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2533 Downloads1 I Published: 05 Nov ,2019
Business strategy refers to the decisions or course of action undertaken by an enterprise in order to achieve their long term goals and objectives. Such actions and strategies are aimed at grabbing the attention of customers, gaining strategic edge over rivals, strengthening business performance and attaining high stake in market. The mission and vision of an enterprise serve as the basis upon which the strategy and planning of business is done (Brewster, 2017). The present report is based upon L`oreal which is a French brand dealing in personal care products, headquartered in Clichy, France. It includes PESTLE and SWOT analysis to gain knowledge of organisational capabilities. Also, Porter Five Force analysis is done to gain an insight into firm's competitive environment. Besides this, evaluation of various types of strategic directions available to company is included. Lastly, recommendations have been provided for growth strategies along with a strategic management plan.
PESTLE and SWOT analysis for organization's capabilities
Strategic planning refers to the process of defining the future plans of an entity which are necessary for accomplishing organisational goals and objectives. It comprises of sequence of steps which are essential for an enterprise to align the behaviour and performance of overall organisation towards the vision and long term goals of company. Basically, it is a long term plan which is made for a time period of 3-5 years in a strategic manner so as to gain an edge in market and enhance the profitability and growth of business. The primary objective here is to provide a relevant and adequate guidance to organisational leaders in order to assist them in making decisions associated with operations, workforce, utilisation of resources and stakeholders. This helps the entity in ensuring that the functioning of company is in accordance with the desired results.
L'oreal is one of leading brands in cosmetics, hair, make-up and skin care products. Being a company with outlets spread across the globe, it is highly significant that strategic planning is done by the enterprise in order to gain knowledge of the internal and external business environment (Cavusgil and et. al., 2014). In today's world, competition is rising at a rapid pace which enhances the scope as well as need for L`oreal to come up with effective business strategies and plans in order to maintain the position and goodwill of organisation in marketplace. New companies are constantly entering into the personal care and cosmetics industry in UK which further raises the standards of this sector. Thus, this enterprise takes into account the internal as well as external factors that affect the operations and functioning of business in the long run. myssignmenthelp Australia
This is a strategic tool which helps an enterprise in gaining an insight into the external environment of business. The managers of L`oreal have conducted PESTLE analysis to gain knowledge about the external capabilities of company, as described below:-
Political Factors: This defines the extent of government intervention in the operations and functioning of business. In this, UK government is stable and thus, the laws and legislations prevailing in the country remain consistent over years for personal care and cosmetic industry. L`oreal is a leading global brand which strives to provide products which do not contain any hazardous or unhealthy substance (Chang, 2016). However, the government of UK has prohibited animal testing of goods which may create short-term hassle for this company. Thus, L`oreal is capable of avoiding to get involved in any such acts which are banned by statute.
Economic Factors: An enterprise which is running as a part of an economy is affected by a number of economic factors such as currency rates, inflation, interest rate etc. At present, the economy of UK is affected the fluctuations of currency as a result of Brexit. Besides this, inflation rate within UK has also increased significantly leading to a rise in distribution and production costs. It has been observed that GDP of cosmetic industry within UK has seen substantial growth over years which is beneficial for L`oreal. Thus, company is capable of introducing more products within the cosmetics section in order to gain an edge over rivals.
Social Factors: This includes the values, practices, beliefs, norms, traditions of people of a country. The major reason behind the leading position of L`oreal in today's competitive world is that the company manufactures and introduces only such products which are capable of meeting the needs and demands of consumers. Besides this, it is evident over years that this organisation continuously analyses the latest fashion trends and preferences of people and then take decisions about development of a new product (Chen and Jermias, 2014). Further, there are certain ingredients the utilisation of which is considered as a holy sin by certain communities. Thus, L`oreal is capable of ensuring that they produce new products and ranges as per consumer needs while not including any such ingredients or chemical that violate the traditions or beliefs of society.
Technological Factors: With passage of time, there are frequents advancements in technology and techniques being used within an economy. L`oreal is a top company which uses product and technological innovations in order to gain a strategic edge over rivals within UK market. Besides this, organisation invests a large amount in R&D Department so as to gain knowledge about the latest tools and techniques being used by businesses within cosmetic and personal care industry. Also, Loreal has embraced digital transformation and their products are available on a number of e-commerce websites such as Amazon, eBay etc (Goffee and Scase, 2015). Thus, the use of right technology at the right time has shaped the success of enterprise in UK and company is capable of continuing the same in future also.
Environmental Factors: This is the aspect which defines the extent to which company undertakes decisions and activities which are in the favour of environment. L`oreal is a recognised brand which conducts manufacturing of products in such conditions which do not lead to emission of pollution at a scale that can cause harm to surroundings. Also, this enterprise has stopped utilising such substances within the products that can cause cancer and have also disclosed their secret fragrant chemicals publicly. Thus, company is capable of carrying out only those activities which are in the interest of environment.
Legal Factors: There are certain rules and legislation enforced by law that companies have to comply with. The target audience for L`oreal is mostly upper middle class audience which is highly concerned about the alignment of company's functioning with the laws of UK. The government of UK has prohibited the utilisation of some chemicals which have been taken into account by Loreal. Besides this, the enterprise is capable of abiding by the legislations laid down under Environment Act 1995, Employment Act 2002, Companies Act 2006, Minimum Wages Act (Amended) 2018 etc. in order to avoid government intervention.
It is a strategic planning tool used by an enterprise to gain knowledge about the internal environment of business (Jeston, 2014). In this regard, managers of L`oreal have conducted SWOT analysis so as to recognise the internal capabilities of company:-
Porter's Five Forces Model for competitive analysis
The managers of L`oreal have made use of Porter Five Force Model in order to assess the competitive environment within UK market. This will assist the enterprise in gaining a strategic and competitive edge in marketplace so as to gain a strategic edge in market, as follows:-
Threat of new entrants: For a cosmetic brand, huge amount of funds is required to develop new products and to meet the needs of the customers, so the threat of new entrants is low within the marketplace. Besides this, high product quality, marketing and pricing have to be considered by new entrants. Sometimes, for some companies, entry is easy because of the high-quality products being rendered by them and their low pricing strategy (Klettner, Clarke and Boersma, 2014). There are a number of rivals within this market like Mac, Lancome, Maybelline etc. yet cosmetic industry has relatively low threat of new entrants which is beneficial for L`oreal.
Competitive Rivalry: Degree of competition within cosmetics and personal care industry is immensely high and rivals present in cosmetic industry are Elemis, Espa and other local organisations. Number of spas situated in UK are limited and many of these possess their own products, this indicates that the demand is lower than supply. The large number of competitors within cosmetic industry reduce the overall profitability of organisations such as L`oreal. So, L`oreal should stress upon their quality quotient and price in order to grab the attention of customers.
Threats of Substitutes: The risk associated with switching of brands within cosmetic industry is quite high as many competitor companies come up with similar products and satisfies the needs of the customers. Close substitute products prevail within UK market which increases the likelihood of people tuning to alternative goods in response to price increase. The power of suppliers as well as the attractiveness of market is reduced as a consequence. In order to sell its products to a large number of customers, L`oreal should introduce new products quite often.
Bargaining Power of Buyers: By the force of customers business started providing good quality goods at lower cost and increase customer satisfaction. Manufacturers and suppliers may not predict the future demand because consumers have high demand of power. Organization has a high bargaining power of customers, it increases the competition and availability of market product from various manufactures. It is not a risk for L`oreal because it is one of the leading cosmetic company and customers prefer its products with the price they offer.
Bargaining Power of Suppliers: Suppliers are important for every company as they provide raw material. If the bargaining power is high, company is likely to lose its customer. If the supplier increases the cost, the cost of final product will automatically increase (Laudon and Traver, 2016). They offers variety of products, and to meet the demand of customers. There are huge number of suppliers in the market, hence the bargaining power is low. L`oreal is a large company which have huge contacts with a number of vendors which reduces the risk associated with this factor.
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Different types of strategic directions available to organization with justification and recommendation of growth strategies and platforms
Strategic decisions refer to the course of action that are undertaken with the motive of attaining the desired results. It is basically based upon the mission, vision, tactics, values and strategies of company. It provides a structural layout and framework in accordance with which the internal capabilities of an enterprise are aligned. L'oreal is a top brand having its outlets spread across different parts of globe (Lawton, 2017). Being globally present, it is posed to a number of internal and external challenges. Besides this, there is massive competition within the cosmetics industry, thus, business strategies of L`oreal should be reviewed and revised at frequent intervals in accordance with the current market situation.
Growth strategies assist an enterprise in making such management plans which facilitate the growth of business in future prospect. In addition to this, growth platforms are the specific capabilities that an organisation applies for enhancing its revenues and profitability in marketplace. It operates at two stages, namely, Strategic and Tactical. While strategic initiatives are generally for period of 3-5 years, tactical are for a shorter time duration. In this regard, the strategies that can be adopted by L`oreal are described below:-
Market Penetration: It is a business strategy utilised by L`oreal in order to promote the products of company in the current market. This assists the enterprise in enhancing the existing stake of organisation in marketplace. L`oreal has been targetting upper middle class as the audience for their high quality goods. Their pricing policy has always been to keep the prices high in response to the high quality products being provided by them. It can be said that the company can reduce its prices in order to target the lower middle class too.
Market expansion: Also known as market development as here the enterprise sell their existing products within new markets. This may prove to be risky for L`oreal as huge investment is required for this along with extensive advertisement (Peng, 2017). It is not feasible for enterprise to reduce the prices of products and thus, L`oreal may consider the option of combing elements of low pricing with certain extent of product differentiation.
Product expansion: Here, company introduces new products within existing marketplace. Over years, L`oreal has been introducing new products at regular intervals which are unique and innovative. Such products are launched by enterprise in order to gain the attention of a large number of persons within UK. L`oreal is capable of introducing new perfumes within the luxury segment and hair products within the haircare section in order to captivate customers of all age groups (Scholes, 2015). This strategy will assist the organisation in enhancing its revenues and profits in marketplace.
Diversification: Here, company introduces new products within new markets. This is the strategy containing the element of highest risk as a lot of funds are required for executing this strategy. Top brands such as L'oreal are highly conscious about their brand image as well as position and thus, L`oreal adopts a number of effective marketing practices and strategies in order to retain the customers for a long time (Strategies of L'oreal, 2018). L`oreal can use differentiation strategy in order to deliver products with high value addition.
To make sure that a product becomes successful within UK market, managers of L`oreal should build an effective platform which provides a number of initiatives for the enterprise to grow as well as to ensure its sustainability in marketplace. For facilitating expansion and growth of current operations of L`oreal, it is recommended that they should opt market penetration. This approach will assist the enterprise in enhancing their profits as well as sales. Consequently, the share of company in market will also increase. As L`oreal is already one of the leading names in the cosmetic and personal care range, it is capable of executing market penetration successfully. By providing products with high value addition at lower prices, enterprise can gain the attention of a large base of customers (Veit, D. and et. al., 2014). Thus, promotion of existing products within current market will prove to be beneficial for entity. In this regard, L`oreal is coming up with tiny packages of products and offer them at wide range of prices.
Strategic management plan for L'oreal
Strategic plan is the tool comprising of the vision, values, mission, goals ad strategies of enterprise for future growth. This is very crucial for the success and growth of business in long term. This procedure begins with with management of developments followed by implementation and lastly the review of strategy (Wheelen and et. al., 2017). L'oreal has to devise such plans which will assist them in gaining a strategic edge in market over rivals, thereby also leading to increase in customer satisfaction. The strategic management plan of L'oreal is devised below with the motive of accomplishment of organisational goals. The various components of this plan are described below:-
Aim: To grow the scale of operations of business within emerging markets.
Organisational structure: L`oreal is an enterprise which follows decentralised structure which indicates that they exercise control over their divisional units.
Vision: To become a leader in cosmetics and personal care industry.
Mission statement: To offer high quality products to customers and ensure high customer service excellence.
Values: L`oreal possesses beliefs such as maintaining integrity, respect and fostering transparency across the premises by undertaking ethical activities (Spender, 2014).
Problems: L`oreal tends to focus upon problems associated with high price and barriers observant in case of product delivery.
Goals: Long-term goal of L'oreal is to gain entry into emerging markets by facilitating collaboration with local manufacturers. In addition, short-term goal is to focus on reduction of prices in order to gain attention of more customers.
Strategies and tactics: L`oreal will make use of market penetration in order to gain success and facilitate business growth. This will render a competitive edge to company over rivals which will assist in ensuring their sustainability in market for a long time (Veit and et. al., 2014). The tactics of the enterprise will be to develop such products which strive to fulfil the needs and demands of consumers.
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From the above report, it has been concluded that it is necessary for an enterprise to do strategic planning in order to ensure achievement of goals and objectives within the stipulated time. Besides this, it has been analysed that the performance of business has to be aligned with the strategies so as to make sure that the desired outcomes are yielded. In addition to this, with the help of SWOT analysis, it has been evaluated that company is capable of introducing new and innovative products at regular intervals. Furthermore, PESTLE analysis has reflected that the organisation is capable of manufacturing products as per the latest trends and techniques utilising the right technology. Also, Porter Five Force model has been used to gain knowledge of the cosmetic and personal care industry.
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