhance sales
of products. Apart from this, the differentiation strategy creates a value for the customers and
focuses on saving the cost for the products and durability in comparison to other products and
services. By adopting this strategy the L'Oreal will be able to create brand loyalty among the
customers and also enhances the company in regularly involving the supply of new and
innovative products.
CONCLUSION
From the above report it has been concluded that business strategy is a very useful tool in
the competitive environment of businesses. These strategies are very essential for effectively
operating and functioning of the company. The report has analysed the impact of macro
environment as it helped in identifying the various factors which has a strong influence on the
companies operations. Then SWOT analyses has been done, which helped in identifying and
analysing the internal environment. Then Porter's five forces model has been explained which
has helped in determining the competitive advantage of the firm. By applying various theories
and concepts helped in interpreting and devising various strategic planning for the company.
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REFERENCES
Books & Journal
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