L'Oréal's Business Strategy: Macro, Internal & Competitive Analysis

This report offers a comprehensive analysis of L'Oréal's business strategy, examining its macro-environmental factors, internal capabilities, and competitive landscape. It begins with an introduction to business strategies and their importance, followed by an application of the PESTLE framework to analyze political, economic, social, technological, legal, and environmental factors impacting L'Oréal. The report then delves into stakeholder analysis, identifying key stakeholders like customers, the government, and employees. Next, it utilizes SWOT and VRIO analyses to assess L'Oréal's internal strengths, weaknesses, opportunities, and threats, as well as the value, rarity, imitability, and organization of its resources. The report further explores Porter's Five Forces model to understand the competitive environment. Finally, it proposes a strategic management plan for L'Oréal, outlining strategies, objectives, and tactics for sustainable growth, concluding with a summary of the key findings and recommendations.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................3
P1 Applying appropriate frameworks analyse the impact and influence of macro
environmental factors on L’Oréal and its strategies..................................................................3
TASK 2............................................................................................................................................5
P2 Analyse the internal environment and capabilities of a given organisation using appropriate
frameworks .................................................................................................................................5
TASK 3............................................................................................................................................7
P3 Porter's Five Forces Model for examining competitive environment....................................7
TASK 4 ...........................................................................................................................................8
P4 Strategic management plan for L'oreal by including strategies, objectives and tactics........8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Business strategies are defined as the directions or frames which can be used by the
managers of a firm for achieving preset goals or objectives. Every business organisation has to
follow a proper code of conduct which will assist them in enhancing their strategic capabilities
so that strategies will be sustained for a long time period. It also supports the business entities in
enhancing their productivity at competitive market. This report is based on L’Oréal which is a
multinational company and deals in cosmetic sector along with this, it is based in Paris, France.
This assignment will include PESTLE, SWOT, VRIO framework of an organisation so that
capabilities can be identified in proper manner. Furthermore, it also discusses about the porter's
generic strategies which can be used by the managers for making a proper strategic management
plan so that growth and sustainability can be achieved in the marketplace.
TASK 1
P1 Applying appropriate frameworks analyse the impact and influence of macro environmental
factors on L’Oréal and its strategies
External analysis of any organisation means broad business environment factors that
impact on any business where as internal analysis includes strengths and weaknesses of any
organisation that affect the business. External analysis of organisation includes PESTLE that is
political, economical, social, technological, legal, and environmental that helps to defines the
organisation growth. It helps to identify potential risk that influence the business operation and
organisation (Wheelen and et. al., 2017).
Political: Political environment factor can affect a business organisation in any ways
such as bureaucracy, tariffs, trade control, anti trust law, discrimination law, regulation and
deregulation, competition regulation, environmental law, tax policies, data protection law,
government stability and related changes, import restriction on quality and quality of product and
laws related to environment pollution. For instance, L’Oréal is a beauty care and personal care
company has facing political issues such as changes in tax policies. If tax rates will be change or
increase then L’Oréal company would have to purchase raw material at higher cost and it will
impact on its business strategy because company has to spend more money to purchase raw
material and thus profits of the company would be decrease. (Wheelen, 2017).

Economical: Economical factors are the set of fundamental information that impact on
investment value and a business. It includes interest rates, exchange rate, GDP rates, foreign
direct investment, taxes, inflation rates, demand and supply, recession, etc. These factors are
related with goods and services and value of money. For example, if government increase
interest rate on borrowing funds then it will influence the L’Oréal business strategy because
company has to pay more interest amount at loan and profits of the company will be reduce.
Manager of the company has to face this issue because strategy of the company relies on taking
out big amount of loan (Spender, 2014).
Social: Social factor means experience and facts that influence on individual behaviour's
lifestyle, attitudes, personality and religion. It includes education level, safety and security,
health consciousness, sex distribution, religion and beliefs, education level, buying habits and
disposable income level. It impact on business strategy such as, if there are any changes occurs
in the lifestyle and fashion of customer then manager of L’Oréal company need to understand the
demand and expectations of customer that helps to provide that kind of product and services and
company has to pay more attention or more money to get changes in people's fashions. It will
directly impact on business strategy and profits of the company as a result profits would be
decrease (Pretorius and Maritz, 2011).
Technological: Technological factors are the changeable or variable factor that is used
for evaluating available alternatives or resources. It includes 3D technology, availability of
computers, engine efficiency, internet connectivity, automation, wireless charging and security in
cryptography that affect the business decision and its strategy. Such as if any new technology
comes in market it directly affects the business in order to adopt new technology. For instance,
mangers of L’Oréal company wants to improve their product and services due to which they
need to adopt new technology and experienced employees who helps to increase production and
improving product and services by using new technology. For adopting new technology L’Oréal
company need to more finance and other resources that would be expensive for company and it
may be difficult for employees to adopt the new technology.
Legal: Legal factors are the external factor that states how laws affect the business
operations and customer behaviour. It includes consumer protection law, copyright law,
employment law, import and export law, discrimination act and minimum wages act. These
factor affect the L’Oréal business strategy such as manager of the company need to follow the

minimum wages act that helps to retain employees in the organisation as well as they work
collectively. These legal factor would be expensive or reduce the profit margin of the company
that affect the business strategy. Laws helps to introduce to prevent companies from changing
product and services prices without informing to customers (Śmigielska, 2011).
Environmental: Environmental factor means changes in physical, demographic,
regulatory and cultural environment that affect the business and its growth. It includes abiotic or
biotic, ambient temperature, amount of sunlight, ph. of the water, pollution etc. These factors
influence the business organisation and its strategy. Such as L’Oréal want to launch new product
and for launching company has to test the product on animals. If government will ban this
testing, due to this company has to spend large amount of money on product testing and varying
the product that would be impact on business in order to reducing the profit margins.
Stakeholder analysis – It is a process of determination of the people who are necessary
for the organisation and provide support and assistance in the growth and success of it. In context
of Loreal, their managers should use this model so that value and importance of them can be
identified properly. Furthermore, formulation of this analysis is very important for Loreal
because without considering the needs of stakeholders and fulfilling their needs organisation will
not get desired success in market. Some of the stakeholders of Loreal and their importance are
given as below:
Customers
Customers can be considered as the lifeline of organisation because without satisfying
them any organisation can't take growth and success in market. Therefore, it is very important for
managers of Loreal to fulfil their needs by offering them valuable products at affordable prices
so that their loyalty can be maintained towards offerings of firm.
The government
Government plays an important role in growth and failure of organisation. As Loreal is
operating its functions across the world then it is very important for them to monitor each
changes effectively so that any kind of difficulty not be faced by them during the execution of
operations (Drahokoupil, 2014).
Employees Employees are the heartbeat of organisation therefore, without fulfilling their
needs any organisation can't take growth and success in market. So it is very important for

managerial personnels of Loreal to provide effective rewards and compensates on their overtime
so that they feel satisfied and motivated while working within the organisation.
From the above discussion, it can be said that both analysis are very important because it
will assist them in analysing needs and wants of stakeholders which will guide them in formation
of effective strategies that leads the firm towards growth and success.
TASK 2
P2 Analyse the internal environment and capabilities of a given organisation using appropriate
frameworks
Internal analysis means SWOT analysis that helps to identify organisation's internal
strength and weakness and its opportunities and threats. L’Oréal company apply SWOT analysis
to know the its strength and weakness that is discussed as below-
Strength: Strength is the capacity or resource of any enterprises that can be used
effectively in order to achieve organisation's goals. In other words, strength is the ability or
quality of any business that helps to understand organisation goals and make effective decision in
order to achieve targets. Strength includes strong employee attitude, large market share,
leadership in product innovation, excellent customer service, low cost of manufacturing and high
integrity.
Weakness: Weakness means condition of being weak and fault or disadvantages of
business organisation. It has been greatly criticized for promoting the products and services. It
includes lack of team work, time consuming, sharing responsibility, patience, focus, over talking
etc.
Opportunities: Opportunities is the situation or possibility that helps to improve the
production and introduce the new products. It may include direct selling, management
consulting, online gaming, public relation consultant, and on site computer service.
Threat: Threat in the SWOT analysis of L’Oréal company includes dynamic nature of
cosmetic industry that is very difficult and cash crunch which divide the cash in to many sub
brand products. Due to this reasons or threat economy might be slumps and has to face huge
problems (Maritz, 2014).
Strength
 L’Oréal is a multinational company
Weakness
 Too many sub divisions, hair care is

which is dealing beauty care and
personal care products.
 high quality of products and create a
trust among customer by providing
excellent customer service.
 Large supply chain and multinational
stores in 130 countries.
 Effective support and loyalty of
employees is providing high strength to
firm.
regrowing segment, low profit margins,
and waste of money.
 Strong competition form competitors
and decentralised organisational
structure
 less capital strength compare to other
organisations.
 Unessential activities of operations are
making weakness of firm in
marketplace.
Opportunities
 Opportunities to increase sales of
beauty and personal care products.
 Scope of increasing supply chain and
target market at large scale. product
mix expansion and demand for organic
cosmetics that helps to increase the
profits of the company. .
Threats:
 High competition within fashion
industry can become threat for the
sustainability of firm.
 High employee turnover due to
decentralised structure.
 Due to poor management of funds,
company's profitability can be reduced.
VRIO analysis
It is essential for company to identify and then evaluate their resources which could act as
a assets or liabilities for company. Because then only an organisation can make their strategies
and planning effectively and efficiently. For instance, if L'Oreal does not have any knowledge
about their capabilities and competencies then they wont be able to attain maximum utilisation
of resources resulting in under performance by company in the competitive market. Various
capabilities which L'Oreal has is as follows, human resources, goodwill of company,
technological advancement, financial resources, marketing activities. So to achieve this, L'oreal
can use VRIO framework which is explained below with functional example,
 Valuable: It means that how much value is generated by the capabilities of company in
exchange of money offered by the final customers. If any resources are not valuable for
company then it will create a competitive disadvantage for an organisation. For instance,

all the factors which are mentioned above creates value for company as human resources
helps L’Oréal to perform better because they have proper skills and capabilities due to
which they make the product according to the demand and needs of customers. So does
all the factors.
 Rare: It refers how rare or unique is the capabilities of company as compare to other
companies in the market. For instance, human resources is valuable for company but it is
not rare in as other companies like Lakme or Unilever also has skilled labour force
resulting in competitive equality of L’Oréal. But on other side, marketing activities of
company is valuable and rare in nature as it assist them to create market awareness in the
society and ends up at increasing sales. Same goes with technological advancement as
company has implemented latest technologies like lean management or six sigma which
assist them to lower down their cost to a certain level. Financial resources are also
valuable and rare as they have lots of funds which could be used for increasing the sales
through marketing activities or gaining differentiation from other company's product.
Rare resources assist L'Oreal to gain temporary competitive advantage over others.
 Imitate: It means that how much easy is for other companies to copy L'Oreal products.
For instance financial resources could be imitate by other companies as they can also
attract funds through selling of equity or shares in the market. Technology can also be
copied by other countries after launching it in the market. At last marketing activities can
also imitate by others as it is easy to copy the marketing activities performed by L’Oréal.
Though marketing activities have to changes according to the conditions of market but it
incurs lots of money due to which it is unused competitive advantage for them.
 Organisation: It means that does the company is utilising their resources to its full
potential or not. For instance, the one resources which is left is goodwill or brand image
of L’Oréal in the mind of customers. It is valuable in nature as it assist them to earn more
profit margin. It is rare nature as brand image of L’Oréal can not be copied or imitate by
other companies. So it can be said that company is properly using their brand image to
market their product resulting in long term competitive advantage for them.
From the above VRIO model, managers of Loreal have framed table which is defining
their valuable, rare and imitate resources. This table is given as below:
Resources Valuable Rare Inimitable Organised

Human
Resources
Human
Resources
- - -
Marketing
functions
Marketing
functions
Marketing
functions
- -
financial
resources
financial
resources
financial
resources
financial
resources
-
Goodwill or
brand image
Goodwill or
brand image
Goodwill or
brand image
Goodwill or
brand image
From the above table, it has been analysed that company's brand image is valuable and
rare in nature that can't be imitate by anyone in the market and providing high support to the firm
in gaining competitive edge in marketplace.
Analysis of strategic capabilities:
Value chain analysis: This is a process that is applied by firm for improving efficiencies
and shortcomings so that brand image can be maintained in marketplace. In addition, this
analysis is used for enhancing quality of products and services or differentiating products from
the rival's products so that competitive edge can be achieved in marketplace. This model is based
on primary and support activities which are given as below:
Primary activities – These activities are performed at workplace for small time period
due to which affect of these activities at small level and they are solved easily. These activities
consists of inbound and outbound logistics
Inbound logistics – Suppliers can be considered as the main part for maintaining supply
chain systems so that it is very important for the managers of Loreal to maintain better relations
with them so that any kind of difficulty in supply chain systems not be faced by company.
Human resource management- Employees are the main element that provides its
contribution in growth and success of firm. In other words, employee's performance decides
growth and sustainability of organisation in market. Therefore, HR department of respective firm
have duty to recruit efficient and experienced employees in the firm so that competitive edge can
be gained by firm in marketplace.

Outbound logistics- It can be defined as the supplying of goods in market for customers.
By improving quality of cosmetic products Loreal will be able in gaining competitive edge in
market. Some of the departments which are falls under outbound
Marketing and sales – It plays a very important role in enhancing value and brand image
of firm in marketplace. For maintaining brand image of firm management of Loreal should make
heavy investments on the marketing functions so that company will achieve high competitive
edge in marketplace.
Support activities – These are those functions which assist the firm in improving its efficiencies
and capabilities. These activities can also considered as the support systems of primary activities.
These activities also comprises some other functions which are given as below:
Technology development – Development of technology is very important for growth and
sustainability of firm. So that, it is very important for Loreal to implement updated machinery in
their operations and functions so that unessential cost can be removed from the workplace easily
which will leads the firm towards competitive advantage in market.
From the above discussion it can be said that managers of company can easily identify
their valuable resources and strengths which will be helpful for them in removing weaknesses
and obstacles from their workplace.
TASK 3
P3 Porter's Five Forces Model for examining competitive environment.
Porters Five Forces Model : It is an analysis tool developed by Michael Porter that
analyses competitive position of the industry and its attractiveness in the market place. Hence it
is useful for the L’Oréal to analyse its competitive position in the market and frame strategies
according to that. It analyses five competitive forces which are described as follows-
Threat of New Entrants- Fashion and Cosmetic Industry is the fast growing industry in
the world. As customers have become fashion freaks, companies are coming up with new
products to provide maximum customer satisfaction. As L’Oréal is a high reputed brand
company which are providing quality products so there is less threat of new entrants for the
company, but company should make changes in their products according to customer demands
and can adopt market expansion strategy while increasing number of product in their portfolio to
reduce threat of new entrants.

Bargaining Power of Suppliers- When the company has lot of suppliers of its raw
materials, it leads to low bargaining power of suppliers and leads to high bargaining power
among companies. As L’Oréal produces variety of products it can purchase raw materials from
number of suppliers which are providing them at a lower price. This assist them to keep price of
the products at a moderate level which is affordable to all the customers (Wheelen, 2017).
Bargaining Power of Buyers- As there are large number of competitors in the world
such as Maybelline, Proctor and Gamble etc. it makes the customer to easily switch towards
another company products. Therefore, L’Oréal should provide quality products at an appropriate
price so as to attract larger customer base and therefore should not sacrifice with the quality of
products and adopts pricing for market penetration strategy to offer products at an appropriate
price so as to retain customers for a longer time period. Hence Bargaining power of buyers is
high that can affect the profitability and productivity of firm in negative manner therefore, it is
very important for organisation to make considerations on the needs and demands of customers
and provide them offerings accordingly.
Threat of Substitutes- As there is change in demands according to age of the customer.
L’Oréal is famous for its anti-ageing skin care products. It is the leader in cosmetic and beauty
sector industry. There is moderate risk of substitute products available in the market which
brings less threat of competition. Hence, L’Oréal should keep upgrading its products so as to
attract larger customer base and adopt differentiation strategy to keep their products distinct and
attract attention of large number of customers. With the help of this, desired growth and
customer base will be attained by organisation.
Rivalry among existing competitors- It describes the level of competition when there
are large number of firms producing the same variety of products in the existing market. As there
are large number of competitors such Mac, Maybelline, Estee Lauder, Olay which are dealing in
skin care products. Therefore, there is high rivalry among the existing competitors. L’Oréal in
order to remain the most effective brand should adopt innovation strategy so as to make certain
modifications in their product and sustain in the market for a longer time period. This will prove
beneficial for the organisation which will leads the firm towards high growth and success in
marketplace.
These factors describe the intensity of the competition and attractiveness of the L’Oréal
within the market place (Spender, 2013). from the above five forces model it has been

recommended to the managers of Loreal to make effective strategies such as discounts in
offering so that high competitive advantage can be achieved in marketplace.
TASK 4
P4 Strategic management plan for L'oreal by including strategies, objectives and tactics.
Strategic management plan is termed as a long term or high level plan which is
formulated by managers of an organisation to communicate the objectives and targets within the
premises of firm. It is also very essential for the association because it helps the managers in
taking growth and sustainability at the marketplace. With the help of this plan, Manager of
L’Oréal will be able to achieve desired organisational objectives within allotted time period.
In order to formulate effective plans or strategies it is essential for the managers of
L’Oréal to implement porter's generic strategies which will be helpful for them in formulating
proper strategy plan which is defined as under:
Porters Generic Model: This strategic model is used for choosing or selecting a suitable
path through which organisation can easily achieve competitive advantage in the marketplace of
a particular nation. Such model was introduced by Michael Porter in the year of 1980. with the
help of this model, Managers of L’Oréal can easily formulate a strategic management plan which
will be helpful for them in gaining competitive advantage in the marketplace. Cited firm can use
any strategy from the following discussed three strategies which are given as under:
 Cost leadership: Under this strategy, Organisation can manufacture some products and
provide them to the customers at affordable prices so that customers gets attracted
towards the offerings of firm. This strategy is used for encouraging the organisation to
enter in a new market along with a positive strategy so that strong brand image of the
firm will be maintained in a proper manner. With the help of this strategy, L’Oréal can
easily gain competitive advantage in market.
 Differentiation: It includes formation of strategies which allows the firm to manufacture
the new products which are different in nature and characteristics of substitutes. With the
help of this strategy, managers will be able to manufacture different products from the
existing products of the marketplace. For this, Management of L’Oréal have to make
unique products with special features so that customer will be more attracted towards the