Business Strategy Report: L'Oreal Paris - Macro & Micro Analysis

This report provides a comprehensive analysis of L'Oreal Paris's business strategy. It begins with an introduction to business strategy and its key components, followed by an examination of L'Oreal's macro environment, utilizing the PESTLE analysis to assess political, economic, social, technological, legal, and environmental factors. The report then delves into L'Oreal's internal environment, employing a SWOT analysis to evaluate its strengths, weaknesses, opportunities, and threats. Furthermore, it applies Porter's Five Forces model to assess the competitive forces within the market sector, including the threat of new entrants, the threat of substitutes, the bargaining power of customers and suppliers, and competitive rivalry. The report concludes with an evaluation of different strategic directions and a recommendation for the most appropriate growth platform and strategies for L'Oreal Paris, culminating in a strategic management plan and conclusion.

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Analysis of impact and influence of macro environment on organisation and its strategies......1
Analysis of internal environment and capabilities of organisation.............................................4
Applying Porter’s Five Forces model evaluate the competitive forces of a given market sector
for an organisation.......................................................................................................................6
TASK 2............................................................................................................................................8
Evaluation of the different types of strategic directions available to the organisation...............8
Justification and recommendation of the most appropriate growth platform and strategies.. . .11
Strategic management plan.......................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Business Strategy is the set of different strategies to view and devise various important
outline for any business or organization. Business environment generally opt for three basic
strategies to develop its competitive framework, General strategy, Corporate Strategy and
Competitive strategy (Weng and Liu, 2018). The study will undertake L'Oreal Paris to reflect
and explain each and every mentioned task of given report. It is a French company established in
1909 with approximately 90,000 employees till now.
The report will cover basic description to macro environment and its impact on selected
organization's strategies. It will describe the internal capabilities of selected organization using
appropriate frameworks and theories. The report will analyze different external factors related to
business environment with the help of PESTLE model. The study will tend to devise a strategic
plan for selected organization by the application of different theories and models. Along with it,
the report will evaluate competitive forces of organization by the application of Porter's Five
Force model.
TASK 1
Analysis of impact and influence of macro environment on organisation and its strategies.
“Macro environment” for any business is generally refers to the external environment and
various factors related to it, that affect and impact the growth and development of an
organisation or company (Uribe and et.al. 2018). In terms of L' Oreal, there are large number of
factors of macro environment that may affect its business environment and strategies.
The impact of macro environment to any business or company can be assessed by
applying PESTLE analysis. This analysis inhibits certain factors that directly influence the
regular functioning of a company. These factors are generally uncontrollable and for this, the
company or organization itself are required to strengthen its internal structure.
Political factors
These factors are generally the outcomes of any governmental reforms made for business
environment and alteration of governmental policies. L'Oreal Paris is affected by various trade
agreements and policies of country (Mukherjee, 2018). The company is greatly affected by the
country's executives' and legislative reforms that tends to create a hurdle in the normal
functioning of company. There is a requirement of political stability for to hold success of level
of L'Oreal and other businesses.
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Economic factors
These factors are linked with the economic condition and status of country that directly affect its
businesses and organizations' success. This factors cannot be controlled and are one of the most
influential factor that affect business policies to great extent (Uribe and et.al. 2018). For L'Oreal
Paris economic factors like economic condition of country, Inflation rate and elements like
unemployment greatly affect its strategic-planning. L'Oreal are bound to pay attention towards
financial status of customers while setting costs for its products. Apart from this, in concern with
unemployment rate L'Oreal may undergo for different employment vacancies and post to make
the condition stabilize.
Social Factors
Social factors are related to various societal elements that affect product development strategies
and innovation within business environment. For L'Oreal social factors plays a vital role in
planning its organizational strategies (Channon and Jalland, 2016). For developing any new
concept or products, it need to analyse the increasing demand of women specifically as sit
manufacture extensive range of cosmetics, skin and hair care products. Along with this, it also
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Il
lustration 1: PESTEL Analysis
(Source: Scanning the Environment: PESTEL Analysis, 2016)

needs to pay attention towards changing lifestyles of customers who generally prefer natural
products than that of chemical based.
Technological factors
These are the factors that link with digitalization, technological platforms and related intelligence
that is being used by businesses. Businesses need to include different advanced technological
tools for research and development procedures (Eyvrigh, 2016). L'Oreal uses advanced
technological platforms to perform its different advertisements and promotions. It must utilizes
its existing technological framework for products revitalization. It must improve its research
activities with usage of various business intelligence systems. These systems will help to match
the current demands of customers with extent of quality products and satisfaction provided by
company (Dănălache, 2018). To be stable and string in market with comparison to emerging
competition, L'Oreal need to adhere its business and product development strategies with
advanced technological tools.
Legal Factors
These factors are confined with different legislation applied within business environment that
affect or influence working pattern or activities of organization. For company like L'Oreal, these
factors are extremely important to maintain high standards of services, quality, internal
environment (Cho, Chu and Han, 2018). L'Oreal strategic-planning affected by implementation
of mandatory legal laws for business activities and its employees. L'Oreal needs to alter or design
its policies with respect to the health and safety of its employees. Its organizational framework
may get affected due to any alteration take place with the legislation system of country related to
business or trade agreements.
Environmental factors
These factors are highly dependent on factors and elements of environment including climatic
conditions, mandatory norms from various social bodies or organizations. For every business or
company securing the environmental elements are the social responsibility that need to be
considered while applying any form of product development or manufacturing processes.
L'Oreal needs to comply with its social responsibilities to safeguard fundamental parts of
ecosystem like plants, animals, hazardous gaseous substances etc. (Ramus, 2018). Its
organizational policies need to be planned according to environmental policies of persists within
country. It has also to revise its production and manufacturing practices and procedures with
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respect to safeguard animals, plantation and need to reduce the usage of chemicals within its
plant. This will deliver it utmost strong and responsive image within market and other business
environment.
Analysis of internal environment and capabilities of organisation
Internal environment for any business or organization can be analyzed by conducting SWOT
analysis to assess its internal capabilities, weakness and different opportunities and threats from
external environment. As far as the SWOT analysis of L'Oreal company is considered, it has
number of strength and weakness with different threats in comparison with existing market and
other businesses (Wiesner, Chadee and Best, 2018). Based on the application of SWOT,
businesses and companies like L'Oreal must focus upon its internal capabilities that can be
improved to address and compete with external threats.
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Illustration 2: General Elements of SWOT Analysis for
a business
(Source:What is SWOT Analysis?. 2018)

STRENGTH
Innovative promotion: L'Oreal undergo for advanced promotional activities that includes
celebrity endorsement. Number of Asian and American models and celebrity have become brand
faces for L'Oreal advertisement (Bryson, 2018). Apart from this, L'Oreal has been a part of
different campaigns to establish its image within market and societal aspect of the market.
Brand recognition: L'Oreal has strong recognition for its brand, products or cosmetics and is
popular within its female customers (Luftman, Lyytinen and Zvi, 2017). Due to its quality
products and advanced promotional strategies, L'Oreal has significant brand recognition
specially in the field of cosmetics and hair products. This has provided it competitive advantages
WEAKNESS
Poor market analysis: L'Oreal has diversified range of products but it does not have strong
market analysis techniques to undergo for analysis of different demands of its customers
(Channon and Jalland, 2016). It does not a completely new form of product as it do not have
sufficient knowledge of market analysis, its trends and changing demands of customers.
High focus and cost implication on advertisement: L'Oreal has driven its utmost amount of
focus on advertisements and marketing strategies (Ngai, Tao and Moon, 2015). It does not pay
its sufficient and required attention on its product innovation, operation management. This can
become its weakness for the next coming years.
Organizational structure: L'Oreal has decentralized form of organizational structure that impart
a disturbed commanding chain to workforce. This decentralized structure increases confusions
within the employees and tend to create an ineffective form of communication strategies within
company (Harf, Herman and Blanco, 2017). This is one of the biggest weakness of L'Oreal that
act as a hurdle in implementing and delivering any alteration within the company.
OPPORTUNITY
Innovation and product revitalization: This can be one of the biggest opportunity to grab for
L'Oreal Paris, where it can undergo for different brand revitalization and product innovation
methods. This can be done in terms of creative packaging, altering the contents of existing
products (Bashir and Verma, 2017). This will increase the interest level and loyalty of regular
customers and it will improvise strategies for market penetration.
Size of US market: Based on large size of US market, the company may undergo for variant of
new products or enter into new markets by devising advances strategic planning. L'Oreal must
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plan to extend its market range from cosmetic to diversified markets based on its feasibility and
standards.
THREAT
Companies with similar range of products: There are number of products and companies has
been establishes with same range, quality and effects. This can be one of the biggest threat that
company may have from other existing companies (Liu and Atuahene-Gima, 2018). For this,
L'Oreal need to pay attention towards its weakness and need to enhance its strength to provide a
considerable level of competition to its competitors.
Lack of interests among young customers: L'Oreal has attained utmost interests from a specific
age group which do not include the younger age group customers. This may be a threat for
company as young customers has the capabilities to influence large group of people for buying a
particular product (Ramus, 2018). For this, L'Oreal need to change its advertisements segments
and need to start its product revitalization in accordance with the demand of teenagers or young
generation as well.
Applying Porter’s Five Forces model evaluate the competitive forces of a given market sector for
an organisation.
For the Businesses requiring extensive and advanced assessments for its competitive
strategy, Porter's Five Forces model can be applied. This model was proposed by Micheal Porter
to redesign or support the existing portfolio of competitive strategies of business (Luftman,
Lyytinen and Zvi, 2017). It provides different strategic-planning to business environment in
terms of costing, Focusing and Differentiating the products with competitors. Major five forces
that included within this model that can be applicable to L'Oreal company
Threat of new entrance
This is threat can be experienced by companies when number of new entrances come up with
comparatively advanced and innovative products in the market. There are number of tools that
are being used bu business to achieve competitive advantages and deliver strategic support. This
technological and advanced support to business have increased their level of performance by
delivering tough competition (Channon and Jalland, 2016). High number of cosmetic companies
are being growing and developing that may impart equal competitions to established companies.
For L'Oreal company, the threat of new entrance has increased due to the introduction of
companies with same level of products and costing strategies. New entrances are capable enough
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to attract and derive high range of cosmetics to every categories of customers (Wiesner, Chadee
and Best, 2018). This may affect L'Oreal as it mainly focuses on products for middle aged
females and do not have considerable segments of products for young females. To reduce this
threat, company need to improvise its products ranges and target customers who falls under the
category of teenagers and youngsters as well.
Threat of substitute
This threat generally derived by the availability of different range of products provided by
company with low cost (Bashir and Verma, 2017). This threat that company experienced is
mainly occurs when there are range of products available in market that can be used in place of
principle products. L'Oreal possess moderate level of substitution threat as it do have some
alternative range of products for similar usage.
Bargaining power of customers
This is a threat that delivered by customers when they receive a comparatively better product or
same quality product with low price or cost (Eyvrigh, 2016). L'Oreal inhibits high level of
bargaining power of customers because there are number products available in market similar to
the products of L'Oreal. Customers have variant of buying options in terms of cosmetics, hair
products and other related products. Companies need to be consistent with high level of qualities
and need to be attentive enough regarding increasing and changing demands of target customers.
Bargaining power of supplier
Bargaining power of suppliers for L'Oreal is always at moderate and medium level, as the
suppliers will always have a power to choose or select the buyer with comparatively high profit
delivery (Wiesner, Chadee and Best, 2018). This power of bargaining of suppliers provide an
advantage to them not to business or companies. For this, L'Oreal need to select their suppliers
effectively to reduce the chances of receiving poor services in exchange of high capital
investment.
Industry rivalry
Rivalry for any business is common and general which is driven by existing number of
competitors in market or new entrances with high level of similar capabilities, range of products
and likability within customers (Liu and Atuahene- Gima, 2018). Industry rivalry increases when
market and customers have similar options, companies have same level of customers' loyalty and
provide same type of products. For company like L'Oreal, Industries rivalry is strong and should
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not be ignored. L'Oreal has may have rivalry with company like “Olay” that provide same range
of products with similar pricing strategy. Selected company needs to assess the level of its rivalry
and undergo for various strategy to differentiate its existing plan of business activity.
TASK 2
Evaluation of the different types of strategic directions available to the organisation.
As per certain models like Bowman's Strategic Clock model, every business has various
strategic directions in which it can proceed its planning to receive desired growth and success in
market place. There exists a total eight directions of strategy that can be applied for growth
measures (Wiesner, Chadee and Best, 2018). Directions described within Bowman's model can
be utilized by L'Oreal company to increase its strength and opportunities. Following this model,
L'Oreal may devise a new strategic framework to implement various of its business activities and
plan.
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Illustration 3: Porter's Five Forces Model
(Source: Porter’s Five Forces, 2019)

Low Price and Low Value Added
This type strategic direction derive plan for keeping a low price range for products of company.
Along with it, it also complies with low quality provision of delivered products (Bashir and
Verma, 2017). This strategic direction or plan will only save capital of company but not provide
it long term stability.
Low Price
This strategic direction devised a plan for keeping a standard of low price provision for range of
products for company. Companies or businesses may opt for this strategy in its initial phase to
attract pool of customers (Liu and Atuahene- Gima, 2018). For L'Oreal this strategy can be
suitable as it generally manufactures products with high quality and may opt for cost
minimization for any of its products.
Hybrid
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Illustration 4: Bowman's Strategic Clock
(Source: Bowman’s Strategy Clock. 2018)

This strategy is the blend of low pricing and product differentiation strategy. It includes the
provision of maintaining slightly low price of products in comparison with competitors. It also
includes development of product with some alteration to maintain the interest of customers
(Harf, Herman and Blanco, 2017). This strategy can be used by L'Oreal to increase its market
penetration and to develop variant platforms for product development. This strategic direction
will help the company to manufacture products for customers belongs not only to upper class but
for people of middle class as well.
Differentiation
It delivers high level of value to customers by providing them relatively a different segment of
products or pricing for various range of products provided by a company (Bashir and Verma,
2017). It lays emphasis on providing significantly different products or services to customers to
make the business completely different from competitors.
Focused Differentiation
This strategic-planning implies concentration of business on positioning of the brand
(Bhagavatula and et.al., 2018). It is highly applicable by big brands and thus can be easily
applicable by L'Oreal. It must apply this strategic direction to overcome its issues related to
product development and innovation.
Risky High Margins
This strategy includes fixing of high pricing for products and do not offer any additional profits
with it. This strategic direction consists of high risks and can reduce amount of customers
likeability and loyalty (Ramus, 2018). This plan can be applicable only when the company
inhibits extremely high level of customers loyalty, profit margins and least number of
competitors.
Monopoly Pricing
This strategy can be applied by businesses or companies who do not have any competitors in
market providing similar range of products. This strategic direction provide high amount of
profit margins to companies and businesses (Mukherjee, 2018). This strategic direction receives
high customers' loyalty for a longer time period and thus achieve high competitive advantages as
well. In terms of L'Oreal monopoly pricing cannot be applicable as there exist number of
alternatives and similar companies like L'Oreal.
Loss of Market Share
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