Business Strategy Report: L'Oreal's Competitive Landscape and Plan

This report provides a comprehensive analysis of L'Oreal's business strategy, examining its operations in the global personal care products market. The report begins with an introduction to business strategy and then delves into a situational analysis using PESTLE, stakeholder analysis, and Porter's Five Forces models to assess the external environment. It then analyzes L'Oreal's internal strengths and weaknesses through a SWOT analysis and assesses its capabilities using the VRIO model. The analysis highlights the company's strong brand portfolio, global presence, and diversification, as well as its challenges in a saturated market. The report concludes with a business strategic plan. The report emphasizes the impact of political, economic, social, technological, legal, and environmental factors on L'Oreal's strategic decisions and its stakeholder management. The report offers valuable insights into L'Oreal's competitive advantages and provides recommendations for future strategic planning.

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Situational analysis ....................................................................................................................3
Analysis of internal and weaknesses of company.......................................................................6
Analysis of company's capabilities.............................................................................................7
Competitiveness of market..........................................................................................................8
TASK 2 .........................................................................................................................................10
Different strategic directions.....................................................................................................10
Justifications and Recommendations related to growth strategies............................................12
A business strategy plan............................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
A business strategy can be described as set of actions or decisions which helps an
organisation in attaining its specific objectives and goals. In simpler words, strategy is action
plan which entails how company is going to conduct its operations for achieving its
predetermined goals, meet the requirements and expectations of its customers and sustain a
competitive edge in the market place (Thürer and et.al., 2018.). The present report is going to
discuss about L'oreal, a French global company dealing in personal care products. It was founded
in 1909 and is headquartered in Clinchy, France. It's a world's largest cosmetic company. The
report will cover impact of macro environmental factors on organisation, an analysis of internal
strengths, capabilities and weaknesses. Further, analysis of competitiveness of market will be
done that could influence the strategies of company and lastly a business strategic plan will be
prepared.
LO 1
Situational analysis
Being a global organization, L'oreal operates in a very complex and dynamic business
environment. It has to very thoroughly analyse its internal and external environment before
formulating any business strategy (Chang, 2016). This is because a strategy based on current
market trends and situations would be more effective for coping with the challenges which in
turn would it help in achieving its goals very efficiently. Below is the external analysis of L'oreal
by the way of PESTLE analysis:

Illustration 1: PESTLE analysis
(Source : What is PESTLE Analysis? - Definition & Examples, 2019)
Political factors : Since the company operates in different number of countries, political
conditions and relations of host country's government with other countries is an important factor
that largely impacts the strategic decisions of L'oreal. For example, BREXIT, a political event
will impact the trading with UK. The French company might face different trade laws following
the Brexit as UK will be free to form its own trade laws and regulations other EU guidelines. It
will have direct impact on organisation's business in England and Wales which is one of its
major international market. Entity will have to now formulate its international business strategies
accordingly.
Economic factors : There are numerous economic factors that have the capability of
affecting company's business positively or adversely. For a multinational company, exchange
rates in different nations have significant impact on its revenues. Other factors are GDP of
various nations, recession period, inflation in host country, per capita of income of individuals in
its operating nations affects the sales and sustainability in the global market. For example, in the
developing economies people might not have enough money to spend on luxurious skin care

products like in USA, UK, Germany etc. It has to thus, forms a business strategy where people
with average income group in developing countries could afford its products.
Social factors : Lifestyle of people are changing very rapidly. People are becoming more
fashion conscious, wanting to look young forever. This has created opportunities for L'oreal to
grow and expand based on such preferences. Another social factor is brand loyalty. People tends
to go for those new products which are introduced by their favourite brand. For example, a
customer will prefer new anti-ageing products of L'oreal because they already love the other
products of the company such as shampoo, gels, etc.
Technological factors : Risen of internet has revolutionised the beauty industry across
the globe. People can access L'oreal products anywhere and at anytime due to the online selling
organisations such as Amazon. Such things have been possible only due to the advancement of
technology in the recent times. It has made L'oreal to reach masses and has resulted in increase in
sales in the last few years. Another factor is innovation in company's products due to
technological up-gradation of manufacturing process, new features in existing products through
continuous R&D is one of the reason of company's success globally.
Legal factors : Beauty industry faces strict laws and regulations around the world. They
have to follow packaging, labelling, health and safety regulations while developing its products.
If the ingredients used in the products are not approved can lead to suspension of such products
from the market. For example, L'oreal needs to make sure that its packaging and labelling does
not provide any misinformation to its customers. In such incidences, it can attract penalties under
different legislations.
Environmental factors : Environmental issues are becoming a serious matter of concern.
Business organisations are required to abide by the international and national laws for the safety
of environment. L'oreal makes every effort for reducing its carbon footprint on the environment
for contributing towards the goal of making this world beautiful and pollution free. Non
fulfilment of this aspect, it would lead to society's non-acceptance for the L'oreal products. This
eventually will result in the failure of the company. Therefore, business strategies must be
formed taking environment sustainability as a key aspect for moving towards success (Bull and
Kozak, 2016).
Stakeholder analysis

It is the process of analysing and identifying the needs of stakeholders. It assist in
identifying the stakeholders which have interest in firms operation.
The following is the stakeholder analysis of L'oreal :
 Keep satisfied : It refers to those stakeholders of the company which are required to
keep satisfied . It consist of customers, investors, employees etc.
 Closely engage : This factors provide understanding about those stakeholders which are
required to be closely monitored. L'oreal closely engage the management , shareholders ,
government etc.
 Monitor : It consist of those stakeholders of the company which required monitoring
such as employees, management , suppliers etc.
 Keep informed : It provide understanding about those stakeholders which are required
to be informed about the activities and changes of the organisation. L'oreal keep inform
to media, government, customers, suppliers, investors etc.
Porter five forces model
Factors analysis
Bargaining power of buyer High because there are larger number of firms
operating in this industry.
Bargaining power of suppliers Weak because this company is having
dominant position in industry due to which

bargaining power of suppliers does not
influence its operations.
Threat of substitute products There are few substitute available in the market
due to which the company have to suffer
Rivalry existing in market High because there is cut throat competition in
this industry.
Threat of new entry Weak because there are already established
companies like L'oreal, Olay etc.
From the above it is analyze about the stakeholder analysis and pestle analysis which has
provided understanding about the environment. It is identified that pestle analysis is more
effective than stakeholder analysis because it provide better understanding about the factors
which may affect the business operation to great extent. Pestle analysis provide better
understanding about the macro environmental factors which is important for the company to
understand the changes arising in the environment. So the pestle analysis is more effective than
porter five forces analysis and stakeholder analysis because it provide clear understanding about
the factors which have their influence on the business operation. The pestle analysis is more
effective for this question because it is about macro environmental factors which is reflected by
pestle analysis.
LO 2
Analysis of internal and weaknesses of company
L'Oreal's internal strengths and weaknesses could be analyses by undertaking a SWOT
analysis. The model consist of four elements in it that are discussed below:
Strengths :
 Strong portfolio of brands/ Products : The company offers wide range of products to
its customers. Following are the most popular brands of L'oreal; Garnier, Maybelline,
LANCOM, Nyx etc. The brands have such a powerful recognition that its products
would be seen at every beauty store across the world.

 Quality : The products offered by the company are of supreme quality. It offers not only
inexpensive products in departmental stores but it makes sure that those offerings does
not comprise on their quality. It also offers superior quality luxurious products for
people who have a richer budget. This mixture have led to its popularity in both the
segment of market i.e., rich and average earning people (Andaleeb and Hasan, eds.,
2016).
 Global presence : The organization has a tremendous global presence, having access
almost every major economies of the world. Due to increase in use of technology,
products are being reached to masses. This has made company's global presence even
stronger. Diversification : L'oreal has made its business very well diversified by offering
different segments market and through large number of product lines. This has led to
reduction in the business risk of organization.
Weaknesses:
 Beauty industry is on the verge of saturation. Its decentralized structure is causing problems such as delay in decision making,
identifying what division is accountable for different pitfalls etc (Al-Refaie, Sy,
Rawabdeh and Alaween, 2016).
Opportunities :
 Expanding in the new emerging markets such as Middle East countries.
 Growing demand of beauty products around the world. Innovation in products for building a competitive advantage.
Threats:
 Increasing competition around the world.
 Inflation and recession periods are major threat to company's earnings.
 Different macro environment conditions in different countries can make serious concerns
for L'oreal.
Analysis of company's capabilities
L'Oreal's internal capabilities can be analyzed by applying VRIO model which has
following dimensions:
Capabilities : employee management & R&D

Illustration 2: VRIO Model
(Source : VRIO Model PowerPoint Templat, 2019)
Value : This component asks whether L'oreal offers or have resources that can add value
to its customers?
So, the answer is yes. The human capital management is extremely efficient and this is
the reason why people desires of working with this group. This management has enhanced
company's productivity and quality of products and services offered to customers.
R&D is very efficient which is reason why it is leader in beauty and cosmetics industry.
The innovation in products provide value to the customers.
Rarity : Whether the organization possess resources or capabilities which is rare or
control of such capabilities is in hands of few?
Its talented and skilled workforce is one of its major strength. Not every organization is
successful in satisfying and retaining its most productive personnel. R&D requires large funds
for its operations which cannot be done effectively by all the companies in industry.
Inimitable : Whether the resource owned by company is easy to imitate?
L'oreal very effectively manages its employees through human capital management
system. All the data is analyzed for drawing meaningful information through which its hires and
retains employees. Employing of such management system involves time and money because the
system is very costly. This reduces the possibility of imitation of resource or capability of L'oreal
by others in market (Butler, Armstrong, Ellinger and Franke, 2016).

For innovating products and process of business, large sum of money is required in R&D.
This is the reason why many fails to survive in market.
Organization: This element questions whether the firm is organized enough to exploit
and explore the benefits of such resources.
Being a large organization, L'oreal has very effectively organized itself for capturing the
benefits of such capabilities. Like IT department is formed for collecting and maintaining data
which is provided to other departments such as HR department regarding how to use data for
hiring, promoting, managing, improving productivity of employees.
Thus, from the analysis it can be said that L'oreal have different capabilities which
provides it a competitive advantage over its rivals in the market. Like its human capital
management and R&D department adds value to its customer, is rare to control, difficult to
imitate by competitors and are properly organized (Bang, Joshi and Singh, 2016).
Mckinsey 7's model
This model is useful for reviewing organization marketing capabilities. The following
are the elements of this model which provide understanding about organization capabilities :
 Strategy : It defines the strategy of organization to achieve its goals. It provide
innovative beauty products.
 Structure : It refers to the way organization structure its resources into teams and
groups. L'oreal require more structure when the organization is becoming large.
 System : It refers to the different systems available with the organization. L'oreal have
different systems for processing of their products.
 staff : The staff of L'oreal is highly motivate which act as capability for the firm to
provide high quality products and services to customer.
 Skills : The company provide training to the employees for developing their skills and
knowledge.
 Style: The company uses transformation leadership style to adopt the different situation
arising in organization to solve the problems.
 shared values : L'oreal provide motivation to employees and satisfies their requirement.
From the above analysis it has identified that the L'oreal have various capabilities
because it provide the employees with the fair chance of being involved in various decision
making more over, it provide training to its employees for improving their skills and knowledge.

Also, the capabilities of the L'oreal is that it can solve the problems through use of situational
leadership style. Moreover , it is analyzed that L'oreal have skilled workforce which provide the
firm with competitive advantage.
LO 3
Competitiveness of market
L'Oreal have to assess the power of different forces of market that can potentially impact
its functioning and business. This can assessed by applying Porter's five forces model for
analyzing such various market forces that are discussed below:
Illustration 3: Porter's five
(Source : Porter’s Five Forces Model, 2019)
Bargaining power of suppliers : Being an established company and surviving for 109
years in the market, it has a dominant position over suppliers. Moreover, the company does most
of its production-in house. Thus, the power of supplier force is weak. The company need not to
worry about this aspect of the market (Ismail, 2018).
Bargaining of Customers: There are many firms offering similar products and
customers can switch easily from L'oreal to any other firm. The force of this factor is very high
for the company. Customers are price sensitive, therefore, if the organization rises it prices, the

customers will move to other companies. Thus, companies faces major threat from this force of
marketplace.
L'oreal has to build loyal customer base and keep its prices low for coping up with such
high force for retaining them (Ulubeyli, 2017).
Threat of new firms : The force of this new firm is weak because of the existence of
already well established companies in the beauty and cosmetic industry such as P&G, Olay,
Avon, L'oreal, Estee Lauder. Presence of such giants makes this industry less lucrative to the
new investor because the industry is already saturated to a point and requires heavy R&D for
catering to the needs and requirements of the customers. Therefore, L'Oreal has low or may be
moderate threat from the new beginners in the global market.
Threat of substitutes : There are natural remedies for the skin care which can substitute
the products of the L'oreal. But making these remedies are not cup of tea for every person. This
rules out the probability of major threat from such factor to the organisation. So, the business of
the company remains unaffected even also, some substitute are available in the market because
of its such huge customer base around the globe.
Competition/ Rivalry : The biggest rivals of the L'oreal in the market are Proctor &
Gamble, Estee Lauder, Shiseido. These companies are also providing quality skin care products
to the different segments of the world. Customers have variety of products to choose from the
offerings provided by these firms at the global level (Figenschau, 2018)
L'oreal have to continuously work in its R&D and make its products highly differentiated
from what is sold by its competitors. Offering products at less prices than its competitors would
be possible it manages its resources well in the organisation. It has to make the quality of its
products very superior for coping up with such intense competition in the global market. Another
way it can deal such competition is embracing efficiency in its operations, formulating excellent
business and operational strategies that could guide the organisation in the most suitable and
right direction. This would help the company in creating a competitive edge over others in
marketplace.
From the porter five forces analysis it is analysed that the bargaining power of the
suppliers in this industry is weak and thus the company does not have threat of loosing the
suppliers. But due to high rivalry in the industry there is high bargaining power of customers due
to which the company have ton provide the products at competitive pricing. Moreover, it is