Impact and Influence of Macro Environment on L'Oreal

This report analyzes the impact of macro environment on L'Oreal, evaluates its internal environment and capabilities, examines the competitive forces in the industry, and applies theories and models to devise strategic planning for L'Oreal.

Business Strategies

INTRODUCTION
Business strategy refers to set of action which formulates guidelines for entrepreneurs by
which business objectives can be attained. It is basically a master plan by which organization
attains a competitive position within market, to carry out their activities and attract their
customers by which they can acquire organizational goals. In this report L’Oreal is considered to
understand concept of business strategy. L’Oreal is a group of French company which is
headquartered in Clichy Hauts-de-Seine. It is one of the largest cosmetics organizations. They
provide products for skin care, make-up, hair color and perfumes. This report includes impact of
macro environment and internal environment. Porter’s five forces model is applied to identify
competitive forces of market. At last, theories are applied by which they can formulate strategic
planning.
TASK 1
P1 Impact and influence of macro environment on L’Oreal.
L’Oreal is one of the world’s leading beauty and cosmetics organization. To meet
requirements of global fashion trends, they are providing different products. This organization is
based on production of skin, hair products, perfumes and pharmaceutical stuff. They provide
their services in around 130 countries. Some factors have significant impact on organization and
with passage of time these factors have direct impact on marketing strategies of organization. To
analyze impact of these factors, L’Oreal has opted to use PESTLE analysis. It will help them to
identify major factors which can aid them furnish their services more smoothly both in present
time and in future. PESTLE analysis of L’Oreal is presented below:
Political factors: The major political challenge that L’Oreal must obey rules of various
governments’ leadership styles of countries in which they are rendering their services. They are
obliged to produce safe products which do not have any kind of harmful substances contained
within. Furthermore, L’Oreal needs to adhere to advertising rules which are formulated by
Advertising Standards Authority. An example can be considered to understand this;
advertisements must not mislead that over-exaggerating function of any specific product.
Economic factors: Cosmetics industry comes at third place which comprises of around 14%
market share. When employment in this sector is taken into consideration then around one
million of people are employed which also includes massage therapists, skin care specialist,
manicurists, barbers and hairdressers. L’Oreal’s customer products are categorized to highly
sensitive economies of scope and scale. L’Oreal needs to adapt various economic problems and
environment in which they are operating. L’Oreal was affected continuously when price of dollar
and other currencies weaken. Countries with high Human Development index and high economy
are more addicted to products of L’Oreal. This will have a positive impact on growth of
organization.

Social factors: Culture of country comprises of beliefs, attitude and values of their people. An
example can be taken, with modern standard of living and level of education gets higher,
external image is also becoming important, individuals are more focusing on their appearance.
Demand of effectiveness and quality of skin care and cosmetic products is also becoming higher.
L’Oreal is recognized as foundation for social change as a “Leader of Change”. They are
recognized for inclusive, responsible and sustainable growth by which they are able to create
positive social impact and thereby dropping environmental footprint.
Technological factors: Technology has its own importance in every part of life. Technological
attributes like trust and innovation has played significant role for organization like L’Oreal.
Scientific knowledge of hair and skin which is acquired by L’Oreal for more than century has
opened great way to innovations which includes formulation of procedures, active ingredients
and evaluation of technologies. Furthermore, products can be delivered at doorstep. L’Oreal is
providing their services with use of e-commerce sites.
Legal factors: Ingredients which are used in beauty industry are risky either they can be FDA-
approved or not. The Fair Packaging and Labeling Act (FPLA) and The Federal Food, Drug and
Cosmetic Act (FD&C) are most common laws which cosmetic and beauty industry needs to
address. FD&C is responsible for monitoring ingredients which have been used in products
whereas FPLA make sure that there is no misinformation which is branded on their products. If
this happens then products will not be brought into market. L’Oreal ensures that follow legal
structure of countries in which they are operating. L’Oreal is a brand of elites of society and they
are concerned about legit stuff. If ingredients do not maintain certain code which is deemed by
FDA then they may be banned.
Environmental factors: Beauty industry is more focused to try and opt for green. L’Oreal is
opting for making packaging of their products eco-friendly which will lead to reduction in stress
on environment. Management of L’Oreal has opted for using natural ingredients which are
mostly environment friendly. L’Oreal has established and managed a program of indicators and
internal audits by which they ensured that group performance can be measured and reported with
respect to environment.
By analyzing these factors and taking into consideration these factors, L’Oreal must
formulate their strategies. They must follow all the follows of beauty and cosmetics industry so
that they can carry out their operations and services in effective manner.
TASK 2
P2 Analysis of internal environment and capabilities of L’Oreal.
L’Oreal is emerging name in the world of beauty and cosmetics. Their extensive portfolio
of makeup, hair and skin products explain reason why. They are providing luxurious as well as
inexpensive beauty options. Though organization has various strengths but there are few

concerns related with their weaknesses and threats. For this SWOT analysis is done. It is shown
below:
Strengths:
 Wide range of cosmetic and beauty products: L’Oreal is providing skincare, makeup
and hair products. Their portfolio comprises of astounding products from Garnier,
Maybelline and many more.
 High quality: L’Oreal is not only providing inexpensive products but they have also
moved to luxury brand which offers high quality products for people. People can find
both cost-effective and expensive products with L’Oreal.
 Moving into organic: Customers need healthy hair and skin glow. This means that
ingredients which are used in manufacturing of products must have hardly any chemical.
L’Oreal did not hesitate to go for natural ingredients even if they are costly. They have
tested it on animals and then only they offered their customers with organic and natural
products.
Weaknesses:
 Shrinking profit margins: L’Oreal invest large amount in research and development for
keeping their customers happy and meeting their requirements. It is very expensive
process and it takes their lots of profit when compared with their competitors. They are
focused on R&D and had remained competitive in drenched market.
 Slow divisions: L’Oreal is offering so many products that they need different subdivision
to effectively carry out functionalities. They have around 60,000 employees for daily
activities and customer services. Relying on this large number of employees can lead to
different problems and issues like slowness.
Opportunities:
 Create new products: L’Oreal needs to focus on niche customers. They provide their
products for every sector of society. They must provide their services to individual
demographic rather than for everyone. This means that they are not focused but they have
the ability to change mindset of customers.
 More organic: L’Oreal needs to focus on certain things, this includes; people are looking
forward to have eco-friendly products which are not harmful to both their body and
environment. Second thing is that customers are looking for products which do not
contain silicon, paraben and sulfate. This means that L’Oreal needs to provide products
which are organic and natural.
Threats:

 Quick changes: This industry is rapidly changing. One day people love one product and
give millions of review. Next day when a new product comes older is forgotten. L’Oreal
needs to keep in mind these fluctuations so that they can make sure their sustainability.
 Tricky cash flow: L’Oreal is furnishing its services in different products. Profits which
are earned are segmented into different sections in which they are operating. If there is
any change in economy then they can land into problem.
VRIO analysis: It is a framework which is designed to assist organization to protect their
capabilities and resources which can provide them with competitive edge for longer duration of
time. L’Oreal must use this framework when leader has formulated vision but before process of
strategic planning. This framework addresses four different questions which are related with
value, rarity, imitability and organization.
1. Value: In this L’Oreal need to answer few questions with respect to their products and
services. These questions are:
 Resources which they (L’Oreal) is providing, adds value to customers?
 With these products opportunities can be exploited?
If answer to these questions is obtained then next section of VRIO framework must be addressed.
If answer is not got then uncover value of resources.
2. Rarity: In this questions that must be addressed by L’Oreal are:
 Do they (L’Oreal) control inadequate capabilities or resources?
 Do they acquire something which cannot be easily found but is in demand?
3. Imitability: Following questions must be addressed by L’Oreal:
 How hard is to duplicate products which are being offered by them (L’Oreal)?
 Are substitutes available for resources which they are providing?
4. Organization: In this following question must be acknowledged by L’Oreal:
 Does L’Oreal have organized culture, structure, management system and process
by which they can capitalize on capabilities and resources?
Once answer to these questions has been attained then L’Oreal’s goal of sustained competitive
improvements can be achieved. VRIO framework can be applied to heterogeneous departments
to have a clear view of position within market.
TASK 3
P3 Evaluation of competitive forces of L’Oreal.
It is essential for every industry to analyze their competitive forces so that they can
acquire high profit. Combined effort of five forces will lead organization to improvise their profit
margin and also their stability within market. L’Oreal has opted for Porter’s five forces model to

analyze different aspects of market and thereby creating a significant impact on their services
they are furnishing. The model has been illustrated below:
Porter’s Five Forces Model:
1. Rivalry among competitive firms: Different organizations are furnishing their services
in cosmetic industry. Industries like P&G, Estee Lauder and many other push L’Oreal
into high rivalry in current business scenario. These competitors raise their market shares
by formulating and implementing different strategies. There are certain reasons which
increase rivalry among organizations. They are: numbers of competitive companies are
more, customers easily switch brands, barriers to enter within market are low and rivals
provide same services. L’Oreal must ensure that they provide nonstop quality
improvement in their every product so that they can ensure their survival within industry.
They need to develop their market channels with usage of high innovation and
technologies by which they can gain higher market share. L’Oreal focuses to gain
competitive edge within market for this they have designed different strategies.
2. Potential entrants: There is very less entry into this moderate industry. Market already
has strong organizations such as Proctor and Gamble, Olay, Avon, Estee Lauder and
L’Oreal. Barriers to entry must be high. New organizations may provide lower prices for
services, high quality products and may use substantial marketing resources. But
customers are addicted to services rendered by L’Oreal. If any new entrant comes within
market there may be little or no serious threat from new entry. L’Oreal does not have
remarkable risk from potential entrants. Major threat to L’Oreal is that they are offering
products which are luxurious which can be impacted by economic downturn but they act
as a market leader. They effectively conduct R&D to different target audience and ensure
that they provide high quality services and their distribution.
3. Potential development of substitutes: Substitutes refers to products which are offered
by other organizations. Threat of substitutes occurs when demand of product is
exaggerated by alteration in price of substitute. Shampoos and body products if contains
large number of chemicals then they are frightening. Skin is largest organ and whatever is
put on it, it gets absorbed into body which can create lots of problems. AS things which
are toxic in mouth, they are also toxic for body. People around the world needs skin care
products. L’Oreal is leader in beauty and cosmetic sector; they are not disturbed by
substitute which enters into a market. They provide their anti-aging products and there is
hardly any threat in these products within market.
4. Bargaining power of suppliers: Suppliers are business who provide raw material to
organizations. L’Oreal is a giant, every year their production capacity exceeds by around
45 billion units. Therefore, supplier has little opportunity to threat L’Oreal. There are
large number of suppliers, thus in this case supplier has hardly any ability to bargain with
L’Oreal. They have not faced any kind of threats from suppliers till now.

5. Bargaining power of customers: Presence of powerful competitors such as Avon,
Shiseido, Procter & Gamble and other organization leads high bargaining power of
customers within market. Due to availability of different organizations heterogeneous
products is high, there is a chance for potential customers to choose from products
offered by other organizations. L’Oreal has faced threat due to lack of customer, for this
they need to deal with it earnestly so that market share can be maintained.
TASK 4
P4 Apply theories, concepts and models to devise strategic planning for L’Oreal.
It is crucial for organization to have certain strategies for both short term and long term
success. By this it becomes easy to accomplish what is required. If strategies are not formulated
then it will lead to end of business. Rather than failing it’s better to decide strategies which will
provide road map to carry out everyday operations. L’Oreal is clear about what they want and
how they can achieve. They have used Porter’s Generic model for formulating their strategies.
This model has been elaborated below:
Porter’s Generic Strategies:
1. Cost Leadership: It is primary responsibility of every organization to consider his aspect
to gain competitive edge within market. Cost leadership refers to way which cost is
controlled in one or other way. L’Oreal can opt for one of the ways, either they can
provide their services at low cost as compared to their competitors or produce services at
lowest cost and offer customers with those products at average price. By this L’Oreal can
make large profit on every sale.
2. Differentiation: This strategy is opposite of above mentioned strategy. In this quality of
services is taken in consideration rather than least expensive products. An example can be
considered like a brand like L’Oreal is offering eyeliner at $150 and other company is
charging $ 30 for same product. But difference lies in quality and style which has been
offered and it is worth high price. For this L’Oreal not only need to provide their
customers with high quality only but they also need to have effectual marketing plan by
which they can make their customers aware about their products.
3. Cost Focus: This is similar to cost leadership but difference is that in this only one aspect
is taken into consideration i.e. focuses is on to provide services to smaller section of
market which looks forward for unique products. There may be hardly any growth but
specific organization like L’Oreal will become major player in that particular section and
will ensure sustainability for longer duration of time. This will provide a great option to
succeed within market.
4. Differentiation Focus: It is identical to differentiation focus but in this focus is on to
work with niche market and stand out on the basis of quality. It is not necessary that
product which L’Oreal is offering is least or most expensive. But important is that

L’Oreal is providing their customers with what they need and at that moment price can be
justified. By this L’Oreal can grab a opportunity to acquire large share in niche market.
L’Oreal can have benefits from this as it will allow management to think about
their position within market. They need to use this model at the moment they start
planning and select strategies which can lead them within organization.
Vision: L’Oreal wants to be an organization which is eco-friendly and economically successful.
They want to provide their employees with workplace where they enjoy working in
synchronization.
Mission: L’Oreal desire to manufacture services which will be accepted and liked by old and
new customers. They want to be a brand which will be choice of everyone either its youngsters
or old generation people.
Strategies: L’Oreal is formulating strategies by which they can become first choice and more
friendly to customers. They are targeting to acquire around 1 billion customers by 2020. For this
they were expanding their business in countries like India and Mexico where customer’s
purchasing power is high. They are also looking forward for grooming of men. For this they are
promoting various products on social media and have acquired sales at large scale. They are also
forwarding a deal to buy a Urban Decay which is a makeup brand. L’Oreal always conducts
market research before they bring their product within market. This is done to ensure
requirements of their customers.
CONCLUSION
From above, it can be concluded that business strategies plays essential role in growth of
organization. Business strategy refers to management function. This means that formulation of
strategies and their execution do not guarantee success. Organization needs to be aware of
environment in which they are operating. For analyzing different external factors which creates a
negative impact of organization must be evaluated. For this Pestle analysis has been done which
illustrates the certain factors which are related with political, economic, technological and other
aspects which lead to significant impact on performance of organization. Furthermore,
organization also needs analyze their strengths and weaknesses so that they can make them
stronger. Moreover, threats must be evaluated which can decline the market value of particular
organization. For this organization needs to formulate various strategies which will aid them to
enhance their market value and shares.
REFERENCES
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