Business Strategy Report: L'oreal's Analysis and Recommendations

This report provides a comprehensive analysis of L'oreal's business strategy, focusing on its operations within the personal care and cosmetics industry. It begins with an introduction to business strategy and then delves into a PESTLE and SWOT analysis to assess L'oreal's internal and external envir...Read More

BUSINESS
STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
PESTLE and SWOT analysis for organization's capabilities.................................................1
Porter's Five Forces Model for competitive analysis.............................................................4
TASK 2............................................................................................................................................1
Different types of strategic directions available to organization with justification and
recommendation of growth strategies and platforms.............................................................1
Strategic management plan for L'oreal...................................................................................2
CONCLUSION ...............................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Business strategy refers to the decisions or course of action undertaken by an enterprise
in order to achieve their long term goals and objectives. Such actions and strategies are aimed at
grabbing the attention of customers, gaining strategic edge over rivals, strengthening business
performance and attaining high stake in market. The mission and vision of an enterprise serve as
the basis upon which the strategy and planning of business is done (Brewster, 2017). The present
report is based upon L`oreal which is a French brand dealing in personal care products,
headquartered in Clichy, France. It includes PESTLE and SWOT analysis to gain knowledge of
organisational capabilities. Also, Porter Five Force analysis is done to gain an insight into firm's
competitive environment. Besides this, evaluation of various types of strategic directions
available to company is included. Lastly, recommendations have been provided for growth
strategies along with a strategic management plan.
TASK 1
PESTLE and SWOT analysis for organization's capabilities
Strategic planning refers to the process of defining the future plans of an entity which are
necessary for accomplishing organisational goals and objectives. It comprises of sequence of
steps which are essential for an enterprise to align the behaviour and performance of overall
organisation towards the vision and long term goals of company. Basically, it is a long term plan
which is made for a time period of 3-5 years in a strategic manner so as to gain an edge in market
and enhance the profitability and growth of business. The primary objective here is to provide a
relevant and adequate guidance to organisational leaders in order to assist them in making
decisions associated with operations, workforce, utilisation of resources and stakeholders. This
helps the entity in ensuring that the functioning of company is in accordance with the desired
results.
L'oreal is one of leading brands in cosmetics, hair, make-up and skin care products. Being
a company with outlets spread across the globe, it is highly significant that strategic planning is
done by the enterprise in order to gain knowledge of the internal and external business
environment (Cavusgil and et. al., 2014). In today's world, competition is rising at a rapid pace
which enhances the scope as well as need for L`oreal to come up with effective business
strategies and plans in order to maintain the position and goodwill of organisation in
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marketplace. New companies are constantly entering into the personal care and cosmetics
industry in UK which further raises the standards of this sector. Thus, this enterprise takes into
account the internal as well as external factors that affect the operations and functioning of
business in the long run.
PESTLE Analysis
This is a strategic tool which helps an enterprise in gaining an insight into the external
environment of business. The managers of L`oreal have conducted PESTLE analysis to gain
knowledge about the external capabilities of company, as described below:-
Political Factors: This defines the extent of government intervention in the operations
and functioning of business. In this, UK government is stable and thus, the laws and legislations
prevailing in the country remain consistent over years for personal care and cosmetic industry.
L`oreal is a leading global brand which strives to provide products which do not contain any
hazardous or unhealthy substance (Chang, 2016). However, the government of UK has
prohibited animal testing of goods which may create short-term hassle for this company. Thus,
L`oreal is capable of avoiding to get involved in any such acts which are banned by statute.
Economic Factors: An enterprise which is running as a part of an economy is affected by
a number of economic factors such as currency rates, inflation, interest rate etc. At present, the
economy of UK is affected the fluctuations of currency as a result of Brexit. Besides this,
inflation rate within UK has also increased significantly leading to a rise in distribution and
production costs. It has been observed that GDP of cosmetic industry within UK has seen
substantial growth over years which is beneficial for L`oreal. Thus, company is capable of
introducing more products within the cosmetics section in order to gain an edge over rivals.
Social Factors: This includes the values, practices, beliefs, norms, traditions of people of
a country. The major reason behind the leading position of L`oreal in today's competitive world
is that the company manufactures and introduces only such products which are capable of
meeting the needs and demands of consumers. Besides this, it is evident over years that this
organisation continuously analyses the latest fashion trends and preferences of people and then
take decisions about development of a new product (Chen and Jermias, 2014). Further, there are
certain ingredients the utilisation of which is considered as a holy sin by certain communities.
Thus, L`oreal is capable of ensuring that they produce new products and ranges as per consumer
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needs while not including any such ingredients or chemical that violate the traditions or beliefs
of society.
Technological Factors: With passage of time, there are frequents advancements in
technology and techniques being used within an economy. L`oreal is a top company which uses
product and technological innovations in order to gain a strategic edge over rivals within UK
market. Besides this, organisation invests a large amount in R&D Department so as to gain
knowledge about the latest tools and techniques being used by businesses within cosmetic and
personal care industry. Also, Loreal has embraced digital transformation and their products are
available on a number of e-commerce websites such as Amazon, eBay etc (Goffee and Scase,
2015). Thus, the use of right technology at the right time has shaped the success of enterprise in
UK and company is capable of continuing the same in future also.
Environmental Factors: This is the aspect which defines the extent to which company
undertakes decisions and activities which are in the favour of environment. L`oreal is a
recognised brand which conducts manufacturing of products in such conditions which do not
lead to emission of pollution at a scale that can cause harm to surroundings. Also, this enterprise
has stopped utilising such substances within the products that can cause cancer and have also
disclosed their secret fragrant chemicals publicly. Thus, company is capable of carrying out only
those activities which are in the interest of environment.
Legal Factors: There are certain rules and legislation enforced by law that companies
have to comply with. The target audience for L`oreal is mostly upper middle class audience
which is highly concerned about the alignment of company's functioning with the laws of UK.
The government of UK has prohibited the utilisation of some chemicals which have been taken
into account by Loreal. Besides this, the enterprise is capable of abiding by the legislations laid
down under Environment Act 1995, Employment Act 2002, Companies Act 2006, Minimum
Wages Act (Amended) 2018 etc. in order to avoid government intervention.
SWOT Analysis
It is a strategic planning tool used by an enterprise to gain knowledge about the internal
environment of business (Jeston, 2014). In this regard, managers of L`oreal have conducted
SWOT analysis so as to recognise the internal capabilities of company:-
Strengths Weaknesses
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 It is one of the leading cosmetic
companies in the world by delivering
high quality products which meets the
needs and requirements of consumers.
 This enterprise is globally present in
over 130 countries, has more than 40
production units and is capable of
expanding the operations in locations
yet unexplored by enterprise.
 L`oreal makes use of creative and high-
end advertising via social media and e-
commerce sites and is capable of
continuing it in future also (Jocovic and
et. al., 2014).
 Loreal follows a decentralized
organisational structure as a result of
which they face problems associated
with control of all their divisions. This
company is capable of devising a
business strategy that can assist in
coping with this problem.
 There is high competition from other
leading brands within cosmetics and
personal care sector which renders
opportunities for the enterprise to
introduce such products that can meet
the demands of public.
Opportunities
 L`oreal can expand its business in
emerging markets where its products
and services are not yet available so as
to become a leader in industry.
 The company is also capable of
introducing new products within the
cosmetics and personal care range as it
has a good reputation in this sector with
a strong customer base.
Threats
 There is rising competition within
cosmetic brands. L`oreal is capable of
introducing innovative and unique
products which can enhance the brand
image and position of company in
global marketplace.
Through internal analysis, it has analysed that capabilities of L’Oreal is majorly shown
by it diversifying strategies, under which it operates business in three main sectors. It includes
cosmetics, dermatology and body shop. It runs more than 2550 stores in near about 62 countries
where skin and hair care products are manufactured by natural ingredients. Therefore, all such
factors show that L’Oreal is capable to attract and retain its targeted customers for longer period
of time.
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Porter's Five Forces Model for competitive analysis
The managers of L`oreal have made use of Porter Five Force Model in order to assess the
competitive environment within UK market. This will assist the enterprise in gaining a strategic
and competitive edge in marketplace so as to gain a strategic edge in market, as follows:-
Threat of new entrants: For a cosmetic brand, huge amount of funds is required to
develop new products and to meet the needs of the customers, so the threat of new entrants is
low within the marketplace. Besides this, high product quality, marketing and pricing have to be
considered by new entrants. Sometimes, for some companies, entry is easy because of the high-
quality products being rendered by them and their low pricing strategy (Klettner, Clarke and
Boersma, 2014). There are a number of rivals within this market like Mac, Lancome, Maybelline
etc. yet cosmetic industry has relatively low threat of new entrants which is beneficial for
L`oreal.
Competitive Rivalry: Degree of competition within cosmetics and personal care industry
is immensely high and rivals present in cosmetic industry are Elemis, Espa and other local
organisations. Number of spas situated in UK are limited and many of these possess their own
products, this indicates that the demand is lower than supply. The large number of competitors
within cosmetic industry reduce the overall profitability of organisations such as L`oreal. So,
L`oreal should stress upon their quality quotient and price in order to grab the attention of
customers.
Threats of Substitutes: The risk associated with switching of brands within cosmetic
industry is quite high as many competitor companies come up with similar products and satisfies
the needs of the customers. Close substitute products prevail within UK market which increases
the likelihood of people tuning to alternative goods in response to price increase. The power of
suppliers as well as the attractiveness of market is reduced as a consequence. In order to sell its
products to a large number of customers, L`oreal should introduce new products quite often.
Bargaining Power of Buyers: By the force of customers business started providing good
quality goods at lower cost and increase customer satisfaction. Manufacturers and suppliers may
not predict the future demand because consumers have high demand of power. Organization has
a high bargaining power of customers, it increases the competition and availability of market
product from various manufactures. It is not a risk for L`oreal because it is one of the leading
cosmetic company and customers prefer its products with the price they offer.
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Bargaining Power of Suppliers: Suppliers are important for every company as they
provide raw material. If the bargaining power is high, company is likely to lose its customer. If
the supplier increases the cost, the cost of final product will automatically increase (Laudon and
Traver, 2016). They offers variety of products, and to meet the demand of customers. There are
huge number of suppliers in the market, hence the bargaining power is low. L`oreal is a large
company which have huge contacts with a number of vendors which reduces the risk associated
with this factor.
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TASK 2
Different types of strategic directions available to organization with justification and
recommendation of growth strategies and platforms
Strategic decisions refer to the course of action that are undertaken with the motive of
attaining the desired results. It is basically based upon the mission, vision, tactics, values and
strategies of company. It provides a structural layout and framework in accordance with which
the internal capabilities of an enterprise are aligned. L'oreal is a top brand having its outlets
spread across different parts of globe (Lawton, 2017). Being globally present, it is posed to a
number of internal and external challenges. Besides this, there is massive competition within the
cosmetics industry, thus, business strategies of L`oreal should be reviewed and revised at
frequent intervals in accordance with the current market situation.
Growth strategies assist an enterprise in making such management plans which facilitate
the growth of business in future prospect. In addition to this, growth platforms are the specific
capabilities that an organisation applies for enhancing its revenues and profitability in
marketplace. It operates at two stages, namely, Strategic and Tactical. While strategic initiatives
are generally for period of 3-5 years, tactical are for a shorter time duration. In this regard, the
strategies that can be adopted by L`oreal are described below:-
Market Penetration: It is a business strategy utilised by L`oreal in order to promote the
products of company in the current market. This assists the enterprise in enhancing the existing
stake of organisation in marketplace. L`oreal has been targetting upper middle class as the
audience for their high quality goods. Their pricing policy has always been to keep the prices
high in response to the high quality products being provided by them. It can be said that the
company can reduce its prices in order to target the lower middle class too.
Market expansion: Also known as market development as here the enterprise sell their
existing products within new markets. This may prove to be risky for L`oreal as huge investment
is required for this along with extensive advertisement (Peng, 2017). It is not feasible for
enterprise to reduce the prices of products and thus, L`oreal may consider the option of combing
elements of low pricing with certain extent of product differentiation.

Product expansion: Here, company introduces new products within existing
marketplace. Over years, L`oreal has been introducing new products at regular intervals which
are unique and innovative. Such products are launched by enterprise in order to gain the attention
of a large number of persons within UK. L`oreal is capable of introducing new perfumes within
the luxury segment and hair products within the haircare section in order to captivate customers
of all age groups (Scholes, 2015). This strategy will assist the organisation in enhancing its
revenues and profits in marketplace.
Diversification: Here, company introduces new products within new markets. This is the
strategy containing the element of highest risk as a lot of funds are required for executing this
strategy. Top brands such as L'oreal are highly conscious about their brand image as well as
position and thus, L`oreal adopts a number of effective marketing practices and strategies like
Merger and acquisition, satisfying local needs, create a diverse portfolio etc. in order to retain the
customers for a long time (Strategies of L'oreal, 2018). L`oreal can use differentiation strategy in
order to deliver products with high value addition.
Acquisition of local companies: In this strategy, a company buys shares of another
enterprise in order to carry out expansion of its operations and functions. By acquiring other
small local cosmetics and personal care companies situated within UK, L`oreal can aim at
enhancing the current market share of organisation by reaching out to a wider base of audience.
This happens because when business acquires other small organisations, it aims at capturing the
attention of the loyal customer base of these entities. This can prove to be an effective growth
strategy for L`oreal and assists the company in gaining a high stake at marketplace.
To make sure that a product becomes successful within UK market, managers of L`oreal
should build an effective platform which provides a number of initiatives for the enterprise to
grow as well as to ensure its sustainability in marketplace. For facilitating expansion and growth
of current operations of L`oreal, it is recommended that they should opt market penetration. This
approach will assist the enterprise in enhancing their profits as well as sales. Consequently, the
share of company in market will also increase. As L`oreal is already one of the leading names in
the cosmetic and personal care range, it is capable of executing market penetration successfully.
By providing products with high value addition at lower prices, enterprise can gain the attention
of a large base of customers (Veit, D. and et. al., 2014). Thus, promotion of existing products
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within current market will prove to be beneficial for entity. In this regard, L`oreal is coming up
with tiny packages of products and offer them at wide range of prices.
Strategic management plan for L'oreal
Strategic plan is the tool comprising of the vision, values, mission, goals ad strategies of
enterprise for future growth. This is very crucial for the success and growth of business in long
term. This procedure begins with with management of developments followed by
implementation and lastly the review of strategy (Wheelen and et. al., 2017). L'oreal has to
devise such plans which will assist them in gaining a strategic edge in market over rivals, thereby
also leading to increase in customer satisfaction. The strategic management plan of L'oreal is
devised below with the motive of accomplishment of organisational goals. The various
components of this plan are described below:-
Aim: To grow the scale of operations of business within emerging markets.
Organisational structure: L`oreal is an enterprise which follows decentralised structure
which indicates that they exercise control over their divisional units.
Vision: To become a leader in cosmetics and personal care industry.
Mission statement: To offer high quality products to customers and ensure high customer
service excellence.
Values: L`oreal possesses beliefs such as maintaining integrity, respect and fostering
transparency across the premises by undertaking ethical activities (Spender, 2014).
Problems: L`oreal tends to focus upon problems associated with high price and barriers
observant in case of product delivery.
Goals: Long-term goal of L'oreal is to gain entry into emerging markets by facilitating
collaboration with local manufacturers. In addition, short-term goal is to focus on reduction of
prices in order to gain attention of more customers.
Strategies and tactics: L`oreal will make use of market penetration in order to gain
success and facilitate business growth. This will render a competitive edge to company over
rivals which will assist in ensuring their sustainability in market for a long time (Veit and et. al.,
2014). The tactics of the enterprise will be to develop such products which strive to fulfil the
needs and demands of consumers.
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CONCLUSION
From the above report, it has been concluded that it is necessary for an enterprise to do
strategic planning in order to ensure achievement of goals and objectives within the stipulated
time. Besides this, it has been analysed that the performance of business has to be aligned with
the strategies so as to make sure that the desired outcomes are yielded. In addition to this, with
the help of SWOT analysis, it has been evaluated that company is capable of introducing new
and innovative products at regular intervals. Furthermore, PESTLE analysis has reflected that the
organisation is capable of manufacturing products as per the latest trends and techniques utilising
the right technology. Also, Porter Five Force model has been used to gain knowledge of the
cosmetic and personal care industry.
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REFERENCES
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Online:
Strategies of L'oreal. 2018. [Online]. Available Through:
<https://www.forbes.com/sites/jannamandell/2018/03/16/loreal-says-in-your-face-to-
competition-with-strategic-ai-and-ar-acquisition-modiface/#185ac80c1f38>.
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