Business Strategy Analysis of L'Oréal: Competitive Forces and Planning

This report provides a comprehensive business strategy analysis of L'Oréal, a multinational cosmetic company. The report begins with an introduction to business strategy, followed by an analysis of L'Oréal's macro environment using the PESTLE framework and stakeholder analysis. It then delves ...Read More

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1 Applying appropriate framework analyses the impact and influence of the macro
environment.................................................................................................................................3
TASK 2............................................................................................................................................6
P2: Analysis of internal environment and capabilities of chosen organisation..........................6
TASK 3............................................................................................................................................8
P3: Evaluation of competitive forces of a given sector...............................................................8
TASK 4..........................................................................................................................................10
P4 Strategic management plan for L'Oréal by including strategies, objectives and tactics......10
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Business strategy includes various plans and strategies which are formulated by the
management so that preset goals or objectives of firm will be achieved within allotted time
period. In addition to this, It is a long term plan which covers a period of about 5 to 7 years. It is
very important for determining the suitable path for the future period. These strategies also
assists the manager of organisation in analysing the position of firm in marketplace. Present
report is based on L'Oréal which is a multinational company and providing services in cosmetic
industry. The firm was founded in 1909 by Eugene Schueller. This assignment will discuss about
the analysis of macro and micro environmental factors along with determination of competitive
forces of marketplace. In addition to this, application of a range of theories or models will also
covered in this report.
TASK 1
P1 Applying appropriate framework analyses the impact and influence of the macro environment
Business strategies are defined as the high level plan of an organisation so that particular
objectives will easily achieved in proper manner. In addition to this, it is a formulation or
implementation of plans and policies so that preset targets or goals will be achieved in an allotted
time period. With the help of these, Managers of L'Oréal can easily analyse their position in
market and determine the appropriate way for getting growth and success of firm.
Mission – The mission of L'Oréal is to provide better quality products to the customers
along with affordable price due to which company can easily take sustainability and growth in
the market.
Vision – Vision of L'Oréal is to find the suitable path through which satisfaction level of
customer can be enhanced.
Objectives- Main objective of the company is to grab the high market share along with
enhancing the trust and loyalty of customers towards offerings of organisation. The company
have formulated long term goals through making cooperative activities with the local
manufacturers so that competitive advantage of the company can be maintained in the
marketplace (Schrader,2012).

Importance of business strategies – These strategies helps the managers in clearly
understanding the firm also helps them in which element is mostly required for increasing the
overall performance of the organisation.
L'Oréal is providing its products and services in the worldwide therefore there are
various external factors that can influences the performance or long term strategies of the firm in
positive or negative manner. Among various analytical tools, Management of L'Oréal can
conduct PESTLE analysis through which they will easily evaluate external factors such as
political, economical, technological etc. and their influence on the business operations or
strategies of L'Oréal.
Political factors – Factors that can influenced and related with the policies of
government of a specific nation are defined as the political factors. For example- the tax rate on
cosmetic products in UK are increasing on regular basis, current tax duties on cosmetic products
are 20% that was 17.5% in last year of 2018 which can influences negatively on the productivity
or profitability of organisation. On the other hand, citizens of nation are more aware about the
beauty and personal care products that can gave an ultimate opportunity to the organisation in
terms of getting high sustainability and growth in the marketplace (Peng, 2017).
Economic- These factors are comprises of economic growth, inflation rate, global trade
rates etc. which can influence the buying behaviour of customers and profitability of firm in
adversely or favourably manner. As the L'Oréal is providing its product or services in various
nations therefore they have to perform their business functions as per the economic condition of
a specific country. For instance, Global trade rate in UK is 44% that can prove as an opportunity
for the management of L'Oréal through which they will be able in expanding their market share
and launching new products in UK.
Social – As L'Oréal firm has build its brand image in whole world therefore customer
base of organisation is relatively high in the marketplace. Every customer wants value of their
money for which organisation can enhance the trust and loyalty of them through providing them
quality products at lower prices. With the help of it, they will easily maintained their brand
image in marketplace.
Technological- This factor gave a high influences on the cosmetic sector. There are
various websites on internet that gave price comparison and lower pricing facilities to the

customers. Through consideration of such factors, L'Oréal will become the main part of cosmetic
industry.
Legal – Some rules and regulations are formulated by the governmental authorities of a
specific nation which should be followed by each organisation such as employment law, fair
pricing law etc. Therefore, managers of L'Oréal have to make consideration on these laws and
regulations which can profitable for them in gaining sustainability and growth in the market. If
they will not adhere such rules and regulations they have to penalties which will be not profitable
for the brand image of firm (Iacob, 2012).
Environmental – There are several issues or challenges of cosmetic industry which have
to face by every industry such as water pollution, waste management, air pollution etc.
Therefore, L'Oréal have to follow the guidelines which are formulated by the government of a
particular nation so that their brand image and customer base will be maintained in the market.
Stakeholders analysis- This analysis is related with the completion of project. In
addition to this, it is a connection between stakeholders and organisation that assists them in
achievement of growth and sustainability. It can also defined as an evaluation of stakeholders for
engaging with them in effective manner.
Stakeholder analysis
Stakeholder group with—————-Level of importance
High interest and high power —————High importance
Low interest and high power —————Medium importance
Low interest and low power —————-Low importance
High interest and low power —————-Medium importance
on the base of above matrix below is stakeholder relationship with L'Oréal is as under:
Customers- Customers are the lifeline of L'Oréal without them they can't take growth
and success in the marketplace. Furthermore, customers can be said that the primary stakeholders
of the L'Oréal therefore, It can be said that without their support organisation can't make a good
brand image in front of customers.
The government - Government plays an important role at many times in the cosmetic
industry through using various kind of tools such as tax, duties, inflation, pollution tax etc.
therefore, managers of cited firm have duty to maintain the economic condition of firm through
considering such factors.

Employees - These are the heartbeat of a firm. In cosmetic industry if they are fully
satisfied then organisation will achieve its preset goals at given time period. Therefore, managers
of L'Oréal have to maintain their staff through providing them rewards so that they will always
motivated towards organisational objectives.
TASK 2
P2: Analysis of internal environment and capabilities of chosen organisation
The swot analysis and Mckinzie model is used for determining the internal environment
and capabilities of L'Oréal. It is important for L'oreal to regularly analyse their internal
environment as it is directly connected with the performance of company in various situations.
To analyse and monitor the environment, SWOT framework is used which is explained below
with functional examples,
Strength – L'Oreal has developed a good brand image in the mindset of customers due
to which they have not specific needs for investing more funds for promotional activities. Their
portfolio management automatically helps them in spreading awareness among their customers
about their offerings. The major advantage of organisation is that they provide a wide range of
products under their name due to which the risk of getting failed becomes low.
Weaknesses – Company have expanded its market share across the world due to large
number of workers and departments operations and functions become slow in nature which has
provided influences on the profitability of firm in negative manner. Due to huge investment in
R&D, organic processes profit margin of the organisation is also reducing day by day.
Opportunities- Market potential of the personal and beauty care products are increasing
regularly which can become an opportunity for the organisation in terms of enhanced sales
figures and revenues. Demand of organic products are also increasing in the marketplace which
is a positive sign for the organisation in the terms of getting favourable opportunities in growth.
Threats – Large number of competitors like Maybeline, Unilever can makes harder the
competition in marketplace. Changes in the demands and preferences of customers can also
become a threat in future period.
Mckinzie's 7's model
This analysis was developed by Tom Peters and Robert Waterman in 1980 during their
working at McKinsey & Company consulting firm. This model states that the firms needs to

focus on seven internal aspects of an organization which are aligned with the objectives in order
to become successful in the market. These 7 aspects are given below:
 Strategy: It is the plan which is developed for maintaining and building an upper
competitive advantage in the market over the competitors. The firm is following the
strategy of diversification and innovation through which the firm is providing the unique
products to their customers.
 Structure: It is the way through which an organisation is structured and which person
report to whom. The firm follows hierarchical structure in their working in which the
upper level managers report to CEO. The middle level managers report to higher level
and lower level managers report to middle level managers.
 Systems: It is the daily activities and procedures which are followed by the workers for
performing their work. The employees of the firm perform their work from the
production department to the customer support department for achieving an upper
competitive edge in the market.
 Shared Values: These are also called superordinate goals. These are the core values
which are evident in the culture of organisation. The employees of the organisation
coordinate with each other and support each other so that they can achieve their shared
objectives by using the shred values.
 Style: It is the style followed by the leaders. The leaders of the firm mostly follows
situational leadership style so that they can change their working based on the situations
arises. They also follows supportive leadership style for supporting the workers in their
work as well as to reduce their stress.
 Staff: It includes the workers and their skills. The workers in the Loreal are very skilled
and talented. If the skills are not satisfactory, then the firm provides them training and
development programs for enhancing their working efficiency and profitability.
 Skills: The real skills and competencies of the workforce of an organisation. The workers
of the organisation are equipped with the various types of skills such as communication,
technical, leadership etc. with the use of training for achieving their goals and objectives
so that the firm can achieve upper competitive edge in market.

TASK 3
P3: Evaluation of competitive forces of a given sector
For getting an upper competitive edge, L'Oréal can use the Porter five forces and porter's
generic strategies. Through these strategies, the firm can sustain in the market as well as can get
and higher competitive advantage in the market which will strengthen the market share and
position of the firm. The five forces and generic strategies of porter are discussed below:
Porter's five forces: This model was introduced by the Michael Porter. It states the forces
through which a firm can understand the competitiveness of a business environment. This model
is used by the L'oreal for getting a competitive advantage in the market. These forces are given
below:
Competitive rivalry: The competition in beauty industry is high due to which L'Oréal is
facing tough competition from the rivals such as MAC, Maybelline, Dior etc. The firm has upper
hand in terms of competitive rivalry as the firm's rand image is favourable in the mind of
customers. The firm needs to maintain the quality and prices of their products along with
recruiting skilled staff for maintaining the position and brand image. Through this, the
competitive rivalry does not majorly impact the business operations of firm. With the context of
L'Oréal, their managers have to make effective pricing strategies so that rivals can be defeated in
the marketplace in proper manner which will be beneficial for the organisation in getting
competitive advantage in the marketplace.
Supplier Power: The suppliers of L'Oréal are selected based on the analysis through
which when supplier increase the prices of their raw materials, then firm opt to another supplier.
Through this, the supplier power is low as the firm has multiple suppliers for supplying the raw
materials. In the context of cited firm, management have to create better relations with the
suppliers so that they will be retain for a long time period in the firm so that a long time growth
and competitive advantage can be received in the marketplace.
Buyer power: The firm is providing a large number of products and the customer base is
also very huge of L'Oréal. Also the firm is providing the products at affordable prices and of
good quality. There are low chances of customers to shift to other brand as the firm is capable of
retaining their customers by using the discounts, offer etc. so it can be said that buying power of
customers are low in case of L'Oréal. In it, they can adopt price and cost differentiation strategy

through which they will be able in attracting a large number of customers towards offering of
organisation.
Threat of substitution: The products portfolio of L'Oréal is very wide which are also
coming in low prices and with best quality. The threat from substitute products is moderate for
the company as the firm also has large base of customers which are loyal towards the brand. Also
the products of firm are unique in terms of features which assist the firm in getting an upper
competitive edge. For reducing this influence, organisation can use product differentiation
strategy through which they will be able in providing ultimate experience to the customers
through implementing additional features in it.
Threat of New entry: The threat of new entrants is high in the beauty industry. The
barriers for new entry includes the prices, quality and marketing which is providing favourable
results to the L'Oréal. The firm has negligible threat from the new business firms as the L'Oréal
is investing heavily in R&D, organic processes, distribution network. For reducing the
influences of these aspects, management of cited firm can use penetration strategy through which
they will be able in providing better product quality to their customers.
Porter's generic strategies: This strategy states that there are 3 strategies which can be
applied to all products or services in industry and companies of all sizes for getting an
competitive edge and for sustaining the performance. These are discussed below which can be
used by the Loreal.
 Cost leadership strategy: This strategy states that firms needs to lower their cost for
Increasing profits or can charge low prices on their products for increasing the market
share. Loreal is providing their products at affordable prices for attracting the customers.
However the firm can reduce their prices on products as well as the production cost for
attracting more number of customers. Through this, the market share of the firm can
increase along with the profit as the cost are reduced.
 Differentiation strategy: It states that the firms needs to provide their products with
unique features so that customers won't purchase the products from competitors. L'Oréal
is investing heavily in R&D activities for innovating new products with unique features.
Through this, more number of customers will buy the products of firm which assist the
firm in getting an upper competitive edge in the market.

 Focus strategy: This strategy states that the firms needs to focus on niche market by
understanding the market dynamics and needs of consumers. This strategy is divided into
two parts i.e. cost or product differentiation. The firm needs to provide the products based
on the requirement and needs of consumers at comparatively low prices and with unique
features for attracting the customers and to acquire more market share.
From the above information, it has been analysed that organisation should set effective
pricing on their products so that large pool of customers can attracted and profitability and
market-share of firm can be enhanced. Through providing products of unique quality at cheaper
prices company can enhance the customer base and loyalty of their old customers which will be
beneficial for the firm in improving their market position and gaining competitive advantage
over their rivals. With the help of cost leadership, managers of L'Oréal will be maintained a
huge customer base along with a strong brand image in the marketplace.
TASK 4
P4 Strategic management plan for L'Oréal by including strategies, objectives and tactics.
Strategies can be termed as the top level plan or policies of a firm for reaching specific
requirements. Main objective of L'Oréal is to maintain its position in cosmetic industry that will
secure their growth and development for the upcoming three years. The can easily achieve such
objectives through applying different kind of theories concepts or model which was given by
Porter's and various methodologists. With the help of these models, managers of firm will be
able in formulating strategic plan which will be helpful in accomplishment of their targets
(Ghezzi,2013).
Ans-off matrix strategy:
It can be considered as an effective tools which assist the organisation in evaluating the
product with the market growth strategies. It also directs the managers of organisation to make
changes in the existing products on the regular basis so that large market share can be captured.
Model is divided in the four parts which are briefly explained as under:
Market penetration: As the competition is very high in cosmetic sector and L'Oréal have
to faced it because it have created a good market presence in the current market. Unethical
ingredients and high employee turnover brings huge financial losses towards L'Oréal which

largely influences their presence in the existing market place. Therefore, there is a requiement of
penetration for which managers of L'Oréal can make some strategies which are given as under:
 Enhancement in the market-share along with analysing rival's pricing strategies and
effective promotional tools.
 Through conducting effective promotional campaigns they can easily defeat their
competitors in the marketplace.
 Through using loyalty schemes and policies firm can easily enhances its consumer base.
Market development: In this, organisation have to focus on attracting new customers
who are existed in targeted marketplaces but are considered as non-buying customers. As there
are many competitors in cosmetic industry such as Tesco, Morrisons, Cult beauty etc. Therefore,
managers of organisation have duty to provide effective schemes and discount plans to the
customers so that their loyalty can be increased towards the organisation.
Product development: In this strategy, organisation have to introduce new product or
service in the local market areas with an objective of grabbing huge market share. It is also
helpful to adopt such kind of strategy by L'Oréal so that good customer base can be maintained
in the marketplace. In 2014, L'Oréal was opened several new outlets across the world. On the
other hand, they have also enhances the prices of offerings so that the revenue of firm will be
increased (Blackburn, 2013).
Diversification: In this strategy, organisation have to make new products for the new
market areas so that profitability and productivity of organisation will be enhanced. For this,
Managers of L'Oréal have to encourage their employees for providing new ideas so that it can be
implemented in future so that growth and sustainability of firm will be maintained for a longer
period of time.
Balance scorecard – It can be defined as a management system which guides the
managers in understanding the strategies and policies so that right path will be selected for
reaching the preset objectives or targets. It is a set of targets and results which are related with
four perspectives of performance such as financial, customer, internal process and innovation.
Four perspectives of score card are briefly explained as under:
Financial perspective – Every firm wants to gain profitability and revenue therefore the
main objective of most of the firm are related with their financial health and performance. As
L'Oréal is one of the top cosmetic industry in across the world therefore, the main objective is to

increase the financial growth of firm so that customers will be more attracted towards offerings
of the organisation. For example- Cited firm can enhance their market share with increasing
brand awareness of their offerings.
Internal process – Under this perspective, organisation have to analyse its capabilities so
that requirements of customers will be fulfilled in easy manner. With the help of such
perspective, Managers of L'Oréal will be able in determining their weak areas and modified
them accordingly so that better quality products will be provided to the customers.
Customer perspective- Customers are considered as the king of market areas if they are
not satisfied then firm can't take growth or success in the marketplace. Therefore, it is very
essential for the managers of L'Oréal to analyse the needs and wants of customers and fulfils
them accordingly (Aithal,2016).
Learning and Growth perspective – It includes training and development of the
employees so that they can face daily challenges which takes places in the marketplace. In
current scenario, technological, climate and economic factors are changing on the regular basis.
So that it is very essential for the managers of L'Oréal to provide training to the employees
through which they will learn new techniques and skills which will be helpful for the
organisation in gaining growth and success in the marketplace.
Aim: Main aim of L'Oréal is to spread out their business operations at international level.
Vision: Vision of L'Oréal is related with establishing growth and enhancement of
market share
Mission statement: Mission of L'Oréal is to provide good quality products to its
customers which will provide them better satisfaction and fulfils their needs as well.
Values: Management of L'Oréal believes in integrity, respect and transparency in the
organisational structure.
Problems: Main problems of company are their high prices and technically inefficient
employees
Goals: Basic goals of firm is to maintain loyalty and trust among the customers through
providing them innovative and technological advanced products though which the firm makes
strengthening in the marketplace. Whereas long term goals of company is to make collaboration
with the small players so that brand image as a world leader will be maintained in future period.

Strategies and tactics: Under this aspect, L'Oréal have to consider market penetration
strategy which will helps them in enhancing their market share and profitability in marketplace
(Amit, 2012). In it, managers of L'Oréal have also need to promote their current offerings
through using various promotional tools like advertisements, digital marketing etc.
CONCLUSION
It has been concluded from the above report that the firm can use the stakeholder and
pestle analysis for determining the impact of external environment factors om business
operations. Firm can also use the swot and Mckinzie 7's model for identifying the internal
capabilities. Whereas Porter generic strategies and five forces model are useful for getting an
upper competitive edge in the market.

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