Business Strategy Analysis Report: L'Oreal's Strategic Planning

This report provides a comprehensive analysis of L'Oreal's business strategy. It begins with an introduction to the importance of business strategies for achieving organizational goals, using L'Oreal as a case study. The report covers the impact of the macro environment on L'Oreal using PESTEL analysis, examining political, economic, social, technological, environmental, and legal factors. It then analyzes L'Oreal's internal environment and capabilities through a SWOT analysis, identifying strengths, weaknesses, opportunities, and threats. Furthermore, the report applies Porter's Five Forces model to evaluate the competitive forces within the market sector, including industry rivalry, threat of entry, threat of substitutes, bargaining power of buyers, and bargaining power of suppliers. Finally, the report discusses strategic planning concepts and models to interpret and devise strategic directions for the organization, concluding with a summary of the key findings and implications for L'Oreal's strategic decision-making.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P 1 Impact and influence of the macro environment on a given organisation.............................1
TASK 2............................................................................................................................................2
P 2 Analyse the internal environment and capabilities of a given organisation using
appropriate frameworks...............................................................................................................2
TASK 3 ...........................................................................................................................................4
P 3 Applying Porter’s Five Forces model evaluate the competitive forces of a given market
sector for an organisation.............................................................................................................4
TASK 4............................................................................................................................................7
P 4 Concepts and models, interpret and devise strategic planning for a given organisation.......7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Business strategies are essential for growth of the corporation so that it can achieve
specified targets. Strategy are made as per the need of objectives so that goals can be
accomplished as per the desire manner. The management is responsible for manging strategic
direction to attain higher revenue. To better understand this concept L'Oreal has chosen which is
a personal care company belongs to France. In this report there are following topics are covered
such as: impact and influence of macro environment, organisation's internal environment and
capabilities and analysis of Porter's five forces model. Apart from this, it also discusses about
models, theories and concepts to assist with the understanding and interpretation of strategic
directions available to a corporation.
TASK 1
P 1 Impact and influence of the macro environment on a given organisation
The factors which are external & uncontrollable by the corporation are the part of macro
environment and it can influence the business performance of an organisation. PESTEL analysis
is a method which is used to analyse external market where the operations of company are
executed. By considering macro environment factors the management of L’Oreal can protect its
business from the negative impact of it. It involves:
1

Figure 1: Pestle Analysis
(Source: Jocovic and et.al., 2014)
 Political factor: This factor is associated with government rules, regulations & policies
which can influence the operations of a corporation. The government policies of distinct
nations can affect the organisation and its operations. Europe & Canada have harsher
ingredient requirement and out of 1328 cosmetic ingredients they have banned over 500.
If L’Oréal want to continue its business operations in these nations than it has to follow
the specific rules otherwise company cannot expand its business in Europe & Canada. As
political situation is required to be analyse of different nations so that better business
strategies can be made for the growth of company.
 Economic factor: This factor involves foreign exchange and interest rate, inflation,
economic growth, price of goods etc. To survive in the market effective strategy is
important, it is necessary for L'Oreal to set the price the of its beauty products as per the
economic conditions and inflation rate (Scarborough, 2016). If inflation rate has
2

increased in France than purchasing power of consumer will affect as a result sale on
company will reduce so this can factor negatively influence the corporation.
 Social factor: This factor involves paying capacity, age, preferences, etc. and if company
does not emphasis it than its business can be affected. As people of society are more
concern about natural ingredients and herbal products. As a result, needs of consumers
will be satisfy so this factor does not influence the business of company.
 Technological factor: In the success of an organisation technology plays an important
role because it is helpful to enhance the efficiency and productivity. The people of UK
are more concern about innovative technology. L’Oréal's technological attributes and
innovations help it to fulfil the requirements of consumers. The firm make use of digital
marketing tools in order to grab attention of maximum buyers and to gain competitive
advantage.
 Environmental factor: It involves weather and climate of a country which can affect the
business of an organisation (Spender, 2014). The beauty industry is focusing more than
ever to try and 'go' green. So L'Oreal keep this factor in mind and in packing it is using
eco- friendly technique so that environment of UK can be protected and organisation can
survive for long time as a result it’s this factor does not impact the business of
corporation.
 Legal factor: This factor involves various laws and compliances which are imposed by
legal authorities and if it is not followed than its business of organisation can be affected.
To survive in international market such as UK and France, L'Oreal have to follow Federal
Food, Drug and Cosmetic Act & the Fair Packaging and Labelling Act. As a result,
company can easily survive in the market and this factor does not impact the business of
firm.
TASK 2
P 2 Analyse the internal environment and capabilities of a given organisation using appropriate
frameworks.
Internal environment involves those factors which are available within the company &
affect operations of business. For the corporation it is necessary to identify all intrinsic elements
which are beneficial to formulate and implement business strategies for the growth and success
3

of company. SWOT analysis is helpful to analyse internal environment and capabilities of
L'Oreal which are helpful to grow the business. It provides help to know the strength, weakness,
opportunities and threats. These are as describe below:
Figure 2: Swot Analysis
(Source: Spender, 2014)
Strength:
 L'Oréal is a leader in the growing cosmetics industry despite the competition in the
market.
 High-end advertising which adapts to the culture of target audience and L'Oréal has over
60,000 employees globally (Lehmann, 2016).
 Apart from hair colour, skin care, sun protection, make-up, perfumes and hair care, the
company is active in the dermatological and pharmaceutical fields and is the top
nanotechnology patent-holder in the United States
 L’Oréal has operations in over 130 countries and over 40 manufacturing plants.
Weakness:
4

 The decentralized organisational structure that can make control difficult.
 The company is not focusing on male segment that's why the market share is not much
high as compare to other brands of same category.
 The weaker brand awareness in rural area because the countries like India most of the
population lives in villages and small towns. It shows that L'Oreal does not capable to
connect all persons through its brand.
Opportunities:
 To enter new markets in Middle East and Africa so that it can grab more market share
and enhance the profits.
 The company can focus on male segment also because currently it is giving more focus
towards the female which is helpful to capture more market share.
 In product there is need to add some more products which have specific features so that
L'Oreal can easily compete with other beauty brands and organisation is capable in that.
 To enhance the competitiveness company can more focuses on innovation.
Threats:
 The competitors like MAC, Maybelline, Dior has more market share and better brand
image and it is the reason of threat for the L'Oreal because it has less market share in
compare to these companies.
 With constant updation being demanded in cosmetic industry, keeping up with the times
is ultimately very difficult. It is not easy to keep all consumers happy at once because
demand, fashion and trend is changing very frequently.
 The economic crisis can impact the spending patterns of persons as a result sale of
L'Oreal can be affected and profits get reduce.
So, with the help of SWOT internal environment can be analyse which help the
organisation to make necessary improvements and provide help to maximize the capabilities so
that business of corporation will sustain for a long time. It is beneficial for L'Oreal to grab more
market share and increase the revenue (Kossyva and Georgolpoulos, 2015).
With the help of SWOT analysis L'Oreal can make better strategies which support the
growth of business and company should make better plans in order to overcome from the threats
so that it can sustain for a long term in the market.
5

TASK 3
P 3 Applying Porter’s Five Forces model evaluate the competitive forces of a given market
sector for an organisation.
Competitive forces are the factors which influence the competitive position of an
organisation or an industry are known as competitive forces. It is an important tool which is
useful in strategic analysis to identify the competitiveness in an industry. For a corporation it is
essential to collect information which provide help to formulate growth strategies for the success
of business. It is beneficial for L'Oreal to take better decisions for the growth and success of
company. With the help of Porter's five force model competitive forces can be evaluated and on
the basis of its corporation can make necessary improvements.
Porter five force model: In the year 1979 this model was introduced by Michael Porter
which is based on five forces and help the organisation to gain competitive advantage. It has five
elements which are describe below:
6

Figure 3: Porter’s five forces
(Source: Porter five force model, 2018)
Industry rivalry: As L'Oreal belongs to cosmetic industry so for the corporation it is
essential to know the rivals. The main competitors of company are MAC, Maybelline, Dior. So,
it is essential for the organisation to make effective strategies for the success of company. The
main problem is that consumer switch brand from one to another. So company make strategy to
retain the customers by providing quality products at reasonable price. The level of threat is
moderate because it is also a reputed brand and have a good brand image in the market.
Threat of entry: There are various companies who want to enter in cosmetic industry
because profit margin is high and almost all persons use beauty care products. L'Oreal should
aware about of any new entrance in the same sector which can targets the consumers of
company. If organisation does not aware about this factor than its profitability and performance
can be affected. Corporation can be threat because the entrants can introduce new products with
innovative features to attract consumers. The level of threat is low because it has a good brand
image and provide quality products to the consumers and to enter in the market there are required
huge investment which is not affordable by everyone. To compete with the competitors it is
important to provide better quality of products to the consumers so that they does not look for
other alternative.
7

Threat of substitutes: To get success it is essential for the organisation to identify
substitutes which can affect the business of organisation. It is not easy to consider all existing
factors and substitutes which are available in the market. So, to meet out from this situation it is
necessary for L'Oreal to provide quality products and add extra features so that consumers will
not try to find out any other substitute or alternative. As a result, company can connect to the
maximum number of persons and market share can be increase. The level of threat is medium
because it also has large variety of product line.
Bargaining power of buyers: This problem has faced by almost all organisations
because there are various companies in the market who provide same product with superior
quality and reasonable price. So, consumers have more options or alternatives to choose a
product. This is the main reason behind the bargaining power of buyers. So, it is the strategy
manager of L’Oréal focusses on producing more superior and quality product and deliver the
services as per the desire of people. However, it is important for the firm to keep the price of
products reasonable so that all consumers can afford it. It is beneficial for the corporation to beat
competition and maximize the market share and profitability. The level of threat is medium
because market image of company is very good and most of consumers are loyal with the brand.
Bargaining power of suppliers: To manufacture the goods raw material is needed which
is provided by the suppliers and if they have quality material than they charge high price and
create the monopoly in the market. So, it is essential for L'Oreal to make contact with that
supplier who provide quality raw material at minimum price so that cost of production can
reduce and profits can be maximize. As a result, superior product can be producing and
corporation can attract a greater number of consumer (Hart and Halme, 2016). The level of threat
is high because there is monopoly of suppliers in cosmetic market due to lack of good suppliers
who provide quality raw material.
Along with this balance score card has been used in order to strategic performance
measurement and with the help of this organisational objectives and vision can be made and it
contribute in the growth of L'Oreal.
8

TASK 4
P 4 Concepts and models, interpret and devise strategic planning for a given organisation
Ansoff matrix is a tool which is used by companies forderiving appropriate strategic
direction in accordance with growth factors. It has four sections and they are related to markets
& services. Strategic directions for L'Oreal in mentioned below:
Market development – According to this strategy, an organisation should launch
existing product in new market. Loreal shampoo is one of the best offering on the company and
they enterprise can start selling this product in untouched market of Africa like Cape Verde.
Market penetration – Under this strategy, firm try to grab more market share by
increasing sale of existing products. L'Oreal can expand their business in Indian market by
adopting aggressive marketing strategies like spending more money on integrated advertising
plans and their execution.
Product development – This strategy is related to launching a new product in existing
market. L'Oreal can introduce sun screen cream in men's segment because they do not have such
kind of offering in their present product portfolio. This will allow them to add more customers
and increase company's overall revenue.
Diversification – It can be considered as more risky strategy where organisation
introduce new product in completely new market. L'Oreal can enter in African continent and
launch sunscreen cream for men. This strategy will have high risk but it works, then company
can earn huge amount of money.
9