Business Strategy Report: L'Oréal's Capabilities and Strategic Plan

This report provides a comprehensive analysis of L'Oréal's business strategy. It begins with an introduction to the company and its position in the personal care industry. The report then delves into a PESTLE analysis, examining the political, economic, social, technological, legal, and environmental factors affecting L'Oréal's operations. A SWOT analysis is conducted to identify the company's strengths, weaknesses, opportunities, and threats. The report further explores L'Oréal's capabilities using the VRIO model, assessing their value, rareness, imitability, and organization. Porter's Five Forces model is also applied to analyze the competitive landscape. Finally, the report outlines different strategic directions and growth factors available to L'Oréal, culminating in a strategic management plan and recommendations for the company's future.

BUSINESS STRATEGY

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1 ..........................................................................................................................................3
PESTLE and SWOT analysis and organisation’s capabilities...............................................3
Organisation’s capabilities by VRIO Model..........................................................................8
Porter’s Five Forces Model..................................................................................................10
Task 2.............................................................................................................................................12
Different types of strategic directions and growth factors available to the organisation....12
Justification and recommendation over most suitable strategic direction............................14
Strategic management plan...................................................................................................15
CONCLUSION..............................................................................................................................17
References......................................................................................................................................18

INTRODUCTION
The decision which is taken by entrepreneurs to achieve a specific organisational
objective is business strategy. It is a set of action which is done by management of particular
organisation for enhancing overall performance of business and companie’sposition.
(Yanah,2018). Every company formulates strategy for improvement in performance of its
business. In this report, L'Oréal is taken for better understanding of all the strategies which is
followed in business organisation. L'Oréal is a personal care company founded in 1909. Being
the largest cosmetics company in the world, it has various range of products like hair colour, skin
and hair care, make-up, sun protection etc.. The brands have set of products for both men and
women. L'Oréal has many subsidiary brands, they are Garnier, MAC cosmetics, Dior,
Maybelline and many more. This report will lay emphasis on capabilities of L'Oréal. For better
understanding of internal and external factors ,PESTLE and SWOT Analysis will be done. The
internal and external factors that affect L'Oréal will be explained by PESTLE and SWOT
Analysis. Five forces model of Porter will also be highlighted in the report. In the end, a
strategic business plan of L'Oréal will be formulated with strategic directions available for
company..
TASK 1
PESTLE and SWOT analysis and organisation’s capabilities.
PESTLE Analysis- Pestle analysis helps the company to analyses the macro environment
factors that affect the functioning of the company. Pestle stands for political, economical, social,
technological, legal or environmental.

Source: Scanning the Environment: PESTLE Analysis. 2016.
 Political factor – Political factor describes the rules or regulation regarding the
government policies. L’Oréal followed the government rules of different geographical
areas because company is an international entity and they need to deal all over the world.
Also, they export or import many products to different countries. So, they need to follow
all the legal rules. Positive impact – L’Oréal have an own legal departments. The
department gives the advices on head office or different country and manage the all rules
or they can study about the current trends so these is helpful for company to get
knowledge about the current changes .So L’Oréal business legally secure in the world so
these is creates a positive impact on the company because consumer can trust their
product or service. company can follow the all rules regarding the product
(Mi,2015.)Negative impact- As democratic governments have organize the re-election
every few years. This external factor create a negative impact on the business. Change a
government policies that effect the company for understand the policies in every year.
 Economic factor – economic factor included the Exchange rate, economic growth,
inflation rates of the regions Economic factors consider of a certain economy’s trends.
positive impact-The developed economy will be more intent to the branded products like
L’Oreal. Various new and innovative products are been sold by L'oreal which provides
them competitive advantage and unique position in market. Like for example company is
engaged in providing smudge free eye-shadow at affordable prices. Negative impact-
During recession period loreal face the difficulties of their cosmetic products . prices is
also affected during the recession. The price of product is varies in different market
according the GDP of the market price is decided. Rising inflation also create a negative
impact on purchasing power of customer.
 Social factor- social factor define the social norms and attitudes. Positive impact-
L’Orealalso sponsors a social event' young women in science' to gain the attraction of
consumer and to attain goodwill in industry. Negative impact -Some regions or the
customer of society prefers herbal product for their skin or hair care routine

(Rugman,andVerbeke, 2017). Different chemicals include in cosmetics cannot useful for
human body.
 Technological factor- Technology factor creates a new innovation through technology
that may affect the business performance . They help the company to success their
business. Positive impact- Recently L’Oréal Paris has launch beauty app called “Make
up genius” that transforms the front-facing camera of an iPhone or iPad in a virtual
mirror so people can use these products virtually. And these products help to increase the
growth of the company. This app achieved the huge success. So, technology is helping
the company to achieve future growth and also gaining attraction of many people. by this
customer base of the company also increases. Negative impact- This app which is
launched by L’Oréal is useful only for new generation and not for old peoples because
they doesn't have knowledge about the technology changes, sothey cannot use it easily
and also affect the growth of the company.
 Legal factor-Legal factor is affect the company rules and regulation regarding
government law such as discrimination laws, employment laws, consumer protection act,
copyright and patent act , and health and safety act. Positive impact- L’Oréal is
cosmetic company so they must follow the FDA approved. Federal food drug and
cosmetic act and fair packaging and labelling act. Negative impact- In countries like
South asia and East china , Natives prefer natural products like Oils, herbs, etc hence
L’Oréal use the chemicals in their product. So, These people did not like to buy any
artificial products which L’Oréal produces. As, they thought that the product is harmful
for their skin. It puts negative impact on company.
 Environmental factor – The environmental law includes the global environment safety
act to promote the eco friendly environment in the country. Positive impact – L’Oréal
performs various Corporate social responsibility which will give a positive impact to
company. They empower women of society, by this they are gaining attraction of the
customers. So, this is helpful for company because they can increase their future growth.
Negative impact some issue growing day by day. Use of plastic for packaging is affect
the skin and ingredient called “micro-beads”. These beads release dead skin cells from
the face. As, they are made from harmful toxic material and takes years to decompose.
Hence, the packaging is harmful for users as well as for environment.

Swot analysis of L’Oréal
SWOT Analysisis a framework that helps in determining internal and external
environment of business. Here, SWOT Analysis of L’Oréal is conducted for determining
strengths, weaknesses, opportunities and threats of company.
Strengths
Research and development- L'Oréal has many products in their portfolio. The company
investing the huge amount on research & development and constantly company can work on
their research and development through different strategies for providing the customer
satisfaction. Because of tha,t L'Oréal is a leading brand in the cosmetic and beauty product which
is a great strength of the company. There is vast portfolio of skin, hair, and many other beauty
products.
Consider organic product -So in addition company can use the herbal ingredients in its
product. It has also launched a new Organic Brand called, 'La Provençal Bio' in its product
portfolio (Ren,2015). This helps company in increases market in different geographical location
and also increase the number of customer .(Tukker, 2017).
High quality product – L'Oréal offers high quality product to their customer. They provide
branded products in skin, hair colour, ageing creams and other cosmetics. L’oreal uses natural
ingredients in their products. Recently, Organic makeup products was introduced by the
company. So that, it can attract the customer and increase their sales. Therefore, it is the biggest
advantage for the company(Wesseling2015).
Successful brand – L'Oréal is a very big branded company in cosmetic and beauty product
sector. Its market share is high as compared to other beauty or cosmetic product company
prevailing in the industry. L’Oréal also focuses on cosmetic products for multicultural customer
base to meet their diversified needs.
Weakness
 Dependence of third party retailer – The company's wholly depends on third party
which is the middleman between both the parties that is customer and the company, they
frequently increase their cost, Therefore L'Oréal bears loss regarding the cost and this
impacts their operating cost. In 2015, The total turnover of L’Oréal was $1.4B below
than all the competitors(Jiao,2015).

 Low profit margins – Profit margin is generally lower than their competitors like (Dior,
Chanel). Because L'Oréal doing research and development constantly so their cost is
significantly increased and profit margin is not high as much their competitor. So this is
the weakest part of company.
 Not specify product – Generally L'Oréal provide all type of product and other
competing company can provide the specific product to their customer like (Tresemme
shampoo for long hair, head and shoulders for removing dandruff.). These all are segment
in the hair care industry affect the L'Oréal. So these is the weakness of L'Oréal to
competing to these products.
Opportunity
 Rising demand of organic product- Through research and development, L'Oréal know
about the customer need and want of the organic product. They had introduced various
organic makeup products and hair colour range and L'Oréal more focus on the organic
product to provide the satisfaction of customer.
 Economy expansion- L'Oréal expand its business to enter in different market like
personal care sector to provide innovative or natural product to their customer. Customer
always want the new product that are suitable for their need (Štefan, 2016).
 Increase the market share – L'Oréal increases its market share by providing innovative
and generating new products. Development of new product increases customer attraction
and demand gain by attaining popularity. One of the innovation of L’Oréal is Organic
products. The demand of organic product is increasing because people trust organic
products much more than artificial. This affects the sales of the company and helps the
company to increase it's the market share.
Threat
 New competitors- Recently, Olay's is the biggest competitor of the L'Oréal because it
provides similar product to customer on minimum price. Major competitors of L'Oréal
are Placecol, Pantene, Sunsilk they also provide a specific product so L'Oréa affected and
decreasing the value of product
 Expensive product image – L'Oréal use the high quality of ingredients in its product so
the cost of product is high. Because of middleman their actual cost gets so high that it
affects their customer base. So consumer who cannot have a potential income they cannot

buy L’Oréal products. And other competitors has provided the low price product so
L'Oréal have a threat to their competitors (Bennett,2015).
Figure 2: Swot Analysis
(Source: Gregory How to Conduct a SWOT Analysis for Your Small Business, 2019)
Organisation’s capabilities by VRIO Model
VRIO model is a tool designed to analyse the capabilities and resources of an organisation
to gain long term competitive advantage. In this report, capabilities of L'Oréal will be explained
with VRIO model. This model comprises value, rareness, imitability, organisation.

Figure 3 : Vrio model
Source : VRIO Model, 2016
V- Valuable
L’Oréal is capable in innovating and generating products and services at minimum cost. The
company focuses on aspiration and needs of customer's for faster innovation. L’Oréal also
focuses on cosmetic products for multicultural customer base to meet their diversified needs.
Valuable products of L’Oréal are hair styling and colouring, skin and body care, cleansers,
fragrances and make up. So, the company by its diversified product line and profitability gives a
tough competition to all its rivalry industries. Thus, it is a competitive advantage of L’Oréal.
R- Rare
Various new and innovative products are been sold by L'oreal which provides them competitive
advantage and unique position in market. Like for example company is engaged in providing
smudge free eye-shadow at affordable prices. They also sale soufflé foundation that is great for
humid weather. By these products, it indicates the rare resources.
I- imitate
Those resources which are rare and valuable are difficult to imitate. Hence, L’Oréal uses power
and create opportunities to compensate its threat. The Company does regular innovation so that
they prevent their products from copying by other competitors. The company brought forward its
competitive advantage by continuously innovate and update products.This identifies permanent
competitive advantage of L’Oréal.

O- Organisation
L’Oréal is well organised because they coordinate and assemble resources effectively.
Companies reporting structure, management control system, budgeting system, strategic
planning, and policies of compensation are well managed. Hence, L’Oréal achieve sustained
competitve advantage.
Porter’s Five Forces Model
Figure 4: Porter's five forces mode
Source: (Porter's Five forces model,2015)
L'Oréal will be taken for better understanding of Porter’s Five Forces Model. This model
complies of 5 different forces that affects the operations and profitability of the company.
 Competitors - Various subsidiary companies of L'Oréal are MAC cosmetics,
Maybelline,Urban, Decay, Lancome, Dior etc. Such a Big Brand like L'Oréal is
surrounded by various competitors. Major competitors of L'Oréal are Placecol, Pantene,
Sunsilk and Unilever. Like L'Oréal , Unilever also operates in personal products sector.
In 2017, Unilever generates $17.6B more revenue than L'Oréal . Thus, the company is
facing high competition and to survive in the market L'Oréal always have to stay forward
in innovating new range of products (Scholes, 2015). The company also do
advertisements through social media, television, and sponsors various social events like
BEAUTIFUL BEGINNINGS and YOUNG WOMEN IN SCIENCE (Tukker, 2017). By
these promotional techniques, L'Oréal is giving tough competition to all its competitors.
Hence, the treat of competitors on the company is moderately low.

 New entrants into the industry - Although big company like L'Oréal cannot affect its
functioning by any new entrant in the market. But now company should be aware of them
and ready for relevant action as the threat of new entrant is very high. In 1998, Hindustan
Unilever Limited (HUL) launched Elle 18 as subsidiary brand and within a year of launch
the sale of cosmetics in L'Oréal falls below average sales because Elle 18 focused youth
and they launched bright lip shades at very low price (Hojnik, 2016). But L'Oréal was
well aware about the threat and to regain its lost customers, and launches various
innovative products like very popular collection of matte shades and serves with
waterproof quality at comparatively low price. By which company gains success,
increases its customer base and sales revenue.
 Suppliers - The company deals with large production and distribution channels, because
it operates in different countries of the world. From retail stores to online sites like
Nykaa, snap deal etc., L'Oréal need to supply all of them. Because of large production
channel, the company need raw material in huge quantity, thus they make contacts with
several suppliers and maintains long term and transparent relationship with them. The
threat of suppliers to shift towards other company is low and because of good and
transparent relationship with suppliers, the production in L'Oréal runs smoothly (Rana,
2015).
 Customers - Due to high competition in the market, L'Oréal need to maintain its
customer base. For this, the company need to capture more customers because of very
high competition in this industry customers set their range of consumption and whatever
brands suits in their range they prefer to consume it. Consumer holds highest power from
all other factors and for gaining attention of customers, L'Oréal always keep innovating
new range of products. The company use various marketing strategy to capture customers
(Ojasalo,2015). But they lacks in customer loyalty, customer retention ratio is very low
because of the availability of other competitor brands like Sunsilk,Unilever etc. threat of
customer to shift is very high.
 Threat of substitute products - L'Oréal deals with skin and hair care products. This
product line has only one substitute, that is home or natural products such as oils and
herbs to protect the skin. But majority of the customer found this is old fashioned,

ineffective and time consuming (Keyes,2016). Because of the unavailability of substitutes,
switching of customers and propensity of buyer towards substitute is very low. Although,
buyer can shift to other brands but to satisfy the need they have to purchase these
products. The companies prevailing in this industry like L'Oréal can choose any price for
their products, consumer has no choice either to buy it to satisfy their wants.
Task 2
Different types of strategic directions and growth factors available to the organisation.
Strategic directions are the plan of growth for the business in the specified direction as
per business environment of firm. The directions and growth of L’Oréal will be discussed with
the help of Ansoff Matrix. Matrix is the strategic model which suggest corporate growth
opportunities with regard to products, market and services of the organisation. Ansoff Matrix in
context to L’Oréal is discussed below:
 Market Penetration - Market Penetration helps to increase in the market shares of an
existing product of a Company or promoting a new product, through strategies such as
promotion, advertisement and volume discounting. It is a tool used to increase
Company's share in the market with its current product line(Wesseling,2015).
L’Oréal can increase its market share through shifting its expenditure cost highly on
promotion activities. L’Oréal can improve its advertising skills. They can work upon some
innovative and creative ideas or ways of doing advertisement to snatch and attracts more
customer interest towards their products. They can give amazing discounting offers on timely or
occasionally basis to attain customer retention towards the L’Oréal. To increase their market
share, they can improvise their product quality and standards and can make development in their
existing product. To counter competition in the market the Company could look at the
penetration pricing where they can aggressively price the products below their competitors
products to gain market share. They can also do social media advertising through launching their
own app into the market or through the public campaigns they can make people aware about
their products. They can promote their brand by doing sponsorship with any popular television
channel. They can telecast the advertisement between the show. To increase or expand their
business with the existing products they can do tie up with any popular shopping channel like
Home Shopping Network, QVC, Shop NBC etc.