L'Oreal's Strategic Analysis: A Comprehensive Market Report

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L’Oreal Strategy Report
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Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
LO 1 Analyze the impact and influence which the macro environment has on an organization
and its business strategies. (M1)..................................................................................................4
LO2 Assess an organization’s internal environment and capabilities. (M2)...............................6
Porter's Five Forces to analyze the external environment for L'Oreal........................................8
Task 2.............................................................................................................................................11
LO3 Evaluate and apply the outcomes of an analysis using Porter’s Five Forces model to a
given market sector. (M3)..........................................................................................................11
LO4 Apply models, theories and concepts to assist with the understanding and interpretation
of strategic directions available to an organization...................................................................17
Conclusion:....................................................................................................................................19
References:....................................................................................................................................20
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Introduction
L’Oreal is a French-based personal care manufacturing whose headquarters in Clichy. It is the
largest company dealing with cosmetics. The mission statement of the L'Oreal is to believe that
everyone aims to aspire beauty. The company believes that its mission is to help women and men
to realize what they aspire and to express their personalities to the fullest. This will give life to
the employees of the company and provide value and meaning to the business. The L’Oreal’s
vision statement represents a slogan i.e. “because I’ am worth it”. The vision is to capture a
large market area by ensuring better performance. The strategy used is Universalization. This
means globalization which understands, captures, and respects the differences in needs, wants,
traditions, and desires. The objective is to make the company perfect in relation to production,
sustainable innovation, consumption, and growth by the year 2020.
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Task 1
LO 1 Analyze the impact and influence which the macro environment has on an
organization and its business strategies. (M1)
There are various factors which affect the operations of the business of L’Oreal and its
performance. The PESTLE analysis will help in determining the factors which may affect and
influence the company and its business strategies.
Political factors are the policies and regulations imposed by the government which L’Oreal
shall follow while operating its business. The political factors have affected positively in the
business performance of the L’Oreal. L'Oreal is a Paris based company hence the policies
formed and imposed by the government of France will affect the operations of the company is
large.
Social factors analyse the changing trends available in society. It includes the innovations for
which the society is eagerly waiting to adopt. It faces various ethical issues while performing
business operations such as while producing the products it makes use of ingredients. All the
social preferences and trends and ethical issues play a vital role in the success or failure of the
business of the company (Ismail, 2018).
Economic factors comprise of exchange rates. The time of recession was when the company up
brought the cosmetic business. GDP is another economic factor which contributes to the business
with branded products. Not only has this, but the pricing of the products also affected business
strategies. The pricing differs depending on the region. The state which is developed and
possesses high Index of Human Development buys more branded products.
Technological factors such as trust and innovation play a vital role. These factors help in
providing innovative products to society and become a key to success for the company.
Technology has several consequences in every stage of life. Fr L’Oreal, the technological
attributes are creativity, innovation, and trust. Technology helps in creating innovative products
which help in increasing sales and profits of the company.
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Environmental factors are those which protects and keep the environment safe and secure.
L’Oreal is campaigning in order to support and make the planet pollution free and hence
beautiful. L’Oreal is an international brand and is important to analyze all the internal as well as
external factors which may affect the business of the organization.
There are various legal factors which company must abide with in order to build trust and loyalty
of the customers. L’Oreal should comply with all the Legal factors and fulfil all the legal
formalities of the state in which it is operating its business. L’Oreal is the well known branded
company which should focus on all the legal stuff. It is important to perform the business
operations according to binding rules, regulations, and policies imposed by the government of
the country (Haseeb, 2017).
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LO2 Assess an organization’s internal environment and capabilities. (M2)
The SWOT analysis helps in determining the strengths, weaknesses, threats, and opportunities
related to the company. Below is the SWOT analysis of L'Oreal.
Strengths include:
Largest Cosmetics Company: The biggest strength of L’Oreal is that it is the largest branded
cosmetics company which provides beauty products.
Continuous research and development: It conducts continuous R&D in order to provide safe
products to its customers.
Higher quality products: The brand image is created if the customer purchases the products of
a particular brand again and again because the brand provides high-quality products.
Strong communication channels: L’Oreal has strong marketing communication which helps in
building contacts and trust among the customers which will help in retaining customers and
increasing revenues.
Distribution channels: L’Oreal has widespread distribution as the brand sells its products in 130
countries. This leads to sharing of expenditures and economies of scale.
A high rating in the brand portfolio: L’Oreal Paris, Garnier, and Maybelline are three stars in
the brand portfolio of the L’Oreal. These brands help in the survival of other brands. From these
profits, L’Oreal invests and grows its brand and products.
Weaknesses include:
Fewer profit margins: There are fewer profit margins as L’Oreal make high investments in the
process of R&D, high expenses in distribution channels, making marketing strategies, etc.
A higher number of sub-divisions: It has heavy human expenditure and is bulky in nature.
Because of various subdivisions, the process is slow and causes various issues and problems.
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The hair care is not a much-growing segment: In the segment of hair care, Garnier is the
product which faces higher competition from both P&G and HUL. Head & Shoulders is the
product of P&G and Sunsilk is the product of HUL. Both of these products have a strong brand
image in the hair care segment in the market (Ashraf, et. al., 2015).
Threats include:
Cash Crunch: The cash is divided into various different segments. There is always certain
economic issues in the country which makes cash inflow stop which can cause an issue of cash
flow and management of working capital.
Dynamic nature: continuously updated products can be a threat to the company. Competitors
always aim to provide something new and unique to their customer which becomes difficult at
times.
Opportunities include:
Increased demands for organic products: After PETA and other activists on animal rights are
increasing, people are demanding more of cosmetics produced through organic products.
Expansion of product mix: Product mix expansion is done when the product lines are being
expanded and new products are being introduced in the product mix.
Market potential: Exploring new marketing and selling products in new market segments will
increase sales than selling products in the same market (Bhasin, 2018).
VRIO Analysis of L’Oreal will help in determining how to gain a competitive advantage by the
company.
Value: The value helps in reducing the distribution costs. It has access to all the resources for the
successful execution and production of products. L’Oreal produces innovative products which
attract talent from both local and global markets. It has brand awareness and maintains the record
of the leadership team. It has a higher positioning of the brand in comparison to the competitors
and has a flexible chain of supply. The company possesses talented and skilled people to manage
all the legal and regulatory obligations associated. L’Oreal is valuable in terms of consumer
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preferences and in the industry in various market segmentation. The IPRs are also valuable
especially when it comes to competition.
Rare: The access to resources or raw materials is less as an increased number of competitors. It
does not align its activities with the corporate strategy. It has no strategies formed for pricing. It
has a high degree of talent in relation to the growth of the company. It also tracks records of
leadership teams. L’Oreal Paris is one of the leading International branded companies in the
world. The company is capable to build contacts and relations with its customers to increase their
level of trust and loyalty towards the products of the company. The network of the supply chain
is flexible. The IPRs are rare and cannot be copied by the competitors (Bekkum, 2018).
Imitation: The access of raw materials can be imitated by the available competitors in the same
industry. And it is difficult to imitate the dedication of the customer community and their culture.
In the case of Intellectual Property Rights, the imitation risk is low but the chances of industry
disruption margins are quite high. Competitors can imitate the talented and skilled employees
who have the capability to manage all the obligations related to the legal and regulatory
framework. The competitors have a supply chain which is flexible and can share suppliers. This
requires a high budget for marketing and can also be imitated by competitors.
Organization: L’Oreal has a sustainable position in terms of finance. It has utilized its brand
position in different segments. The company is customer oriented and aims to increase its
customer base by providing products of their choice and of high quality. It retains the talent who
can manage the legal obligations as associated with the company so as to achieve desired goals
and objectives and increase profitability. The L’Oreal has not utilized its Intellectual Property
rights and other rights to the full extent. It has access to the raw materials so that it becomes easy
and convenient to produce products of customers' taste, preference, needs, choice, desires, and
requirements (Grisso, 2018).
Porter's Five Forces to analyze the external environment for L'Oreal
The five forces of Porter are used to determine the various kinds of rewards and risks associated
with the company. The five forces are the bargaining power of the suppliers, the bargaining
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power of the customers, the threat of new competitors, existing rivalries, and the threat of
substitute products.
1) Bargaining Power of Suppliers: Suppliers are those who provide a supply of various raw
materials and supply of other products into the different industries depending on the nature of
supplies. The bargaining power is in the hands of the suppliers’ means they have the power to
charge for the raw materials according to their choice and the company will have to pay for it as
per the demand. If the number of suppliers is few and companies are more than the suppliers'
have high bargaining power range and if the market has numerous suppliers available than the
company gets the advantage. L’Oreal has various numbers of suppliers available who produce
the products. Hence, the bargaining power of suppliers is low.
2) Bargaining Power of Customers: If there are various competitors in the same industry the
bargaining power is high for customers. When the prices of the products are high and buyers are
still ready to buy the product, it happens when the buyers do not care much about the price. The
inelastic demand has a positive impact on the L’Oreal Paris. When there are few companies but a
large number of customers, the bargaining power comes in the hand of the company.
3) Existing Rivalry: The policies, practices, and regulations imposed by the government of the
country can decide the competition level in the same industry which can create a negative impact
on the L’Oreal. The competitors available in the same industry in the marketplace are the
existing rivalries of the L’Oreal. The pricing strategy, innovative products, etc. of the
competitors are the factors which can create problems for the L'Oreal. L’Oreal can gain a
competitive advantage by making better policies.
4) The threat of New Competitors: The new entrants are always a threat to the existing ones.
L'Oreal is a branded company with a high customer base. But new entrants can come with better
quality, marketing and pricing strategy which can be a threat to L’Oreal. The main competitors
of L’Oreal are Revlon, the cover girls, Avon, etc. L’Oreal’s main threat is they provide luxurious
products which can due to an economic downturn be hurt. It can also have an impact on the
distribution system.
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5) The threat of Substitute Products: It occurs when another company in the same industry
produces something which can replace the existing product and can affect its demands. The
threat of substitute product arises when the demand for a particular product gets affected by the
change in the price of a substitute good. L’Oreal uses premium pricing strategy and other
companies can produce substitute products at a price lower than the price charged by the L’Oreal
and this may affect its revenues (Adamkasi, 2017).
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Task 2
LO3 Evaluate and apply the outcomes of an analysis using Porter’s Five Forces model to a
given market sector. (M3)
a) Balanced scorecard analysis is the business analysts which demonstrates the BSC framework's
efficiency and to highlight its strengths and weaknesses. BSC is a performance metric which is
used to provide feedbacks in strategic management and helps in identifying and enhancing
internal functions.
Image: Balanced Scorecard (BSC)
Source: By Author, 2019
The Balanced Scorecard of L’Oreal is as follows:
1) Customer Perspective: scorecard measures customer satisfaction, market share, and
customer retention. L’Oreal maximizes the satisfaction of the customers and increases the
retention rate. L’Oreal is planning to target more market in near future.
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Balanced
Scorecar
d
Customer
Perspective
Financial
Perspective
Internal
Processes
Learning and
Growth

2) Financial Perspective: The scorecard measures net profit, growth in terms of sales revenue,
and return on capital employed. L’Oreal aims to maximize its returns, and aim to change its
revenues from one financial year to another. It aims to increase its profitable growth.
3) Internal Processes Perspective: The business scorecard measures return on assets, revenue
per employee, and receivable turnover. The return on asset is used to analyze asset utilization by
the company. Receivable turnover is used to maximize debtor management, and revenue per
employee is used to determine the sales amount as generated by employees.
4) Learning and Growth perspective: It is used to measure employee training, employee
turnover, and opportunities available for improvements. L'Oreal aims to provide training to all of
its employees by 2020. It aims to provide several benefits to its employees. And aim to keep its
data updated to databases of customers (Prezi, 2015).
 L’Oreal has various stakeholders which play a vital role in the decision-making process.
The stakeholder analysis is mentioned below:
Internal Stakeholders are the stakeholders who are within the organization and have a share in
the company’s market share or those which affects the decisions on the stakeholders. Internal
stakeholders include employees, research and development, culture, etc.
Employees: Employees are being considered as the vital people of any organization and develop
a loyal relationship with their jobs. The decisions may affect positively or negatively on the
employees of the company.
Research and Development: It is used to produce innovative products and to fulfil the unmet
needs and desires of the customers.
Culture: Strong values also affect the decision-making process.
External stakeholders are those which the outsiders and who affects the decisions of the
company. The external influencers include competitors, government, customers, etc.
Competitors: Procter and Gamble, Hindustan Unilever, Avon, etc. are the competitors of the
L’Oreal and their strategies affect the decision-making of the company.
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