Porter's Five Forces Analysis and Strategic Management

This assignment provides a detailed examination of Porter's five forces model and its application in understanding market competitiveness. It also includes a strategic management plan that outlines actions to achieve goals systematically, manage costs, and increase revenues and sales. The report communicates the management plan to ensure staff is working towards common objectives.

BUSINESS STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1. PESTLE and SWOT analysis of organisation for assessing its capabilities......................3
2. Porter's Five Forces Model for examining competitive environment................................6
TASK 2 ...........................................................................................................................................7
3. Evaluation of different types of strategic directions available to an organization.............7
4. Strategic management plan for L'oreal by including strategies, objectives and tactics.....9
CONCLUSION..............................................................................................................................10
REFERENCES .............................................................................................................................11
.....................................................................................................................................................11
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INTRODUCTION
Business strategy is a master plan which is used by the management of the company
which assist them in achieving the specific objectives and business goals. It is used as a long
range study of the desired representation, designation and direction of the organisation. It is a set
of competitive moves which is used by the organisation to attract the customers, enhance the
performance of the organisation and for achieving the goal of the enterprise (Brewster, 2017) . In
this project report, we are considering L'oreal, which is the world's biggest French company for
personal cosmetic care. Its headquarter is located in Clichy, Hauts-de-Seine by Eugene
Schueller with a registered office which was founded in Paris in 30 July 1909. This project report
focuses on SWOT and PESTLE of the enterprise. Along with the valuation of different types of
strategic directions, an analysis of the organisational capabilities is also mentioned in this report.
Strategic Management plan with different strategies is also produced in this project report.
TASK 1
1. PESTLE and SWOT analysis of organisation for assessing its capabilities.
Strategic planning refers with the process in which the leaders of a firm determine and
identify the vision and mission for the future growth of an organisation. In this, certain
guidelines are used by managers of an organisation in order to undertake several activities like
ensuring the staff members in attaining the desired business goals and objectives. This is an
activity which help an organisation to focus on its future objectives. In respect of L'oreal, which
is a leading brand of skin and hair care products towards its customers. L'oreal is best among its
customers because of its effective name and extensive portfolio of their hair and skin care
products (Cavusgil and et. al., 2014) . In today's time, L'oreal is dealing with high competition as
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customers today are more conscious about their skin and hair products. Therefore, it is important
for L'oreal to follow an effective plan of action to sustain in market. Also they should carefully
follow and address their internal and external market situations which has been expressed in
form of PESTLE and SWOT analysis, which are elaborated below -
SWOT analysis
Strengths Weaknesses
L'oreal brand has best goodwill in market as
this offer and launch innovative products for
their customers across the world. The company
also has a well established Research &
Development team which takes care of the new
products of L'oreal in order to meet the needs
and demands of the customers and also to
compete with their rivals. Apart from hair and
skin care, make-up, sun protection, perfumes,
etc., the company is also active in the medical
fields.
The major weakness of L'oreal is that it has
decentralised organisational structure, and due
to many subdivisions of the company, the
difficulty also faces in the control as, a single
individual cannot be able to handle all the
operations. Apart from this, L'oreal is also
having strong competition from their rivals.
Opportunities Threats
L'oreal has the opportunity of growing market
share because many patents are registered by
the organisation. L'oreal can gain an
opportunity by entering into emergent market
where their products does not exist, they can
sell their products at economical prices by this
they can gain the loyalty of customers.
One of the major threat for L'oreal is the
growing competition in the industry of
cosmetic brand. The economy is suffering from
the financial condition, so due to low prices,
customer are not able to buy the products of
L'oreal, so it is also the threat for the
organisation.
PESTLE Analysis
L'oreal is one of the largest cosmetic brand for beauty products in the world. It is making various
varieties of beauty product to meet the customers need and wants and fulfil their requirement
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related beauty product (Chang, 2016) . It was established in France and it is describes as a best in
the domain. According to PESTLE analysis this organisation covers lot of region and has lot of
units in approx 130 countries around the world. There are all PESTLE analysis are elaborate
below: Political Factors: These factors are include in so many rules and policies given by the
government in L'oreal. It is a type of manufacturing company in Paris, so that
government policies of France influences the organization in a negative manner. Along
with this there are different import policies from various regions plays a vital role in the
achievements of the L'oreal. In the context of globalization, these factors have a good
identity in front of the company and helps them in achieving goals or helps in knowing
about new and various strategies which is develop by the government. Political factor
also helps in company achieving customer confidence about the brand and increase brand
loyalty in market place in regards of beauty products. Economical Factors: These are based on the exchange rates of the state where the
company maintaining their overall working activities. There are different types of
economic elements monetary policies, tax policies and so on (Chen and Jermias, 2014) .
As per the L'oreal there are some elements like financially stability, product price that
affects the economy growth. The developed states have high development of human
index in the positive manner, so that the people of good economy will be more attractive
towards the L'oreal products. Therefore, there will be more chance to maximise the
business in a perfect way that will affect candidates regarding the brand. People will
interested to buying anything because of good environment of economy, as per this
L'oreal can increase brand loyalty about their product on buyers. Social Factors: These factors affect the technical trends in the society with different
cultures. In the present scenario, modern societies are very much conscious about the
brand so that they follow L'oreal products. A society who have the capability to adopt
new strategies or technologies they are always preferred L'oreal brand. It will always
increase the profitability of company and customer satisfaction in society. Along with
this customer also want from the company to bring new and innovative strategy in their
product that can increase customers satisfaction level in a essential or effective manner.
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 Technological Factors: These factors are include in a various technology which affect
the people in a different ways. For the luxury brand company like L'oreal it is very
necessary to make innovative techniques which affects the economy around the society.
Everyday technologies are changed so its have a huge impact on the people because there
are lot competitors of L'oreal who they have latest strategies or technology, so customer
are attracted on them (Goffee and Scase, 2015) . Therefore, managers of L'oreal have to
keep so many different strategies or innovative technology, so that they are able to get
good feedback from customers in a efficient manner. It will also helps in making
relationship between buyer of brand. Legal Factors: This factor shows the many competitors in L'oreal, for this company have
to maintain a simple graph for its success. It is only the one brand which is concerned
about all medium, low and high societies around the world. Therefore, L'oreal evaluate
the overall condition about legal policies and try to fulfil them according to the people.
 Environmental Factors: These factors analysed different laws for environmental safety
by the global standards. In context of L'oreal, it is very famous international brand for
skin and beauty care product. It is always understand by the internal or external factor in
the environment that influence the company. Therefore, an organization always used a
very good or different strategies to focus on these factors to determining the policies or
laws which is given the environmental factors (Jeston, 2014) .
2. Porter's Five Forces Model for examining competitive environment.
There are many products in cosmetic and skin care industries which is used by the
consumers. To analyse the competitive environment Porter's five force model is used by L'oreal. Bargaining Power of Buyers : L'oreal is one of the leading cosmetic companies and its
products are preferred by number of customers at moderate rate. The products of L'oreal
are easily available in the market, that's why the L'oreal bargaining power of buyers is
high. When consumers have high demand than manufactures and suppliers, bargaining
power of buyers increases (bargaining power of buyers, 2019) . This factor also force the
company to reduce the price of the products, else customers will switch to other brands. Bargaining Power of Suppliers : Suppliers are very important for every company as they
provide raw material. Bargaining power of supplier is low because there is wide range of
suppliers who provides material to the company. On the other hand, Bargaining power of
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L'oreal is high because they have huge number of customer and few suppliers. So it is
quite easy for the organisation to settle the deal in their own terms and condition with the
supplier. Threats of Substitutes: It means easy accessibility of a product which consumer can
purchase alternatively of the same industry’s product. It is a product from other
organisation that offers same benefits to their consumer similar to the product produced
by the other firms within the same industry (Jocovic and et. al., 2014) . When there is an
alternative product exist in the market, it increases the probability of customers switching
to alternate in response to price increases, quality and customer satisfaction. There are
many substitutes of L'oreal available in the market, one is home remedies which includes
ingredients like oil and herbs to maintain and protect our skin. The home remedies
products are normally used in rural areas as peoples cannot afford high rate products. Threat of new entrants: Nowadays, many new companies are coming into the market
which creates threats to the existing firms. The cosmetic and skin care industries are
competitive and pull large numbers of customers to hold market share. Lot of funds are
required for developing cosmetic products which can meet the demand of consumers.
There are lot of rivals of the firm such as Maybelline, Dior, and so on which creates
threat of new entrants in the industry (Klettner, Clarke and Boersma, 2014) . Cosmetic
industry has comparatively low threat of new entry because this requires huge amount of
investments to satisfies the customers.
 Competitive Rivalry: This means competing with other firm within the same industry.
They made more efforts to increase their profitability and market share from each other.
Company focuses more on competitive advantages. There is high degree of competition
in this industry. There are many competitor in cosmetic industry who cut down the
overall profitability of the organisation. Competition encourages firms to innovate,
reduce cost as compared to their competitor. So, L'oreal should focus on their product
quality and price to grab the focus of customers.
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TASK 2
3. Evaluation of different types of strategic directions available to an organization
Strategic direction can be define as different key forces that move a business towards its
goals and set of objectives. This is the most important force of a business. This force allows each
employee to know about the aim and purpose of organisation. This is important in business, as
this provide awareness about direction and outlines the important goals. Along with this,
strategic direction can implemented only when elements like strategies, mission and vision work
in absolute harmony with each other (Lawton, 2017) . For activity production, an effective leader
uses all these elements to create positive working environment within the organisation. Strategic
decisions are one of the most important factors in business. A clear vision helps to find that what
should an organisation have to follow to achieve their goals and objectives. This is important in
the success of an enterprise. It have been observed that L'oreal is facing go number of challenges
and critical situations. In respect of L'oreal, many strategies, like identifying product strengths,
acquiring another business, and adjusting pricing, have historically been used to get a small
organization off the ground. There are different strategic decisions, which are taken by L'oreal,
and are mentioned below-
Market penetration
Market penetration is all about increasing the
market share of an emergent product or
promoting and introducing a new product in
the market, by implementing a effective plan
of action. This can be possible only by
adopting or applying marketing tools such as
promotion, advertising, discount offers etc.
Market share of L'oreal can be increased by
following effective business strategies which
further help in growing market share. In 2014,
L'oreal had launched its various outlets in all
over the world to satisfy the demands and
needs of the customers. By launching new
Product development
Product development refers with the creation
of products with new or different features that
provides the additional advantage to the
customers. This involves the alteration or
modification of emergent product for the
formulation of new product to satisfy the needs
of customers (Wheelen and et. al., 2017) . The
product development is considered when
strengths of the organisation is based on the
customers not on the products. In respect of
L'oreal it has been determined that the process
of product development is risky and time
consuming yet its benefits may be quite higher.
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products in the market, they came into
competitive world, and by this their market
share increases (Laudon and Traver, 2016) .
On the other hand it is also examined that
decrease in value of products helps a business
in enhancing its sale. The major disadvantage
of market penetration is that this strategy is not
used in case of luxury products as the
development process of these products are
high. Apart from this, If L'oreal follows the
market penetration strategy effectively then
they can gain the loyalty of customer, and also
able to enhance their customer base and market
share.
By adopting this strategy the L'oreal can
enhance its market share. Apart from this, this
process also has a drawback that not every
customers believes in new launched products.
Market development
Market development is all about developing
and identifying new market segments for
existing products for the growth of the
organisation. In this, the marketing department
have crucial role as they build brand image of
company in all over the world. The firm can
use the global strategies and policies which
help in enhancing the development process for
new products (Veit and et. al., 2014) . It is
required by L'oreal to make investment and
focus on their promotional activities, so that
their products get set in market and different
peoples buy their products, which will benefit
L'oreal.
Diversification
Diversification is a type of risky strategy in
context of L'oreal as it is not easy to launch a
new products in new country, as this needs lots
of money. This have less scope in achieving
economic scale as different customers have
different needs. Hence managers will have to
spend a lot of funds for promoting their goods
and enhancing customer base. The use of
diversification will benefit in enhancing the
profitability and productivity growth of
L'oreal. Along with this, diversification of
products will help in providing a competitive
edge to business firms against their rival firms.
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A justification and recommendation of the most appropriate growth platform and
strategies : From the above Ans off matrix model, it had been analysed that market penetration
will be more useful for L'oreal as it will be able to enhance its market share (Peng, 2017) . From
the above discussion, this is to recommend that L'oreal should produce and introduce new
products. Also they should launched new outlets to enhance the growth of their business.
4. Strategic management plan for L'oreal by including strategies, objectives and tactics.
Strategic management plan refers to the document which is used for communication
within the organisation and achieve the goals and objectives. It also focusing on set priorities,
strength of operation systems, configure resources to achieve targeted objectives or goals. This
plan will also helps in generating new strategy for L'oreal. Aim : L'oreal aims to increase their business operation at higher level globally. Organisational Structure : L'oreal manager adopt various or different strategies and
follows divisional structure of organisation. In the context of company, there are large
number of manufacturing stores, but here for manufacturing or production process
employees are employed from distinct background. Vision : “ To increase a growth of business and marketing share in a effective manner.” Mission Statement : “ L'oreal offer their product with very good quality to their
customers for targeted little bit innovative people.” Values : Organisation trust to have some powers like respect, encouragement or clarity by
all the employees in the company (Spender, 2014) . Objectives : L'oreal manager are very smart, so that they use Smart tool to accomplish
their goals or objectives. Recently, an organisation increase its sales through 20% in 4
months also maximise customer satisfaction and profitability within the company. Goals : Company always goals to gain trust by their customers. Its provide product
access of product that maximise their brand loyalty (Scholes, 2015) . They are also
focusing about their innovative strength according to the beauty product also supporting
local communities. L'oreal have long term goals that is comes in competitive dynamic
environment for getting more attention from local manufactures.
 Strategies and Tactics : L'oreal trust in making strong customer relation in the form of
marketing strategies. Apart from this company also cope-up with bloggers who are affect
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the people in a positive way. Therefore, the brand has launched a couple of apps that will
involve in customers.
CONCLUSION
From the above report, it has been concluded that, managers need to understand how
business strategies helps in securing competitive position in the market and how can they
maintain suitability in the marketplace which helps them in achieving the goals of the
organisation. By conducting SWOT and PESTLE analysis, company had known about the
internal capabilities, external threats, market positions and opportunities to understand the
market competitiveness. Porter's five forces model is also had been used in the report to
understand the competitiveness of the market. In order to achieve the goals in a systematic
manner, a set of actions is also provided by the strategic directions. It also helps in managing the
costs and increasing the revenues and sales. Managers should better understand the strategies,
which are used by their competitors to maintain the sustainability in the marketplace. At last,
management plan is also communicated necessarily to ensure that the staff is working to achieve
the common objectives.
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REFERENCES
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Chang, J. F., 2016.Business process management systems: strategy and implementation.
Auerbach Publications.
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Chen, Y. and Jermias, J., 2014. Business strategy, executive compensation and firm
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Jeston, J., 2014. Business process management. Routledge.
Jocovic, M. and et. al., 2014. Modern business strategy Customer Relationship Management in
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Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability:
Empirical insights into the development, leadership and implementation of responsible
business strategy. Journal of Business Ethics. 122(1). pp.145-165.
Laudon, K. C. and Traver, C. G., 2016.E-commerce: business, technology, society.
Lawton, T. C., 2017. Cleared for take-off: structure and strategy in the low fare airline business.
Routledge.
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perspective on business strategy.The Blackwell handbook of cross‐cultural management,
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