Business Strategy Report: L'Oréal's Analysis and Strategic Plan

This report provides a comprehensive analysis of L'Oréal's business strategy. It begins with an introduction to business strategy and its application to L'Oréal, the world's largest cosmetics organization. The report delves into the macro and micro environments affecting L'Oréal, using PESTLE and SWOT analyses to evaluate political, economic, social, technological, legal, and environmental factors, as well as the company's strengths, weaknesses, opportunities, and threats. It includes a stakeholder analysis identifying key stakeholders and their interests. The report also examines the competitive environment using Porter's Five Forces model. Furthermore, the report explores various strategic directions, recommending growth platforms and strategies. Finally, it presents a strategic management plan, outlining objectives, strategies, and tactics. The analysis utilizes the VRIO model to assess L'Oréal's resources and capabilities, concluding with a summary of the key findings and recommendations.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
a) PESTLE and SWOT analysis of organisation and capabilities..........................................3
b) Competitive environment of organisation using Porter's Five Force Models....................8
TASK 2..........................................................................................................................................10
a) Different types of strategic directions available to organisation......................................10
b) Justification and recommendation of appropriate growth platform and strategies..........11
c) Produce strategic management plan with strategies, objectives and tactics.....................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Business strategy is defined as course of action or set decisions that helps entrepreneurs
in achieving goals and objectives of enterprise and also known as long term planning which
consists of 3-5 years time period (Acquaah, 2013). It is regarded as master plan which
management use for securing competitive position in market, pleasing customers, carrying out
operations and achieving desired entity ends. In business context, strategy is regarded as long
term plan, destination and direction of organisation. This strategies are carefully planned and
designed flexibly with purpose of mobilising resources, meeting challenges, securing
advantageous position, achieving effectiveness and others. The given report is based on L’Oréal
which was founded in 1909 at Paris. It is world largest cosmetics organisation and concentrating
on skin care, make-up, hair colour, sun protection, perfume, men's skincare. This assignment
covers PESTLE, SWOT and capabilities of organisation along with competitive environment
using Porter's five force model. It also highlights evaluation of different types of strategic
directions for enterprise and giving justification and recommendation for growth. The strategic
management plan is prepared which represent objectives, strategies and tactics.
TASK 1
a) PESTLE and SWOT analysis of organisation and capabilities
Macro environment are those which have uncontrollable and external factors that
influence decision making of organisation and affecting performance and strategies (Alsudiri,
Al-Karaghouli and Eldabi, 2013). It includes inflation, employment, gross domestic product,
competitors. Micro environment is controllable and internal factors which does not affect
company in decision making. It includes customers, suppliers, government, public and others.
The deputy manager need to analyse both internal and external market for better decision
making. Here, PESTLE and SWOT analysis has been covered under macro and micro
environment which are described below:
PESTLE Analysis
A PESTLE or PESTEL analysis is tool which is used by organisation for analysing and
monitoring macro environmental factors that impact performance of business. Such tool is used
when new enterprise is starting or entering into foreign market. The PESTLE analysis of L’Oréal
is described below:

Political- It includes factors such as regulations, rules and policies of government where
L’Oréal is working its business and activities. This includes government policy, political
stability, trade restrictions, labour law, trade (Bharadwaj and et. al., 2013). L’Oréal should follow
all different government rules and regulation while manufacturing products. It need to take
approval regarding manufacturing any products of Procedures for working with other
professionalsbeauty care. Opportunities- L’Oréal can increase their goodwill and value in market by following all
set standard while manufacturing goods and services. This leads to increase in profits and
sustainability.
 Threats- In case of violation of producing safe cosmetic products for consumer,
government charge fine and penalty. When there is amendment in policies and regulation
which should be adopted by organisation that leads to increase in cost.
Economic- Economic factors determined economys performance of country and their
business. This factors includes inflation rates, disposable incomes, exchange rates, economic
growth (Blackburn, Hart and Wainwright, 2013). This have directly or indirectly long term
impact on enterprise and effect purchasing power of consumers. Due to increase in value of
money, L’Oréal has earned maximum profits and sustainability. With the growth of economic,
and increment in salary of consumer their purchasing power also rise which leads to growth of
business. Opportunities- With rise in income, purchasing power of consumer increases that leads
to rise in profits of L’Oréal which is big opportunity (British Overseas Purchasing Power
Index: Outlook for Summer 2018 and Winter 2018, 2019). It is first company which
manufacture ageing cream for people so consumer purchase it more which helps in profit
increment.
 Threats- L’Oréal has to face threat when value of dollars and currencies decline in
market as purchasing power declines.
Social- It is defined as characteristic dimensions such as customs, norms, value, of people
within operation of organisation. It includes age, population growth rate, safety, income of
people and their attitudes towards products. L’Oréal need to do innovation in their products as
people want new and latest goods. Lifestyle of people affect on need and demand and they prefer
hybrid technology for products for buying which can save time and cost.

 Opportunities- L’Oréal pay their maximum attention in analyse need and demand of
consumer. After this, they uses latest technology for manufacturing and do innovation in
their products for their increasing profits and growth.
 Threats- If L’Oréal does not move according to latest fashion and trend then it has threat
to survive in competitive market.
Technological- The innovation in technology which affect operations of market and
industry favourable or unfavourable is called technological factors (Chang, 2016). It refers to
level of innovation, research and development, automation, changes and others. L’Oréal focus on
latest technology for manufacturing products with contemporary trends.
 Opportunities- L’Oréal has accumulated knowledge of skin and hair over a century
which has opened ways towards innovations. As it is first which provide high quality
good along with using latest technology.
 Threats- If L’Oréal does not use updated technology with time and situation then it can
leads to failure in market because there are many competitors producing same products
for society and its people.
Legal- This factors includes particular laws such as antitrust law, consumer protection
laws, copyright, patent right, antitrust laws, health and safety (Fox, 2012). L’Oréal need to
follow two major legal acts such as Federal Food, Drug and Cosmetic Act (FD&C Act) and Fair
Packaging and Labelling Act (FPLA). These helps in manufacturing high quality good with
proper packaging. Opportunities- By following of such act, L’Oréal can produce good and high quality
products for their consumer and earn profits.
 Threats- In violation of such act, it has to face threat of fine and penalty.
Environmental- This factors are important because of increasing scarcity of raw
materials, carbon foot prints, population targets set by government. It includes weather, climate,
environmental offset. Nowadays, customers have high demand and prefer eco-friendly products
for purchasing. All environmental laws should be followed by Loreal while manufacturing
products. All international brands are supporting world for making beautiful planet and pollution
free. Opportunities- L’Oréal has opportunity to maintain standard of product and quality by
following environmental factors along with following corporate social responsibility.

 Threats- If L’Oréal uses high chemical ingredients for manufacturing products, then it
creates pollution which is harmful to environment as well as people which is threat for it.
As it make harmful impact upon working environment of an organisation. In today's
scenario, people does not prefer high chemical used products for their skin and body
which is threat for business. The businesses are focusing towards organic and chemical
products.
STAKEHOLDER analysis
Stakeholder analysis is considered as the essential techniques that are utilised for
stakeholder identification as well as examining its requirements. Moreover, this is used to find
whole key stakeholders who has a vested interest into problems with which project is concerned.
High Interest Low Interest
High Power CEO, managers of Lo'real are
having the high power and its
interest is also high.
Investors of respective firm
have high power but their
interest is not high.
Low power Employees have low power
but its interest is high.
Watchman, suppliers, low
level workers etc. have low
power and its power is also
low.
As respective firm CEO and mangers have high interest and power so they can delegate
the responsibilities to right staff effectively so that their staff can perform appropriately with the
aim to attain objectives. As investors having high power but their so they do not concern about
what is happening into company which is not good for organisation. Employees are one of the
essential stakeholder who do have more power but their interest is high, they always seek that
what firm is generating and at which price.
SWOT Analysis
It is strategic planning which is used for assisting people and organisation for identifying
strengths, weaknesses, opportunities and threats for planning project and competition of business
(García‐Rodríguez and et. al., 2013). The SWOT analysis of L’Oréal is explained below:
Elements L’Oréal

Strengths It separate L’Oréal from competitors in terms of brand, loyal customer base,
unique technology. L’Oréal has strength to produce wide variety of cosmetic
and beauty products. They produce high quality products for which high price
is charged. It operates its business in more than 120 countries. As consumer
prefer glowy skin and healthy hair so they want organic products for their body.
L’Oréal is moving towards organic products and endless research for their
consumers that is strength for business. Its one of the essential strength is that
they are becoming the leader of leading cosmetic industry. And having more
that 60,000 staff in all over the world. Rather than hair colour, skin care, make
etc. the respective firm is involving into dermatological as well as
pharmaceutical area and also the high nanotechnology patent holder.
Weaknesses It means stopping L’Oréal to perform its optimum level. It includes high level
of debt, inadequate supply chain, lack of capital. As it depends on supplier for
raw materials who does not provide timely delivery that leads to failure of
business. It offer various kinds of products which requires subdivisions for
handling it. This requires more man power for carrying out activities. It have
decentralised organisational structure. Because of various sub divisions of firm,
it becomes tough for LO'real to control them. As they are expanding into
cosmetics industry they have to face various competitors.
Opportunities It is external factors which provide competitive advantage to organisation. It
includes increasing sales, entering into new market, exporting. L’Oréal has an
opportunity to expand their market as well move into new product sector in
BRICS country in order to fulfils their need and demand.
Threats It is defined as those factors which harms organisation. This can be increasing
competition, tight supply labour, rising cost of materials. L’Oréal is facing
threat of quick changes of need and demand of consumers. There is
competition in market as many industry produces same products so L’Oréal
need to do innovation. Government policies and regulations are changing on
frequent basis which is also threat for L’Oréal.

The capabilities of L’Oréal can be explained with help of VRIO model:
VRIO Model
It is framework used by firm for analysis of capabilities and internal resources in order to
find out competitive advantage. The capabilities or resources of L’Oréal are research and
development, manufacturing process, widespread distribution and employees. There are four
dimensions of VRIO model which are described below:
Dimensions Research And
Development
Manufacturing
Process
Widespread
Distribution
Employees
Valuable Yes Yes Yes Yes
Rareness No Yes No No
Costly to Imitate No No Yes No
Organised No No No Yes
 Valuable- All the resources are valuable for L’Oréal such as manufacturing process,
employees, widespread distribution, research and development. As through this,
organisation can easily develop their desirable good and services which can be maximise
capabilities for the firm effectively. These valuable resources of firm can provide them
long term competitive advantages if firm organise them effectively. On the basis of
organisational availability of resources, L’Oréal can maximise their market share for its
desired success and growth.
 Research and development:- It is valuable for respective company because through it
they able to identify appropriate need and requirement of customers which help in
developing products accordingly.
 Manufacturing process:- It is valuable for a company because through it they able to
develop products according to customers. Along with this the respective company
process manufacture quality products with minimum wastage.
 Widespread Distribution:- It is valuable because through it L’Oréal able to supply their
products and services at worldwide level in effective manner.

 Employees:- Employees of L’Oréal are valuable because they are skilled and
experienced who always come up with innovative idea which help company in expanding
business.
 Rareness- There are no other organisation which is using manufacturing process of
L’Oréal. Thus, there are only few companies who can acquired manufacturing process of
L’Oréal in order to maximise long term capabilities. Firm implement so many resources
in their operational activities that assist them in enhancing market value for attaining
desired outcomes. There are various factors which are not rare for L’Oréal i.e. Research
and development, Widespread Distribution and Employees because there are various
other competitive company who have same kind of resources. But manufacturing process
of respective company is rare because it is confidential and help in attaining their
objective properly.
 Costly to Imitate- The widespread distribution can be easily copied by any organisation.
Thus, Widespread Distribution and Employees can be a long run asset firm that help
them in maximising business core practices. Thus the other resources of firm as Research
And Development, Manufacturing Process as well as Employees are hard t imitate easily
thus firm can gain maximum advantages through such aspects. There are some resources
of this company which are imitate by other companies such as Widespread Distribution
but there are some products which are non imitable:-
 Research and development:- The research and development team of receptive company
is very effective and it is not imitate by other companies.
 Manufacturing process:- Their manufacturing process is very confidential and effective
which can not copied by any other competitive company.
 Employees:- Employees of respective company are satisfies and skilled so not other
company can imitate them.
 Organised- If such resources are not organised properly then it does not provide any
advantage to organisation. It is very important for business to organise each and every
aspect for running operation and activities. Some resources of firm can be organised for a
long run duration that assist them in gaining maximum capabilities as well as growth as
its desired level. There are some factors of respective company which are organized
factor for L’Oréal because through it they able to gain long term benefits. For respective

company organised factor is employees because they are skilled and experienced which
help them in attaining long term benefit at marketpalce. But there are some factors which
are not organized i.e. Widespread Distribution, Manufacturing process and Research and
development.
On the basis of above analysis it has been determined that L’Oréal have some effective
resources that assist them in providing capabilities for future requirement and need. On the basis
of such aspects, firm can implement appropriate changes in their business process so that they
can attain maximum competitive advantages easily. Majority of resources requires to be
organised properly so that they provide maximum capability to firm for the effective attainment
of their target objectives.
b) Competitive environment of organisation using Porter's Five Force Models
Competitive environment is defined as dynamic external system where business functions
and operations are competing with each others (Khalili Shavarini and et. al., 2013). If there are
more seller for similar product then there is more competition in environment. This environment
is composed of cooperative and competitive relationships. Strategic planning should be done
where vision and mission are identified and formulated on basis of environment. For evaluation
of competitive environment of L’Oréal, Porter's five force model has been used which is
described below:
Porter's Five Force Model
It is the framework or tool used by organisation for analysis of industry force for
determining level of profitability and intensity of competition. This model was formulated by
Michael Porter in 1979 for better understanding of competitive forces that affect industry (Li and
Tan, 2013). It is explained as below:
Threat of New Entrants- The threat of new entrants for L’Oréal is very high as there are
many companies coming into market with high quality products for their consumers. As L’Oréal
is unable to fulfils need and demand of their consumers who wants organic products. Along with
this, according to the current industry, L'Oreal will be having low brand loyalty as well as
customer will not be aware about the products. In addition to this, company will take time to
determine strategies as well as technologies that are being used competitors. Due to this
respective company will lack behind in fulfilling the needs of their consumers.

Threat of Substitutes- Threat of substitutes is very high for L’Oréal as there are many
companies such as Estee Lauder, Olay, Avon, Proctor and Gamble that producing same product
for consumer. The quality of L’Oréal is declining due to which consumers are switching their
brand (L’Oréal And It’s Strategy Analysis Essay, 2019). In addition to this, L'Oreal products are
quite expensive which is not easily affordable by middle income group due to which they are
switching to other products which are reasonable as well as provide same quality as L'Oreal.
Bargaining Power of Customers- It means bargaining power of consumer while buying
products and services which can be high as well as low. There are many competitors such as
Procter and Gamble, Avon, Shiseido which cause high bargaining power for consumer in market.
As they have multiple choice to buy product and produces goods from those company which
charge low cost and high quality. The consumer of L’Oréal has high bargaining power as they
has many options available and can easily switch to other brand and products.
Bargaining Power of Suppliers- The bargaining power of L’Oréal is very high as it is
giant in cosmetic and beauty products which has huge capacity to do production exceeding 45
billion units each year. In this situation, supplier has less opportunity to pose threat to L’Oréal.
The production of organisation is huge for which firm can get materials from different suppliers.
As it results, supplier cannot bargain with L’Oréal with high potential impact. Thus, it does not
have to face with many threats with their suppliers (L’Oréal And It’s Strategy Analysis Essay,
2019).
Competitive Rivalry- When there is competition within same industry then it is called
competitive rivalry. L’Oréal has many rivalry as there are many companies such as Avon, Estee
Lauder, Shiseido, Proctor and Gamble dealing in skin care and cosmetic products. As they keep
attempt in implementing strategies for increasing market share. Thus, L’Oréal need to enhance
marketing channels with help of latest technology and innovation in order to increase market
share and profits through targeting consumers globally.
Thus, this helps in better planning and decision making of organisation. This porter
model aid L’Oréal to know about market, competitors, substitute, new entrants, rivalry. Each and
every factors need to be analysed carefully so that goals and objectives can be achieved in
effective and efficient manner. Along with this, it will assist business to sustain in market for
long period and improve their position. So it is necessary for manager of respective company to
analyse the market and make effective strategies that will lead in the growth of firm.

TASK 2
a) Different types of strategic directions available to organisation
In order to run business successfully in competitive market, it is important for
organisation to create unique and innovative products. The deputy strategy manager has
identified strategic directions for enterprise to know about market and its condition. Here,
L’Oréal has used Ansoff Matrix Model or directions for their business which is explained below:
Ansoff Matrix
This model was developed by Russian American Igor Ansoff which is strategic planning
tool. It provide structure in order to help executives, marketers, senior managers for future
growth (Schrader, Freimann and Seuring, 2012). This model is also called product or market
expansion grid. There are four strategies under Ansoff Matrix mentioned below:
Market Penetration- It is the strategy where firms want to achieve growth in current
market with existing products aiming for increment of share. Market penetration need to achieve
four main objectives which are as follows: securing dominance of market growth, increasing or
maintaining market share of existing products which can be achieved through competitive
pricing strategies, sales promotion, advertising and person selling. Also it can increasing usage of
existing customer through loyalty schemes and restructuring mature market through dividing
competitors which would require promotional campaign.
Such strategy can be implemented by L’Oréal for increasing market share and profits
through help of existing market and products. If above objectives can be achieved by L’Oréal the
it can seek market penetration.
Market Development- In this strategy, firm want to grow by targeting their existing
products in new market (Shuen, 2018). This strategy can be approached by following ways such
as: introduction of geographical market such as exporting product to new country. It can use
approach for new packaging or dimension of product, distribution channels such as moving
selling from retail to e-commerce and using of various pricing policies to attract consumers or
creation of new segment of market.
This strategy can be implemented by L’Oréal if they have good relationship with other
market though it is more risk than other strategy. If above approach can be applied by L’Oréal
easily then survival is possible.