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Analysis of Business Strategies Used by L`oreal

1870 Downloads1 I Published: 13 Nov ,2019

Introduction

Business strategy refers to the set of actions as well as decisions taken by a company with an aim to achieve organizational goals and objectives. Such course of action is largely focussed at gaining the attention of a large base of customers. Also, it assists in getting a competitive edge over rivals and strengthening the existing performance of business in order to ensure its long term sustainability in marketplace (Brewster, 2017). The mission, objectives, vision and goals of an entity serve as the foundation on the basis of which a strategy is devised by top management of an organisation. The present report is based upon L`oreal which is a multinational brand engaged in manufacturing as well as distribution of cosmetics and personal care products to serve the needs of people globally. It comprises of PESTLE and SWOT analysis to gain an insight into organisational capabilities. Also, Porter Five Force analysis is done to get information about firm's competitive environment. Evaluation of different types of strategic directions available to company along with recommendations for growth strategies are provided.

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Task 1

PESTLE and SWOT analysis for organization's capabilities

Strategic planning is defined as the process of ascertaining as well as declaring the future planning of an organisation which is a prerequisite for achievement of long terms goals and objectives of enterprise. This procedure consists of a set of actions which are imperative for a business to make sure that the overall functioning as well as operations of company is aligned with their vision and goals and objectives (Jeston, 2014). It can be said to be a 3-5 years long plan made with the sole aim of increasing the goodwill as well as stake of company within market. Also, it assists in ensuring the sustainability of company in market for a long period of time. Strategic planning tends to provide a direction to leaders so as to make them capable of taking such decisions which affect the operations and functioning of entity at large scale. Such decisions can be associated with employees, utilisation of resources, operations, processes, tools, techniques and stakeholders. In all, strategic planning assists the entity in making sure that activities are conducted across the organisational premises as per the formulated strategy.

L`oreal is one of the top multinational brands which is engaged in product categories such as skin care, make-up, hair care, sun protection, perfume, hair colour etc. Being a global brand having various outlets situated across the world, it is immensely necessary for this enterprise to carry out strategic planning so as to become a leader in cosmetics and personal care industry by continuing to provide high quality products to people spread throughout the globe. In today's modern world where brand rivalry is on rise, it is essential for L`oreal to gain an insight into the internal as well as external environment of business. A number of companies are increasingly gaining entry into the cosmetic and personal care range industry situated within UK which enhances the element of risk for L`oreal. Thus, this organisation keeps in consideration the internal and external environmental factors which impact upon the operations of this business entity in long run.

PESTLE Analysis

It is a strategic analytical tool used by an entity to gain in-depth knowledge of external business environment. The top management of L`oreal is conducting PESTLE analysis to determine the external capabilities of business, as described beneath:-

Political Factors: This examines the magnitude of government intervention in the functioning as well as operations of business taking into account the acts passed by law. In this context, UK government is highly stable which indicates that the rules and laws passed by them for cosmetics and personal care industry remain consistent from year to year. L`oreal is a top brand which recognises the importance of adhering to political legislations in order to avoid any fines or punishments being levied upon them. The products provided by L`oreal across the globe does not comprise of any harmful or dangerous constituents which can affect health or skin of people. Further, animal testing of products is banned within UK which may create hurdles for company (Chang, 2016). L`oreal is capable of complying with all the laws and legislations passed by UK government and not getting indulged in illegal activities so as to avoid prosecution or penalty.

Economic Factors: An entity functioning as a part of a country's economy is posed to various economic factors such as inflation, interest rate, currency rates etc. In the present context, the UK economy is affected by the large scale outcomes of Brexit in terms of currency fluctuations. In addition to this, inflation has also substantially risen within the country consequently implying an increase in manufacturing and distribution costs. Within UK, the GDP of cosmetic sector has witnessed significant growth over a period of last some years which is fruitful for L`oreal. This company is capable of coming up with more products within cosmetics and personal care range so as to get an edge over competitors.

Social Factors: This comprises of the norms, values, beliefs, ideologies and traditions of population within a country. L`oreal is one of the leading brands across the globe within cosmetics and personal care sector. The primary reason behind this is that the enterprise produces and distributes only those products which possess the potential of taking the company to heights and fulfilling the needs and preferences of consumers. In addition to this, L`oreal invests a large amount in analysing the latest trends and tastes of people in order to launch such products in market which can give a boost to the current position of company within UK. There are some ingredients that are used widely within cosmetics which are considered as holy sin (Goffee and Scase, 2015) L`oreal is capable of taking this into account and using only such components which gain acceptance from public.

Technological Factors: With efflux of time, various advancements have taken place within cosmetics and personal care industry. L`oreal is a multinational brand having outlets spread across the globe and thus, it is capable of manufacturing and launching innovative products or utilising unique and exceptional technology to gain an edge over rivals in UK market. Further, the company invests a handsome amount in R&D to gain an insight into the latest techniques and processes being used by competitors within same sector so as to utilise a more advanced technology (Chen and Jermias, 2014). The managers of L`oreal understand the significance of embracing digital transformation to become a leader in market and thus, the products manufactured by company prevail at e-commerce portals such as Amazon, Superdrug, Boots, Very, Feelunique etc. Thus, L`oreal has been utilising the right technology at the most appropriate time and is capable of continuing to do so in order to maintain its position in global market.

Legal Factors: A number of laws and legislations are posed by law upon the entities and businesses have to ensure that they abide by these to avoid any legal action. Over years, L`oreal has been targetting the upper middle class or the elite section of society. Such segment of population within UK is highly aware of the legit norms and consider this element before making a decision to buy the products of any company. Thus, L`oreal is capable of complying with legislation to enhance the revenues of enterprise. The UK government has banned the use of certain chemicals which may be hazardous for skin or health of people and the company has taken this into consideration.

Environmental Factors: This element examines the extent to which the company carries out activities and procedures which are in interest of environment and future generations. The world has become aware of the need for conserving nature and thus, businesses also take this into account. In this regard, L`oreal is one of the leading brands which ensures that there is lead emission of pollution while conducting manufacturing of products so as to contribute their part in preservation of environment. Further, the company has restrained the use of such substances or ingredients in the products which can cause harm to skin or health of customer and even possessed the probability of cancer in people using those items (Jeston, 2014). L`oreal has also publicly revealed the names of their fragrant chemicals in order to avoid any legal action. Company is capable of undertaking campaigns which can result in conservation of environment.

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SWOT Analysis

This is yet another strategic analysis and planning tool which assists an enterprise in gaining in-depth knowledge of internal environment of business. The manager of L`oreal has conducted SWOT analysis to gain knowledge about the internal capabilities of company.

Strengths

Weaknesses

·L`oreal is one of the top brands within the cosmetics and personal care industry and is capable of introducing more such products or product ranges which can take the company to new heights.

·L`oreal is currently operating in 150 international countries with over 40 manufacturing plants. This company is capable of expanding its reach to more locations where at present their goods are unavailable.

·L`oreal taps the advantage of digital transformation and collects revenues through its presence on e-commerce websites.

·L`oreal has a decentralized organisational structure. There a large number of sub-divisions of this entity. Also, the employee count to handle such divisions is approximately 70,000. This reflects huge human capital expenditure owing to large quantum of sub-divisions (Jocovic and et. al., 2014). L`oreal is capable of devising an effective strategy to deal with this.

·Loreal faces massive competition from brands like Mac, Lancome, Elemis, Espa. The company is capable of launching innovative and unique products that can significantly reduce this threat.

Opportunities

Threats

·L`oreal is capable of expanding its operations into developing economies so as to enhance their global brand recognition.

·The enterprise is also capable of producing new products or ranges within cosmetics industry to enhance its existing leading position within global market.

·Owing to large scale rivalry within cosmetics and personal care industry, company may face the threat of substitution from other unique brands. L`oreal is capable of introducing innovative and creative products to gain customer satisfaction and high stake in marketplace.

Porter's Five Forces Model for competitive analysis

The manager of L`oreal has utilised Porter Five Force Model to examine and analyse the competitive environment within cosmetics and personal care industry in UK.

Threat of new entrants: The amount of funds required to develops cosmetic as well as personal care products which can meet the high profile needs of people within UK is high (Klettner, Clarke and Boersma, 2014). Besides this, pricing, marketing and quality of the goods are also to be ensured by new entrants. This tends to lower down the overall risk of entry of new companies in cosmetic and personal care sector which is significantly advantageous for L`oreal.

Competitive Rivalry: The extent of competition prevailing with cosmetic and personal care industry is high. The rivals present within this sector are Espa, Mac, Elemis, Maybelline. Dior, Chanel, Urban Decay etc. The presence of such quantum of business enterprises within this industry tends to reduce the overall growth and profitability of companies such as L`oreal. Thus, L`oreal should concentrate upon quality and pricing of products.

Threats of Substitutes: Owing to the presence of a number of leading and strong brands such as Chanel, Mac, Lancome, Estee Lauder within this industry, the risk associated with substitution of brands is very high (Laudon and Traver, 2016). In order to deal with this, L`oreal should introduce innovative and unique products at regular time intervals which will strengthen the brand position and reputation in UK marketplace.

Bargaining Power of Buyers: Owing to the availability of various choices within cosmetics and personal care range, buyers enjoy high bargaining power within this sector. Further, as the same products are available in different brands, customers can significantly make the manufacturers such as L`oreal reduce the prices of products.

Bargaining Power of Suppliers: Cosmetic industry has significantly low bargaining power of suppliers. This is due to the presence of large number of market players and manufacturers who provide diverse products to customers (Lawton, 2017). This may become a hassle for L`oreal in short term but in long term, company has contacts with a number of vendors which relatively reduces the risk for enterprise.

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Task 2

Different types of strategic directions available to organisation with justification and recommendation of growth strategies and platforms

Strategic decisions refer to the course of action taken by an enterprise taking into account the internal and external business environment as well as the interface between them. These are generally taken based upon the vision, strategies, goals, objectives and mission of company with the prime motive of achieving the desired outcomes. Growth strategies are the decisions taken by an enterprise to execute development of company's operations and functions across the globe. Further, growth platforms refer to the initiatives undertaken by an enterprise to enhance the profitability and growth of company in marketplace (Jocovic and et. al., 2014).

In this regard, L`oreal is a leading brand having its global presence in 150 countries. They are exposed to various internal and external threats owing to the quantum of sub divisions of company and massive rivalry within cosmetic and personal care industry respectively. Thus, following are certain strategies that can be adopted by L`oreal to deal with the before mentioned challenges:-

Market Penetration: This is a strategy that can be utilised by L`oreal to sell its existing products within their current markets. This strategy will assist the enterprise in increasing the stake and name of the brand in the existing market (Peng, 2017). Over years, L`oreal is targetting the upper middle class or the elite section of global society and thus, the charges are relatively high. The company can significantly reduce the prices of products to attract lower middle class segment.

Market expansion:Also referred to as market development, this strategy enables an enterprise to offer existing productsto new geographies. This may possess an element of risk as huge investment is required to facilitate expansion into new countries. Yet the probability of gaining success for L`oreal is also high. By applying this strategy, company can significantly enhance its revenues and profits by tapping the advantage of increased reach (Scholes, 2015).

Product expansion:Here, company launches new products in current market. With the passage of time, L`oreal is known to be an organisation which introduces unique products at regular intervals to gain maximum customer satisfaction. L`oreal is capable of expanding its perfume segment or entering the style accessories section to gain the attention of people and enhance its sales.

Diversification: As per this strategy, an organisation tries to expand their stake by introducing new products within new markets. Diversification tends to raise the cost of investment for L`oreal as product development and expansion both are expensive procedures. Thus, L`oreal adopts a number of marketing and advertising strategies to keep healthy relationship with customers in order to lure them to make a purchase (Strategies of L`oreal, 2018).

To make sure that the products manufactured by L`oreal gain high recognition within UK, it is essential that managers of this company undertake certain effective initiatives which can substantially lead to increase in sales and profits of enterprise. For expanding the share of L`oreal in market, it is recommended that organisation should adopt market penetration. Consequent to the execution of this strategy, the revenues as well as profits of enterprise will increase. Owing to the already established image and position of company in its existing markets, L`oreal is capable of tapping the advantage of market penetration to attract a larger quantum of population by rendering products with high value addition. This will differentiate the goods sold by entity from its rivals and provide a strategic edge to organisation in marketplace (Wheelen and et. al., 2017).

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Strategic management plan for L`oreal

Strategic management plan is a tool used for communicating the vision, mission, values, goals, strategies of an enterprise to employees and other key stakeholders in order to ensure that the behavioural characteristics of all are aligned towards the common objective. This is the key to success and growth of a company. In this regard, following is a strategic management plan devised by L`oreal to communicate various key aspects associated with enterprise to stakeholders:-

Aim: To increase the magnitude of operations of company in existing markets.

Organisational structure:L`oreal follows and executes a decentralised structure with the presence of a number of sub-divisions to handle the various processes of company.

Vision: To become a global leader within the cosmetics and personal care industry.

Mission statement:To offer products with high quality and value addition to ensure maximum customer satisfaction.

Values: L`oreal is a French brand possessing high beliefs such as honesty, integrity, respect, transparency and conducts activities in an ethical manner (Spender, 2014).

Goals: The short-term goal of L`oreal is to focus upon pricing and quality of products to gain maximum satisfaction from consumers. The long-term goal is to enter into developing markets which possess the potential of increasing revenues and profits of enterprise.

Strategies and tactics: L`oreal is going to make use of market penetration to attract the attention of a large base of audience within the current markets of company. This will provide a competitive advantage to the enterprise as it already possess a loyal customer segment. The tactics of entity will be to introduce products with high quality and low price to meet the tastes and preferences of consumers.

Conclusion

From the above report, it has been concluded that strategic planning is of prime significance to an enterprise to make sure that goals and objectives are achieved in a timely manner. Also, it is assessed that business performance of an enterprise needs to be in accordance with the formulated plans and strategies in order to ensure the sustainability of company in marketplace. Besides this, SWOT analysis demonstrated that the organisation is capable of launching unique and innovative products within personal care range. PESTLE analysis indicated that this enterprise is capable of producing goods as per the advanced tools and techniques to gain an edge over competitors in marketplace. Further, Porter Five Force analysis portrayed that there is low threat of new entrants in cosmetics industry.

References

Books and Journals

  • Brewster, C., 2017. The integration of human resource management and corporate strategy. InPolicy and practice in European human resource management(pp. 22-35). Routledge.
  • Cavusgil, S. T. and et. al., 2014.International business. Pearson Australia.
  • Chang, J. F., 2016.Business process management systems: strategy and implementation. Auerbach Publications.
  • Chen, Y. and Jermias, J., 2014. Business strategy, executive compensation and firm performance.Accounting & Finance.54(1). pp.113-134.
  • Goffee, R. and Scase, R., 2015.The Real World of the Small Business Owner (Routledge Revivals). Routledge.
  • Jeston, J., 2014.Business process management. Routledge.
  • Jocovic, M. and et. al., 2014. Modern business strategy Customer Relationship Management in the area of civil engineering.Applied Mechanics & Materials, (678).
  • Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy.Journal of Business Ethics.122(1). pp.145-165.
  • Laudon, K. C. and Traver, C. G., 2016.E-commerce: business, technology, society.
  • Lawton, T. C., 2017.Cleared for take-off: structure and strategy in the low fare airline business. Routledge.
  • Peng, M. W., 2017. Cultures, institutions, and strategic choices: Toward an institutional perspective on business strategy.The Blackwell handbook of cross‐cultural management, pp.52-66.
  • Scholes, M. S., 2015.Taxes and business strategy. Prentice Hall.
  • Spender, J. C., 2014.Business strategy: Managing uncertainty, opportunity, and enterprise. Oxford University Press.
  • Veit, D. and et. al., 2014. Business models.Business & Information Systems Engineering.6(1). pp.45-53.
  • Wheelen, T. L. and et. al., 2017.Strategic management and business policy. Pearson.
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