L'Oréal: Business Strategy, Analysis, and Recommendations

This report provides a detailed analysis of L'Oréal's business strategy. It begins with an introduction to business strategy and then delves into a PESTLE and SWOT analysis of L'Oréal, examining its strengths, weaknesses, opportunities, and threats within the cosmetics industry. The report also includes an analysis using Porter's Five Forces model to assess competitive rivalry, the threat of new entrants, the bargaining power of suppliers and buyers, and the threat of substitutes. Furthermore, the report explores different strategic directions available to L'Oréal and concludes with a strategic management plan, including recommended strategies, objectives, and tactics. The report's findings offer valuable insights into L'Oréal's market position and strategic approach.

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Pestle and Swot Analysis and analysis of organisational capabilities.........................................1
Pestle Analysis of L’Oréal...........................................................................................................3
Porter’s Five Forces model..........................................................................................................7
TASK 2............................................................................................................................................8
Different types of strategic directions available to the organisation...........................................8
Justification and recommendation of strategic direction -...........................................................9
produce a strategic management plan with strategies, objectives and tactics...........................10
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Business Strategy is the master plan that the management use to secure a competitive
position in the market, carry on its operations, please customers and achieve the desired ends of
the business. The report will outline implication of different strategies like Pestle and Swot
analysis which will help in determining micro and macro business environment of L’Oréal.
L’Oréal which is a French personal care company deals in wide range of Cosmo products such
skin care, hair colour, perfume, sun protection, etc. Further, the report will outline strategic
management plan of firm with reference to particular strategic direction and growth factors.
TASK 1
Pestle and Swot Analysis and analysis of organisational capabilities
Swot Analysis of L’Oréal
Strengths: -
 Research and Innovation: This relies heavily on research and development by investing
huge amount of money which is one of the main strengths of the company. And because
of this the firm holds the crown of the leader in cosmetics industry. Since, the company
operates in more than 130 countries, constant research is essential to know what different
customers of different culture needs. A powerful portfolio of brands: The company has a
bigger market share in the beauty and cosmetics industry as compared to other brands. It
has a powerful portfolio of products which is another strength of the company (Zhong
and Li, 2018). The portfolio includes major brands like, Garnier, Nyx, Maybelline,
LANCOME, and many more.
 Organic Products: L’Oréal uses natural ingredients in the products so that, it can attract
more and more consumers from different geographic locations who wants glow skin and
healthy hair. It has also launched a new Organic Brand called, 'La Provençal Bio' in its
product portfolio which has contributed in increasing its consumer base.
 Employees: Company has employed total of 89,135 people globally working in the
various branches of L’Oréal in different countries which is a great strength for the
company (Total number of employees of L'Oreal worldwide from 2010 to 2017*, 2018).
The employees are having strong skills and knowledge of their respective departments
which contributes in increasing market share and profits of the company.

WEAKNESSES:
 Profit Margin -> L’Oréal heavily invests funds in Research and Development for
manufacturing various products. It is the main reason behind decline in the profits of the
company, investing huge amount in research help the firm to remain competitive in the
market. so, it is both strength and weakness for the company.
 Growing Saturation -> Competition in beauty and skin care products industry is
increasing day by day because more and more companies are entering into the industry
with innovative products. eg. Competition of L’Oréal with other big companies like, Sun
silk and Head and Shoulders, etc.
 Decentralised Organisational Structure: L’Oréal is following decentralised form of
organisational structure which means the authority and responsibilities is divided in the
employees working in different departments at different levels of the company (Petrovic
and Kalata, 2019). And due to many sub divisions, the firm is facing the problem of
controlling various functions.
Figure 1: Swot Analysis
(Source: Gregory, 2019)
OPPORTUNITIES →

 Industry Expansion: L’Oréal can easily move into different sector of beauty industry. So,
the company has an opportunity to establish its branches across international boundaries
(like in Cape Verde) by using its resources and brand recognition.
 Creating New Organic Products: Another opportunity for the company is offering new
products range like use of organic and Ayurveda substances for consumers of niche
market to fulfil their different needs and wants by targeting and segmenting the whole
market.
 Greater Market Share: L’Oréal is having various branches both nationally and
internationally and for operating in different countries. Further, the company can focus on
affluent range where it can enter into aging section which can helps the business in
managing competition different types of rivalry firms.
THREATS
 Global Economic Crisis: Not only L’Oréal but every company faces the problems
during global economic crisis. e.g. During global economic recession 2008, Lo 'real has
to face the problem of lack of cash flow and ultimately it has lay off many employees
from the organisation which has also impacts the profits and growth of the company.
 Growing Competition: Every company faces competition from substitute products in the
same way, L’Oréal is also facing tough competition from some strong brands like, Sun
silk, MAC, Head and shoulders etc. To remain competitive in the industry company must
launch innovative products time to time to attract more and more customers and to
maintain its market share through powerful advertising techniques and promotional tools
(Quinlan and et.al., 2019).
Pestle Analysis of L’Oréal
Pestle analysis is the tool of manage the organization business strategy. Pestle analysis is
stands for political, economic, social, technological, environment or legal these all factor helps to
make the business decision of the L’Oréal or impact to the macro economy of the company.
L’Oréal company can use to manage the business strategy of the company.
 Political Environment- Political environment help to manage the different government
policies of the countries to manage the different changes of the new government policies.
L’Oréal will study about the current trends or consumer protection act to provide the best

product to the customer. Company can manage the diverse policies or rules of different
market based on the personal & beauty product.
 Economical Factor- Economical factor help to manage the company economic stability
in different market included the exchange rates of the different market in which the
company is working with, during recession period the L’Oréal face the difficulties of
their cosmetic products. Prices are also the important because during recession prices
goes down. The price of product is varying in different market according the GDP of the
market prices is decided. Rising inflation would have negative impact on purchasing
power of employee. When inflation increase so customer not purchase the product.
 Social Factor- social factor is define the understands the societal norms and attitudes
better to serve product to customer. Consider Lifestyles Buying habits, Education,
Emphasis on safety, Religion and beliefs, Health consciousness, disposable income level,
Social classes, Family size and structure, Minorities. The societies who have a knowledge
of latest technology and are always easy to adopt the trends will always welcome the
innovations by L’Oréal. There are evidently ethical issues as well for case the use of
ingredients in the product, some states or the people of society will consider it as holy sin
to use such ingredient. Different chemicals within cosmetics cannot healthy for human so
these have a negative impact on human body so these is creating a negative impact on the
L’Oréal
 Technological Factor- Technological factor is doing the vital role of the company. Help
to increase the growth of the company to produce the innovative product and satisfy the
customer need. The technology of L’Oréal is help to reduce the cost of production and
increase the quality of the product. Also increase the good supply chain to meet the
customer need. the product life cycle is depending on the suppliers they manage
requirement of raw material manage the product to different localities They happy to
promoting the product. L’Oréal is using the best advertising to attract the customer and
increase the sales.
 Legal Factor – legal factor is also mandatory for the company because all law or rules
are following by the company. L’Oréal is defining the, health and safety act use the
different chemical harm the human health so L’Oréal give the medical benefit to their

employee (Chang, 2016). And all the customer also considers the legal stuff of the
company so they follow the all rules regarding the product launch L’Oréal is cosmetic
company so they must follow the FDA approved. Federal food drug and cosmetic act and
fair packaging and labelling act.
 Environmental Factor: Environmental factor include the various environment safety
law it considers the world wide making a pollution free or green planet. So, L’Oréal play
a good role making or supporting the campaigns or follow the norms or rules of the
world. L’Oréal focus or try to go green environment (Pisano, 2015). Their packaging is
become Eco friendly but some issues are still growing use of plastic for packaging. In
skin care, an ingredient called “microbeads”. These beads release dead skin cells from the
face. But they’re made of plastic and horrible for the environment.
Analysis of Organisational capabilities
Valuable Rare Imitable Organised Result Capability
of
resources
No Competitive
disadvantage
Brand
recognition
and wide
product
range
Yes No Competitive
parity\
Equality
Market
share and
differentiat
ed products
Yes Yes No Temporary
Competitive
advantage
Research
and
developme
nt,

renowned
brand
Yes Yes Yes No Unused
Competitive
advantage
Corporate
vision and
leadership
Yes Yes Yes Yes Long term
Competitive
advantage
Innovation
and
customer
experience
CAPABILITIES-
 L’Oréal can easily move into different sector of beauty industry e.g. Personal care
sector to provide new and organic products using Ayurveda components for the
customers. So, the company has a capability to establish its branches in other developing
economies by using its resources and brand recognition. In accordance with internal and
external analysis it can be said that the firm owns competitive advantage as it provides
valuable services and products.
 The company has a bigger market share in the beauty and cosmetics industry as
compared to other brands. The portfolio includes major brands like, Garnier, Nyx,
Maybelline, LANCOME, and many more. If company have any substitute product in the
market, they can get benefit to other different products which are to maintain the growth.
In accordance with this firm owns competitive parity in its Cosmo services.
 L’Oréal owns various branches both nationally and internationally and for operating in
different countries it has registered many patents in its own name so it is another
capability for the company to increase its market share and ultimately it will help the
firm to increase its profits and therefore has low risk of imitation and reduces risk of
temporary competitive advantage (Shuen, 2018).
 L’Oréal focuses on research and development by investing huge amount of money
which is one of the main strengths of the company. Since, the company operates in more

than 130 countries, constant research is essential to know what different customers of
different culture needs. This depicts competitive advantage of L’Oréal against products
of competitors.
In accordance with over all analysis of valuable and rare products of firm it can be said that
firm owns long term competitive advantage with its internal and external capabilities. The
capabilities of L’Oréal revolve around long term competitive advantage which is based on
Innovation and customer experience (Fleisher, 2018).
Porter’s Five Forces model
RIVALRY AMONG COMPETITORS
It means, number of competitors and their ability to affect the operations of the company.
Rivalry in beauty and skin industry is high, L’Oréal is facing competition from domestic as well
as from international competitors because it has its operations domestically as well as
internationally. There are many companies that are producing innovative products like personal
care products with private labels. So, to have competitive advantage over the competitors like,
Proctor and Gamble, L’Oréal has to continuously launch inn
Innovative products and keep on introducing new and fresh products through strong
marketing techniques like, social media platforms e.g. Facebook, Instagram etc. to attract the
customers. The most diversified product portfolio of the company makes it most fit for survival
across the international market. This is the reason that, L’Oréal is giving a tough competition to
its near competitors and it is capable of maintaining its market share as well as growth.
THREAT FROM SUBSTITUTES
It means, the products of L’Oréal competitors that can act as a threat to the company.
Potential developments of the substitutes to company’s products in beauty and skin industry is
low and L’Oréal is the leader in the industry and it is giving a tough competition to other
substitutes so, it does not get disturbed by any other potential substitutes (Teece, 2018). Ageing
is the main reason behind purchasing the products of the company by the customers. There is a
less substitution in anti-ageing products so, it brings less threat to the company.
BARGAINING POWER OF SUPPLIERS
It addresses how easily suppliers can drive up the price of goods and it is affected by
number of suppliers of that goods. L’Oréal has a huge capacity of production due to advanced

technology and production techniques, its annual production is more than 45 billion units
therefore, suppliers will have a little opportunity to pose the threat to L’Oréal. And for suppliers
it is not possible to supply such a huge quantity of raw materials. Therefore, suppliers have few
or simply does not have the ability to bargain with the company. So, company has threat from
very few suppliers.
BARGAINING POWER OF CUSTOMERS
This specifically deals with the ability customers of L’Oréal have to drive down the
prices of goods and it depends upon availability of substitutes of the product, level of
competition in the market also by how many customers the company. There are many
competitors of L’Oréal in the industry like Proctor and gamble, Avon etc. that has caused a high
bargaining power of customers because, customers can easily switch to other substitutes in the
market. The potential customers have a choice to go with other products. L’Oréal must deal with
this threat earnestly so, that company can maintain its market share.
POTENTIAL ENTRANTS
Threat from participation of new entrants is very low in this industry. L’Oréal power is
also affected by the force of new entrants in skin and beauty industry. It already has some strong
competitors like Proctor & Gamble, Avon, Olay etc. L’Oréal has a strong base of customers due
to this it has no or very little threat from potential entrants which helps the company to maintain
its market share and profits.
TASK 2
Different types of strategic directions available to the organisation
Ansoffs growth matrix - These matrices help to determine the future growth options to the
business using in the existing or/and new product in existing or new market. So, use the four-
growth strategy to expand the business growth
Market Development - L’Oréal can try to expand their existing products into new market.
using the innovate idea for offering. The Body Shop Division entered the Brazilian market in 2014
for the first time, and continues its expansion and opened 500 stores there by 2019. The company
can use the different customer segment, enter in the international market, L’Oréal is one of the
experienced companies so it can manage or adopt easily in the new market so its help to increase
the growth. Also increase the economics of scale so they can switch the house hold market to

industrial market (Teece, 2018). L’Oréal should focus on proving ayurvedic personal care
product to their customer so these is considering the healthy product to their customer also
protect the skin.
Product Development - A company can try to develop or create a new product and services in the
existing market to expand the business. L’Oréal can include the different type or varieties of product
so the customer can select their satisfactory product they can research about the customer preferences
and develop the product according to the customer. For this strategic direction L'Oréal can grow by
developing organic products having Ayurveda components.
Diversification- L’Oréal can try to increase the market share to new offering in new market they
can acquire any company relate to their product to increase the market share also but it cannot
easy to establish it is highly risky so company need to research and then they implement the plan.
L’Oréal should merge with their rivals’ companies like Maybelline. So they can also expand
their product also increase the market share. L'Oréal acquired Carol's Daughter, a brand mixing
hair care for multicultural women.
Market Penetration- Company can try to grow in existing market with existing product in other
words, increase the market share in existing market. L’Oréal can try to decrease the prices so
customer purchase easily (Higgins, Omer and Phillips, 2015). They can increase the advertising
or promotion and distribution support. Customer have information about the product. the
company opened large numbers of channels worldwide. so that L'Oréal make use of distribution
channels to satisfy more customers as these moves across channels, which could further stabilize its
competitive advantage.
Justification and recommendation of strategic direction -
Justification -
L'Oréal can develop its market by entering into the different product segment. L'Oréal
should enter in Ayurveda personal care sector which will help in providing medicated and
historical rooted care products to the customer provided the ayurvedic pencils, eyeliner to protect
the eye. Consumers want sun protection and healthy hair. This is will promote less use of
chemicals ingredients in their hair and skin products. It’s costlier for companies to use natural
ingredients, but it will help L'Oréal in managing success in natural and organic line of products.
On the other hand, L'Oréal can diversify their product in different region and also increase
the market share through merge with their competitors Maybelline so they can expand their

product and quality (Scholes, 2015). Also Promoting products via advertising through any
celebrity because customer is trust with those advertise so company future growth increases also
decrease the price thus customer can easily purchase the product. L'Oréal can improve the sales.
Recommendation-
In accordance with analysis of strategic direction and growth factor it can be said that,
L'Oréal should focus on market development where they can provide ayurvedic products to their
customer which will promotes health care practices among potential buyers of L'Oréal. In this
development plan the firm should focus on incorporating use of Ayurvedic substances which
supports healthy skin.
produce a strategic management plan with strategies, objectives and tactics
Strategic Management Plan
Mission Mission of firm is Beauty for All. Offering all women and men worldwide
the best of cosmetics innovation in terms of quality, efficacy and safety to
satisfy all their desires and all their beauty needs in their infinite diversity.
Vision L'Oréal has chosen to integrate the principles of sustainable development
into its business model to build a sustainable growth both responsible and
united.
Core Values  L'Oréal enhance their market growth through provide an organic or
Ayurveda product
 provided the high level of customer satisfaction and build good