Business Strategy Report: Analyzing L'Oréal's Market Position

This report provides a comprehensive analysis of L'Oréal's business strategy, examining its macro-environment through PESTLE analysis, internal capabilities via SWOT analysis, and competitive landscape using Porter's Five Forces. The report delves into the impact of political, economic, social, technological, environmental, and legal factors on L'Oréal's operations. It evaluates the company's strengths, weaknesses, opportunities, and threats, followed by an assessment of the competitive forces within the cosmetics industry, including the bargaining power of buyers and suppliers, competitive rivalry, and potential threats from new entrants and substitutes. Furthermore, the report evaluates strategic directions available to an organization and proposes a strategic management plan for L'Oréal, encompassing strategies, objectives, and tactics to achieve its business goals and maintain a competitive edge in the global personal care market. The report concludes with a summary of the key findings and recommendations for L'Oréal's future strategic initiatives.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1 Applying appropriate framework analyses the impact and influence of the macro
environment............................................................................................................................3
2. Porter's Five Forces Model for examining competitive environment...............................7
TASK 2 .........................................................................................................................................10
3. Evaluation of different types of strategic directions available to an organization..........10
4. Strategic management plan for L’Oréal by including strategies, objectives and tactics..12
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Business strategy is defined as a plan or policy of a firm which are made for achieving
pre-set goals or objectives. In addition to this, it is a process of policy formulation which
provides directions to the whole departments of firm so that the goals of organisation can be
achieved in proper manner. It also provides opportunities to the organisation to produce better
quality products so that the competitive advantage in the marketplace can be gained. The chosen
company for this assignment is L’Oréal which deals in personal care industry along with
headquarters in Clichy, France. This report will discuss about the impact and influence of the
macro-environmental factors on the business organisation along with capabilities and internal
environment of a company. Various kinds of analytical tools which helps the management in
formulation of business strategies will be also covered in this report.
TASK 1
1 Applying appropriate framework analyses the impact and influence of the macro environment
L’Oréal was founded in 1909 by the Eugene Schuller and deals in cosmetics industry.
organisation is operating its operational activities in all over the world and also is a leader in the
personal care industry. The company offers a variety of product in the cosmetic industry through
which they create a huge customer base in all over the world. The main ground behind huge
customer base of L’Oréal is their portfolio management because organisation offers a huge
variety of skin care products to their customers. In current scenario, there is a huge competition
in the marketplace because customers are very conscious about their skin and personal care so
that managers have to formulate effective strategies so that L’Oréal can be sustained in the
marketplace for a longer period of time (Aithal, 2016). As company is providing its services
across the world so there are a large number of external factors which provides positive or
negative impact on the performance and strategies of firm. For analysing such factors managers
of organisation have to conduct a PESTLE analysis. Factors of macro-environmental are given as
under:

Illustration 1: PESTLE Analysis
Source- PESTLE Analysis, 2019.
Political factors - These kind of factors directly impacts on the profitability and
operational activities of any firm and related with the governmental rules and regulations. As the
organisation provides services in various countries so the management should follow the rules
and regulations which are formulated by the specific government. For example, As The taxation
rates of UK nation are regularly increasing, The present rate on cosmetics products is 20% which
was 17.5% in last financial year that can adversely effect on profitability of firm. Whereas,
individuals of nation more focuses on their personal care which can provide opportunity to the
firm in terms of sustaining in market for a longer period of time . If government of a specific
nation will not stable for long time period then managers of firm have to change their policies
according to the government which will not beneficial for the long time strategies of firm.
Economic factors - These kind of factors includes economic growth, exchange rates,
inflation rates etc. The firm is operating its functional activities in various nations so they have to
adopt such rates according to the economical condition of a nation. For example- the global trade
rate of UK nation is 44% which can provide opportunities to the managers of L’Oréal in terms of
expanding their market share and introducing more products in UK. Whereas, there are various
big players in cosmetic sector Tesco, Morrisons, Cult beauty etc. whose strategies can reduce
their estimated sales figures in UK market (Brewster, 2017).
Social factors - As the firm builds their brand image in the world so the customers base
of organisation is also large in nature. These factors comprises belief, values, taste and
preferences of the customers which can provide positive or negative impact on the strategies of a
firm. Individuals of UK nation who believes in quality and always attracted for the latest
personal care products that can provide profitability to the firm. Whereas, customers in UK

nation are more aware about quality and effectiveness of cosmetic products so the management
of L’Oréal have to consider such factors otherwise it will adversely impact on their existing
customer base.
Technological factors - It includes advanced tools and technique which can affects the
profitability or strategies of L’Oréal in positive or negative manner. As L’Oréal has maintained
their brand image in all over the world along with a huge customer base due to which they are
regularly innovating in their existing products so that their brand image will be maintained.
Whereas, if the organisation will show wrongful content in their advertisements then it will be
reduced the customer base of firm. If company will implement new technologies in their
workplace then they will be able in making new and innovative products which will be helpful in
defeating their rivals.
Environmental factors These factor includes weather, natural climates, weather of a
particular country which can provide positive or negative impact on the business operations of
firm. R&D Department of the company is analysing the market trends and uses natural
ingredients in the offerings of firm which can helpful for the firm in enhancing their profitability
and sales figures. Whereas, the management of organisation have to follow cosmetics regulation
No. 1223/2009 (Guidance on the Safety of Cosmetic Products) which is made for the cosmetics
industries by the UK government. If the organisation will not follow such regulations they have
to pay penalties which will not good for the brand image of firm. If the company will use
chemicals and plastics in manufacturing process of their products then it adversely impact on the
environment which is not beneficial for future.
Legal factors - There are various laws and legislations of UK nation which have to
followed by every firm such as employment law, consumer law etc. So, managers of L’Oréal
should consider such laws and legislations which will be profitable for sustaining in the
marketplace for a longer period of time. In current scenario, the competition is very high in the
marketplace so that for maintaining a suitable growth in the marketplace, organisation have to
carefully measure all the laws which are formulated for the cosmetics industries. Through this,
they will be able in making a good customer base (Drahokoupil, 2014).
In order to achieve sustainability and growth in the marketplace, management of L’Oréal
have to analyse their capabilities and weakness. For this, they can conduct a SWOT analysis
through which they will be able in taking decisions for improving their weaknesses and also able

in making strategies for internal improvements. SWOT analysis of L’Oréal firm is given as
under:
Source- SWOT Analysis, 2018.
SWOT analysis
Strengths Weaknesses
 The organisation has made a good
image and world leader in the personal
care products so that they have a good
customer base which is the major
strength of the firm.
 The organisation offers a huge variety
of the products to their customers
which also makes a good strength of
company.
 Major weakness of L’Oréal is that,
Company is using decentralised
organisational structure due to which
their divisions are not providing
suitable results as per the expectations.
 Advanced technology is not
implemented in many divisions of
L’Oréal which is not providing satisfied
outcomes to the organisation.
Opportunities Threats
 The organisation can expand their
market share by making joint ventures
with small firms in various nations.
 Organisation can launch herbal and
skin friendly products in markets of
India or china. It will helpful for
L’Oréal in enhancing the profitability.
 Organisation have to make effective
pricing strategies because product
prices of rival can provide threat to the
profitability of firm.
 Giant players of market such as Tesco,
cult beauty can influence the sales
figures in negative manner.
Illustration 2: SWOT Analysis

Analysis of S.W.O.T – As the firm has created a good brand image across the world and
achieved No. 1 position in the world through which they can easily compete their competitors
with the formulation of effective strategies. Company offers a huge variety of products to their
customers which is enough for increasing the attraction of customers towards the offerings of
firm. The firm has appropriate funds so, they can easily expand their market-share with
introducing new products in that market areas. Some divisions of company are using outdated
technologies which can reduce the market-share and brand image of firm so managers should
focus on such divisions and implement new technologies in those divisions so that their brand
image can be maintained. The company have effective management team who have capabilities
to formulate effective pricing strategies so that rivals can be easily defeated in the marketplace.
2. Porter's Five Forces Model for examining competitive environment.
It is very essential for every firm whether they are operating at local, national or
international level to understand the competitiveness of marketplace. In the context of L’Oréal,
their managers can use porter's five forces model for analysing the market and gaining
competitive advantage in the marketplace (Goffee, 2015). It also helps the managers in making
perfect strategies so as to bring company ahead from their competitors in the market world.
Model of porter's five forces is briefly defined as below:
Illustration 3: Porter's five forces model

Source – Porter's five forces model, 2018
Bargaining power of Buyers: There are large number of players who are providing their
services in cosmetics sector so for maintaining sustainability and growth these players are
providing products at different prices due to which the bargaining power of buyer is higher than
the seller. In the context of L’Oréal, their managers should maintain an effective pricing
strategies after identifying customers buying behaviour and perception towards company's
existing pricing policies. It can be possible through taking support from R&D department. For
decreasing influence of such factor from the organisation company can use Loyalty points for
their loyal customers, extra-ordinary services for new customers, discount coupons so that
customers at marketplace are highly attracted towards offering of organisation.
Bargaining power of Suppliers: There a large number of suppliers and manufacturers in
UK nation who are providing their services in cosmetic sector so it can be said that the
bargaining power of supplier is low in this sector. Suppliers in cosmetics industry are providing
their services at lower prices which is profitable for the firm in providing products at affordable
prices to their customers. As the number of suppliers in cosmetic industry are very large so,
managers of L’Oréal have an opportunity to make effective relations with the suppliers through
which they will be able in producing product at lower cost and delivering them in the
marketplace. As the power of suppliers are low in the marketplace then they can easily develop
their market through introducing new products in existing marketplace which ultimately leads to
the organisation towards the growth and success.
Competitive rivalry: There are a large number of players such as Tesco, Cult beauty etc.
who are the big players in cosmetic sector of UK therefore, competition is very high in this
industry. As L’Oréal is also an essential part of this so, they have also faces tough competition
from their competitors. For this, the managers of L’Oréal should make effective strategies and
plans for attracting customers. They can also provide discount on their products for gaining
competitive advantage and attracting a large number of customers towards the offerings of
organisation (Pretorius, 2011). for overcoming the negative influence of this factor company can
use different strategies such as:
 Enhance the market-share through making competitive strategy and adopting promotional
tools.

 Through conducting promotional activities in the marketplace company can easily defeat
their rivals in the marketplace. By using loyalty schemes company can easily increase the attraction of customers
towards offerings.
Threat of new entrants: As competition is very high in this industry because all players
wants to attract a large number of customers along with retaining their market share which also
enhances the chances of reduction in profitability. In the context of cosmetic industry, there are a
large number of barriers such as strict rules and regulations of government, a huge amount of
investment required etc. due to which a new entrant can't setup new plant in easy manner. It has
been identified that some new players have setup their plant in this industry and providing
quality products at cheaper prices therefore, managers of L’Oréal has responsibility to make
effective strategies so that overcome the influences of such threats. So that, it can be said that
there is a low threat of new entrant.
As the threat of such element is low so the management of L’Oréal can use
diversification strategy through which they will be able in launching new products at new market
areas which will be profitable for them in gaining maximum profitability and sustainability.
Threat of new substitutes: The company is basically providing two kinds of beauty
products such as herbal and skin care along with affordable prices and they have no side effects.
Herbal products are generally preferred by those customers who do not wants to use any kind of
harmful product at their skin and personal care products are preferred by those customers who
give more importance to their beauty. As L’Oréal have maintained their good portfolio and
customer base in the marketplace, But they have to provide better products in the marketplace
because in present time customers are quite conscious about their personal care who can move
towards the good quality products. If the customers will not get products as per their
expectations, then they will move towards rival products which will influenced negatively on the
profitability of firm. So managers have responsibility to maintain good portfolio so that the threat
of substitute can be reduced in effective manner (Spender, 2014).
For overcoming threat of such factors, Managers of L’Oréal have to adopt product
development strategy through which they will easily gets sustainability and growth in the
marketplace. With the help of such strategy they will be able in making different product with

unique quality which will be beneficial for them in gaining competitive advantage in
marketplace.
TASK 2
3. Evaluation of different types of strategic directions available to an organization
Strategic direction is an effective key element which can move the business organisation
towards achievement of goals. Strategic direction can be implemented in the workplace at that
time when vision, strategies and mission of the firm are related with each other. For generating
profitability and revenue, managers of L’Oréal have to follow such kinds of elements so that
effective contribution can be gained by the employees. With the help of clear vision and mission,
employees will also aware regarding their roles and responsibilities so that organisational
objectives will be achieved in a proper time period. In the context of L’Oréal, it has been
identified that their managers play a very crucial role in the formulation of strategies about prices
of the products, strengths of the firm or acquiring the small players of market etc. various kinds
of strategic decisions of Managers of L’Oréal are briefly explained as under:
Illustration 4: Ansoff matrix
Source: Ansoff Matrix, 2019.

Market penetration: It is a process which is used by the firm for increasing the market
share of their present products or services. In this, managers use various kind of promotional
tools such as advertising, event sponsorship, discount offers etc. Managers of L’Oréal can also
make effective strategies for using such kinds of promotional tools so that market-share can be
enhanced. In the year of 2014 L’Oréal has opened various new outlets across the world.
Whereas, it is also identified that they have also increased their prices of products for enhancing
the revenue of firm.
Market development: It is also a kind of strategic decision in which managers of
organisations analyse new market or new areas for taking growth and success in the marketplace.
In this, marketing teams have to play an important role in making brand image of firm. For this,
Managers of organisations have to make global strategies which can enhance the productivity of
firm. As the L’Oréal firm is trying to sell same products to the people who have different kind of
needs and wants which can reduce the brand image and profitability of firm. For enhancing the
sales figures and profitability, managers of L’Oréal have to make effective strategies and
providing offers to the existing customers through which they will easily develop their new
market with new customers (Drahokoupil, 2014).
Product expansion: It is used when the management have developed a new product and
wants to introduced in the existing market. In addition to this, it is a creation of products with
new characteristics for offering additional benefits to customers. For this, management have to
make decisions for manufacturing new products or modifications of the existing products so that
a large number of customers can easily attracted towards the offerings of firm. In the context of
L’Oréal, their managers have introduced foundation, mascara and eyeliner for their customers
which are different from their old products. With the help of it, managers will be able in
attracting a large number of customers towards the offerings of firm. For example- for winter
season, managers have developed sun scream and for summer they have introduced cold cream
so that needs of customers can be fulfilled in proper manner.
Diversification: It is also an important strategy in which firm wants to achieve growth or
sustainability through introducing new products in the new market areas. In this, managers have
to analyse the risk along with enhancing the customer base. For this, L’Oréal have to encourage
their employees so that effective ideas can be taken from them and it can be used in future by

them so that maximum profitability and sustainability can be gained in competitive market for a
long time period.
A justification and recommendation of the most appropriate growth platform and
strategies: It has been analysed from the above model of Ansoff matrix that diversification and
market penetration is very useful for the management of L’Oréal. With the help of these,
organisation can easily build a huge customer base along with enhanced market share. It has
been recommended to the management of L’Oréal to manufacture more diversified products so
that the needs of customers can easily fulfilled. They have to provide skin friendly product in the
market through which any complaint from the customers can't be received which will be more
profitable for building the brand image of organisation.
4. Strategic management plan for L’Oréal by including strategies, objectives and tactics.
Strategic management plan is defined as the plan or a document which is constructed by
the managers in the organisation to convey the desired organisational objectives within the
premises of the organisation. The strategic management plan is very essential for an organisation
as it results in the success for the organisation. This plan will definitely help the L’Oréal to
achieve their goals and objectives in effective manner within the desired time frame.
For making effective strategy plan it very important for L’Oréal to apply Porters generic
model which will help in constructing a proper strategy plan for the company which is as
follows:
Porters Generic Model: This model is to describe the ways by which an organisation
can achieve the competitive advantage in the market where they want expand their business. This
model was formulated by Michael Porter in 1980. L’Oréal will be beneficial in using this model
as it will help the organisation to develop a strategic plan in an effective manner which will help
the company to gain competitive advantage in the market (Jayaram, 2014). The company can
adopt any strategy from the following three which are as follows: