L'Oréal's Market Penetration Strategy

The assignment provided is an analysis of L'Oréal's business strategy, specifically its market penetration strategy. The company uses this strategy to increase its market share and customer base. The Porter's five forces model is used to analyze competition in the market, and different strategies are explained. The assignment also references various books and journals on business strategy and management.

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Outline influence and impact of macro environment with the help of Pestle Analysis..............3
Outline influence and impact of micro environment with the help of Swot Analysis................7
Analysis of competitive environment with the help of Porter Five forces..................................9
TASK 2..........................................................................................................................................11
Different strategic direction available for L’Oréal....................................................................11
Justification and recommendation of different growth platform and strategies........................13
Strategic management plan with strategies, objectives and tactics...........................................15
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Business strategy is a core part of organisation as it supports specific plan to attain
business objectives. Business Strategies helps firm to achieve its goal and objective by
implementing various actions, plans and tactics. L’Oréal is one of the leading cosmetics
companies which deals in wide range of personal care products. This report highlights various
business strategies used by company. PESTLE & SWOT analysis is used to show effect of
macro & micro factors on business. Porter's five forces model is defined to analyse industry
environment. Further, report analysed different strategic direction like, diversification, product
development, Market Penetration, etc. and will outline strategic management plan which
comprise of Mission, Vision, Goals, Objectives & Tactics of the Company.
TASK 1
Outline influence and impact of macro environment with the help of Pestle Analysis
L'Oréal is a multinational cosmetic & beauty brand, which includes various perfume
range, pharmaceutical, hair & skin products in its portfolio. To survive in the competitive
market, company needs to analyse all the factors that affecting its business (Anderson, 2019).
PESTLE analysis is used to analyse all the environmental factors that has impact on company’s
performance. For analysing the influence of macro factors on business, manager of L'Oreal
conduct PESTLE analysis which includes political, economic, social, environmental, legal and
technological factors. Impact of these factors on business are mentioned below:

Figure 1: Pestle Analysis
(Source: Pestle Analysis, 2015)
Political Factors
Political factors include Rules, Regulations & Policies (taxation policy) imposed by
government.
 As L'Oréal manufactures all its product in Paris so, the company has to follow all the
policies & regulation imposed by government of France.
 Product safety is a most important concern for L'Oréal because its products are designed
for skin so, the company has to follow all the guidelines of Personal Care Product Safety
Act.
 Changes in Taxation Policy leads to change in the cost of the products of the company
which directly affect company’s profitability, if high rate of taxes is imposed by the
government than price of product goes up and that can reduce the sales volume and
profitability of the company.
Economic Factors

Economic Factors includes Employment, Inflation, Recession, Price of Product & GDP
of an economy.
 Price of the product is the main issue for every cosmetic brand because prices may vary
according to region. For some country price of the product is high & for some it is low
(Parnell, 2016). For Example, Price of L'Oréal product is high in Indian Market because
its production units are not in India and same is low in France because France has its
manufacturing unit. L'Oréal is resistant to recession because of loyal customers in
cosmetic industry (Parnell, 2016).
 GDP is a main contributing factor of the growth of L'Oréal because, People of a country
with high GDP and good economy prefer to buy branded product like L'Oréal that
increase sales volume and profits of the company.
Social Factors
Social Factors includes Beliefs, Attitudes, Ethics & Values of the society and it also
includes health consciousness, technological changes, population growth and so on.
 Company is facing some ethical issues regarding to ingredients used in L'Oréal because,
some country believe that is a holy sin to use such ingredients.
 Beliefs of the individuals of the society is also play a prominent role in the business of
L'Oréal because the society believes on the reviews and feedback of the product. One bad
review can shift the customer to another product.
Technological Factors
Technological Factors shows how fast the technology is changing and what is its impact
on the marketing & management of the company. Innovation & technology play a vital role in
business growth of L'Oréal.
 L'Oréal always go with the modern trend and modify its product accordingly and it is the
perfect way to achieve success.
 L'Oréal also offer its products through online website like Amazon & Flipkart so that the
company need not to fight to get the shelf room in the retail store. For Example: - Garnier
and L'Oréal once fighting with each other to keep their products in the shelves but
technology eliminate this by introducing online trading.
Legal Factors

Legal Factors includes Consumer rights & laws, Product Safety, Advertising Standards
which is compulsory to follow by all the companies.
 L'Oréal should follow all the guidelines of The Federal Food, Drug & Cosmetic Act and
The Packaging & Labelling Act because it ensures product safety & labelling and these
laws are play the leading role in the cosmetic industry and if ingredients are not
according to the code then the product can be banned.
Environmental Factors
Environmental Factors includes environment safety laws & global standards.
 Now a days, every individual & society wants pollution free & environment friendly
products so, L’Oreal also has to follow all the norms & standards while determining the
policy of the company. L'Oréal also trying to provide Eco-friendly packaging of its
products, but it also uses heavy plastic in its product which can harm environment and
firm may face the criticism of society (Zakaria, Hashim and Ahmad, 2016). For Example,
there is an ingredient used by the company for skin care called ''micro beads'' which
contains plastics and harmful for the environment. Beside that company also uses many
ingredients for perfumes & shampoo which is harmful for the environment.

Outline influence and impact of micro environment with the help of Swot Analysis
Figure 2: Swot Analysis
(Source: SWOT Analysis, 2019)
STRENGTHS
 Loreal implies to use innovative digital technology which is helpful in expanding its
business. Company is doing promotion through social media advertising of various
consumer products which are attracting lots of customers towards it.
 It has leading brand in cosmetics products like hair and skin nourishment, hair colour,
make up kits and health and beauty products.
 Company is focused on continuing research and development on Cosmetics products
which helps them to manage effective changes in cosmetics. It is done for the purpose of
providing high quality products to consumers (Oldman and Tomkins, 2018).
 Firm is focused on high quality advertising and have 60,000 employees globally.
 Running operations in over 130 countries and have 40 manufacturing units and plants at
different locations all over the globe.

 Company have different product segments such as hair colour, skin care, curly hair,
blonds and straight hair.
 Apart from the cosmetics products, company is highly active in the dermatological,
pharmaceutical field and it is the top nanotechnology patent holder.
 The Company has large product distribution channels both offline and online.
WEAKNESSES
 There is no variety available in daily moisturiser and cleanser which is a drawback for
company in comparison to competitive brands which increases risk of losing customers.
 It is incurring high advertising cost. The Company is investing its money highly on
Marketing and promotion activities of their products through social media advertising,
television advertising and by giving articles in newspapers and magazines (Wieland,
Hartmann and Vargo, 2017).
 Decentralized Organisation due to many subdivisions like Consumer product division,
Professional product division, Active cosmetics division, Luxury product division which
makes it difficult for company to control its manufacturing units and managerial
functions.
 The Company is facing high competition from the other leading and established
cosmetics brands. It is difficult for company to chase them.
 Due to unattractive product cover they are seeking less attention from the customers.
 There is lack of awareness of the L’Oréal’s products in US markets.
 OPPORTUNITIES
 L'oreal can increase its market share & customer base by offering its products in new
market and by developing new products.
 The Company has opportunity to expand its business into younger consumer segments
through making products of daily use for the young people.
 Managing distribution channels can also help the firm in improvising its market and
sales.
 The Company can make changes in their pricing and marketing strategy to increase
consumer appeal because cost of their beauty products is generally high to be afford by
middle class people so for the growth option Company can decrease cost of its products.

 Company can develop mature market with revitalize anti-wrinkle and anti-aging
products.
THREATS
 Growing competition from global leading cosmetics brands like Olay.
 Loreal offers high end and premium priced products which are exclusive but also
expensive products which impacts buying ability of every type of buyer.
The firm offers limited products for daily use which is the threat for it because there are many
domestic and local sellers available which offers daily use products. It poses threat for company,
as customers may switch the brand.
Analysis of Organisational capabilities:
Organisational capabilities refers to the abilities of firm to manage resources like
employees in order to gain advantage over rivals. These will help firm in gaining high
competitive advantage in market and enables it to earn high profits. L'Oreal have various
capabilities which helps it in attaining high growth and success in market. Some of those are
mentioned below:
 Firm use digital technology in promoting its products in market which helps it in gaining
more attention of customers.
 Its research and development team, high quality products and ability to innovate are some
capabilities which are valuable for company.
 Some products of L'Oreal provides much effective results to customers which makes it
difficult for its competitors to beat it by providing similar product or copy its product.
 High investment on research and development team provides value to company in terms
of differentiating its products from rivals and helps in gaining high customer satisfaction.
Analysis of competitive environment with the help of Porter Five forces
Analysis of competition is the key business strategy which helps the firm in outlining
potential areas of risks which needs to be focused. However, implication of Porter five forces the
best business strategy which outline threats from entrants, substitutes, rivalries, etc. Porter's five
force analysis of L'Oreal is mentioned below:

Figure 3: Porter Five Forces Model
(Source: Porter Five Forces Model, 2010)
 Rivalry among competitive firms (High) – The competition of L'oreal is very high with
other firms. Firms like P & G, Lever, Avon, Olay etc are indulged in cosmetics and
beauty products more than L'Oréal and also hold years of experience. These competitors
keep on improving their product and increase their market share by implementing various
strategies like increasing promotional activities or sponsoring various events or
increasing their corporate social responsibility by doing campaigns and spending their
money on child's education, women empowerment, generating employments etc. These
competitors are increasing their range from their own country to different countries
(Baraibar‐Diez, Odriozola and Fernández Sánchez, 2017). To cope up with these
companies L'Oréal needs to bring innovation in its product. It needs to enhance the
quality of their product so that its products can survive in the market. It needs to expand
its marketing distribution channels so that it can reach to many consumers It needs to
increase its corporate social responsibility by contributing for social causes like helping
cancer patients, child's education, scholarships, etc. It needs to capture the global market
as fast as can by implementing different strategies.

 Threat of new entrants (Low) – The threat of new entrants is very low, because L’Oreal
itself is the most popular brand in the cosmetic industry. Further, L'Oreal has the stability
in the market and having a good brand image therefore any new entrant needs to hold
stable position in market for becoming competition to exiting leading firms.
 Threat of substitutes (Low)- Aging is the main reason why people need skin care
product around the globe. L'Oreal captures the market of cosmetics and beauty product. It
is one of the leading brands when it comes to anti-aging products. There is less
competition in the field of anti-aging products so it brings less threat to L'oreal Paris.
Also, L’Oréal Paris captures majority of customers in the market with the help of which it
is successful in retaining its customers from a long time.
 Bargaining power of suppliers (Low) – L'oreal is a huge and big name in the whole
world. It has huge capacity of production around 45 billion units every year. L’Oréal
maintains and dignifies a strong relationship with its suppliers to ensure efficient supply
of raw material. The chain of suppliers is very strong when it comes to relationship with
L’Oréal (Zakaria, Hashim and Ahmad, 2016). The brand name is another strength of firm
which helps it in maintaining competitive and high position among group of suppliers.
There are few suppliers who bargain with L’Oréal, that is too is very probable because
''L’Oréal need suppliers but suppliers need Loreal more''. Therefore, the threat of
bargaining from suppliers is very less.
 Bargaining power of customers (High)- Unless it is not a monopoly market, the
customers bargaining power will always be high. The category of L’Oréal falls in
monopolistic competition and hence the competition is too high therefore the need of
consumers should be the priority and amount they are willing to pay should be taken into
consideration by L'oreal. The pricing of different products of different companies are
segregated according the need of customers and if the pricing is not according to the
customer, they can switch anytime to another product. L'Oréal can lose its potential
customers if they are not satisfied. L'Oréal has faced the threat of loss of customers and to
deal with this situation it needs to buckle up and must deal with it at the earliest to
maintain market share of the company and to protect its position in the market.

TASK 2
Different strategic direction available for L’Oréal
Ansoff matrix is a strategic planning tool that provides a framework to help executives,
senior managers and marketers devise strategies for future growth. The Ansoff matrix of L'Oréal
is explained below: -
Figure 4: Ansoff Matrix
(Source: Ansoff Matrix, 2018)
 Market Development: It is a strategy in which firm tries to expand into new markets
using its existing offerings and products. This is done by entering into foreign markets,
different customer segments and new areas or regions of the country. This strategy is
successful when the firm has a unique product technology.
 Market Penetration: It is a strategy in which the organisation tries to grow using its
existing offering and products in existing market only. In other words, it tries to increase
its market share in current market scenario. This can be achieved by selling more
products and services to established customer or by finding new customer within existing
market. Brigitte Liberman (L'Oréal 2015b) reveals that in 2014, the company further

opened large number of Derma enters worldwide. Thus, one can see that L'Oréal is
utilising its distribution channels to satisfy more customer as these moves across
channels, which could further strengthen its competitive advantage. In accordance with
market penetration L'Oréal can decrease the price and increase its promotional efforts and
distribution support to manage growth against competitors. Here, L’Oréal sales is
decreased by aggressive promotion & pricing strategy.
 Diversification: In diversification an organisation tries to grow its market share by
introducing new offering in new markets. It is a risky growth strategy because both the
product and the market are at developing stage (Schawel and Billing, 2018). L'Oréal can
go for two type of diversification one is related diversification in which there is a relation
and potential synergy between the firms in existing business and new product or market.
The another is unrelated diversification. It is also termed as conglomerate diversification
because the resulting corporation is a collection of businesses without any relation with
any other.
 Product Development: In product development strategic direction company aim at
introducing new product. It helps the firm in increasing market and customer share of
existing market. In accordance with this direction L’Oréal can create new products and
services targeted at its existing market to achieve growth (Kossyva, Sarri and
Georgolpoulos, 2015). For example, the beauty director advices that company may
develop 2- 3 shadows darker choices for their make- up product. This involves extending
the product range available to L'Oreal's existing markets. L'Oréal is developing new
product as well as product variants, and complementary products to its existing product
lines in existing market through continuous innovation.
Justification and recommendation of different growth platform and strategies
JUSTIFICATION
As per Market Penetration Strategy, L'Oréal can increase its Market Share & Customer
Base by offering its Existing product & services in the Existing Market only. For Example-
L’Oréal is planning to make a further investment into Indian & Chinese Market because Both
the Market are highly populated & have excessive demand for Lower Priced Products and the
company can get Export Opportunities from both the countries. These Market has significant

opportunity for growth in Cosmetic Industry because beauty product still having lower
penetration.
As per Product Development, if company offers new products in the Existing market than
that influence new customer's which enhances customer base of the company. For Example, if
L'Oréal starts production of skin friendly products which satisfy needs of customers than it
enhances company’s profitability, performance and sales volume. This growth direction will help
the firm in increasing its product range which is the most beneficial criteria of meeting needs of
diverse customers. Further, it is helping the firm in increasing its market and lowering
competition and threat of substitute.
RECOMMENDATION
L’Oréal should focus on Market Penetration strategic direction by expanding its
Existing Market with its Existing Products because this requires lower investment. L’Oréal
should also plan to invest more in the Chinese market by providing attracting offers on its
existing products (Why Is L'Oreal Increasing Its Focus On India?, 2014). For Example, Products
at a discounted price like buy one get one scheme, etc. This increases L'Oréal's market, customer
base and profitability. In Market penetration the firm owns opportunity to improvise its customer
experience by managing changes in products, increasing reach and making product easily
available.

Strategic management plan with strategies, objectives and tactics
STRATEGIC MANAGEMENT PLAN
Mission To provide quality products for different age of customers that
enhance their beauty.
Vision L'Oréal's vision is to satisfy customer with excitement and charm.
Business objective Objective of L'Oréal is to become most popular brand in Cosmetic
Industry in terms of production & consumption. Its main object is to
increase sales by 20% by year 2020.
Core values Values of L'Oréal are Encouraging Individual's, Making Innovation in
Beauty and Ensure Product Excellence.
Aim Aim of L'Oréal is to produce herbal products, which benefits the
society and offer various type of products to make consumption
choices while enhancing beauty (Zakaria, Hashim and Ahmad, 2016).
Strategical direction Market Penetration is chosen strategical direction of L'Oréal where the
firm will focus on expanding its market in China with the motive of
increasing market share because with this strategy company can
dominate whole market, increases customer base and it reduces
L'Oréal competitors and it required lower investment.
Illustration 1: Market penetration Strategical direction
(Source: Market penetration Strategical direction, 2018)

Market Analysis Company will analyse the market on the basis of demand and
preference of the customer. Chinese Market owns the population
where customer prefers premium pricing product. In accordance with
an analysis L’Oréal covers only 9% market of china regardless of its
high-end population.
Operational direction L'Oréal will implement Market Penetration strategy by offering
attractive price to customers and by providing various schemes like
Buy One Get One Free, get 20% Extra and company will establish
more stores in the areas where demand is high.
Figure 5: Elements of Market Penetration
(Source: Elements of Market Penetration, 2018)
Tactical direction
Tactical direction suggests the company to reach customers and manage successful
changes. L'Oréal will promote its product in the Chinese market through social media and print
media so that it can attract its customers. Company will position its product in the market by
establishing its stores in the prime location of the cities, in shopping malls and by social
networking sites. L'Oréal will segment its products according to area, age, preference or
according to skin type. Company will target urban population because these people are more
beauty conscious.

CONCLUSION
The report summarises various aspects of Business Strategy, which describe all the plans,
strategies & actions used by the company for achieving its goal. PESTLE Analysis helps
company in analysing impact of macro factors on business. Moreover, SWOT Analysis helps in
determining strengths, weaknesses, opportunities and threats of company which further helps
manager in taking effective decisions. Porter's five forces model is use to analyse the competition
in market. After that different strategies are explained and L’Oréal uses Market Penetration
Strategy which helps the company to increase its market share & customer base.