L’Oreal being the market leader in the cosmetic industry consists of 27 international brands with operations in 130 countries (L’Oreal, 2011). In the year 2011, the company recorded sale of 20.3 billion Euros (L’Oreal, 2011).
This assignment would consider both the internal and external environment and would help to identify the affect of both the environment on L’Oreal’s current and future strategy.
It is important for the organisations to carefully analyse and evaluate the internal and external environment in order to identify and explore different factors and elements which directly influence the performance and growth of the organisation (Stacey, 2007). Hence internal and external environmental audit is one of the most important elements of the overall strategic management of any organisation (Williamson, Cooke, Jenkins, & Moreton, 2012). For this reason there are different strategic tools and methods which are employed by the organisations. Some of these tools include; SWOT analysis, PESTLE analysis, value chain analysis, porters five forces analysis, and many others (Hitt, Ireland, & Hoskisson, 2012).
In order to evaluate and assess the environment of L’Oreal, the environment would be divided into two categories i.e. internal and external. Both of the environments of L’Oreal are separately analysed below;
Internal Business Environment
The evaluation of the internal business environment of any organisation allows the management to identify and evaluate the internal competencies and resources (George, 2012). It is important to keep in consideration the internal competencies and resources while formulating any strategy as it allows the organisation to make decisions on the basis of the available skills, competencies, and resources (Freeman, 2010).
In order to evaluate the internal environment of L’Oreal, SWOT analysis would be used (excluding OT). Only SW factors would be evaluated in the internal environment whereas, OT factors would be evaluated for the external environment.
The primary strength of the company; L’Oreal, is its ability to provide the customers with innovative products in the cosmetics industry. By providing the Research and Development department with 3.5 percent of sales i.e. 721 million Euros (L’Oreal, 2011), the company is able to identify and develop innovative product to fulfil the requirement of its customers. By its extensive research activities, L’Oreal gives its customers the best product in the market. This research and development has helped the company to gain such position in the cosmetic industry (L’Oreal, n.d.).
With its extensive research and development department, the advertisement department of L’Oreal is another major strength of the company. Through high-end advertisements, the company has always attracted their target customers. Due to such an active advertisement department, L’Oreal has always left its competitors far behind in the cosmetic industry (L’Oreal, 2011).
The company not only provides its customers with cosmetic products, but L’Oreal is also active in dermatological and pharmaceutical fields as well. This has allowed the company to diversify into different markets with extensive product lines that could help its customers to remain satisfied with the company’s products.
With its operations in over 130 countries, L’Oreal frequently provides its customers with the products without any delays. This is another reason due to which the company has dedicated and committed customers over the years (L’Oreal, 2011).
The major weakness of this cosmetic company is its decentralised organisational structure. Due to such structure, the company has many divisions and further sub-divisions that eventually lead to the loss of control and authority in the company. Decentralised organisational structure for such gigantic company eventually reduces the company’s productivity and performance.
The company is facing cut-throat competition from the other competitors in the cosmetics industry. As these competitors are well established like L’Oreal, the growth opportunities in the market are stiff. In addition, the competition also leads to the decline of profit level of the company. In order to remain ahead of others in the market, the company manufactures such products that are costlier than others but due to such competition, the company cannot charge higher than other in the market. This weakness of the company has led to decline in the profit ratio.
With such an extensive budget for advertisement and promotion of the company’s product, it was observed that the image of the company’s product was quite different than the real image of the company. Such differences in international marketing strategy could lead to loss of customers and negative perception of individuals and customers regarding the brand which might eventually lead to the loss of customers.
External Business Environment
It is also essential for the organisations to carefully evaluate and explore the external business environment before coming up with any new strategy or decision (Hussey, 2012). The external environment evaluates the factors that the company cannot control as such factors are uncontrollable (David, 2001). However, the organisations can control the influence or effect of these external factors on the growth and performance of the organisation by coming up with well thought and well executed strategies (Hill & Jones, 2007).
The external environment audit of L’Oreal is as follows;
Being the market leader in the cosmetic industry, the company is provided with many opportunities in the market. One such opportunity is the introduction of cheaper and high quality products in the market. By doing so, the company would be able to provide its customers with cheaper cosmetic products in the market and would be able to attract potential customers. By the introduction of cheaper and high quality products, L’Oreal would be able to take reduce competition in the market as being the leader L’Oreal is provided with mass support from the customers in cosmetic industry.
It has been observed that L’Oreal focuses on mainly women. By shifting its focus from the female segment to male, the company would be able to attract both the genders which would eventually lead to increase in sales and revenues along with enhanced customer’s satisfaction level.
One major opportunity for L’Oreal is to take over of its competitors in the market. It was observed that during the recessionary period most of competitors were unable to provide the customers with what they want. By taking over such competitors, L’Oreal would be able to reach mass audience at the same time and this would allow the company to expand in new niches. The exploring and expansion in new such niches would allow the company to understand the needs of the customers, thus, leading to total customer satisfaction and loyalty to the brand.
With the passage of time, it was observed that the company was gradually losing its control over the market and its position. The competitors in the market were providing the customers with high quality cosmetic products at cheaper cost (Barbalova, 2011). By doing so, the competitors were able to attract most of the company’s customers to purchase and prefer their products over L’Oreal.
Another major treat for L’Oreal is the growing competition in the market. With the increase in purchase of cosmetic products, more and more companies are entering the cosmetic industry with innovative and creative ideas to attract the customers (The Beauty Company, 2012; Barbalova, 2011), which eventually leads the market share of L’Oreal to decline. With such attractive and eye-catching cosmetic products, women are shifting from L’Oreal to other cosmetic brands in the market. Uncertain economic conditions are yet another major threat for the L’Oreal. As the company operates in 130 countries, economic downturn can lead the company loss of customers and revenue. One such example was the recessionary period in 2008 and 2009.
Critical Evaluation of L’Oreal’s Strategic Position
The cosmetic company; L’Oreal, has positioned itself as high-end brand in the cosmetic industry. With such positioning of the company, the target market of the company is women of the upper middle class. In order to attract its target market, the company has always relied upon its ability to provide such customers with innovative products along with its ability to attract customers through advertisement. To remain ahead of others in the cosmetic industry, the company started a joint venture with Nestle. This strategic move of the company would allow it to gain acceptability in the new niche markets it aims to target (Macedo-Soares and da Silva, 2012).
Through constant use of research and innovation, the company aims to meet the expectations of the customers by providing them with tailor-made beauty products (L’Oreal, n.d.). Research and innovation are not the only factors that makes the company compete successfully in the cosmetic industry, but its strategies to maintain and protect the environment also helps the company to attract the customers in the market. The company has reduced its water consumption level by 23 percent and has developed future plans to find creative and efficient solutions for sustainable environment (L’Oreal, 2011).
Despite the threats and weaknesses, the company has some great opportunities that could help the company to further expand its market along with the audience which would eventually lead to higher profits and revenues.
It was observed that due to high awareness level of L’Oreal’s products, the company enjoys such favourable position in the market. Strategies and positioning of the company, both are aligned in such a way that it supports the mission and vision of L’Oreal.
List of References
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L’Oreal. (n.d.) Here comes the science bit: a review by L’Oreal of skin science and what’s to come. Mintel. Available from http://www.loreal.co.uk/_en/_gb/PDF/Here_Comes_the_Science_Bit,_Skin_Science_Report_from_L'Oreal_and_Mintel.pdf [Accessed 13 February 2013]
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The Beauty Company. (2012). TBC Beauty facts, figures, and trends. Available from http://www.thebeautycompany.co/downloads/Beyer_BeautyNumbers.pdf [Accessed 13 February 2013]
Williamson, D., Cooke, P., Jenkins, W., & Moreton, K. M. M. (2012). Strategic management and business analysis. New York: Routledge.