Unit 32 Business Strategy Report: Analysis of L'Oreal's Strategic Plan

This report provides a comprehensive analysis of L'Oreal's business strategy, examining both its internal and external environments. The report begins with an introduction to L'Oreal and the importance of business strategy. It then delves into a PESTEL analysis, evaluating the political, economic, social, technological, environmental, and legal factors impacting the company. A SWOT analysis identifies L'Oreal's strengths, weaknesses, opportunities, and threats. The competitive environment is assessed using Porter's Five Forces model. The report evaluates various strategic directions, justifies and recommends growth platforms and strategies, and concludes with a strategic management plan incorporating strategies, objectives, and tactics. The McKinsey 7S model is also applied to understand L'Oreal's organizational structure. The analysis provides insights into L'Oreal's market position and strategic recommendations for future success.

UNIT 32 BUSINESS
STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1) PESTEL and SWOT analysis of organisation along with capabilities..............................3
2) Competitive environment using Porter's five forces model...............................................7
TASK 2............................................................................................................................................8
1) Evaluation of different types of strategic directions for organisation................................8
2) Justification and recommendation for growth platform and strategies............................12
3) Strategic management plan with strategies, objectives and tactics..................................13
CONCLUSION..............................................................................................................................14
REFERENCES .............................................................................................................................15

INTRODUCTION
In order to survive in market, it is necessary for an organisation to formulate strategy.
Business strategy is a high level plan made by organisation in order to reach set objectives. It
provide guideline through which work is required to be conducted for achieving goals and
objectives (Acquaah, 2013). The given assignment is based on L'oreal founded in 1909 dealing
in personal care and cosmetics. It is a French company having headquarter at Clichy, serving
their products worldwide. The report covers impact and influence of macro environment along
with analysing internal environment and capabilities. Porter's five force model has been used for
analysing market and various theories, model, concept has assist for interpretation of strategic
directions. Also SWOT and PESTEL analysis has been done in order to know about market.
TASK 1
1) PESTEL and SWOT analysis of organisation along with capabilities
For strategic planning, proper analysis should be done by manager of company. Here,
deputy strategy manager need to analyse internal and external market for L'oreal company. This
helps in making better decision for business. The analysis of l'oreal are as given below:
PESTEL Analysis
PESTEL analysis is tool that is used by marketer for analysing and monitoring macro
environmental (external marketing environment) factors which has impact on organisation
(Alsudiri, Al-Karaghouli and Eldabi, 2013). It identifies key driving force of change in strategic
environment. It includes following:
Political- Political factors means rules, regulations and policies of government of
countries where L'oreal company has been working. This factors includes political stability,
government policy, foreign trade, tax, labour law, trade restrictions. This company has
manufacturing in Paris where policies and rules of France affect company. As product safety is
very important for every organisation for surviving, L'oreal needs to report ingredients it uses in
product while manufacturing to France's government. This factors impact strategic planning as
policies, regulation of every country differ from each other which affect manufacturing process.
The opportunities which is available to Loreal is enhancement of profits when country is in
recession period.

Economic- It means performance of economy which impacts company having long term
effects. It includes inflation, interest rate, economic growth, foreign exchange and others. The
recession is major elements which up-bring cosmetic organisation. Price of products vary from
region to region due to imposing of tax. The states which are developed having high human
development index contribute more to branded products like loreal. While making strategic plan,
it should considered all such factors and analyse past records which company has gone through
for their products. In 2004, Loreal was affected by fall in value in dollars and other currencies.
With increase in economic growth purchasing power also increase which is opportunity for
loreal.
Social- Social factors means value, belief, opinion and characteristics of consumer. It is
the trends where people of society prefer new and latest products. Due to need and demand of
people, L'oreal always do innovations in their products and supply high quality. If Loreal does
not focus on supplying high quality and innovation then it has to vanish from market. In this
way, social factors impact organisation and its sustainability. Loreal can do innovation in their
products as per need and demand of customers and increase profit which is opportunity for it.
Similarly, threats can be if it decline to adopt new technology for production.
Technological- This factors means change in technology with change in time. It affect
management and marketing in different ways such as new ways for producing, distributing goods
and service (Bharadwaj and et. al., 2013). Loreal should focused on innovation and use
contemporary trends. In order to get success in market, L'oreal need to use latest technology and
trends for production and manufacturing of products. If organisation does not use new strategy
then it cannot get success in market. This impact business and its sustainability effectively and
efficiently.
Environmental- This factors means scarcity of raw materials, pollution targets and others
in environment. Currently, customers are demanding high and eco-friendly products for their use
which should from sustainable source. All international brands are supporting world for making
beautiful planet and pollution free. Thus, if it uses high chemical ingredients for manufacturing
products, then it creates pollution which is harmful to environment as well as people. So it focus
on maintaining standard of product along with quality. If Loreal use eco-friendly products then it
cost increase as compared to other which is threat for business. The threats which Loreal can
face because

Legal- It includes equal opportunities, health and safety, consumer rights, product
labelling, advertising standard and product safety (Chang, 2016). There are many competitors of
L'oreal so it need to use all legal standards and laws for manufacturing of products. In order to
avoid violation, chemical products should be banned and follow legal requirements. By
following each and every laws within organisation increase morale value for business and their
customers for purchasing of goods and services.
This PESTLE analysis help Loreal as it large organisation which is operating its business
in different parts of world. This framework suit this firm in best and effective way. In order to
survive in competitive market, it is necessary to know about each and every factors. Such
elements helps in expanding business in other part of world also.
SWOT Analysis
SWOT analysis is strategic planning that is used for helping organisation and people to
identify strengths, weaknesses, opportunities and threats for project planning and business
competition (Eaton and Kilby, 2015). SWOT analysis of Loreal is as given below:
Strengths- It means describing what organisation have and separate from its competitors
in terms of brand value, loyalty of customer, unique technology. The strength which Loreal
carries are strong research and development, quality, safety, diverse markets. Loreal offer high
quality goods and move towards luxury brand. It supplies its products in more than 120 countries
leads in high earning of profits. Customer prefer healthy and glowy skin and prefer to use less
chemicals products and l'oreal focus on their need and demand. Also, l'oreal has endless research
as it has various products in different niches of cosmetic and beauty products. Thus, it leads to
grow and sustain business in market. For example, it has capability to extend market everywhere
in order to fulfils need and demand of customers.
Weaknesses- It means stopping business from performing its optimum level. It includes
high level of debts, inadequate supply chain, lack of capital and others. The weaknesses of loreal
are; It has multiple acquisitions, dependence on suppliers, shrinking profits. L'oreal has invested
large amount of money in research and development in order to make customers happy which is
very expensive. There are many products offered by loreal which requires large number of
employees for handling it. L'oreal have more than 60000 staff working for different department
such as accounting, manufacturing, customer service. This increases cost to organisation for

hiring large number of employees. For example, Loreal has to spend large amount for managing
various department which increase cost to organisation.
Opportunities- It lies outside organisation which can be used for gaining competitive
advantage (Iacob, Quartel and Jonkers, 2012). It can be high market share, increasing sales, and
others. Loreal has opportunity to expand business in new market, and products different
countries according to their need and demand. Customer always look for best product, newest for
their body, so loreal can easily enter into new market. There is another opportunity for Loreal
where it can manufacture new types of products for their customer. It focus on manufacturing all
types of products for every consumers. It has opportunity to create more organic products rather
than chemical based.
Threats- It means factors which can harm organisation like increasing competition, high
cost for inputs, tight labour supply. The threats which L'oreal can face in terms of economic
crisis, competition, new regulations. The declination of economic and its value will be great
challenges for development of Loreal and its products. With the new entry of different
companies in beauty and products is great challenges for Loreal to survive such as Revlon,
Procter & Gamble, Estee Lauder. Many consumer has raise voice against presence of harmful
chemical ingredients in beauty and cosmetic products. Due to this, Loreal need to product good
and high quality products which is challenging factors.
In order to explain structure of Loreal, McKinsey's model has been explained which is
given below:
Mc kinsey 7s model:
In Mckinsey the seven areas of organisation should be divided into basis of soft and hard
areas which are follows:
Strategy- It is an plan that developed by an organisation to attain competitive advantage
and to compete in market. A sound strategy is one that is clearly defined, sustain for long term
and reinforce with vision and mission.
Structure- It relates with the way in which business divides and units are organised
information and data are accountable for whom. It is an structural framework to reach at defined
goal.

Systems- They are the processes that shows about daily activities and accordingly
decisions should be taken. It defines about how business is done.
Skills- They are the abilities of an individual to perform in well manner, in which
competences and capabilities includes.
Staff- It represent type and no. of employees require for an organisation that are enough
motivated, rewarded.
Style- It consist of in which manner company manage their top level managers, their way
of interaction and symbolic values.
Shared values- It consist of norms and standards that give instruction to take appropriate
action.
After discussing all 7s of McKinsey's model, it is recommended to Loreal, to follow
strategy in their firm. Without strategy, organisation cannot run effectively and efficiently. Thus,
strategy are guideline to corporation which assist them to achieve goals and objectives.
2) Competitive environment using Porter's five forces model
The successful organisation requires strategic management where mission and vision is
defined and are formulated on basis of environmental factors. Environmental analysis is strategic
tool that is for scanning and evaluating factors which may be suitable or not suitable for business
(Jocovic and et. al., 2014.). In order to evaluate competitive environment of Loreal, Porter's five
force model has been used described below:
Porter's Five Force Model
It is a tool used for analysis of industry force for determining intensity of competition and
level of profitability (Khalili Shavarini and et. al., 2013). It was developed by Michael Porter in
1979 for understanding key competitive forces which are affecting industry. They are explained
below:
Threat of New Entrants- It means when new company enter into market with same
category of product. The threat of new entrants is very low for Loreal as many company such as
Estee Lauder, Olay, Proctor and Gamble supply goods but their quality is not up to the mark.
Due to this there is less or no threat from such companies. In order to avoid such situation,
Loreal need to continuously do improvement in their products.

Bargaining Power of Suppliers- There are many supplier from where L'oreal can buy
raw materials. L'oreal has huge capacity to produce more than 45 billion units products each year
so supplier bargaining power is very low. Their supplying power of products is huge in world.
Here, bargaining power of suppliers is low as loreal has opportunity to purchase their raw
materials from different suppliers.
Bargaining Power of Buyers- As there are numerous powerful competitors such as
Avon, Shiseido, Procter and Gamble causes high bargaining power for customers in market. The
prices charge for product is very high by company, which create opportunity to potential
consumer to go for other companies. Loreal is facing threat of customers because of competition.
In order to survive in market, it must deal with threat for maintaining market share of firm.
Threat of Substitutes- With change in time and situation, people prefer more skin care
products. Loreal is one of the leading brand in ageing products so no other competitors can beat
this brand. Thus, there is less substitute of such products and brand. For example, ponds is also
dealing cosmetic products which is substitute for Loreal.
Rivalry Among Existing Competitors- It means competitors of same products in existing
market. There are many competitors of Loreal in current market of skin care and cosmetic
products such as Avon, Estee launder, Proctor and Gamble. Such organisations keeps on
implementing strategies for increasing their market share. Loreal need to enhance their quality on
non-stop basis for each and every production line for surviving in competitive market. They need
to enhance marketing channels with help of new innovation and highest technology for obtaining
more market share and targeting market globally.
This model is most suitable for Loreal as it helps in knowing about substitute, threat of
new entrants, rivalry, buyer and supplier bargaining power. Through this model, Loreal
implement best strategy for their business and make effective goods and services to beat
competition and fulfils need and demand of consumers.
TASK 2
1) Evaluation of different types of strategic directions for organisation
The environmental analysis should be done by each and every company for surviving in
competitive market. This leads business to work in proper direction and achieve final goal and

objectives. Some of strategic directions available to Loreal are described below with help of
Ansoff Model:
Ansoff Matrix
It is strategic planning procedure which provide guidelines and framework in order to
help senior managers, executives and market devise for future growth (Lawton, 2017). It was
given by Igor Anosff who suggested two approaches that is product and market growth. There
are four strategic options or directions with various level of risk to Loreal which are described
below:
Market Penetration- It is a growth strategy in which organisation focuses on selling
existing products to existing consumers of market (Li and Tan, 2013). There are four objectives
which are carried by market penetration which are as given below:
 Increasing or maintaining market share of current or existing products- it can be achieved
with the help of competitive pricing strategies, sales promotion, advertising and personal
selling.
 Increasing existing customers by usage- Example, introduction of loyalty schemes.
 Securing dominance of market growth
 Restructuring all mature market through division of competitors that requires more
promotional campaigns supported through pricing strategy which is designed for making
market unattractive for competitors.
This strategy is less risky as it leverages entity existing capabilities and capabilities. This
can be helpful to Loreal as it can capture large number of customers because from existing
product and markets. This helps in saving cost for advertisement as consumers are already aware
of market, products, quality and price. Such strategy can provide benefits to Loreal.
Market Development- It provide options for additional segments of markets or
geographical regions (McGrath, 2013). This strategy can be possible through following ways
such as:
 Entering into new geographical markets such as exporting product from new country.
 New packaging of product or dimension.
 New channels of distribution such as moving of sell from retail to e-commerce and mail
order.

 In order to attract various consumers, different pricing policies has been made and also
creating new market segments.
This strategy can be used by Loreal but for that purpose it need to search new market or
target group. Such strategy can be successful only if Loreal can use unique product technology
and provides economies of scale if output increase.
Product Development- This strategy is appropriate if strength of firm is realistic and
related to particular customers rather than specific product (Murthy, 2012). Organisation can
leverage strength by development of new product that can be targeted to existing customers. This
strategy carries more risk as compared to others. Such strategy needs development of new
competencies and want entity to develop new or modified products for existing market. It
emphasis on following:
 Innovation in research and development
 Being first in market
 Detail about customer needs
Such strategy is useful for Loreal as it need to focus on new products in existing market.
There is high chance of growing profits and increasing market share by Loreal. As it is renowned
brand in market which can easily capture customers in already existing market.
Diversification- It is growth strategy where enterprise introduce new products in new
market (Oestreicher-Singer and Zalmanson, 2013). It is more risky as compared to other strategy
because enterprise is moving into new market where it has less or no experience. This strategy is
helpful to Loreal as it has brand value and goodwill so can easily enter into new market and
products.
Porter's generic model
This model is introduce by Michael Porter. It is applied to ascertain the strategy of firm
and company have to select a clear course so that they can capable to beat the competition.
Herein, there are four strategies that are mentioned below: Cost leadership: This is considered as a most general business strategy. It means that
firm is going to lead market in controlling costs in same or other way. Herein, Loreal can
apply this by offering goods at less price than rivals and convince customers to buy their
products as it is not expensive.

 Differentiation: This is just opposite to cost leadership strategy. With the help of this
Loreal can try to take over market by providing standard quality instead of selling their
products at low cost. Cost focus: In this strategy company can target niche market as well as offer least
possible cost. This can be applied by Loreal to target a clear niche market by knowing the
dynamics of marketplace and the wants of customers.
 Differentiation focus: This strategy is similar to the cost focus, except firm perform in
niche market while effort to exist on the basis of quality. Loreal can use this strategy to
target niche market with unique product features.
From the above strategy Loreal can use differentiation strategy as with the help of this it
can target large market and accomplish the competitive advantage by providing standard quality
product with unique features.
Bowman’s strategy clock model
This model is introduced by Bowman and David Faulkner. The main purpose of this is to
aware firm about their market position in comparison to its competitors. This assists Loreal to
analyse its position into marketplace. In this there are eighth strategies that are mentioned below: Low price and low added value: Herein, the price of the product or service is very less
and is not differentiated as well as clients perceives little value. This can be used by the
Loreal, when they offer inferior products in order to attract consumers with cost
effectiveness. Low price: This help Loreal to placed the product at lowest possible price through
balancing the equation with high volumes. Hybrid Positioning: It is very effectual if the product added value is consistent as well as
used and offered at daily basis. With the help of this Loreal can used moderate price and
value for their products. Differentiation: Loreal can applied this to give its best in order to offer standard quality
of product as much as they can but at average price. Also, want to provide their
consumers the highest degree of perceived added value. Focused Differentiation: It is concentrate upon positioning where exclusive as well as
luxury brands focus that is high quality product at high cost. Herein, Loreal applied

targeted segmentation, promotion and distribution that leads them to gain more profit
margins. Risky high margins: Loreal can apply this strategy to charge more cost for their products
for that consumers perceived value is mediocre. Monopoly pricing: Herein, firm can position themselves as monopoly leader into
marketplace because they are the one who offers particular kinds of products into market.
Loreal can charge high price for the low value products.
 Loss of market share: This is not much demanded for any firm as it mainly refers that
organisation can not capable to offer product s or services which the consumers value.
With the assistance of this Loreal can offer low value product at high price into
competitive market that may outcomes in loss of market share.
Thus, from the above strategy of focused differentiation is suitable for Loreal as through
this they can target specific market with high value at high price.
2) Justification and recommendation for growth platform and strategies
After analysing all strategies of market, it can be concluded that Loreal can adopt
diversification strategy. The justification and recommendation for growth platform of such
strategies are described below:
Diversification- This is the strategy where new products is introduced in to new markets.
Diversification can be classified into related and unrelated where related means organisation
remain in that industry and market where they are familiar and unrelated means adding unrelated
or new products lines and penetrating market (Peng, 2017.).
This strategy can be adopted by Loreal as it is renowned brands in market. According to
data of 2017 ,it has 23.89 billion US dollars brand value world wide and between 2015 to 2018 it
has grown annually by 4.2 percent rate (Statistics & Facts, 2018). L'oreal can easily enter into
new market with new product. It has opportunity to deal in baby products for diversification of
market. When any renowned and popular brand come with new idea then it can easily capture
market and customers. Here, L'oreal can provide variety of baby care products to new born
babies for product expansion and target new segment of consumer. It is also recommended
company to do proper market research before entering into any new or existing products. Thus,
diversification is most suitable growth strategy for L'oreal in order to grow market share and
profit in new market.

3) Strategic management plan with strategies, objectives and tactics
Strategic Management Plan (SMP) is written document which is used for communicating
within organisations and its set priorities, configure resources, focus energy, strengthen
operations, goals and ensuring that staff are working towards goals,agreement which is establish
around aspected outcomes. Such plan helps Loreal to take effective and efficient decisions for
business growth and profits. The strategies, objectives and tactics prepared with SMP are as
follows:
Strategies
In order to make proper strategies, various points need to be considered by Loreal such
as:
Market Analysis- Market should be analysed effectively and efficiently in order to know
about need and demand of customers (Schaltegger, Lüdeke-Freund and Hansen, 2012). After
knowing about market, strategies related to consumer and its demand need to be produced by
Loreal for sustainability and growth. This is effective planning decisions made by business to
provide benefits to both. Data can be used related with companies providing baby care products
and according bring innovations.
STP (Segmentation Targeting and Positioning)
Segmentation- Firstly,Loreal need to segment market on basis of market analysis which
can be on demographic, psycho graphic and behavioural factors. This helps in knowing about
customer and their need, demand.
Targeting- Under this it has targeted small baby for their products and accordingly
manufacture it.
Positioning- It means creating position for brand in mind of customers. For positioning
various tools can be used such as advertising, social media and others. It does not required
enough advertising as it has huge brand value and goodwill in market. This is most important
strategy which should be done by each and every organisation.
Objectives
Loreal need to set objectives on the basis of SMART which is given below:
To increase sales by 25% in next three years by providing child care products by
maintaining quality and value of it.
Tactics

There are some tactics strategies which Loreal need to make in their new products such
as:
Cash Management- It is tactics decision which organisation need to make for new
products. It is very important to analyse requirement of cash for products which helps in making
proper budget and arrangement of cash. Such decision should be made very effectively by
manager in order to achieve objectives (Verbeke, 2013).
Packaging- Loreal has segmented small babies for their new products. As baby prefer
creative and innovative packaging for goods. Thus, in order to attract more customer, it can make
tactics strategies in upcoming products.
CONCLUSION
From above report, it can be concluded that strategies are very important for organisation
for decision making. In order to survive in market, SWOT and PESTEL should be done which
assist in knowing about internal and external strength and weaknesses of organisation and
accordingly planning can be done. In order to know about competitive environment, Porter five
force model has been used for knowing about threat, substitute, rivalry, new threats and others so
that effective decision could be made. Through analysis of strength and weaknesses, it can adopt
growth strategy for increasing market share and profit. Here, it can implement diversification
strategy where launching new product in new product with help of proper analysis. For
sustainability and growth, it need to make strategic management plan considering objectives,
short term and long term goals.

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<https://www.statista.com/topics/1544/loreal/L'Oréal>.