L'Oreal Business Strategy : Assignment

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
P1. Analyses the impact and influence of macro environment on L'Oreal and its strategies.....1
TASK 2............................................................................................................................................3
P2 Analysis of internal environment and capabilities of a given organisation...........................3
TASK 3............................................................................................................................................6
P3 Application of porter's five forces model...............................................................................6
TASK 4............................................................................................................................................7
P4 Application of range of theories, concepts and models.........................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business strategy is the organisations working plan for accomplishing its vision,
precedence to the objectives, competing successfully and optimising financial performance with
its business model. These strategies are the means which are set to accomplish desired objectives
(Afuah, 2014). Organisation undertaken in this report is L'Oreal which was founded in 1909 in
France and provides cosmetic and beauty essentials. This report will explain the impact and
influence on the macro environment in a organisation and its strategies. It will also analyse the
internal environment and capabilities of the company. By applying porter's five forces model it
will evaluate competitive forces of a given market sector. This report will also apply the range of
theories and concepts to evaluate the strategic planning.
TASK1
P1. Analyses the impact and influence of macro environment on L'Oreal and its strategies.
When an organisation is involved in any business, than it is not doing business alone
because the company is surrounded by various operations. The PESTLE analyses is the
framework or model which is used to scan the organisations external or macro environment. This
analyses of political, economic, social, technology, legal and environment factors is cost
effective, provides thorough understanding of business, forecasts about the upcoming threat and
explores various opportunities for the business. This helps in identifying significant changes that
takes place in the company due to the external forces (Baker, 2014). This is very useful to
conduct this analyses before starting any business as this can affect the company. Following is
the analyses of PESTLE factors in L'Oreal and they are discussed below:
Political: Every business has a certain limitation or restrictions through political factors
of the country. This involves laws, government agencies, political stability, taxation, etc. which
influences and impact the organisations and people working over there. Therefore, decision of
business strategies are strongly affected by the development in the political factors. In L'Oreal, it
includes the rules and regulations of the government in which the company works.
Economic: These are the factors that leaves impact on the growth and development of
the economy. It includes inflation deflation and other elements. L'Oreal is a part of beauty and
cosmetic industry which immune the economic downturn. Fluctuation in inflation or deflation
rates direct leaves impact upon purchasing power of the customers. When it increases then price
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of the product get increased and buying capacity of the customers get decreased which affects
L'Oreal negatively.
(Source: PESTLE Analysis, 2017)
Social: Taste, age, preferences, education level etc. are the part of social factors and to
achieve huge success organisations are required to offer such products to the customers that
matches to these elements. Now a days customers in UK are becoming conscious regarding the
formulation of product. For L'Oreal it is very important to follow the culture of UK and other
countries where it is operating its business so that their values, attitudes and beliefs can be
focused while delivering beauty and cosmetic products. Currently modern standard of living is
resulting in improvements in education level and it makes people to focus on image, appearance
and quality of products. If L'Oreal is not able to deliver good quality products then it will reduce
its market share, profitability and sales (PESTLE Analysis, 2017).
Technological: Emerging technology, innovation, research etc. are considered as the part
of such factors that affect businesses in both the manners whether it is positive or negative.
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Illustration 1: PESTLE Analysis, 2017

L'Oreal has embraced the technological initiations in may ways such as alignment with digital
innovation which helps it to meet expectations of the customers. The organisation also focuses
on research and technological modifications so that competitive edge can be derived. It helps it
to maintain leadership position in the market. If these are not focused by the organisation then it
can negatively affect it by reducing interest of customers in the products offered by L'Oreal.
Legal: All the legal rules, regulations and legislations that are imposed by the
government are considered as the part of such factors. As cosmetic and beauty product industry
helps to grow the economy of UK. Legal parities in UK supports such businesses that may help
to develop the territory faster. It is a good opportunity for L'Oreal because it can operate its
business without any interference of government. On the other hand regulatory bodies also
leaves pressure on sustainable supply chains of the organisation but it will result negatively only
if the company is not able to fulfil legal requirements (Bozkurt, Kalkan and Arman, 2014).
Environmental: Such type of factors encompasses different environment safety laws that
are imposed by the government. It is very important for the organisations like L'Oreal to follow
all the rules so that business can be operated successfully. Now a days legal parties are trying to
make the world pollution free and beautiful. L'Oreal is also playing a vital role in such type of
campaigns by supporting them. It focuses on environmental and sustainability governance
initiatives. Awareness of climate change is very important for beauty and cosmetic industry, if
L'Oreal is not aware of it then it may leave negative impacts on the organisation.
TASK 2
P2 Analysis of internal environment and capabilities of a given organisation
Internal environment: There are various types of factors that are focused by managers
and other members of the organisation for the purpose of identifying strong and weak points of
the company. These are employees, their behaviour, management, corporate culture etc. In
L'Oreal managers use SWOT analysis in order to assess internal environment.
SWOT analysis: There are four different types of elements that are analysed u8nder this
model these are strengths, weaknesses, opportunities and threats. It helps the management to for
strategic decision so that all the issues that are affecting organisation can be resolved (SWOT
analysis, 2019). For L'Oreal all the components of this model are described below:
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(Source: SWOT analysis, 2019)
Strengths Weaknesses
 L'Oreal is one of the largest beauty and
cosmetic company that helps it to be
competitive in the market place.
 Quality of the products that are offered
by L'Oreal is very good which helps it
to attract large number of customers.
 Profit margin on L'Oreal is very low
because higher investments are made
by the organisation in research and
development programs.
 The organisation faces difficulties in
control because there are various
subdivisions in L'Oreal.
Opportunities Threats
 L'Oreal can expand its product mix and
launching a new can help to capture
more market share (Williams, 2014).
 L'Oreal can offer home salon services
to the customer sin future to reach large
number of clients and satisfy them.
 In cosmetic industry there are end
number competitors of L'Oreal who are
willing to acquire market share of the
company.
 Continuous changes in demand and
preferences of customers can affect the
profitability of the company.
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Illustration 2: SWOT analysis, 2019

VRIO Analysis: It is a internal analysis tool which is used by organizations. It allows
organization to evaluate resources which will aid them to gain competitive edge. This framework
also assist organization to build strategies and implement them to attain desired goals. It stands
for value, rareness, inimitability and organization. Loreal has opted for this framework as it helps
them to evaluate their resources. It is opted by Loreal when they access their strategic planning
process. In this perspective different questions are answered. They are mentioned below:
Valuable: In this aspect, Loreal addresses the question: how expensive resources are and they
are easily attainable or not. This make sure that there resources are valuable or not. Resources are
considered as valuable if they are able to enhance effectiveness and efficiency of organisation by
accomplishment of opportunities. Resources are products and employees of Loreal. If resources
which are acquired by Loreal are not valuable then they will not have any kind of asset.
Rare: In this, question which is addressed is: how scarce resources are. Resources which
are possessed by organisation are considered as rare, only when they are acquired by few
companies. When Loreal have both valuable and rare resources then they have competitive edge
within market.
Inimitable: This addresses how hard it is to imitate resources. There is no surety that
firm will gain long-term advantage if they have both rare and valuable resources. Resources
cannot be easily imitated and it will be costly. For this competitors of Loreal have tried to
provide duplicate products or comparable products. But Loreal possess resources which are
valuable, rare and non-imitable then they have high sustainability within market.
Organisation: Resources which are present within organisation are effectively organised
or not. This is the question which is addressed in this section. Resources do not provide any kind
of assets by themselves if organisation is not organised. Therefore, it is essential for Loreal to
coordinate and assemble their resources in effective manner. Organisation is considered in terms
of compensation policies, control systems, budgeting system and strategic planning. It will be
difficult for Loreal to sustain within market if they are not able possess, implement and monitor
those resources which can act valuable, rare and non-imitable to them.
VRIO framework is used by Loreal in different departments and within complete
organisation to have a view of their position within market. It is necessary for them to review
their framework on regular basis as with time technologies, capabilities alter.
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TASK 3
P3 Application of porter's five forces model
Five force model was created by Harvard business school's professor Michael porter, in
order to examine industry attractions in comparison with the profits. Porter acknowledged that
companies tent to keep a close eye on their challenger and suggested that they will pay equal
importance to other industry factors as well. Porter five force model helps to evaluate five
different factors that determines industry competition (Charles Jr, Schmidheiny and Watts,
2017). These factors determine an industry structure and helps to determine the level of
competition existing in the industry among different companies. It exists with the intensity of
following rivalry, threat of new entry, bargaining power of supplier, bargaining power of
customer and threat of substitute which can be studied under the following analysis. Porter's five
force model for L'Oreal is as follows:
 Industry rivalry: The intensity of rivalry among competition refers to level of
competition among the existing firm and due to which the pressure they put on each other
in order to limit the profit potential of each other . There are various competitors for
example Avon and proctor and gamble that are giving direct competition to L'Oreal in the
current business of cosmetic and skin care products (PONIATOWSKA-JAKSCH and
Pakulska, 2015). L'Oreal needs to keep on upgrading its quality of product line in order to
intensify it's product line in to order to guarantee survival of the company in the
competitive market. Therefore rivalry among competitors is high in the market.
 Threat of new entry: This factor determines how easy is it to enter a particular industry.
It is considered as low because the market already consists with strong companies like
olay and avan that have already created a strong level of competition in the market. It is
very obvious that there will be no serious threat or may be a little threat from any
beginner entering the business. L'Oreal does not appear to have such enormous threat
from potential entrant entering the market (Jayaram, Choon Tan and Laosirihongthong,
2014).
 Threat of substitute: It refers to produce in other industries. That means If there is a
price change in a substitute product or introduction of new but similar product it will
effect other companies products in the industry as well. Skin care and beauty product
industry have a larger number of substitute available in the market. Therefore it is hard to
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compete with such a reputed brand unless there is new upgrade in technology that
promises to provide lasting skin improvement. In the current market ageing is the reason
for the immense development of the the skin care industry. L'Oreal has already
registered itself as a leader in cosmetic and beauty products. It does not seem to be
distressed by any potential substitute and there is less substitution in the anti-ageing
products so, the competition in the market is low for L'Oreal.
 Bargaining power of supplier: Suppliers are the factors responsible for the supply of
material and other products in the industry. L'Oreal is one the leading company in the
industry it's production exceeds 45 billion units per year, and suppliers also have a feeling
of prestige to be associated with a brand like organisation that have such a great
reputation in the market. The suppliers have few possibility to bargain with the company.
Therefore L'Oreal does not have to face too many threat from its suppliers (Paulus-
Rohmer, Schatton and Bauernhansl, 2016).
 Bargaining power of customers: There are enormous and powerful competitor in the
industry like proctor and gamble, shiseido and avon which results in higher bargaining
power of customers. Due to increased availability and competition in this industry buyers
tent to have a high level of power. They are not in the position to influence the prices of
the product. This forces companies to adopt new marketing strategies in order to maintain
long term profitability and healthy relationship with the customers in the market.
Companies also needs to change their current strategy for example reducing prices in
order to stop customers from switching to another brand. Generally the power lies with
customer but due to many companies supplying similar products customer have choice to
choose among them. Therefore switching cost is low (Lueg, 2015).
All the above described forces are used to determine competition in the industry and form
appropriate strategies so that competitive advantage can be acquired.
TASK 4
P4 Application of range of theories, concepts and models
There are various types of theories and models that can be used by organisations such as
L'Oreal for the purpose of strategic planning. One of them is Ansoff's Growth Vector Model that
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includes different types of strategies for development and business expansion. A detailed
analysis of this model is as follows:
Ansoff's Growth Vector Model: It is also known as Ansoff Matrix which was
introduced by Igor Ansoff. It is a strategic planning tool that guides executives and managers to
take appropriate decision for the betterment of the organisation. It includes four different types of
strategies (Ansoff Growth Vector Model, 2018). For L'Oreal all of them are as follows:
 Market penetration: According to this strategy businesses can acquire growth by selling
its existing products in its current market place. L'Oreal can use this option as it has no
risk and it will not result in cost of market research and promotions. The main objective
of this alternative is to increase number of customers so that profits can be enhanced. It
helps to find new clients in existing marketplace and then sale current products to them.
 Product development: In this strategy the organisations tries to launch new product in
existing market in order to attain growth and development (Laguna and Marklund, 2018).
L'Oreal can use this option by launching new products in its existing market to retain its
customers and find new clients in its current marketplace. If this strategy is selected by
the company then different types of expenses such as research, development, acquisition
of rights etc. are faced by the business as new products requires all of them. It is less
risky for the organisation because at this stage there are various brand loyal customers
who are going to buy the product whether it is costly or not.
 Market development: In this strategy an organisation introduce its existing products in
the new market for the purpose of growth (Julien, 2018). It requires higher promotions to
aware customers regarding the products. L'Oreal can use this option as it helps to capture
large market share. The cost of launching existing items in new market is very high as it
requires proper market research, high promotions etc. Higher risk is involved in this
alternative because it cannot be assured that the new customers will adapt the products
and the items are able to fulfil their needs and demands.
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(Source: Ansoff Growth Vector Model, 2017)
 Diversification: It is last strategy of this matrix in which entities can launch a fresh
product or service in a new market place. L'Oreal can adopt this strategy because it helps
to expand business in more locations and grow it faster (Joyce and Paquin, 2016). Higher
level of risk is involved in this option because it is very difficult to introduce completely
fresh items in a new marketplace. It requires research and development, promotions,
market analysis, huge production etc.
Recommendation: From all the above described strategies the best suitable strategy for
L'Oreal is product development in which new products can be launched in existing market. This
option is suggested to the company because it is less risky and future conditions can be estimated
in this option. The business enterprise can launch baby products in its existing marketplace in
order to acquire growth in the market. It can help to develop the business and also lead towards
success.
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Illustration 3: Ansoff Growth Vector Model, 2017

CONCLUSION
From the above project report it has been concluded that business strategy is used by
most of the organisations to formulate vision, mission and strategic objectives for the purpose of
acquiring growth in future. There are various types of theories, models and strategies are used by
the companies in order to analyse competitive market, industry rivalry, internal and external
environment. These are porter's five force model, Ansoff Matrix, PESTLE and SWOT analysis.
All of them can guide the managers to form strategic decisions for the betterment of enterprise. It
also helps to identify growth opportunities in existing or a new marketplace.
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REFERENCES
Books and Journals:
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Jayaram, J., Choon Tan, K. and Laosirihongthong, T., 2014. The contingency role of business
strategy on the relationship between operations practices and performance.
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Joyce, A. and Paquin, R. L., 2016. The triple layered business model canvas: A tool to design
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Julien, P. A., 2018. The state of the art in small business and entrepreneurship. Routledge.
Laguna, M. and Marklund, J., 2018. Business process modeling, simulation and design.
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Journal of Business Strategy. 36(2). pp.34-40.
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models in the age of digitization-How the manufacturing industry is going to change its
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Williams, D. S., 2014. Connected CRM: implementing a data-driven, customer-centric business
strategy. John Wiley & Sons.
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PESTLE Analysis. 2017. [Online]. Available through:
<http://www.mindmapsoft.com/pestle-analysis-mindmap/>
SWOT analysis. 2019. [Online]. Available through:
<https://research-methodology.net/theory/strategy/swot-analysis/>
Ansoff Growth Vector Model. 2018. [Online]. Available through:
<https://www.smartinsights.com/marketing-planning/create-a-marketing-plan/ansoff-
model/>
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