Business Strategy Analysis: L'Oréal's Competitive Environment Report

This report provides a comprehensive analysis of L'Oréal's business strategy. It begins with an introduction to business strategy and the company profile of L'Oréal. The report then delves into the internal and external environments using PESTLE and SWOT analyses. It further evaluates the competitive environment using Porter's Five Forces model, assessing threats of substitutes, new entrants, industrial rivalry, and bargaining power of suppliers and buyers. The report also applies the Bowman model to evaluate strategic directions and includes a strategic management plan with strategies, objectives, and tactics. The VRIO analysis is used to evaluate the resources of the company and the report concludes with justifications and recommendations for growth platforms.

BUSINESS STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................1
Porter's Five Force Model is used to analysis competitive environment of the L’Oréal
organization. ...............................................................................................................................4
Task 2: Strategic Plan based on the environmental analysis .....................................................5
Bowman model is applied to evaluate different types of strategic directions in an organization.
.....................................................................................................................................................5
Justification and Recommendation of growth platform is discussed:.........................................6
Strategic management plan with strategies, objectives and tactics.............................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business strategy define as the course of action and set of competitive moves which an
organisation use for attract customer,compete successfully and achieve goals of the organization.
Purpose of business strategy is to enhance overall performance , enhance organization market
position and work on new market condition and development. L’Oréal is a personal care
company headquartered in Clichy and registered office in Paris. This is worlds largest cosmetics
company and this concentrating on hair colour ,skin care, sun protection , make-up,
perfume ,hair care and men's skincare. This report cover internal and external environment
which include pestle and swot and analysing competitive environment by using porters five
force model. Create strategic plan which include different type of direction, justification and
recommendation growth platform and strategy and produce strategic management plan with
strategies ,objectives and tactics.
TASK 1
Internal and external environment which provide basis for strategic plan
Pestle and swot describe as the internal and external environment of the organization
which is given below.
PESTLE analysis of L’Oréal
Pestle analysis: This is describes a framework of macro -environment factor which is
used in scanning environment component of strategic management. This tool identify external
factors of organization. PESTLE analysis of L’Oréal is given below.
Political factor: this factor include rules,regulation and government policies. This rules
and regulation should be followed by L’Oréal. As its the manufacturing company in pairs so
most of the policies affect the company very much. In L’Oréal there is an different policies who
play a vital role in the success of L’Oréal.
Economic factor: this factors include interest rate , employment or unemployment rate
and foreign exchange. This factors impact on economic and performance. L’Oréal price play
important in the mind of customer. People of such state will be ready to purchase L’Oréal
product so that its increase the sales and create positive environment.
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Social factors: this factors focus on understanding the needs and wants of the customer.
This includes cultural, educational, attitude and change in life style. L’Oréal manger should
focus on the culture, attitude and life style of a country where the sale there product.
Technological factor: this is define as a technology and innovation that affect market
industry. This factor include mobile, automation , research and development. L’Oréal manager
should apply this for innovation in its product which attract new customer in the market.
legal factor: L’Oréal must understand that what is legal and allowed within the
territories they operate. They also aware about the changes in the legislation , this legal factors
include employment legislation , consumer law trade regulation and restriction. L’Oréal s legal
team make vital contribution and expert light on legal decisions.
Environmental factor : this factor relate to influence the surrounding environment and
impact of ecological aspect . This factors include carbon footprint, waste disposal and recycling
procedure. L’Oréal manager should consider various environment safety laws and this company
support such campaigns and following the norms of the world.]
SWOT analysis of L’Oréal:
It is a strategic planning technique which is used in identifying companies strengths
weakness opportunities and threat which is related to organizations competition. SWOT analysis
of L’Oréal is given below:
Strength: This is define as in what L’Oréal is excels at and what think separates it from
the competition. Strength of L’Oréal is given below:
 L’Oréal is the largest beauty or cosmetic company in the world. In this,where other
company focus on cosmetics and personal care. L’Oréal is the company who is focused
on beauty product which is the reason of success of L’Oréal in this sector.
 Strong research and development in the product. L’Oréal involve continue research and
development in its product. Experiments going on to ensure the safety of its customer and
also trying for new product.
Weakness: This is define as the area where L’Oréal have to improve the competetion in
the market. Weakness of L’Oréal is given below:
 High investment included in R&D as well as the massive expenses of distribution
means that L’Oréal profit margin is low as compared to complicators.
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 In L’Oréal there is too many sub divisions. L’Oréal is known as slow in nature
because of various sub division.
Opportunity: this is define as that where an organization expand its business for more
sales. Opportunity of L’Oréal is given below :
 market potential of beauty and personal care is going to increases. This create
newer market which give better sales to L’Oréal.
 L’Oréal expanding its product line as well introducing new product in the
product mix .
Threats: This is define as the potential which harm an organization. Threats like
increasing cost for material and increase in competition.
 In L’Oréal there is an threat of emergence of new business model which create
competition in the market. L’Oréal competes in selected product categories
against a number of multinational manufactures.
 In this there is a threat of increasing the competition within the same field of
cosmetic brands.
VRIO analysis of L’Oréal
VRIO is define as the internal analysis which is used in identify and evaluate the
resources in the company. This explain into four criteria which is value , rarity , inimitably and
organization. VRIO of L’Oréal organization is given below :
Value: In L’Oréal resource should be valuable if thet help organizations to increase the
perceived customer value , L’Oréal manager should consider this if they want create value of the
customer then this can be done by increasing differentiation and decreasing the price of the
product.
Rarity: This is define as the resources which is acquired by few company consider as
rare. L’Oréal manger should use rare resources because same resources use by many company
leads to competitive parity .
Imitate: This appear in two way duplication and substitution. After observing other
organization competitive advantage of L’Oréal can directly imitate resources possessed by
innovative firm.
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Organization: This the way from where L’Oréal organize all the aspect of value,rarity
and imitate. If this is done successfully than L’Oréal can enjoy period os sustain competitive
advantage
Porter's Five Force Model is used to analysis competitive environment of the L’Oréal
organization.
Porter's Five Force Model can be defined as a tool which is used by the firm to study or
evaluate the cut throat competition prevailing in the market. It plays a vital role and helps the
business associates to analyse their own strengths and weakness. Porter's model has five tools
which are as follows: Suppliers Power, Buyer Power, Rivalry, Barriers to enter, Threat of
substitute.
Threat to substitute: Threat to substitute product is high when there are many product
available in the market. Customer's can easily switch to other substitute as and when needed
according to prices, taste, quality, preferences etc. example: the substitute of L’Oréal is Pantene
shampoo in the market. Customers can easily switch to pantene according to quality and prices
whenever they feel to switch to other substitute. Same it can happen with pantene shampoo the
consumers can easily switch to L’Oréal when the prices, quality and affordability are suitable to
them. On the other it can be said that substitute products are a big threat to the company as they
pull others customers towards their goods. Some of the substitute product of L’Oréal shampoo
are, Garnier, Pantene, Nexxus and Herbal essences.
Threat to new entrants: The degree of threat of new entry is high when the financial
obligation is less to start a business and more substitutes are available in the market. L’Oréal is
dealing in shampoo and is globally acquiring it's market share as well as loyal customers. Its
difficult for new entrant to compete with the brand and well established companies who is
dealing in the same segments of shampoo.
Industrial Rivalry:The degree of industrial rivalry is high when the the customers has
less or zero chance to switch to some other substitute product. The barriers of exit in the global
market is high as compared to entry. The cost of product is high or more as huge production
takes place at a time and the chances of reduction in prices of goods is low.
Bargaining power of suppliers: In this case the power of suppliers are more or high as
compared to buyers as there are few suppliers available in the market worldwide. Suppliers
become powerful in the market when a unique or special features is added and the suppliers are
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less in the industry. Example: OEM hair shampoo whose supplier is Taiwan funung cosmetics,
Scalp soothing shampoo bar whose supplier is MYFFY GA ENTERPRISE. Here suppliers
include: labour, raw materials, components, services (expertise) to the organization can be
termed as a source of power over the firm when there are less substitutes available in the market.
Bargaining power of buyers: The degree of bargaining power is high when there is
amends variety of products available in the market. Buyer's power is low when there are few
substitutes available in the location. Customers has the power to lower the prices of the goods as
many options are available in the industry. Example: If Garnier is raising its price by 20% in its
goods then customers has the choice to go for L’Oréal product whose goods is satisfactory as
well as affordable to them.
Task 2
Bowman model is applied to evaluate different types of strategic directions in an organization.
Bowman's model is used to investigate how a product should be displayed in the global
market so, that it can be competition for other existing goods available in the market. It's main
motive is based on two major dimensions: price and perceived values. This comprises of 8
(eight) elements which are explained below:
Low price and low added value: Low price and low added value is known by other
name that is “Bargain Basement Theory”. In this model author says that to remain in the
competition the value of the product should be so low or cheap so that other competitor can not
undercut the prices.
Low price: Companies are trying their best to gain profitability amount from the
customers but cut throat competition in the market indirectly leads to low cost and low margin in
the market. Here market leader focus more on catchpenny way for production and minimum cost
to sustain in the long run. Study says that at this level of point prices war takes place between the
organizations.
Hybrid: Hybrid is the point where firm involve distinguished product segment in the
market to capture market ratio to a large extent. Here the companies are more engaged how to
low price their goods in the strategic management plan with strategies, objectives and tactics.
industry, but on the other hand they try to convince their existing customers that low price does
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not mean bad quality goods it means good quality product at cheap rate and it will definitely
benefit the consumers.
Differentiation: The strategy of differentiation offers their customers with best value
added product at a cheap rate. Company not only focus on quality but also focus on branding to
retain their existing customers for long run. Customers are more sensitive to brand and quality
items and are ready to pay high amount.
Focused Differentiation: In this case luxury and top most trusted and famous brand
focus on high quality product at more price. L’Oréal company focus more on promotion,
distribution channels and target segments which directly leads to profitability generation. It has
been seen that the competitor also lie in the same field therefore each other firm keeps prices
high.
Risky High margins: In the long run risk of taking high margin will not work as
customers will switch to other better quality product in the same price or at a low price. L’Oréal
company will face heavy financial loss in the near future if same strategy is going to adopt for
revenue generation.
Monopoly pricing:In monopoly market there is less or zero competition as the firm will
decide the prices of the product with no fear. Customers will have no choices to go for other
substitute, indirectly forced to purchase their product. Here L’Oréal clay shampoo creates
monopoly pricing as this shampoo help to straighten the hair.
Loss of market share: Due to high pricing customers are pushed to some other substitute
for their satisfaction. As a result customers are breakdown and firm incur huge loss due to this
and also face loss of market loss. If the organization mark high price then consumers will step
back and choose other affordable price product.
Justification and Recommendation of growth platform is discussed:
Justification
From the above mention model it has been justified that L’Oréal company uses low price
and monopoly policy it will help the industry to sustain for longer time duration. This policies
will help to generate loyal and trust worthy customers and high degree of power will be in sellers
side. Organization will run smoothly and no cut throat competition will prevail in the market. It
will help the firm to set standards and norms according to the business conditions not in pressure
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of any other company. Low price strategy help to capture maximum market share with quality
product.
Recommendations:
From the above studied model it can be said that L’Oréal company should use high risk
margins and focused differentiation policies to provide quality product and services to the
customers at a global level. For quality and innovative goods firm should generate profit from
the consumers. In the era of 21st century people are more sensitive towards quality items rather
than price. For continuous research and development programmes huge investments is required
which can be generated by profit margins. Companies working in luxury goods work together so
that prices remain high.
Strategic management plan with strategies, objectives and tactics.
Strategic management tool is define as the tool in which in which its help organization to
map out where it sees it self after few next year. This tool help in create plan for future and how
to get there. This tool is used in communicating the mission,vision, tactics and objectives of
organization. L’Oréal strategic management plan with its objectives ,strategies and tactics is
explained below.
Aim: L’Oréal has set is big aim which include the aim of win trust and confidence of its
new customer in upcoming 10 years.
Organization structure: L’Oréal divides its labour according to research and innovation
centres. Lorael has its clear range of department as an product department , geographical
department and customer departmentalization these are one of the outstanding department.
L’Oréal consider centralization when they take some important decision and handle various
process of company.
Mission: L’Oréal mission is to help men and women realize their aspintion and express
their full individual personalities. This what gives meaning and value to L’Oréal .
Vision: L’Oréal vision is to become a global leader in cosmetic industry and personal
care industry.
Value:another value that is listening customer , understanding their culture and
benefiting from their differences are bare priorities. Ethical principle of this company are
integrity respect transparency this gives rise reputation to L’Oréal.
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Goals: L’Oréal goal is to increase awareness and motivates whole workforce to show
respect for the environment. Reduce environmental affect of industrial sites and shipping centre.
Objectives:
 to audit the measurement of brand awareness and brand perception.
 To determine the brand image ,perception, attitudes and behaviour of the target audience
with L’Oréal brand as well as the product and personality of L’Oréal brand
 to measure value drivers for the target audience when buying cosmetic and hair product.
Strategies and tactics: diversity in the company in this L’Oréal operating with 34 brands
with workforce of 89300 from 158 nationalisation. L’Oréal target younger people , upper middle
income and social class customer in the age group of 20-25 year because they believe to buy best
cosmetic product. Use the strategies of ups killing its team and increasing tech c-commerce
visibility.
CONCLUSION
From the above study it can be concluded that L’Oréal company must focus on targeted
customers and do continuous research work to create monopoly market. The more focus must be
on low price strategy to provide its quality shampoo to all the segments or to all purchasing
power customers. Company must make certain strategies to serve its quality product to all the
levels of customers and can gain gain their trust and faith in return. More innovation in goods
will help business associates to explore more in distinguished sector. Huge market ratio can be
captured so, that chances of financial instability can be avoided by external forces. Firm must do
continuous evaluation to match with the dynamic changes like, preferences, quality, quantity,
prices, affordability etc.
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