An Analysis of L'Oreal Using SWOT, PESTLE and Porter's Five Forces Model

The assignment involves analyzing L'Oreal using various strategic management models such as SWOT, PESTLE, and Porter's Five Forces Model. It requires the student to identify the company's strengths, weaknesses, opportunities, and threats, as well as its internal and external environment. The student must also apply Porter's Five Forces Model to analyze the competition in L'Oreal's industry. Additionally, case studies and examples are provided to illustrate the concepts. The assignment aims to provide a comprehensive understanding of strategic management models and their application in real-world business scenarios.

Unit 32

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P1 Presenting framework analysis that influence the macro environment by usinhPESTLE
Analysis..................................................................................................................................1
LO 2.................................................................................................................................................2
P2 Presenting internal environment by using SWOT analysis...............................................2
M1 & M2................................................................................................................................4
LO 3.................................................................................................................................................7
P3 Presenting Porter 5 force analysis to evaluate the competitive advantages......................7
M3...........................................................................................................................................9
LO 4...............................................................................................................................................10
P4 Applying the range of theories and concept for strategic planning ................................10
M4 & D1 ..............................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Business strategy is the set of plan which is used by a management to secure the
competitive position in the market. The present report is based upon the study of L'Oreal which
is one of the leading company who provides a range of skin accessories. Report presents the
internal and external factor that affect the environment by using swot, VRIN and pestle analysis,
further it also apply porter five force model in order to evaluate the competitive forces. By using
Ansoff growth vector matrix, report will further analyse the strategic direction and then provide
a strategic plan as well.
Vision: The quoted firm uses the motto “because I am worth it” in order to represent their
vision.
Mission: L'Oreal wants to provide men and women the best kind of cosmetics products
with better quality and also wants to satisfy their needs as well.
Objectives: To increase the sales of a business up to 20% in coming 2 years.
Strategy: An quoted firm chooses unique strategy under which it provides products to all
peoples.
LO 1
P1 Presenting framework analysis that influence the macro environment by usinhPESTLE
Analysis
Political factor: It includes rule and policies of the government in which a firm is
working. The L'Oreal manufacturing company is in Paris, therefore France government directly
affect the company the most. Apart from this, there are several import policies which also affect
the success of L'Oreal (Hammad, 2015). Moreover, customers increasingly conscious values and
some political association also affect the brand image as well.
For example, change in tax rate creates negative impact upon the business such that as the tax
rates are increases then it affect the purchasing power of the customers in negative way.
Economical factor: It includes an exchange rates, inflation and recession which affect
the business in a negative way. It is quite necessary for the firm to have stable economy of the
country. Apart from this, the prices of the products are also varies from region to region. It is
also analysed that beauty and cosmetic industry are immune to economic downturn and
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For example, when there is inflation, the prices of the products goes high and customers do not
spend their money upon the L'Oreal products, these cause negative impact upon the firm.
Social Factor: It has been analysed that modern societies are more interested in fashion
trends and they also have a sense of the latest technology and they always adopt the innovation
that is adopted by the firm (Policy, 2016).
For example, Due to some ethical issues as well regrading the use of ingredients, and these
ethical and social issues affect the image of L'Oreal in a negative way and creates negative
impression upon the customers as well.
Technological factor:The quoted firm is very much prone regarding innovation and they
always adopt new techniques that aid a business to run smoothly. It is also necessary to keep
comply with all latest technology, so that it will help to keep forcing customers to purchase
trendy products.
For example, L'Oreal is also produces innovate products by using the advance technology and it
will helps to creates positive impact upon the company.
Legal Factor: it is quite necessary for the firm to comply with all the laws that is made
by the government in order to sustain its brand image in market. These laws are he federal food,
Drug and Cosmetic Act (FD&C act) and Fair packaging and Labelling Act (FPLA). If the q
For example, the quoted firm follows employment law, Health and Safety law, then it will not
cause any harm to its reputation as well.
Environmental factor: it encompasses different global environment safety laws that
should also abide by global standards (Khan, Alam and Alam, 2015). To make the planet
beautiful and pollution free, L'Oreal is also plays its part by supporting many campaigns. This
shows that the cited firm also have its positive role to support the environment of the company.
For example, L'Oreal is also plays its part by supporting many campaigns to make planet more
beautiful. This shows that the cited firm also have its positive role to support the environment of
the company.
LO 2
P2 Presenting internal environment by using SWOT analysis
To determine the internal capabilities of the firm, it is necessary to SWOT analysis and
this is as mentioned below:
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Strength Weaknesses
 Currently, the company have more than
2200 retail store at global level.
 The firm also have strong research and
development ideas that support to
sustain its financial position.
 It offers more than 500 brands at global
level.
 The company also provide high quality
of the products with the variety of
products (SWOT analysis of L'Oreal,
2019).
 It has universalisation as a development
strategy.
 It has a brand image at global level
with high customer base.
 The company have more than 60000
employees as its global presence shows
that it requires high employees.
 The company also move to organic
products which none of its rivals are
faces.
 The firm also have endless research
such that its research and development
department continuously innovate new
things to fulfil the demand of their
customers.
 In past many years, the company drop
down its sales and it also has lack of
skill in an advertisement.
 The company also did not have its
online application for purchase
products.
 L'Oreal has a lack of skill to promote its
products for kids.
 L'Oreal have slow divisions such that
having a global presence leads a
business to slows down the process of
resolving issues.
 There is a stiff competition from the
other cosmetic which are already
established their brand image in market.
Opportunities Threat
 Having high customer base will also
help to create a new product such as
 High competition in the market.
 Sudden changes in cosmetic industry is
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organic products.
 The company can also expand their unit
in more countries through innovative
products.
 L'Oreal also acquire Avon who is
struggling financial.
 Through innovative products, the
company can also acquire high market
share.
 It have greater market share due to
numerous patent which are registered
by the firm itself.
 Having a good research and
development department, the chances
of creating new products are also
raised.
another threat for L'Oreal.
 The firm faces tough competition in
every country that power to drop down
their product prices (Bull and et.al.,
2016).
 it also faces threats because of global
economic crisis and new foreign
competitors are also becoming threat
for the company.
M1 & M2
VRIN Model
To determine the organization capabilities, the Vrin model is useful and this is as
mentioned below:
Value Rareness
 Make up item
 skin care
 haircare
 lipstick
 nail paint
 It's hair products are rarely found in any
other brand having such a high quality.
Imitability Non- Substitutable
 The product of L'Oreal are so unique
such that its products are copied but no
 A products are not substitutable such
that no other resources can be utilized
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other firm can provide the quality of the
product which L'Oreal provides
(Phadermrod, Crowder and Wills,
2019).
as an equivalent.
McKinsey's 7S model
This model helps L'Oreal to review the marketing capabilities from various point of view
and also determine the best strategic align for the company. Its 7S are as follows:
Shared values: L'Oreal main mission is to reach the wide range of customers and
provide the best quality of cosmetic products. Its goal is to keep increasing the company's profit
up to 20% in every year, and this is what the company tries to achieve.
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Illustration 1: McKinsey's 7S model
(Source: McKinsey's 7S model, 2018)

Strategy: For L'Oreal, the business strategy is unique such that it uses, universalisation
strategy and have global presence (Kourdi, 2015).
Structure: The quoted firm also have large number of customers and new technology
that helps to keep coordinates with different department in order to reach with defined goals as
well.
System: This is used by L'Oreal in order to complete the daily activities in perfect
manner. For this, the company complete its process with the help of its team who is working in a
firm and also uses balance scorecard method in order to monitor daily activities.
Staff: The company has its global presence and it also has many employees, in order to
grow and developed them, the firm also provide training sessions so that they raise their
performance and help an organization to maximize their profit.
Style: it is the way under which the firm is actually done things and in the context of
L'Oreal, it set some informal rules that should follow by the organization in order to reach with
defined objectives (Chang, 2016).
Skills: the employees of the company have the skills to produce innovative products that
helps to keep their company's brand image top, and even by analysing the needs of their
customers will also assist their business to maximizes profitability.
LO 3
P3 Presenting Porter 5 force analysis to evaluate the competitive advantages
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This model is used to determine the competitive advantages of the business and also
determine the external factor that affect the business of L'Oreal and these are as mentioned
below:
 Rivalry among the competitive firm (High): The company faces though competition
from the market such that it have a lot of rivals and as the supply is greater than the
demand therefore L'Oreal has to make efforts to provide a good quality enhancements for
each and every production of line. By this only, the firm can easily survive in this
competitive market. Apart from this, it should also enhance their marketing channel with
high technology in order to obtain high market share. In this way, the company can easily
sustain its brand image in the market (Buckley, Burton and Mirza, 2016).
Positive and negative impact: this factor creates positive impact because L'Oreal make
efforts to provide a good quality enhancements for each and every production of line. While on
the other side it also creates negative impact because of low pricing strategy of the its rivals
creates negative impact upon the firm.
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Illustration 2: Porter 5 force analysis
(Source: Porter 5 force analysis, 2018)

 Threat of new Entrants (low): L'Oreal faces low a threat of new entrant because there is
already an enough competition in the market and if a new company wants to enter into
market, then it requires a lot of investment and there is no chance that the business will
succeed. This shows that L'Oreal does not appear to have such a high risk from any of the
potential market.
Positive and negative impact:This factor creates positive impact because if a new
company wants to enter into market, then it requires a lot of investment and there is no chance
that the business will succeed. While on the other side it also creates negative impact if there is
no company entered into a market then it L'Oreal has to make strategy to keep fulfilling the
demand of their customers.
 Threat of substitute (low): As L'Oreal basically deals with anti-ageing products and
there is no substitution of its products, this clearly shows that the quoted company faces a
low threat of substitution. The firm is also a leader of beauty and cosmetic industry and it
even did not disturb by any of the potential substitute who come in a market. Even the
customers also have low switching cost because no other brand is offer the high quality
of a cosmetic product which L'Oreal provides.
Positive and negative impact: This factor creates positive impact because as The firm is
also a leader of beauty and cosmetic industry and it even did not disturb by any of the potential
substitute who come in a market. The factor also creates negative impact because the customers
may also switch to other company if they offered low price products.
 Bargaining power of Buyers (High): Due to increase competition and availability of
products, for L'Oreal, the customers have high buying power and here is no position that
may influence the prices of products. As the quoted firm provides the best quality of
products to their customers, and that is why it has the high bargaining power of their
customers (Chang, 2016). Apart from this, the firm also offer a variety of products to
their customers, therefore the customer has different choices that shows that L'Oreal did
not have a threat of lack of customers.
Positive and negative impact: This factor creates positive impact because Due to
increase competition and availability of products, for L'Oreal, the customers have high buying
power and here is no position that may influence the prices of products. On the other side it is
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critically evaluated that firm also offer a variety of products to their customers, therefore the
customer has different choices that shows that L'Oreal did not have a threat of lack of customers.
 Bargaining power of Suppliers (Low): In this industry, there are a variety of suppliers
and this shows that there is a low differentiation of inputs. As the quoted firm also have
its global presence and having a large quantity of suppliers, they do not have an ability to
bargain with L'Oreal.
Positive and negative impact: This factor creates positive impact because there are a
variety of suppliers and this shows that there is a low differentiation of inputs. But it has been
critically evaluated that if the suppliers are finished then the products are not delivered at
different countries.
M3
Balance scorecard
From the above, it has been analysed that the company has high customer base and to
align with organization vision, the company also uses balance scorecard which is a performance
management tool that helps to keep track the execution of all the activities and to monitor the
reasons which are arising from the action. The balance scorecard analysis for L'Oreal is as
follows:
Objectives Measurement Initiatives
Operating cost and efficiency Cost and unit efficiency Through a monthly monitoring
Quality of the products Cycle time Through daily monitoring
Continuous improvement in
products
Kaizen Monthly monitoring
High customer satisfaction Market feedback Weekly monitoring
Stakeholder analysis
It is the technique which is used for stakeholder identification and analysing the needs. Its
main aim is to develop the strategic view and relationship between different stakeholders. In the
context of L'Oreal, its stakeholders are customers, employees and its representatives, and these
also creates a positive impact upon the stakeholder as well. It has been analysed that proper
communication between the stakeholder will only creates positive impact upon the business
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profitability and it further enables the effective risk identification and response for planning
(Buckley, Burton and Mirza, 2016).
In the context of L'Oreal, the stakeholder have to make effective planning regarding the
products so that it gives an opportunity to an every individuals or group so that they can express
their ideas and concern. For instance, if the customer have any issue regarding the products of
L'Oreal, then they can ask to the employees in order to resolve their queries. Apart from this, if
the employee even do not have any solution, then they can contact with the managers or
representative in order to provide proper solution.
LO 4
P4 Applying the range of theories and concept for strategic planning
Ansoff growth vector matrix: To determine the strategic direction, it is necessary to
apply Ansoff growth vector matrix, and this is as mentioned below:
Market Penetration: It is one of the common used strategy that is applied by every
organization because in this strategy, the organization tries to grow its business through offering
existing services in the current market only. This helps to increase the market share and also
helps to attract some new customers so that the sales of the company will increase (Gurcaylilar-
Yenidogan and Aksoy, 2018). This can be done only when L'Oreal decreases the prices and
increases its promotion and distribution support.
Product Development: This strategy is applicable when the quoted firm can offer a new
product in an existing market. As the firm also have strong research and development, then by
making investment in research and can acquire Avon, the firm can also opt this strategy in order
to grow its current business in an existing market.
Market development: Under this strategy, the firm can expand the business with their
current existing offering in a new market. Though it may be risky, but as L'Oreal have a unique
product technology so it can easily leverage in new market and maximizes the sales as well.
Even the firm also has a large customer base which further help to make this strategy successful
in market (Dawes, 2018).
Diversification: It is considered one of the most risky strategy because an organisation
wants to enter into new market with a new products and this required both the product and
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market development. Therefore, most of the firm did not opt this strategy and sometimes, this
may also leads to be unsuccessful and down the market share as well.
Porter Generic Strategy
From the above, L'Oreal will choose product development strategy in which it offers
organic products in their existing market. It is also analysed through research, that it is the
demand of their customers to use natural ingredients instead of chemical because they are more
conscious regarding their skin and if the quoted firm will offer organic skin products then the
chances of profitability will increase. For this reason, and to gain high competitive advantages,
L'Oreal will also use Porter Generic strategy, which comprises three strategies for product
development strategy, and these are as follows:
 Cost leadership: Under this strategy, L'Oreal will offer the products with low rates at an
initial stage because it has been analysed that by offering the products at low rates will
help to reach the large mass of a group (Verhoeven and Johnson, 2017). Apart from this,
L'Oreal provide organic products are the demand of their customers and to meet their
demand, firm should offer the product with low rates.
 Differentiation: this strategy is appropriate when the target customers are not price
sensitive, then the market is sensitive. In the context of L'Oreal, the firm also offer the
unique products and it is quite difficult for any brand to copied. Offering organic product
is another unique concept that helps a firm to maximizes their profitability.
 Focused: By focusing on the marketing efforts, the business can easily reach with a large
mass of group (Murdock, 2017). As a focused strategy should target the market segments
which is less vulnerable to substitute and L'Oreal also keep providing new product
concept in order to meet out the demands of their customers.
An Extended Bowmen strategic clock: The model helps to explore the options for a
strategic positioning such that how the product can be positioned in order to provide the most
competitive position in a market. In the context of L'Oreal, this further describe as follows:
Low price and low added value: In the first position, the products which are offered to
their customers should be at low price and company may earn a low profit margin because this is
the strategy that is followed to sustain in the competitive market.
Low price: At this stage, the company is offer the large quantity of products with low
rates. In the context of L'Oreal it also offer a wide range of products but the cost are also high so
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that it leads to low profit margin on some products. It has been analysed that the high volume of
output helps to generate high profit.
Hybrid: it is a very effective stage only if the added value is consistently. As L'Oreal
also offer differentiation product and some of them are offer at low price. Because of unique
products , the customers are keep attracting towards a product and helps to increase the sales as
well.
Differentiation: in this stage, branding plays an important role such that under this
strategy, quoted firm can offer the highest level of perceived added value (Vitasek, 2016). Such
that high quality of products and strong brand awareness helps to keep attracting customers
towards L'Oreal.
Focused differentiation: in this stage, L'Oreal may position a product at the highest
level so that the customers buy the product due to high sensed value. This stage helps to generate
high profit margin and the brand image will also sustain for the long term as well.
Risky high margins: This is considered one of the most risky strategy because firm
charge high prices of the product of which the customer's detected value is inferior. There is high
chances of falling down a business when the firm use this stage and as a result, customers are
also found another brand who offer the same product with high quality.
Monopoly pricing: In this, the strength of the company is high when they position
themselves as a monopoly in a market, so that firm have less threat of competition and even
customers have to purchase the product from them because of a monopoly (Abalkhail, 2019).
Loss of market share: In this stage, the company is not able to offer the products
because of too high prices and now customers are stay away and find better alternative option as
well.
M4 & D1
Strategic plan
Strategic plan is the set of activities which helps to communicate with an organization
that also specify the goals which needs to be achieved during a planning. The current strategic
plan is based upon L'Oreal and this is as mentioned below:
Executive summary: The strategic plan is based upon L'Oreal which is one of the
leading firm who offers a variety of skin care products at different region. The company wants to
raise its sales and offer new product, therefore the strategic plan includes segmentation, targeting
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and positioning with different tactics applied by a business. Further it also shows the risk which
is involved while developing the strategic plan for a firm.
Aim: to increase the profit of the company up to 15% in next 2 years.
Objectives:
 To raise the company's sale.
 To expand the business and penetrate globally.
 To make planning in order to develop their strategic plan for the future.
Segmentation Targeting Positioning
 The company offers a
variety of products to
men and women. Such
that it segments its
product on the basis of
demographic in which
it chooses gender
segmentation.
 The target people of
the company are
women and men whose
age is above 27
(Saputra, Haryono and
Untoro, 2019).
 Apart from this, they
also start targeting the
girls of young age
because they mostly
use L'Oreal products as
compared to women.
 As the company also
hire top celebrities in
order to realise women
that the firm is not only
offer shampoo but one
that made a woman
more beautiful.
 To raise the middle
class, the company also
position itself top in
order to capture the
loyalty of new
customers.
Risk involved: to develop a new plan, there are many risks which affect the brand image
in the market. One of the most important risk is financial risk such that when L'Oreal invest into
a new product and if the customers are not accepted it, then it leads to lower down the sales and
profitability. Apart from this, the business also have to open a new store in order to produce the
new product to raise the company's profit and it also requires a lot of investment into it, which is
another risk for the quoted firm.
Tactics: In order to achieve the aim, there are different initiatives which can be taken by
the company and these are as follows:
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 Start offering online products in order to consume time and attract large number of
customers towards it.
 Further, adopt the new and modern promotional tool instead of traditional ones.
 Start providing CRM software training to their employees in order to adopt new
technologies into the working area (Aithal, 2017).
 Start developing new marketing strategies in order to reach a large mass of customers and
offer the product with a low price to gain high competitive advantages in the market.
CONCLUSION
From the above report, it has been concluded that having an effective strategy will be
helpful for the business for its smooth functioning and in the same way, L'Oreal also have its
unique strategy which helps to sustain its brand image in a market. As the report conclude that by
using PESTLE and SWOT, VRIN analysis the company can easily determine its macro and
micro environmental factors that affect the business internally and externally. Apart from this, to
determine the competitive advantages by using Porter 5 force model and through Balance
Scorecard, report concluded how to align organization vision and strategy. Further it is also
concluded that L'Oreal chooses produce development strategy by applying Ansoff growth vector
matrix and further through strategic management plan, the study further concluded that
strategies, objectives and tactics which is used by quoted fir in order to raise its market share and
sales.
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REFERENCES
Books and Journals
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Company Analysis.
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international business. Springer.
Bull, J. W. and et.al., 2016. Strengths, Weaknesses, Opportunities and Threats: A SWOT
analysis of the ecosystem services framework. Ecosystem services. 17. pp.99-111.
Chang, J. F., 2016. Business process management systems: strategy and implementation.
Auerbach Publications.
Dawes, J., 2018. The Ansoff Matrix: A Legendary Tool, But with Two Logical Problems.
Gurcaylilar-Yenidogan, T. and Aksoy, S., 2018. Applying Ansoff’S Growth Strategy Matrix To
Innovation Classification. International Journal of Innovation Management.22(04).
p.1850039.
Hammad, A., 2015. Strategic Change and Its Management to Expand Business Through
Implementation of Models: A Case Study of Boots UK.
Khan, U. A., Alam, M. N. and Alam, S., 2015. A critical analysis of internal and external
environment of L'Oreal . International Journal of Economics, Commerce and
Management.3(6). pp.955-961.
Kourdi, J., 2015. Business Strategy: A guide to effective decision-making. The Economist.
Murdock, A., 2017. Diversification and Growth. In Private Action for Public Purpose (pp. 135-
154). Palgrave Macmillan, London.
Phadermrod, B., Crowder, R. M. and Wills, G. B., 2019. Importance-performance analysis based
SWOT analysis. International Journal of Information Managemen. 44. pp.194-203.
Policy, P., 2016. Pestle analysis.
Saputra, A. R. P., Haryono, T. and Untoro, W., 2019. Green Products Strategy Impact Of
Generic Porter Strategy On Company’s Performance. International Review of
Management and Marketing.9(1). pp.52-61.
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Verhoeven, B. and Johnson, L. W., 2017. Business model innovation portfolio strategy for
growth under product-market configurations. Journal of Business Models.5(1).
Vitasek, K., 2016. Strategic sourcing business models. Strategic Outsourcing: An International
Journal.9(2). pp.126-138.
Online
SWOT analysis of L'Oreal. 2019. [Online]. Available through:<https://pestleanalysis.com/swot-
analysis-of-loreal/>.
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