Business Strategy Report: Loreal's Macro and Micro Analysis

This report provides a comprehensive analysis of L'Oréal's business strategy, examining its approach to achieving competitive advantages in the cosmetics industry. The report begins with an introduction to business strategy and a brief overview of L'Oréal. Task 1 focuses on the impact and influence of macro-environmental factors on L'Oréal's strategies, utilizing PESTLE analysis to assess political, economic, social, technological, environmental, and legal factors. Task 2 delves into L'Oréal's internal environment and capabilities, applying the VRIO model to evaluate the value, rarity, imitability, and organization of its resources. Task 3 applies Porter's Five Forces model to analyze the competitive dynamics within the cosmetics industry. Finally, Task 4 applies various strategic theories, concepts, and models to interpret and devise strategic planning for L'Oréal, including the Ansoff Matrix. The report concludes with a summary of findings and a list of references.

BUSINESS STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Impact and influence of macro environment on the strategies of an organisation...........3
TASK 2............................................................................................................................................7
P2: Organisation internal environment and capability...........................................................7
TASK3...........................................................................................................................................11
P3: Apply Porter's five force model.....................................................................................11
TASK 4..........................................................................................................................................12
P4: Applying a range of theories, concepts and models, interpret and devise strategic planning
for a given organisation........................................................................................................12
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Business strategy include the vital decision or strategy set by the organisation to attain the
objective by gaining competitive advantage over others. Such competitive move attract the
interest of customer or stakeholders to sustainable growth and development. To better understand
this report Loreal company has been selected which is one of the largest cosmetic company
whose headquarter is in Clinchy (Paris). It deals in various type of category such as skin care,
hair care, make up products, perfumes and so on. Thus, this report covers following topic such as
impact and influence of macro environment factor on the strategies on an organisation.
Moreover, internal environment as well as its capabilities and evaluation of Porters's five factor
model within the industry. Further, apply theories to understand and interpret the strategic
direction with the organisation are covered in this report (Amran and et. al., 2016).
TASK 1
P1: Impact and influence of macro environment on the strategies of an organisation
Macro economic factor include the external factor that can affect the performance of
business due to which PESTLE analysis is done to gain the information regarding external
environment. Herein Loreal provide wide range of products in more than one thirty countries
due to which it become essential to the company to analysing external company that can either
positively or negatively affect the predetermined strategy.
Political factor: These factor basically include the policies, rules as well as regulation
made by government where various business has to operate by abiding the laws.
Positive impact: Due to globalisation and interrelation among various countries in them
of import and export of goods Loreal has been benefited a lot. Thus, because of it company
expanded in various country. Along with that in the home country of company that is Paris the
government laws are predictable and remain stable. Being UK a stable country where changes in
political system do not take place frequently as well as policies remains consistent year to year.
Such aspect provides assistance to Loreal in order to source raw material and control its
operational costs and impacts in improving profitability of business.
Negative impact: Along with developed country company run its operations in
developing country as well where the political condition is unpredictable due to which the

strategy of an organisation may get affected. Sudden changes in political system, regulations or
regulatory pressures will lead towards scrutiny of business procedures in Loreal.
Economic factor: It include factors like inflation rate, economic growth, purchasing
power, exchange rate that affect the demand and supply of product and services. Thus, these
factors directly or indirectly affect the operations of business.
Positive impact: Loreal has adopted different price strategy for its product based on per
capita income and disposable income in an economy. For instance, developed country has high
human development index which is a sign of good economy as the people are more prone to
invest in branded product. Due to which in such states company charge premium price. In order
to acquire resources at low rates in pertaining economic system it impacts in capital formation
and determining abilities of Loreal to achieve its strategic objectives and goals.
Negative impact: There are different economic cycle like recession or inflation when the
people become price conscious because of high price, so this can affect the footfall of Loreal
store. Though cosmetic product falls under necessity product but still the overall profitability
gets hampered. Due to certain fluctuations because of Brexit in UK, Loreal is facing issues
related to dealing with decreasing value of pound which directly or indirectly impacting in
increase in interest rates which decreases borrowings along with customer displosable income.
Social factor: This factor is essential for the marketer if they want to target the customer
of different geographical area. In include factors like norms, costume, career attitude, ethics as
well as lifestyle of people.
Positive impact : The modern society are adopting new fashion trend for which they
remain keen to purchase cosmetic item. This is a huge opportunity for Loreal to upgrade its
innovation as well as technology to create buzz in the market regarding their product. Due to
changes in customer preferences as well as attitude towards chosen company helps in
understanding customer perception towards organisational product and helps Loreal to make
necessary changes and impacts in satisfying customers and retain them for longer time period.
Negative impact: On other side, company faces immense pressure of ethical as well as
cultural issue as in some areas these skin care products are consider as holy sin that affect the
strategy of company (Ansoff and et. al., 2019). Frequent change in attitudes, values, perceptions
impacts in decrease sales and profitability. In addition, anticipation of a customer preference by
rival firm before Loreal can also be a negative impact.

Technology factor: It include innovation or latest trend which needs to be adopted by
company to maintain the pace and gain advantage over other alternatives available in the market.
Positive impact: One of the reasons of Loreal company to gain wide customer base is
innovation. Like company has used online market where products are directly delivered at the
place of customer. Along with that company has presence in various e-commerce sites such as
Amazon that helps in showcasing the product to ultimate user. New advancements along with
innovations in technology can improve quality of products and at the same time helps in making
communication process easier as well as smoother to improve relationships with various clients
at distant location. This becomes opportunity for Loreal to provide products and aware customers
with latest technology.
Negative impact: Adoption of new innovation are time consuming and require huge
capital investment (Linder and Williander, 2017). Therefore, as the company has already build
its image in the minds of customer due to which it becomes necessary for them to bear such
expenses. Innovations and advancement also impacts in obsolete technology within short
duration of time which hampers performance of various operations. If Loreal wants to adopt new
technology then it will be an complex procedure and at the same time a expensive move.
Environment factor: There are certain laws which are made to preserve the interest of
environment as well as society that needs to be adhere by global standard. These law make sure
company do not exploit its surrounding with the purpose of global expansion.
Positive impact: Loreal is one of the leading brands which perform its operations
worldwide by adopting significant strategy. For instance, respective beauty industry believes in
“go green” concept where the company restrict the use of plastic even their packaging are eco-
friendly that does not affect the environment. Managers of Loreal has undertaken various steps to
reduce the carbon footprints due to which it receives recognition from customers and impacts on
achieving objectives.
Negative impact: Although company take precaution but still some of the products of
company like shampoo of Loreal can have negative implication the environment (Lloret, 2016).
There are various environmental factors like regulatory factors which impacts in business
reputation as well as managing sales level of Loreal.

Legal factor: In include specific laws like employment law, consumer protection and
patent law so these factors needs to be considered in order to trade ethically in national and
international market.
Positive impact: The beauty product are only allowed to put the shelves of retailer or in
any other place if they are FDA approved. Thus, Loreal has received green signal from FDA
regulatory body and follow various act like FPLA that is Fair Packaging and Labelling.
Managers of Loreal fulfils all responsibilities and at the same time follows all the related laws
which impacts on getting assistance as well as gaining recognition from legal and government
bodies.
Negative impact: Various country has their law which at times become difficult for the
company to abide because that may affect company's profitability. In order to follow laws of
various countries, it is a complex task for Loreal and this affects company's profitability.
Therefore, company must consider all these PESTLE factor to come up with best
strategic plan which business inculcate to gain long term profitability and productivity (Pestle
Analysis of L’Oreal. 2018).
Ansoff matrix: It is a strategic planning tool which helps managers to devise various
strategies for the purpose of achieving future growth. It was propounded by Igor Ansoff in the
year 1957. Ansoff matrix of Loreal is as follows:
 Market penetration: Market penetration is based on increasing market share of existing
products in the existing market. Loreal adopts this strategy to gain market share of its
existing products in the existing market by applying various strategies such as decreasing
prices to attract customers, increasing promotional activities of the existing products,
joining hands with the competitors and so on.
 Product development: Product development is said to occur when the organization
offers new product in the existing market. After doing proper research, an organization
offers new products to its customers. Loreal adopts such strategy to attract its existing
customers by using different quality development, addition of new feature, acquiring and
merging resources of the competitor and improvement in technology to provide
innovative and attractive products to the existing market.
 Market development: Market development is also said as market extension. The
organizations make strategies to enter into a new market with the existing product. Loreal

adopts various strategies, such as, entering into a foreign market, providing products to
unknown market, target and select the new segment of customers towards the existing
product.
 Diversification: Diversification is adopted when an organization wants to enter in a new
market with the new product at a same time. There is huge risk involved in this strategy.
Loreal uses the diversification strategy to enter into new market with the new product in
order to capture more market share by providing innovative product.
Pestle analysis and Ansoff matrix both are used by Loreal as to make strategies for the
betterment of company and to achieve objectives. Changes in external factors impacts on
performance as well as strategic management decisions.
TASK 2
P2: Organisation internal environment and capability
The internal environment comprise of management, culture and employee behaviour that
affect the functioning of overall organisation. Thus, organisation make sure they should
implement their strategy, capabilities and competency in such a manner to meet the requirement
of customer.
VRIO model: This model is used to analyse the resources and capacity of an
organisation that can lead to long term sustainable development. Loreal which is diverse brand
can use such analysis to gain advantage over rivalries.
Factors Valuable Rarity Imitable Organised What is the
result?
Brand
awareness
Yes Yes No Yes Sustainable
competitive
Advantage
Price
effectiveness
Yes No Yes Yes Temporary
competitive
advantage
Existence in
E-commercial
Yes No No Yes Sustainable
competitive

sites and IT
capability
advantage
Intellectual
property rights
Yes No No No Temporary
competitive
advantage
Consumer
community
Yes Yes No No Sustainable
competitive
advantage
Valuable:
It refer to the resources which are useful for Loreal to perform its operation in diverse
market. Some of the valuable factor that are essential for organisation are defined below:
Brand awareness: Loreal has high recognition value due to which most of the loyal
customer of brand prefer it over the other brands. Thus, company makes significantly effort to
maintain its brand equity by promoting the product through different traditional and digital
media.
Price effectiveness: It is one of the most essential strategy which needs to be determined
effectively. Hence, Loreal company set its price based on the purchasing power or buying habits
of people (Bentley-Goode and et. al., 2017).
Existence in E-commercial sites and IT capability: As the platform of online marketing
is rapidly growing due to which Loreal makes significant effort to leverage such opportunities.
Intellectual property rights: A intellectual property rights helps in providing incentives
to Loreal Which benefits in growth of company. These are valuable as they helps in thwart
competition.
Consumer Community: Consumer are valuable as they helps in co creation of Loreal
products.
Rarity:
Resources which are valuable needs to be rare as well otherwise the new entrant as well
as existing competitor can easily access the valuable factors (Noe and et. al., 2017). The
component which are rare in Loreal are defined below:

Brand awareness: It takes immense effort of company to place the brand in the mind of
consumer in such a manner while making the purchases customer consider the respective brand
over others which Loreal has successfully development. Hence, the huge loyal customer base of
Loreal are less likely to switch to any other brand even if the switching cost is high.
Consumer Community: Consumer community are rare as Loreal marketers have to take
specific actions in order to build healthy as well as strong relationship with multiple as well as
diverse consumers.
Imitable:
It refer to the delicacy or repetition of product from which the competitor gets advantage
too. Thus, there are various factor that can' be imitate and is defined below:
Brand awareness: Each company has its own brand which helps customer to become
familiar with the product and build their own experiences. Thus, the brand awareness cannot be
imitate as Loreal has sole right over its business.
Existence in E-commercial sites and IT capability: The digital tools and technique
which is used by Loreal company uses such as analytics to get the result at real time cannot be
imitated by others.
Organised:
The Loreal exploit its valuable resources which is rare and difficult to imitate to gain
sustainable competitive advantage.
Brand awareness: Loreal has been able to achieve sustainable competitive advantage
because of its global leading brand position.
Price effectiveness: As respected beauty industry has price analytical engine which is not
rare and easily imitable which gives company temporary advantage over its rivalries (Chen,
Eshleman and Soileau, 2016).
Existence in E-commercial sites and IT capability: With the increase role of internet and
working opportunity the dependency of people in e-commercial sites are increasing. In order to
cater the emerging needs of people company are looking for various mode to deal with the
customer through online platform. Therefore, this gives the sustainable competitive advantage to
company.
SWOT Analysis of Loreal
Strength Weakness

 Brand portfolio: Loreal is the leading
company which while is the portfolio
of various product some are related to
skin care, hair care etc.
 Investment in research and
development: Loreal makes investment
in research and development to fulfil
the requirement of customer. This help
to maintain the interest of existing
customer of company.
 Various division of product: It become
tough for the selected company to build
the strategy as well as manage the
operations of various division.
Therefore, this slow the pace as well as
efficiency of company to manage
diverse range successfully (L’oreal
SWOT analysis, 2018).
 Low profit margin: As the Loreal
invest in various activity like
promotional strategy , distribution
channel, research and development
which require huge expense and
decreases the overall profitability of
company.
Opportunity Market potential: There is a huge
growth opportunity in beauty industry
thus, company must uses its economies
of scale to expand in newer market and
establish their business successfully.
 Expansion of product mix: As the
brand equity value is high which help
the company to launch new product in
their product line and target their
audience to flourish their business
(Ghemawat, 2016).
Threat
 Dynamic nature: As the company
operate in dynamic environment which
bear immense competitive pressure due
to which company cannot only operate
by operating any own strategy it needs
to be change with the presence of
competition.
 Cash crunch: As the selected company
has various sub brands due to which
company allocate fund into various
segment that causes difficulty to
manage the working capital as well as
cash flow

TASK3
P3: Apply Porter's five force model
Porter's five factor model: It is a framework which is used to determine the competitive
pressure, industry attractiveness as well as profitability of company. The five forces of Porter are
defined below (Parnell, 2016):
Bargaining power of supplier: Supplier is one who provide raw material to company so
that the operations can take place on time. Loreal is a diverse brand which require huge raw
material for its diverse range of products due to which the bargaining power of supplier is low.
This gives the opportunity to get the material at reasonable prices of optimum quality.
Bargaining power of customer: With the presence of huge beauty and personal care
items customer are left with diverse options due to which customer have high bargaining power.
Therefore, to increase the usability of product company makes the strategy based on the
preferences of customer to gain wide customer base and huge market share.
Competitive rivalry: There are huge competitive rivalry within cosmetic and skin care
items. Thus to cope up with high competitive rivalry Loreal enhance their quality and marketing
channel by upgrading their technology. This helps the selected company to maintain its market
share and target global market successfully. The competitors of Loreal are Maybelline, Estee
Lauder, Chanel, Dior, Mac and so on. Such company has achieved sales of 26.02 billion euros of
sales and 4.68 billion euros in operating profits which shows that it has achieved a competitive
position in the dynamic marketplace.
Threat of substitute: As Loreal has build huge brand awarenesses due to which it faced
low threat of substitution. Further, company keeps on developing its strategy to maintain its
positions and gain competitive advantage (Schaltegger, Hansen and Lüdeke-Freund, 2016).
Threat of new entrant: Along with Loreal there are various other company like P&G as
well as Estee Lauder which has huge market share and global presence. Thus, because of it the
threat of new entrant is low as company can use the advantage of its economies of scale to build
pressure on the existence of new entrant (Jansen, 2017).

TASK 4
P4: Applying a range of theories, concepts and models, interpret and devise strategic planning
for a given organisation
Porter's Generic Strategic: In order to achieve huge profit in comparison to other
industries within personal care item, Porters generic strategy is used that helps the Loreal
company to identify the areas where company can position itself. The four types of forces are
described below (Sia, Soh and Weill, 2016):
Cost Leadership: With this strategy company decide to set low prices for its product and
services to enhance the market share of company. In relation to Loreal can set low prices for its
personal as well as household products, this can help the company to diversify its market,
increases it productivity and strengthen their relation with supplier.
Differentiation: Within this strategy market realise the consumer that their product is
different from the competitor's which lower down the alternative of product. This helps the
company to charge premium price and lower down the competition rate. Herein, Loreal can
adopt this Strategy by provide valuable product with unique attributes this help the company to
portrait desirable image of the product and increase the profitability of company.
Focused strategy: This strategy is adopted for the narrow segment but has major
implications in that particular market. Herein, Loreal can either select Focused cost advantage or
Focused differentiation method for its product range. Thus, strategic planning help the
organisation to meet the need or requirement of customer within specific area. Therefore, this
strategy help the company to enter as well as expand its operations in the niche market by
satisfying the need of customer.
Therefore, among the different strategy Loreal company must adopt differentiation
strategy. As it will compel the people to purchase the product of specific brand which will create
a pool of loyal customer. Thus, it also helps to lower down the competitive pressure within
beauty industry.
Bowman strategic clock strategy:
Bowman strategic clock strategy: This strategy is used to position the product based on the
price as well as value. It include various strategy which are adopted by the company to position
the product within the market. Thus, the explanation of various strategy is defined below:

Low price and low added value:Here, business especially charges low price of the
product because they not providing nay additional value to the customer. Thus, strategy will
never give the company long term competitive advantage because the customer are not loyal
customer (Taneja, Pryor and Hayek, 2016). Herein, Loreal if select this strategy then they have
to lower down its price in comparison to bother brands of similar industry.
Low price: To expand the market share company lower down the price of product which
reduces the profitability but enhances the customer base. Loreal can adopt this strategy to
maintain its existing customer as well as attract the interest of potential customer.
Hybrid: It include both differentiation well as cost effective strategy which can give
company competitive advantage over others. Thus, due to which it is most desirable strategy
which Loreal can adopt as it not only enhances the market share of company but also make sure
customer do not switch to any other brand.
Differentiation: As the name suggest within this strategy company makes effort to
distinguish its brand from its rivalry (Vlachos, 2016). Loreal can adopt this strategy to sustain in
competitive market by offering quality product to the customer.
Focused differentiation: Company which sell luxury brand generally prefer this strategy
in order to target higher income group people. Respective company can apply this strategy by
promoting the brand and strengthening distribution channel to build high recognition value of
brand.
Risky high margin: This strategy is more prone to risk as the market set high price of
their offering without providing any value addition. This can either work or not work for the
company as if any other company launches their product with more attribute at similar or low
price then customer will definitely switch to other brand. In relation to Loreal can choose this
strategy with the motive to gain additional revenue.
Monopoly pricing: Monopoly pricing means the company can set the price if the price as
per their wish when there is absence of intense competition and bargaining power of buyer is low
(Wirtz and et. al., 2016). This is profitable situation for company as they can charge premium
price and customer left with no other option rather than purchasing the product from particular
industry. Therefore, countries where competitive pressure is low company can set monopoly
pricing.

Loss of market share: This is an ineffective strategy as the company does not offer any
value to the product or does not fulfil the requirement of customer. Along with that company
offer high price which decrease the market share of company.
Thus, among various strategy Hybrid strategy can be adopted by Loreal company to
differentiate their product among the competitor. This helps the company to lower down to gain
long term competitive advantage.
Strategic marketing plan: The strategic marketing plan for Loreal is as follows:
Objective: The objective of Loreal is to provide new product in the existing market place.
The new product will be eye highlighter in multiple colours. This new product will increase the
market share and will attract maximum customer segment of female between the age group of 15
years to 25 years.
Strategy: the strategy adopted to promote such product are as follows:
Research & development: With research and development strategy, Loreal marketers
identifies demand or preferences of existing customers along with market circumstances which
will helps in building strategies according to requirement of customers and market.
Promotion: By using effective promotional strategies like direct marketing as well as
publicity. Attractive advertisement and other promotional strategies will help Loreal to attract
numerous customer and can maximise profit margin of the business.
Tactics: Following tactics are to be focused by Loreal:
Arrangement of funds: Loreal manage its fund from various sources such as internal
along with external sources. Internal sources are retained profits where as external sources are
equity capital.
Technological enhancement: As Loreal is planning to introduce a new product in the
current market so there focus is on technological enhancement in order to attract large segment
of targetted customers.
CONCLUSION
According to the above report it has been analysed that sustainability in the market is
very much essential for each and every business enterprise in an effective manner. It helps in
making good strategies in order to develop their market growth effectively. In order to
identifying the effectiveness of micro environment is needed with the help of this business
operations not get affected properly. For maximization of business growth, it is important to

evaluate the internal or external capabilities so that an organisation can easily formulate their
plan on their business strategies. For better understanding Porter's five forces model is good to
determine the competitive advantages effectively. Therefore, this model and Bowman's strategy
model is much important to gain the competitive advantage in order to offer good value to
customer's in an appropriate manner.

REFERENCES