Business Strategy Report: Analyzing L'Oreal's Competitive Advantage

This report provides a comprehensive analysis of L'Oreal's business strategy, covering its external and internal environments. It begins with an introduction to L'Oreal's vision, mission, objectives, and strategy. The report then uses PESTLE analysis to examine the macro-environmental factors influencing L'Oreal, including political, economic, social, technological, legal, and environmental factors. SWOT analysis is used to assess the company's internal strengths, weaknesses, opportunities, and threats. The VRIN model is applied to evaluate the organization's capabilities. The report also incorporates McKinsey's 7S model to review marketing capabilities. Porter's Five Forces analysis is utilized to determine competitive advantages. Finally, the report explores strategic planning concepts and concludes with a strategic plan based on the analyses conducted.

Unit 32

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P1 Presenting framework analysis that influence the macro environment by usinhPESTLE
Analysis..................................................................................................................................1
LO 2.................................................................................................................................................2
P2 Presenting internal environment by using SWOT analysis...............................................2
M1 & M2................................................................................................................................4
LO 3.................................................................................................................................................7
P3 Presenting Porter 5 force analysis to evaluate the competitive advantages......................7
M3...........................................................................................................................................9
LO 4...............................................................................................................................................10
P4 Applying the range of theories and concept for strategic planning ................................10
M4 & D1 ..............................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Business strategy is the set of plan which is used by a management to secure the
competitive position in the market. The present report is based upon the study of L'Oreal which
is one of the leading company who provides a range of skin accessories. Report presents the
internal and external factor that affect the environment by using swot, VRIN and pestle analysis,
further it also apply porter five force model in order to evaluate the competitive forces. By using
Ansoff growth vector matrix, report will further analyse the strategic direction and then provide
a strategic plan as well.
Vision: The quoted firm uses the motto “because I am worth it” in order to represent their
vision.
Mission: L'Oreal wants to provide men and women the best kind of cosmetics products
with better quality and also wants to satisfy their needs as well.
Objectives: To increase the sales of a business up to 20% in coming 2 years.
Strategy: An quoted firm chooses unique strategy under which it provides products to all
peoples.
LO 1
P1 Presenting framework analysis that influence the macro environment by usinhPESTLE
Analysis
Political factor: It includes rule and policies of the government in which a firm is
working. The L'Oreal manufacturing company is in Paris, therefore France government directly
affect the company the most. Apart from this, there are several import policies which also affect
the success of L'Oreal (Hammad, 2015). Moreover, customers increasingly conscious values and
some political association also affect the brand image as well.
For example, change in tax rate creates negative impact upon the business such that as the tax
rates are increases then it affect the purchasing power of the customers in negative way.
Economical factor: It includes an exchange rates, inflation and recession which affect
the business in a negative way. It is quite necessary for the firm to have stable economy of the
country. Apart from this, the prices of the products are also varies from region to region. It is
also analysed that beauty and cosmetic industry are immune to economic downturn and
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For example, when there is inflation, the prices of the products goes high and customers do not
spend their money upon the L'Oreal products, these cause negative impact upon the firm.
Social Factor: It has been analysed that modern societies are more interested in fashion
trends and they also have a sense of the latest technology and they always adopt the innovation
that is adopted by the firm (Policy, 2016).
For example, Due to some ethical issues as well regrading the use of ingredients, and these
ethical and social issues affect the image of L'Oreal in a negative way and creates negative
impression upon the customers as well.
Technological factor:The quoted firm is very much prone regarding innovation and they
always adopt new techniques that aid a business to run smoothly. It is also necessary to keep
comply with all latest technology, so that it will help to keep forcing customers to purchase
trendy products.
For example, L'Oreal is also produces innovate products by using the advance technology and it
will helps to creates positive impact upon the company.
Legal Factor: it is quite necessary for the firm to comply with all the laws that is made
by the government in order to sustain its brand image in market. These laws are he federal food,
Drug and Cosmetic Act (FD&C act) and Fair packaging and Labelling Act (FPLA). If the q
For example, the quoted firm follows employment law, Health and Safety law, then it will not
cause any harm to its reputation as well.
Environmental factor: it encompasses different global environment safety laws that
should also abide by global standards (Khan, Alam and Alam, 2015). To make the planet
beautiful and pollution free, L'Oreal is also plays its part by supporting many campaigns. This
shows that the cited firm also have its positive role to support the environment of the company.
For example, L'Oreal is also plays its part by supporting many campaigns to make planet more
beautiful. This shows that the cited firm also have its positive role to support the environment of
the company.
LO 2
P2 Presenting internal environment by using SWOT analysis
To determine the internal capabilities of the firm, it is necessary to SWOT analysis and
this is as mentioned below:
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Strength Weaknesses
 Currently, the company have more than
2200 retail store at global level.
 The firm also have strong research and
development ideas that support to
sustain its financial position.
 It offers more than 500 brands at global
level.
 The company also provide high quality
of the products with the variety of
products (SWOT analysis of L'Oreal,
2019).
 It has universalisation as a development
strategy.
 It has a brand image at global level
with high customer base.
 The company have more than 60000
employees as its global presence shows
that it requires high employees.
 The company also move to organic
products which none of its rivals are
faces.
 The firm also have endless research
such that its research and development
department continuously innovate new
things to fulfil the demand of their
customers.
 In past many years, the company drop
down its sales and it also has lack of
skill in an advertisement.
 The company also did not have its
online application for purchase
products.
 L'Oreal has a lack of skill to promote its
products for kids.
 L'Oreal have slow divisions such that
having a global presence leads a
business to slows down the process of
resolving issues.
 There is a stiff competition from the
other cosmetic which are already
established their brand image in market.
Opportunities Threat
 Having high customer base will also
help to create a new product such as
 High competition in the market.
 Sudden changes in cosmetic industry is
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organic products.
 The company can also expand their unit
in more countries through innovative
products.
 L'Oreal also acquire Avon who is
struggling financial.
 Through innovative products, the
company can also acquire high market
share.
 It have greater market share due to
numerous patent which are registered
by the firm itself.
 Having a good research and
development department, the chances
of creating new products are also
raised.
another threat for L'Oreal.
 The firm faces tough competition in
every country that power to drop down
their product prices (Bull and et.al.,
2016).
 it also faces threats because of global
economic crisis and new foreign
competitors are also becoming threat
for the company.
M1 & M2
VRIN Model
To determine the organization capabilities, the Vrin model is useful and this is as
mentioned below:
Value Rareness
 Make up item
 skin care
 haircare
 lipstick
 nail paint
 It's hair products are rarely found in any
other brand having such a high quality.
Imitability Non- Substitutable
 The product of L'Oreal are so unique
such that its products are copied but no
 A products are not substitutable such
that no other resources can be utilized
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other firm can provide the quality of the
product which L'Oreal provides
(Phadermrod, Crowder and Wills,
2019).
as an equivalent.
McKinsey's 7S model
This model helps L'Oreal to review the marketing capabilities from various point of view
and also determine the best strategic align for the company. Its 7S are as follows:
Shared values: L'Oreal main mission is to reach the wide range of customers and
provide the best quality of cosmetic products. Its goal is to keep increasing the company's profit
up to 20% in every year, and this is what the company tries to achieve.
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Illustration 1: McKinsey's 7S model
(Source: McKinsey's 7S model, 2018)

Strategy: For L'Oreal, the business strategy is unique such that it uses, universalisation
strategy and have global presence (Kourdi, 2015).
Structure: The quoted firm also have large number of customers and new technology
that helps to keep coordinates with different department in order to reach with defined goals as
well.
System: This is used by L'Oreal in order to complete the daily activities in perfect
manner. For this, the company complete its process with the help of its team who is working in a
firm and also uses balance scorecard method in order to monitor daily activities.
Staff: The company has its global presence and it also has many employees, in order to
grow and developed them, the firm also provide training sessions so that they raise their
performance and help an organization to maximize their profit.
Style: it is the way under which the firm is actually done things and in the context of
L'Oreal, it set some informal rules that should follow by the organization in order to reach with
defined objectives (Chang, 2016).
Skills: the employees of the company have the skills to produce innovative products that
helps to keep their company's brand image top, and even by analysing the needs of their
customers will also assist their business to maximizes profitability.
LO 3
P3 Presenting Porter 5 force analysis to evaluate the competitive advantages
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This model is used to determine the competitive advantages of the business and also
determine the external factor that affect the business of L'Oreal and these are as mentioned
below:
 Rivalry among the competitive firm (High): The company faces though competition
from the market such that it have a lot of rivals and as the supply is greater than the
demand therefore L'Oreal has to make efforts to provide a good quality enhancements for
each and every production of line. By this only, the firm can easily survive in this
competitive market. Apart from this, it should also enhance their marketing channel with
high technology in order to obtain high market share. In this way, the company can easily
sustain its brand image in the market (Buckley, Burton and Mirza, 2016).
Positive and negative impact: this factor creates positive impact because L'Oreal make
efforts to provide a good quality enhancements for each and every production of line. While on
the other side it also creates negative impact because of low pricing strategy of the its rivals
creates negative impact upon the firm.
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Illustration 2: Porter 5 force analysis
(Source: Porter 5 force analysis, 2018)

 Threat of new Entrants (low): L'Oreal faces low a threat of new entrant because there is
already an enough competition in the market and if a new company wants to enter into
market, then it requires a lot of investment and there is no chance that the business will
succeed. This shows that L'Oreal does not appear to have such a high risk from any of the
potential market.
Positive and negative impact:This factor creates positive impact because if a new
company wants to enter into market, then it requires a lot of investment and there is no chance
that the business will succeed. While on the other side it also creates negative impact if there is
no company entered into a market then it L'Oreal has to make strategy to keep fulfilling the
demand of their customers.
 Threat of substitute (low): As L'Oreal basically deals with anti-ageing products and
there is no substitution of its products, this clearly shows that the quoted company faces a
low threat of substitution. The firm is also a leader of beauty and cosmetic industry and it
even did not disturb by any of the potential substitute who come in a market. Even the
customers also have low switching cost because no other brand is offer the high quality
of a cosmetic product which L'Oreal provides.
Positive and negative impact: This factor creates positive impact because as The firm is
also a leader of beauty and cosmetic industry and it even did not disturb by any of the potential
substitute who come in a market. The factor also creates negative impact because the customers
may also switch to other company if they offered low price products.
 Bargaining power of Buyers (High): Due to increase competition and availability of
products, for L'Oreal, the customers have high buying power and here is no position that
may influence the prices of products. As the quoted firm provides the best quality of
products to their customers, and that is why it has the high bargaining power of their
customers (Chang, 2016). Apart from this, the firm also offer a variety of products to
their customers, therefore the customer has different choices that shows that L'Oreal did
not have a threat of lack of customers.
Positive and negative impact: This factor creates positive impact because Due to
increase competition and availability of products, for L'Oreal, the customers have high buying
power and here is no position that may influence the prices of products. On the other side it is
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critically evaluated that firm also offer a variety of products to their customers, therefore the
customer has different choices that shows that L'Oreal did not have a threat of lack of customers.
 Bargaining power of Suppliers (Low): In this industry, there are a variety of suppliers
and this shows that there is a low differentiation of inputs. As the quoted firm also have
its global presence and having a large quantity of suppliers, they do not have an ability to
bargain with L'Oreal.
Positive and negative impact: This factor creates positive impact because there are a
variety of suppliers and this shows that there is a low differentiation of inputs. But it has been
critically evaluated that if the suppliers are finished then the products are not delivered at
different countries.
M3
Balance scorecard
From the above, it has been analysed that the company has high customer base and to
align with organization vision, the company also uses balance scorecard which is a performance
management tool that helps to keep track the execution of all the activities and to monitor the
reasons which are arising from the action. The balance scorecard analysis for L'Oreal is as
follows:
Objectives Measurement Initiatives
Operating cost and efficiency Cost and unit efficiency Through a monthly monitoring
Quality of the products Cycle time Through daily monitoring
Continuous improvement in
products
Kaizen Monthly monitoring
High customer satisfaction Market feedback Weekly monitoring
Stakeholder analysis
It is the technique which is used for stakeholder identification and analysing the needs. Its
main aim is to develop the strategic view and relationship between different stakeholders. In the
context of L'Oreal, its stakeholders are customers, employees and its representatives, and these
also creates a positive impact upon the stakeholder as well. It has been analysed that proper
communication between the stakeholder will only creates positive impact upon the business
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