Business Strategy Report

This report provides an in-depth analysis of L'Oréal's business strategy, including a PESTLE analysis, SWOT analysis, and Porter's Five Forces analysis. The report also evaluates the company's strategic directions and recommends future strategies for growth and sustainability.

Business Strategy Report
L’Oreal Strategy Report
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Executive Summary
The major focus of the study is to elaborate about the various aspects in relation to the
cosmetic and personal care products industry in United Kingdom. For this, the business
environment of the L’Oreal has been investigated and analysed in-depth to illustrate about the
various crucial factors and elements. PESTLE analysis, SWOT analysis and Porter’s Five
Forces have been used for analysing the external and internal environment of the company.
Along with this, strategic management plan has been developed in the study to shed light on
the future plans of the company.
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Table of Contents
Introduction................................................................................................................................4
Task 1.........................................................................................................................................5
PESTLE and SWOT analysis of the organisation and an analysis of the organisation’s
capabilities..............................................................................................................................5
Analyse the competitive environment of the organisation using Porter’s Five Forces
Model.....................................................................................................................................9
Task 2.......................................................................................................................................12
Evaluate the different types of strategic directions available to the organisation................12
Justify and recommend the most appropriate growth platform and strategies.....................13
Produce a strategic management plan with strategies, objectives and tactics......................13
Conclusion................................................................................................................................16
Reference List..........................................................................................................................17
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Introduction
Business strategies are developed by every business organisations to ensure effective
planning and implementation of strategies that will help the organisation in developing the
business and attaining a significant position in the industry. The business strategy allows the
development of plans that will ensure timely attainment of organisational objectives and
goals. It further helps the organisation in achieving competitive gain against their rival
companies. It will allow the organisation to increase its fiscal revenues that will ensure
further growth of the company. L’Oreal is a French company with its headquarters situated in
Clichy, Hauts-de-seine along with a registered office in Paris. The organisation is a leading
brand in skin and hair care sector that has a workforce of more than 89000 employees
(lorealparisusa.com, 2019).
The assignment aids in evaluating the external and internal business environment of L’Oreal
to understand the basis on which the company can make a strategic decision and planning for
the development of the company. Different frameworks such as PESTLE, SWOT and
Porter’s Five Forces will be used for the purpose. In the next part of the assignment, an
evaluation of the business directions that can be adopted by the company has been identified
and justified. Finally, a strategic management plan has been developed to understand the
strategic planning of the organisation effectively.
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Task 1
PESTLE and SWOT analysis of the organisation and an analysis of the organisation’s
capabilities
A PESTLE analysis is a framework that is used by business organisations to evaluate the
external environment in which the company is operating in so that strategic decisions and
planning can be made accordingly. The external factors can influence the business operations
of a company, but these factors are beyond the control of the organisation (Cadle et al.,
2014). L’Oreal is one of the leading organisations that operate on a global scale and provide
skin and hair care products to global citizens. The organisation has to analyse their external
environment as any wrong decision or planning will influence the company largely. Hence, it
is vital for the organisation to evaluate its external environment before developing and
implementing strategic decisions (Ho, 2014). A PESTLE analysis of L’Oreal has been
conducted below to highlight the positive and negative impact of the factors on the business
operations of the company.
External Factors Positive Influence Negative Influence
Political Political stability can help an
organisation to thrive and
prosper, and L’Oreal enjoys
this aspect. The UK has a
stable political environment
that allows the government to
handle any new issues or
problems effectively within a
short period. It allows
L’Oreal to conduct business
operations smoothly and
uninterruptedly leading to the
growth of the company.
The UK has decided to leave
the EU, and the process is
known as Brexit. The process
is not yet completed, but the
completion of the Brexit will
influence the business
operations of the company as
the process will bring many
changes in the political
scenario of the UK.
Economical Hair and skin care industry is
one of those industries that
There has a fall in the value
of Pound Sterling due to
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are resistant to economic
fluctuations and recessions.
These products have become
necessities in the lives of
many people leading. Hence,
L’Oreal will not suffer
largely due to the recession.
which the consumers of the
UK have become price
conscious of the products
they are purchasing. It will
reduce the sales of L’Oreal
and lead to fewer profit
margins earned by the
company.
Social The company has gained
loyal customers due to the
products they offer. The
population of the UK is more
conscious about their looks
and fashion which makes
them invest more in the
company’s product leading to
more brand awareness and
increased market share in the
industry.
Customer experience plays a
significant role in the sales of
the company, and a poor
experience will make the
customers switch companies
(Hong and Doz, 2013). The
consumers are also becoming
more conscious about the
ingredients and process used
by the company in the
products that can harm the
business of the company.
Technological There has been constant
progress in the technological
aspect that helps
organisations to improve
their business. The Internet
has allowed the company to
increase its customer reach
and communicate with global
customers to make them
loyal to the company and
enhance its brand awareness
as well as sales volume
(Tournois, 2014).
The organisation faces
intense competition in the
beauty and care industry. The
use of the latest technologies
by rival companies will make
the company lose its
competitive advantage and
make it difficult to regain its
leading position in the
market.
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Legal The organisation has to be
aware of the various laws and
policies developed for the
beauty and care industry. The
organisation has to comply
with the Fair Packaging and
Labelling Act as well as The
Federal Food, Drug and
Cosmetic Act to ensure
smooth and uninterrupted
functioning of the business.
The completion of Brexit
will bring changes in the
legal policies and regulations
that can influence the
business operations of
L’Oreal in a negative
manner. The company will
have to be aware and
prepared for the changes so
that they can develop
solutions that will help them
function smoothly.
Environmental The company provides a vast
range of products to its
customers, and the company
is taking initiatives to reduce
the environmental impact by
using better packaging and
making the product more
eco-friendly.
The ingredients such as
plastics, microbeads etc. used
in the development of
products are good for the
consumers but harm the
environment largely. The
continuous use of such
ingredients will harm the
business as there is growing
environmental concern
among society (Chang,
2015).
Table 1: PESTLE analysis
(Source: Created by the learner)
SWOT analysis framework is used by business organisations to analyse the internal
environment of the business so that the company can identify the threats and opportunities
and adopt measures to capitalise on the opportunities using the strengths and remove threats
by addressing the weaknesses (Srdjevic et al., 2012). The internal factors that influence
business operations can be regulated and monitored by the management of the company. The
internal factors should be analysed at timely intervals so that the opportunities and threats can
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be identified at the correct time and appropriate measures can be adopted to reduce their
impact. A SWOT analysis of the L’Oreal has been performed below:
Strength Weakness
 The company has a vast range of
product portfolio to offer to the
company along with an increased
market share in the industry (Ashraf
et al., 2015).
 The company operates at a global
scale due to which it adopts
universalisation as the development
strategy leading to better business
operations
 The company has a strong team of
research and development and uses
the latest technologies to provide
better products to consumers.
 There has been an increased
saturation among the product line
launched by new companies that
specifically cater to a particular
product line. It will make it difficult
for the company to maintain its
market share regarding a particular
product line.
 The company has to rely on different
departments and divisions of the
company that takes care of the
various segments of the business.
Higher reliance on people will lead to
greater difficulties for the company.
Opportunities Threats
 The customer needs and preferences
are changing, and the company can
launch new products by identifying
the needs and developing products
accordingly. It will allow the
company to gain a competitive
advantage in the industry (Tournois,
 Intense competition from existing
companies and the entry of new
companies in the industry will make it
difficult for the company to sustain
competition (Babu, 2012).
 Seasonal period of business, recession
and fall in the value of pound sterling
will reduce the sales volume of the
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2016).
 The company can make its products
more organic to attract customers and
offer a new variant of the product to
the customers.
 The organisation should adopt
measures that will make the products,
packaging and process used by the
company more eco-friendly and
contribute to reducing the impact of
the business operations on the
environment.
company leading to low fiscal
revenues of the company.
Table 2: SWOT analysis
(Source: Created by the learner)
Analyse the competitive environment of the organisation using Porter’s Five Forces
Model.
Porter’s Five Forces is a tool that is often used by the senior management to analyse the key
factors related to the business environment or industry. It is one of the most important
frameworks that aid to shed light on the competitive nature of the industry. In this case, the
competitive environment of L’Oreal has been elaborated below:
Threat of new entrants (Low)
United Kingdom’s cosmetic and personal care products industry is rapidly increasing its
capabilities and revenue generation capacities, it is considered to be sixth largest market
worth close to £10.2 billion (Pressreader.com, 2019). This has been viewed to have positive
as well as negative influence on the overall functioning. L’Oreal is the leading company that
exists in the sector; however, it does face stiff competition from various other brands.
However, considering the current status of the political and economic affairs of the country, it
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can be stated that the chances of new entrants in the sector is low. This is due to the fact that
country’s decision to leave European Union have had created several concerns leading to
repercussions in the political as well as the economic environment of the country.
Threat of substitutes (Low)
The entire cosmetic and personal care products industry in United Kingdom has witnessed
continuous growth in their sales, even after the decision of Brexit. Considering the substitutes
of personal care products and cosmetics is minimal. These products are an everyday
household substance, which has huge need and demands. L’Oreal is currently the leading
manufacturer and distributor of personal care products linked to hair care, skin care,
fragrances and other colour cosmetics, along with this, it is considered to be house of popular
brands, such as L’Oreal Paris, Garnier, Softsheen and Maybelline New York (statista.com,
2019). Therefore, the company faces low threats of substitutes.
Figure 1: Breakdown of L’Oreal Global Sales in 2017
(Source: loreal-finance.com, 2019A)
Bargaining power of suppliers (Low)
L’Oreal is a well-known company began its operation in 1909. Many scholars and market
experts have revealed that during the economic downturn, customers tend to purchase more
of little luxury items such as lipstick, treatments and cosmetics. These facts and statistics
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reveal that the company L’Oreal has a bright future ahead. The company’s long history and
presence in the sector has enabled it to build a strong network of suppliers. L’Oreal is a
global brand, although it has its headquarters in France, but its supplier’s network is spread
across several nations, that help the company to gain huge competitive advantage as well as
reduce costs and issues regarding inventory management.
Bargaining power of buyers (High)
United Kingdom’s cosmetic and personal care is on constant rise. The average customer
spending has increased considerably. According to the research and statistics, it has been
revealed that total value of the UK fragrance market is worth close to £1.8 billion and the
colour cosmetic market is worth close to £1.98 billion. However, the entire sector comprises
of several competitors trying to grab more market share. This has provided more number of
alternatives to customers and in addition, the evolution of online markets, the bargaining
power of customers has further increased. They can easily search and compare different
products, allowing them to purchase products at competitive prices.
Competitive rivalry (High)
The UK’s personal care and cosmetics industry has several players including, P&G,
Beiersdorf, Unilever, MAC, Revlon, Olay, Avon and L’Oreal. All these companies have long
presence in the market offering varied products to customers ranging from skin care to sun
care, fragrance and lotions (Loreal.com, 2019A). Therefore, it is evident that the company’s
management faces huge competition in the skin care products industry.
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Task 2
Evaluate the different types of strategic directions available to the organisation.
The foremost strategic directions that the company’s management has decided to undertake
include the strategy to adopt sustainable practices at the core of the company’s operations and
functioning. For this, the company has plans to integrate all their operations and strategies,
such as production sustainably, innovation in existing models and processes. Considering, its
strategic directions, it can stated that the company is on the right track towards a better future.
With its current plans under execution, the company will be able to make drastic changes in
their process of manufacturing and production of goods and services. Establishment of
carbon neutral plants and facilities, along with its biomass production capacities to reduce
dependence on fossil fuels are some of the most strategically apt solutions that the company
has developed. According to Loreal.com (2019B), these practices and undertakings have
helped the company in the past to set new records in operating margin and cash flows. Many
market experts confirm that with current speed of progress and transformations, robust
performance and significant increase in the value of the company is expected. In the past two
years, the company’s research and development department has developed more than 40,000
formulas that will lead to production of new and higher quality products as well as assist to
make sure that considerable reduction in environmental footprint.
Along with the above mentioned strategies, it has been investigated that the company re-
shaped its sourcing policy for procurement of raw materials, keeping it aligned with the
sustainability plans and concerns of biodiversity (Loreal.com, 2019C). Along with this, the
company is on the move to incorporate eco-friendly packaging methods as well as reduce
practices of de-forestation.
Evaluating all the above strategies, it can be stated that the company has chosen all the major
areas required for consideration in order to place the company in a strategically favourable
position in the market. According to Lorealusa.com (2019), these strategic directions will
lead the company to grab higher market share as well as improve its goodwill and reputation
in the minds of customers. By the year 2020, it has predicted that the company will have
improved environmental and social profile; in addition, it will be at a better position to offer
greater benefits to their customers. Considering its market strategies, company has also plans
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to purchase companies in the IT sector in order to boost their capabilities. With this
acquisition, the company will be able to implement plans of augmented reality and artificial
intelligence into their business operations (Forbes.com, 2019).
Justify and recommend the most appropriate growth platform and strategies.
On analysis and evaluation of the above stated strategies it can be stated that the company is
on the track to fulfil their future plans and mission. Considering the global concerns about
climate change and carbon emissions, the company has taken all the steps to prepare it for
accommodating changes in their production and manufacturing capacities. In addition, the
research and development facilities of the company are serving its role as the backbone of the
company by developing new eco-friendly formulas to improve the quality of products.
Investments in this area are highly appropriate, as this will reap higher returns in the long run.
However, with growing challenges due to political and economic down turn in the United
Kingdom as well as fierce competition in the business environment, few recommendations
have been provided below:
 Management of the company L’Oreal must focus on the implementation of safety and
transparency of synthetic chemicals.
 Managers and executives in L’Oreal must focus on providing certified claims as well
as ethical labels on their products to attract customers.
These two strategies will greatly enhance the attractiveness of its products. With analysis of
current trends, it has been analysed that consumers are buying natural and organic products,
as they have lower health risks, therefore, use of synthetic chemicals will be great changer for
the company (cosmeticsdesign-europe.com, 2017). Customers expect certified claims on the
products before purchasing; therefore, implementing these changes will help the company to
increase their sales.
Produce a strategic management plan with strategies, objectives and tactics.
A strategic management plan comprises of improved organisational objectives and strategies
that will assist the company to improve their current position in the market. Considering the
recent statistics, L’Oreal is the leading personal care products company in the United
Kingdom, however, it needs to overhaul their certain strategic management plans to sustain
leadership in the market.
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Organisational Vision and Mission
The fundamental vision of the company is to achieve sustainability in all its business
processes such as innovation, production and distribution of products, by the year 2020.
The primary mission of the company L’Oreal is to offer all men and women across the
United Kingdom, the best quality cosmetic products, in terms of quality, efficacy and safety
(loreal-finance.com, 2019B).
Company’s Objectives
The fundamental objectives of the company are:
 To build unique strategies and plans in order to capture, understand and respect
differences among customers
 To deliver products that are cater to the needs and traditions of customers, taking into
consideration the aspirations of customers
 To maintain their leadership position in the skin care products and cosmetics market
in United Kingdom
 To set new records in operating margin and operating profit by the end of the year
2020
Marketing strategy
Marketing strategy of the company is a highly important tool necessary for reaching out to
potential customers as well as helping other customers to identify their needs. Considering
the huge customer base of the company, it must increase its expenditure on social media
marketing, as it has emerged as a strategic tool for mass communication; it offers greater
flexibility ways to influence and establish connection with customers and lastly, personalise
their products through digitalisation. Along with this, as per the current trend, more number
of customers tends to invest lot of time focusing on the screen of Smartphone; therefore, the
above management plans will help the company to optimise their marketing strategies. As the
tech savvy millennial generations are increasing their spending, it is necessary for the L’Oreal
management to use the right channels for marketing so as to stay connected with the
customers and drive financial growth.
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Pricing strategy
Pricing strategy refers to the management plans that the company undertakes to decide the
prices of the products. As per the current findings and analysis, it is evident that the company
uses competitive pricing products in order to keep their products in par with the exiting rival
companies. However, it is advisable that the company must replace this with premium pricing
strategy. L’Oreal is a leading company in the market; therefore, offering products at premium
prices, the company will be able to place itself at higher levels in the minds of customers (Li
et al., 2016). This will make sure that the customers gain a premium feel every time they
purchase products of the company.
Sales strategy
This aspect of the strategic management plan includes the method for promotion of products
and services. This mainly includes the area where the company’s senior officials prepare the
strategies to influence the customer preferences, adopt policies to improve the brand name
and brand awareness in the market. For this, the company can build effective teams that will
have the authority to operate separately in order to assist in the accomplishment of
organisational objectives. With changing technologies, managers need to adopt procedures
that are in accordance with the customer aspirations and expectations.
Control and implementation
This is always the final stage of a management plan, where the senior managers and
executives focus on the tools and techniques to control, manage and coordinate all the areas
of the plan. This is the most important aspect of the management plan, as it involves the
execution of the entire strategies. For this, the company must focus on the recruitment and
selection of new employees in the company with exceptional experiences and training in the
required field. This will ensure that new and innovative ideas are established to monitor and
control the performances of teams. Rigorously following these steps will help the company to
fill the gaps and limitations existing in the management plan, thereby improving the overall
effectiveness to achieve organizational objectives.
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Conclusion
L’Oreal is a famous brand that has huge market share in the beauty and care industry that
faces intense competition. An analysis of the internal and external business environment is
essential for the company as it can influence the business operations of the company. The
company need to determine the directions in which it should develop the business that will
allow the company to gain a competitive advantage in the industry and lead to the growth of
the business. The company should make their strategic decisions by considering and
analysing appropriately the competition they face in the industry so that they can identify the
opportunities and capitalise on it to maintain their leading position in the market. The
company develops strategic plans by considering the various internal and external factors as
well as the competition to develop strategies and take measures accordingly for the
development of the business.
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