Business Strategy Analysis of L'Oréal Company: A Comprehensive Report

This report provides a comprehensive analysis of L'Oréal's business strategy, encompassing an examination of the macro-environmental factors impacting the company through PESTLE analysis, and an assessment of its internal capabilities and competitive position using SWOT and Porter's Five Forces models, respectively. The report further delves into the formulation of a strategic management plan for L'Oréal, integrating strategies, objectives, and tactics. The strategic directions are evaluated using the Ansoff Matrix, exploring market penetration, market development, and product development strategies to enhance growth and profitability. The report concludes with an overview of L'Oréal's strategic plan, outlining recommendations for sustained competitive advantage within the cosmetic and personal care industry.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
P1 Applying appropriate frameworks analyse the impact and influence of macro
environmental factors on L’oréal and its strategies....................................................................1
TASK 2............................................................................................................................................3
P2 Analyse the internal environment and capabilities of a given organisation using appropriate
frameworks .................................................................................................................................3
TASK 3............................................................................................................................................4
P3 Porter's Five Forces Model for examining competitive environment....................................4
TASK 4 ..........................................................................................................................................5
P4 Strategic management plan for L'oreal by including strategies, objectives and tactics.........5
CONCLUSION................................................................................................................................8
REFERENCES .............................................................................................................................10

INTRODUCTION
Business Strategy is a long term action plan that is designed in order to achieve
particular goals of the organisation. It is essential for the company to plan their business
strategies in a proper manner to gain competitive position in the market and attain long term
goals. It assist the companies to make effective use of resources in order to perform business
functions effectively (Acquaah, 2013). The project is based on the Loreal Company which is a
France based multinational company deals in personal care and cosmetic products. The project
will focus on impact of macro environment on the company as well as analyses the competitive
position of the industry with the help of Porters Five forces Model. It also develops an
understanding and interpretations of the strategic directions available to the organization.
TASK 1
P1 Applying appropriate frameworks analyse the impact and influence of macro environmental
factors on L’oréal and its strategies
In order to gain competitive advantage in the market, it is essential for Loreal deputy
strategy manager to analyse the impact of external environment on the functioning of the
company. External environment of the business includes the PESTLE analysis which assist the
managers to identify the potential opportunities and risks lying under them.
 Political- It includes various rules, regulations and policies of the government under
which the respective company is working. As the company has its manufacturing in
Paris but its rules and regulations of France will greatly affect the company in
formulation of strategy. With the increase or decrease in the tax of the country, company
has to adopt different business strategy in order to make the product affordable to the
customers. This affects the strategic planning of Loreal with the change in political
factors (Acquaah, 2013).
 Economic- It includes the interest rate, exchange rate and GDP of the country affecting
the performance of the company. If there is fall in the value of currency and dollars it
will impacts consumers purchasing power and therefore impacts sale of Loreal products.
It would be a major threat for the company but moreover with the increase in the GDP of
the state it is the main factor contributing towards the business of luxury cosmetic
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products. People will prefer purchasing products and will provide an opportunity to the
company to increase its sales.
 Social- This factor encompasses the changes in the consumer demands and their
attitudes and lifestyle towards buying the product. As the consumers have become
fashion freak, Loreal should continuously innovate its products according to the
demands of the people and assist in gaining competitive advantage(Alsudiri Al-
Karaghouli and Eldab, 2013). This makes problem for the Loreal to changes their
business strategy as with the change in the features of product, it leads to change in
price. This affects strategic planning of the company.
 Technological- It refers to the advancements in the technology used for the
manufacturing of goods. Loreal should adopt for recent technologies in order to upgrade
their products and attracts larger customer base. But if the company doesn't use
technology advancements to innovate their products, it would be a threat for the
company to maintain its sustainability over a period of time.
 Legal- This is considered with the laws and legislations of the which the company has
to prevail for its smooth functioning. There are various laws such as product safety,
employee health and safety as well as proper advertising of the product. Working along
with these laws maintains company's competitive position in market. It is also concerned
with various laws such as employment law, anti discrimination act, minimum wages act.
Working along with various laws affects the business strategy of the company as they
have to formulate strategies regarding developing qualitative products as well as to retain
employees in the company for a long period (Bharadwaj and et. al., 2013).
 Environmental- It is concerned with the proper utilisation of resources within the
company and carry production process in such a way which doesn't harms the
environment. It is necessary for Loreal to use raw materials which are eco-friendly in
nature and doesn't harm the environment. Managers at Loreal needs to adopt business
strategy so as to provide products which are environmental friendly in nature and gains
competitive advantage in the market.
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TASK 2
P2 Analyse the internal environment and capabilities of a given organisation using appropriate
frameworks
Company should analyse the internal environment by the help of SWOT analysis. It is an
strategic-analysis tool which helps the manager at Loreal to identify their strengths and develops
opportunities accordingly as well as determines weakness of the company to evaluate the threats
which the company can face off.
 Strengths- Its strengths includes major capabilities of the company such as company has
large number of product lines of personal care and cosmetic products and it has a wider
reach as its products are available in all stores, showrooms and made easy accessible for
the customers (Eaton and Kilby, 2015). Along with the cosmetic products, Loreal has
showed interest in dermatological field which provides opportunities for the company to
expand their business.
 Weaknesses- As the company is following a decentralised organisational structure it
creates difficulty for them to keep control on employees and the business operations. This
creates problem for the firm to formulate effective business strategies. This is the major
weakness of the company which makes them difficult to attain organisational goals
(Chang, 2016).
 Opportunities- Loreal should covert its strengths into opportunities so as to aid
competitive benefits and maintains sustainability in market for a longer time period. As it
renowned brand in the market company could expand their product portfolio so as to
enhance profitability of the business could adopt market expansion strategy or
diversification strategy to increase sales.
 Threats- These are the factors which affects the functioning of Loreal company. Threat
mainly deals with the large number of substitute competitive products available in the
market. If Loreal sacrifices with the quality of the product the customers would easily
switch fro one brand to another which would affects the profitability of the company.
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TASK 3
P3 Porter's Five Forces Model for examining competitive environment.
Porter's five force model on l'oreal- Porters five force model is an internal & external
competition analysis tool for an industry it includes five forces two of them are vertical
forces(bargaining power of suppliers, bargaining power of buyers) & three are horizontal forces
(threat of new entrants, threat of substitutes,competitive rivalry). To determine competitive
position of the industry, Loreal uses Porters five forces model which are described as follows-
THREAT OF NEW ENTRY- In cosmetic industry there is very low threat to the
l'oreal, from the potential entrants because market of l'oreal is already very strong and it will not
be very easy for the new comers to reach that level. There are several other factors like huge
capital requirement, technology updation , advertisement cost etc. all these make entry barriers
very strong for the new entrants. The company should adopt cost leadership strategy to compete
with the new entries and to match with their price level so that its position remain same in the
market (Iacob, Quartel and Jonkers, 2012).
THREAT OF SUBTITUTES- There is low threat of the substitution in cosmetic
industry because brand like l'oreal are already manufacturing complete head to toe products
covering all the age group of customers. Some substitute are available for it like home made
and Ayurvedic products in which people have belief . So for competing with them they should
adopt product development strategy in which they should bring Ayurvedic element into their
product to compete with home made products.
COMPETITIVE RIVALRY- This force has strong effect on l'oreal because cosmetic
industry include companies like Proctor & gamble , Estee Lauder, Olay, Avon etc and all of
these are the top most competitor of l'oreal competing with low differentiation in products. There
is a cut throat competition among them to become the number one company in the industry.
Switching cost is also very low because of which customers can easily shift to the other brand if
they feel to change. Company should adopt focus strategy and target particular segment where
their competitors are not doing well so that it can capture that area before anyone else can
(Jocovic and et. al., 2014).
BARGAINING POWER OF SUPPLIERS- Power to bargain in this industry is
moderate because of the large amount of buyers as well as the large amount of suppliers. If Later
try to bargain, former will shift to the other distributor of raw material from where they get
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better deal. Switching cost is very low and competition among suppliers is very high. Company
should adopt cost cutting strategy so that if supplier charges high price of raw material they can
still keep a balance between their expenses and revenue.
BARGAINING POWER OF BUYER- There is high bargaining power among the
buyers of cosmetic industry of l'oreal because buyers are large in numbers and switching cost
among them is low. It is their choice from whom they want their raw material for producing
goods because all of the suppliers are supplying almost same quality of products and at almost
same price and if anyone of them tries to charge different in comparison to others their
customer will shift to the other without any loss. Company should adopt expansion strategy so
that it can produce in bulk and can get raw material at low price and can keep their bargaining
power high (Khalili Shavarini and et. al., 2013.).
TASK 4
P4 Strategic management plan for L'oreal by including strategies, objectives and tactics.
Strategic Management Plan is a formal document which is the prepared by the deputy
strategy manager at Loreal which sets organisation goals , allocate resources effectively and
therefore strengthen operations and develops effective business strategy towards the attainment
of organisational goals. It is very essential for the company to develops effective strategic plan to
maintain long term sustainability in the marketplace. In order to decide the various strategic
directions Managers at Loreal made the use of Ansoff Model to evaluate the most effective
strategic direction.
Ansoff Matrix
It is an strategic planning and analysis tool which provides framework to the senior
managers at Loreal to adopt and implement effective business strategies for their future growth
(What is the Ansoff Matrix?. 2019). It is a tool which assist the firms to identify their growth
opportunities and determine changes in the product accordingly. This strategy provides four
strategic directions to Loreal to choose the most appropriate one which is described below-
Market Penetration- This strategy focuses on increasing sales of the existing products
of the Loreal in its existing market. It is aimed at increasing market share with the marketing of
its existing products. It could be done by a variety of ways such as -
 Offering discounts and offers to the customers which persuades them to purchase Loreal
products.
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 It could be achieved by adopting competitive pricing strategies and make use of more
advertising and sales promotion activities to enhance sales.
Market Development- This strategy focuses on entering and expanding into new
markets with their expanding products. It could be done by following ways-
 Entering and expanding into markets whether geographically and nationally.
 Adopting a competitive pricing strategy would help Loreal to attract more customers
towards its product.
Product Development- This growth strategy focuses on developing a new product in
order to cater the needs of the existing market and enhance profitability. This could be done by
following ways such as-
 Investing in research and development so as to analyse customer needs properly and
accordingly develops the product (Lawton, 2017).
 Analysing competitors products and strategies effectively so as to make changes in the
product and brings new product to the market.
Diversification- Under this strategy managers at Loreal plans to introduce new products
in the market to cater the needs of the new market. It is the most riskiest strategy in which firm
enters a new market with new strategy.
These are the various strategic directions available to the Loreal company to enhance
profitability and maintains sustainability in the market for a long time period.
VRIO Analysis
It is a framework which determines resources capability to determine its competitive
potential, it also covers the question of rarity, imitability which assist in attaining organisational
goals effectively and efficiently.
Valuable- It is considered with whether resources of the company are valuable to the
company to meet its organisational goals. Loreal has valuable human resources and all tangible
resources posses greater value to the firm towards the attainment of organisational goals.
Rare- This means that if the company's resources are valuable and not rare, it will assist
the company to gain competitive advantage. Loreal has good resources within the company
which are not rare and assist them in gaining competitive advantages (Li and Tan, 2013).
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Imitate- If the Loreal resources are difficult to imitate then its becomes organisational
strengths, as company's has a renowned name in the market it is difficult for other organisations
to imitate their products.
Organisation- Loreal is able to manage its resources in a effective manner and therefore
ads competitive advantage from all other companies. Therefore it achieves its objectives of
maximising market share.
Justification and recommendation for growth platform and strategies
From all the above strategic directions available to the company Loreal should adopt
market penetration strategy in order to enhance the sales of the company. As Loreal is a
renowned brand in the market customers get easily attracted towards the product as its quality
meet up their needs and expectations. As there are large number of competitors prevailing in the
market such as MAC, Maybelline, Olay which also shares a good proportion of market by
targeting customers. It is recommended to the company to choose market penetration strategy by
making use of more advertising and sales promotion activities to increase customer awareness
regarding all the products in their portfolio and should also provides various discounts to the
customer which motivates them to purchase Loreal products (McGrath, 2013).
Strategic Management Plan
It is a plan which assist the managers at Loreal to effectively develops strategies towards
the realisation of the objectives and targets.
Aim- Main aim of Loreal is to enhance the sales by providing quality products at a global level.
Vision- Its vision is to maintain sustainability and growth in the market for a longer period of
time.
Mission- Its mission is to provide quality products to the customer to enjoy competitive position
in the market.
Objectives- As Loreal wants to enhance its market share and chosen the Market penetration
strategy its SMART objective would be -
To enhance market share by 25% in upcoming 2 years by providing quality products which
meets customers needs.
Strategies- To conduct business operations in a effective manner, Loreal should effectively
develops strategy and has chosen the market penetration strategy as a way to enhances market
share. In order to be ahead of its competitors, Loreal should adopt competitive pricing strategy
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and therefore set the prices according so as to make it affordable to the customers and thereby
targets larger customer base.
Moreover Loreal should also conducts Market analysis in order to analyse and evaluate
customers needs and wants and therefore should opt for some promotional methods to increase
sales of the products and maintain long term sustainability in the market. By offering various
discounts to the people as well as adopting cost leadership strategy will set the prices of the
product in such a way that targets all the individual within the society (Murthy, 2012).
Tactics-
These are generally short term plans made by the companies in order to achieve the
objectives. Tactics which are planned by the managers in Loreal are described as follows-
 Cash Management- In order to attain its goals and objectives it is necessary for the
Loreal company to make arrangement of it funds and therefore on a prior basis develops
and plans the budget so as to allocate the resources effectively which helps the company
towards attainment of organisational goals.
 Improved Technology in manufacturing Products- Respective Company should
make use of technological advancements while manufacturing products so as to maintain
quality level and attracts larger customer base (Oestreicher-Singer and Zalmanson, 2013).
 Improved Packaging- Respective company could improve packaging of its products
and make its eco friendly in nature so as to gain competitive advantage and enhance the
market share of the company in its existing market.
CONCLUSION
From the above report it has been concluded that it is very essential for the company's
managers to develops effective business strategy for the smooth functioning of the business. It is
the responsibility of the managers to completely analyse micro and macro environmental factors
to determine the potential opportunities and minimises the threats within the organisation.
Company should also evaluate internal environment of the organisation to determine their
strengths and weaknesses and frame strategies accordingly. To evaluate attractiveness of the
industry and its competitive position, it is essential for the company to conduct Porters five
forces model. This assist the managers towards the realisation of organisational goals.
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