Strategic Planning for L'Oreal: Analysis of Business Strategies

This report provides a comprehensive analysis of L'Oreal's business strategy, encompassing both external and internal environmental factors. It begins with an introduction to business strategy and the L'Oreal company, highlighting its global presence and diverse product range. The report then delves into a detailed PESTLE analysis, examining the political, economic, social, technological, legal, and environmental factors impacting L'Oreal's operations and strategic planning. Following this, a SWOT analysis is conducted to assess L'Oreal's strengths, weaknesses, opportunities, and threats. Furthermore, the report applies Porter's Five Forces model to evaluate the competitive forces within the cosmetic industry. Finally, the report synthesizes these analyses to interpret and devise strategic planning recommendations for L'Oreal, aiming to optimize its growth and market position, and concludes with a summary of the key findings and recommendations. The report utilizes the VRIO model to analyze the organization's capabilities and competitive advantages.

UNIT 32
BUSINESS
STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Analyse PESTLE and SWOT for making strategic planning and an analyses to adopt
organisation capabilities..............................................................................................................1
TASK 2............................................................................................................................................4
P2 Analysis of the internal environment and capabilities of a L'Oreal.......................................4
TASK 3............................................................................................................................................6
P3 Application of Porter’s Five Forces model to evaluate the competitive forces of L'Oreal ...6
TASK 4............................................................................................................................................8
P4 Application of a range of theories, concepts and models, interpret and devise strategic
planning for a L'Oreal.................................................................................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13
.......................................................................................................................................................13

INTRODUCTION
Business strategy is a process in which higher authorities of business make various
decisions to achieve objectives (Acquaah, 2013). It is a strategic plan which is used to design
particular goal or objectives. The purpose of this is to design, arrange and utilize various
organization instruments which help company to make long term growth for business enterprise.
The company that have been mentioned in the report is L'Oreal. It is the world' largest cosmetic
company founded in 1909, it had made various cosmetic products like shampoo, skin care lotion,
sun screen, make up items, perfumes for both men and women etc. It had launched more than
500 brands in all over the world. The company need to examine external and internal analysis
that includes PESTLE, SWOT and Porters five forces model which form a proper strategic
planning. It also evaluates various type of strategic directions, justify and make certain
recommendations for most suitable growth strategies. L'Oreal have to design a definite strategic
management plan for devising perfect business strategy that had been mentioned in above report.
TASK 1
P1. Analyse PESTLE and SWOT for making strategic planning and an analyses to adopt
organisation capabilities
External analysis help to determine strengths and weakness of company which
make some competitive advantage in business and internal analysis help to find out the threats
and opportunities (Al-Karaghouli and Eldabi, 2013). which help organisation to determine its
objectives.
PESTLE analysis-
It refers to a process which is used by marketers to analysis the various factors of
environment which effect the organization. L'Oreal is a famous cosmetic and beauty company in
all over the world which make various merchandise products to meet up the condition of
different customers. L'Oreal need to examine various factors which form complete marketing
strategies in an organisation.
Political
Political factors mean rules, regulations and policies of government of countries where
L'oreal company has been working. This factors includes political stability, government policy,
foreign trade, tax, labour law, trade restrictions. This company has manufacturing in Paris where
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policies and rules of France affect company (Bharadwaj and et. al., 2013). As product safety is
very important for every organisation for surviving, L'oreal needs to report ingredients it uses in
product while manufacturing to France's government. This factors impact strategic planning as
policies, regulation of every country differ from each other which affect manufacturing process.
The political factors affects the L'oreal's strategies because if Govt. changed its rules and
regulation within the country then L'oreal also have to change its strategies, and if the Govt. of a
country is stable then it effect the strategies in positive way.
 Opportunities- The taxes are not so much higher which is imposed by Govt. on
cosmetics products so that it is vital opportunity for the organization to expand its
business with making huge revenue..
 Threats- If government suddenly change their policies regarding cosmetic products, then
L'Oreal has to face threat. If product is not as per standard set by government then it has
to bear huge loss for already manufactured products.
Economic
It means performance of economy which impacts company having long term effects. It
includes inflation, interest rate, economic growth, foreign exchange and others. The recession is
major elements which up-bring cosmetic organisation (Chang, 2016). Price of products vary
from region to region due to imposing of tax. The states which are developed having high human
development index contribute more to branded products like L'oreal. The economic factors also
impact the L'oreal strategies as well such as if it develop a strategy to expand its business in
another country, where human development index is not so high then it have to change its
strategy regarding producing products at cheap rate.
 Opportunities- If GDP rise, the purchasing power of consumer also increases which
leads to enhancement of sales which is biggest opportunity for L'Oreal.
 Threats- The decrease in value of dollar and other currencies leads to threat for L'Oreal.
Social
Social factors mean value, belief, opinion and characteristics of consumer (Eaton and
Kilby, 2015). It is the trends where people of society prefer new and latest products. Due to need
and demand of people, L’Oréal’s always do innovations in their products and supply high
quality. If L’Oréal does not focus on supplying high quality and innovation then it has to vanish
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from market. In this way, social factors impact organisation and its sustainability. The social
factors also influence the L'oreal strategies because if its strategies not able to fulfil the demand
of current market scenario then it have to adopt new technology.
 Opportunities- If L’Oréal continuous do innovative in their products as per latest fashion
then it can earn maximum profits from it which is biggest opportunities for it.
 Threats- If L'Oreal want to adopt new trends then its sales decline which is threat for it .
As environment is dynamic which changes frequently so for survival changes should be
adopted.
Technological
This factors means change in technology with change in time. It affects management and
marketing in different ways such as new ways for producing, distributing goods and service.
L'oreal should focus on innovation and use contemporary trends. In order to get success in
market, L'oreal need to use latest technology and trends for production and manufacturing of
products. L'oreal strategies also influenced by the technological factors, for example if the new
technology is introduced in the market then L'oreal also have to adopt it by changing existing
strategies. Because customers always attract towards new designs and stylish products.
 Opportunities- With use of latest technology for production can lead to high
manufacturing along with saving time and cost.
 Threats- If L'Oreal does not adopt current technology then profit may decline which is
threat for business.
Legal
It includes equal opportunities, health and safety, consumer rights, product labelling,
advertising standard and product safety. There are many competitors of L'oreal so it need to use
all legal standards and laws for manufacturing of products. In order to avoid violation, chemical
products should be banned and follow legal requirements (Iacob Quartel and Jonkers, 2012).
Legal factors also influence the L'oreal strategies for example, if in a country tax rates are high or
low then existing market then the respective organization have to change its strategies regarding
tax payments.
 Threats- If it does not follow such law according to competitors then threats arises. The
violation of such laws decrease value of business in market.
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 Opportunities- By adopting laws regulated to safety and health creates value for L'Oreal
in market. This helps in enhancement of profits and sustainability of organisation.
Environmental
This factors means scarcity of raw materials, pollution targets and others in environment.
Currently, customers are demanding high and ozone-friendly products for the use which should
from sustainable source (Jocovic and et. al., 2014). All international brands are supporting world
for making beautiful planet and pollution free. Thus, if it uses high chemical ingredients for
manufacturing products, then it creates pollution which is harmful to environment as well as
people. So it focusses on maintaining standard of product along with quality. These factors
influences its strategies as well because if it operating business operation in a country where
rules regarding pollutions are so much strict, then it have to change its strategies regarding
environmental protection.
 Threats: As the L'oreal is using high chemical ingredients to produce products which
may harm the customers skin. So the people want high quality products with less
chemical which became a threat for the organization.
 Opportunities: the organization sets its goals as ozone friendly production which create
its reputation in market and present opportunities for it.
TASK 2
P2 Analysis of the internal environment and capabilities of a L'Oreal
SWOT analysis: swot analysis is used for analysing the various strengths, weaknesses,
opportunities and threats of the organization in environment. SWOT analysis of respective
organization is as follows:
Strengths: These factors shows the internal developed points of the organization which
helps it to achieve its future goals. L'oreal have also its strengths which make it position strong in
the market such as research and development, quality, safety, etc.. It offers high quality products
which works for the retaining existing customers with respective organization. The main focus of
the organization is on customers demand and needs which leads to more sales and profitability
(Khalili Shavarini and et. al., 2013). The organization have also capabilities of producing a wide
variety of cosmetic products, because it has endless research as it has various products in
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cosmetics market. Which is also very helpful in sustaining it's business in long term. It can be
also say that it has a potential capability to fulfil market demand.
Weaknesses: These are the internal factors of business which create barriers in
organizations path to achieve its goals and objectives. It may be in the form of high level debt,
inadequate supply chain, lack of resources and other factors. The main weaknesses of L'oreal are
multiple acquisition, its dependence on suppliers, shrinking profits. The organization have main
focus on research and development which is very expensive for organization (Lawton, 2017).
The L'oreal offers a large number of products for which it needs a large number of employees as
it increases cost for organization.
Opportunities: It lies outside organisation which can be used for gaining competitive
advantage. It can be high market share, increasing sales, and others. L'oreal has opportunity to
expand business in new market, and products different countries according to their need and
demand. Customer always look for best product, newest for their body, so L'oreal can easily
enter into new market (Li and Tan, 2013). There is another opportunity for L'oreal where it can
manufacture new types of products for their customer. It focus on manufacturing all types of
products for every consumers. It has opportunity to create more organic products rather than
chemical based.
Threats: It means factors which can harm organisation like increasing competition, high
cost for inputs, tight labour supply. The threats which L'oreal can face in terms of economic
crisis, competition, new regulations. The declination of economic and its value will be great
challenges for development of Loreal and its products. With the new entry of different
companies in beauty and products is great challenges for L’Oréal to survive such as Revlon,
Procter & Gamble, Estee Lauder.
Analysis of capabilities of organization:
Analysis of capabilities of the organization can be done through the VRIO model, which
define the valuable, rare, imitability and organized resources of the L'Oreal as follows:
Resources Value Rare Imitability Organized Results
Plant
Location
Plant Location - - - Competitive
disadvantage
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Designs Designs Designs - - Competitive
equality/parti
ally
Software Software Software Software - Unused
competitive
advantage
Employees Employees Employees Employees Employees Long term
competitive
advantage
The major capabilities of the organization are its employees by the help of which it is
able to produce all type of products.
Valuable- It means resources which creates values for L'oreal for surviving in market.
Here, all four capabilities are valuable for running business organisation. For example,
employees, softwares are the capabilities of the organization.
Rare-It is rarity in nature having unique features such as design, software and employees.
These are also the capabilities of the organization, because with the help of these resources
organization is able to produce required stock for the business operations.
Costly to Imitate- The design and plant location of Loreal is very costly to copy. These
both the resources are also shows the capabilities of organization because other firms are not able
to adapt similar resources.
Organised to Functions- The employees working in L'oreal is organised to functions as
it is not easy possible for each and every company to have the same.
TASK 3
P3 Application of Porter’s Five Forces model to evaluate the competitive forces of L'Oreal
Examine the power of competency in a business, which figure out the attractiveness of a
company's profitability by framework or a tool, which draws the five forces of economy is
known as Porter's five forces mode (McGrath, 2013).
Competitive Rivalry (Defines the power of competitors), Supplier Power (Defines the
power of supplier in market towards price diversification), Buyer power (Power to turn the
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company's price down by switching it to different industry), Threat of Substitution (Fear of
customers, adopting different ways to fulfil need), Threat of new entry (Threat of loosen the
market share by new brand in Market)
These five forces will examined on the economy of L'oreal perspective, a French personal
care company with a tag of world's largest cosmetic industry which is as follows :-
Rivalry among competing firms
 It focuses on the economy with respect to its competition, as the rival works on the
similar product and the chances of switching brand is much more high when it talks of
brand like L'oreal.
 In today's generation, Men and Women are very conscious about their looks, not only the
French market but across the world so, L'oreal competition is getting heat up with many
other brands such as Biotherm, Vichy, Nuxe etc.
 To tackle this competition, L'oreal should work on their unique strategies which can kill
their competitors in the market ground and maintain loyalty with existing and new
consumers.
Potential entry of new competitors
 Barriers play a vital role, when it talks of new industries coming in market. But offering
quality in less price allows to overcome hurdles while entering into new market with
unique distribution channel.
 Loreal will face a large competition, as in the report of UK Health & Beauty Market, it is
given that market will boost-up by 21.1% over the next five years by most luxurious
brands.
 Innovation in the product line plays a vital role, as L'oreal should work on research and
development and adopt the fifth module of Art of Profit known as a Time profit model.
Bargaining power of customers
 Here demand elasticity is high, as a change in the price of L'oreal product may shift their
customers to another brand.
 Loreal should focus to attract their customers by building initial preference, offering good
quality in less price, building customer relationship and much more.
 To maintain inelastic demand, L'oreal should work on Specialist product which works as
a king of Market.
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Potential development of substitute product
 L'oreal has value in the market when it talks about the brand, but cosmetic industries have
high substitutes, so it is easy to lower down the price of manufacturing process and
attracts the customers with high quality in less price.
 The biggest challenge for the L'oreal industry in 2019 are Avon Products, Unilever,
Revlon Inc etc.
 At the time of maintaining the cost accounting book, L'oreal should focus on cut down
the cost of the manufacturing process which help the company to maintain prices in the
market.
Bargaining power of supplier
 Industries are more focused on suppliers as the less in number with high power of
suppliers will be a great loss for the company with respect of profit earning.
 L'oreal builds a solid trust with their suppliers which make their bond into a good
relationship. It works on the mutual understanding by doing a healthy conversation to
ensure growth together with their supplier of raw material, packaging etc.
 Ensuring their supplier and maintain a loyalty of growth together plays a vital role here,
this works with contacts, agreement or by maintaining good relations.
TASK 4
P4 Application of a range of theories, concepts and models, interpret and devise strategic
planning for a L'Oreal
To evaluate different types of strategic decisions available to an organisation:
In above study L'Oreal had used SWOT and PESTLE to identify various competencies in
business. Now L'Oreal use ANSOFF matrix, which is a tool used to examine and designed
various strategies for firm. It helps L’Oréal marketers to identify different types of risk and
leaders to determine different wants and needs of products (Murthy, 2012). This will build
effective business strategies in business which make more profits for business. There are four
strategies of ansoff matrix which are as follows-
Market penetration: It is a process that increase the sales of non-existent products to an
existent market. For example, L'Oreal can made different promotional strategies which acquires
more competitors to make target only those customers who buy the product rarely. If this
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happens then the sale of its product will become high and more demand can have incurred in
company. Such that it can introduced its new type of serum in existing UK market.
Product development: In this process firm need to develop new products in the existing
market (Oestreicher-Singer and Zalmanson, 2013). L'Oreal make an investment in R&D process
that help to determine new products in existing market. For example- L’Oréal adopts different
policies and strategic partnerships with other companies to make a perfect product as with the
advance research and development.
Market development: It is a process in which firm enters into new market with existing
products that they have used. If L’Oréal want to expand its business in new market with same
product then it needs to add some features in it. This helps in attracting large number of
customers. Thus, it had more than 500 stores in all over the country which had increased its
demand of customers. For example it can launch its existing shampoo with some new and
advanced features.
Diversification: It is a process in which firm enter into new market with new products is
known as market penetration (Peng, 2017). For example- L'Oreal can made its new products to
enlarge its long term strategy which helps to meet customers’ needs and wants in business that
mobilise various resources. If L’Oréal expand its business in future or launch new products in
market then company will maximise its demand. For example, if it launch other than a cosmetic
product into a new country market then it will help it in diversification.
A justification or recommendation for most appropriate growth strategy
Growth strategy is a process in which market increase its sales to maximise its profit to
grow its business. L’Oréal had used different strategies to make its product increased in
competitive market so that sales will be high and more revenue will generate. The most
appropriate strategy that L'Oreal can implement is market development which is described
below:
Market development: It is a process in which companies have make effective strategies
to increase their sales and profit. In this method L'Oreal used to enlarge its business related to
business enterprise position, various competition and government regulations. In it firm need to
enters into new market with existing products. L'Oreal has chosen European market for their
existing products as people of those countries prefer more cosmetic products to use.
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Recommendation: Here, L’Oréal can adopt such strategies by analysing its market
properly and their need and demand. As it is planning to come in new market with same existing
product. Without knowing about new market, it is not possible to provide products. In market
development L’Oréal have to develop a proper marketing plan in which small competitors have
to see which market is best for developing the product (Schaltegger, Lüdeke-Freund and Hansen,
2012). L’Oréal first modify the performance of infrastructure by identify appropriate strategy for
market development plan, it launches its new product by given advertisements in newspapers,
T.V and through linked In so that people should know its new products. There are three factors
that marketers expand its business while in order to make profits-
 First L'Oreal should develop most appropriate segment to target which type of customers
require this product.
 Second, it should develop a good market plan to fulfil all needs and requirements
according to customers.
 Third, L'Oreal can make profits if its products is been purchased by number of
competitors of firm.
A strategic management plan with strategies, objectives and tactics
Strategic management plan is a process which use to influence organizational needs and
benefits to allocate various type of resources.
Strategy for L'Oreal
For making strategies following should be considered such as:
Market Analysis: It is very necessary for the organization to analysis need and demand
of customers properly. After knowing market, proper strategies for customer should be framed.
Here, it has adopted market development in which it wants to enter into new market with same
existing product.
Objectives of market development strategy
Whenever buyers need to establish a new product then it need to set SMART objective to
fulfil all desires and needs in business. This help to make customers to utilise all goals and create
some strategic decisions for company.
 S- Smart- To provide quality cosmetic products to customer in order to fulfils their need
and demand.
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 M-Measurable-The goal which L'Oreal has set should be measurable, such as its goal is
to increase sale so that it should be clear that like by what percentage i.e. 25%.
 A-Attainable-Its main objectives in which L'Oreal could great a brand image in the mind
of people so that resources can be attained and effective decisions will be inherited.
 R-Realistic- To creates trust in mind of customers so that it become best cosmetic brand
all over the world.
 T-Time bound- to increase sales by 25% in three years.
Tactics of market development strategy
The market development is used to introduce new product in existing market. There are
several tactics which help to attract more customers and become the product at brand level.
Cash Management- This will help the organization in estimating cash requirement
when it enter into new market (Verbeke, 2013). This will help in arranging financial resources.
L'Oreal can borrow cash from banks and use for research and development about new products.
It also can take advantages by the efficient management of financial resources.
Developing new features- In order to capture new market, L'Oreal can bring new
features in existing products. This tactic helps organisation to know about taste and preferences
of customers and they like it or not. This tactic helps in increasing profit of organisation by
adding features to products. The budget for doing that activity is as follows:
Budget as per 1000 units:
Particulars Amount
R&D 100000
Raw material 30000
Workforce 40000
Advertisement 80000
CONCLUSION
At the end of the report it has been concluded that business is a process in which various
competitors interact with each other to discuss their ideas and interpretations. L’Oréal had
develop SWOT or PESTLE to determine what are the customers’ needs and wants to establish a
competitive edge in business. It also analysed ANSOFF matrix to grow its market in all over the
world. L'Oreal produce a strategic management plan to use in future so that organization make
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long term growth strategy for effective utilisation of resources. It is to plan various activities that
make some goals and objectives in firm. Business strategy of L'Oreal is the mission of L'Oreal to
provide good products to both men and women according to their needs and preferences. It also
aims at proving a wide variety of innovative products to all type of generation.
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