L’Oreal is one of the largest leading cosmetics and beauty products brand worldwide. The strategies followed by this firm made it to remain in the top position among its competitors. This multinational cosmetic firm invest, innovates to product varieties and also markets them by using its strategies to increase its consumer base. The major investment for L’Oreal is in its CSR (Corporate Social Responsibility) strategies, where it aims to increase its customer base to a whooping 2 billion customers by the year 2020. This can be accomplished by identifying and analysing the firm’s business units through high growth prospects and analyzing the various strategies that have been implemented in order to achieve it. By studying the journey of L’Oreal throughout the years the brand image remains within a portfolio that became its major development factor. This has clearly become the firm’s competitive advantage. L’Oreal is a high profit turnover company that uses its profits to invest in its R&D department in order to motivate innovation. It also uses its capital to produce large number of units according to the demand. Horizontal Integration, Vertical Integration and strategic Alliances help L’Oreal to set their footprints worldwide. In this report we critically analyze the strategic capability, strategy formulation and implementation with reference to the theories from the concepts of strategic business managements.
2.1 GENERAL ENVIRONMENT AND TREND: PESTLE analysis is done to identify the various different forces of L’Oreal’s macroenvironment.
Political & Legal Forces: Laws and regulations are made by the government regarding the recruitment of professionals from various multiracial countries to L’Oreal (Hae-Jung, 2013).The products from L’oreal are subjected to FDA approval (Food and Drug Administration). The FDA make sure that the products from L’Oreal does not do harm either directly or indirectly to the consumer. The regulation also commands L’oreal to list out the ingredients used in the preparation on the product label.
Economic Forces: Since L’oreal is based in Paris, France. It has contributed GDP increase consistently from the year 2016. Also the country experiences a steady increase in population which means that there is also a steady increase in the number of consumers in the country.
Social Forces: Consumers are now becoming more and more concerned towards their health, hence they prefer products that are more organic and doesn’t harm their skin. This has become one of the major concerns for this cosmetic brand.
Technological Forces: Convergence solutions (which means a hybrid cosmetic solution from medical and other technology based chemicals) and biotechnology are now becoming a latest technology concern trend for L’Oreal as korean cosmetics brands have already adapted this technique on their brands.
Environmental Forces: When it comes to environmental forces, Demographics plays a significant role in affecting the firm’s capabilities. Over the recent years it has been observed that the beauty concern for women have shifted towards men as, men place a better importance towards personal appearance than women.
Specific Environment L’Oreal is developing a new enhanced tool that could provide a complete layout of information regarding their products, to make their consumers self study their own cosmetic consumption choices. The supply chain of L’Oreal have impacted various stakeholders throughout the value chain that could impact the environment. The R&D department have done a research and come up with a model known as SPOT (Sustainable Product Optimization Tool). This model enables the firm to Test the various designs of its new products that could have an impact on the environment and society. Makes the amount of impact a tangible entity, thereby can help to minimise the effects caused by the products from various areas like packaging, formulation of the chemical ingredients both renewable and non renewable, and the product’s social benefit. In the year 2017, every products from L’Oreal were analysed using this tool before they were released into the market.
Competitors and Internal Analysis Being one of the leading cosmetic brand, L’Oreal faces head on competition from various other brands. The summary of the firm’s competitors and their particulars are portrayed below L’Oreal adopts the differentiation strategy to stay ahead of its competitors, as they have a broader target market their product divisions are mostly under the following diversified markets like, Multicultural New Product Diversification New Market Development
In this section, strategies of how Loreal creates their own competitive advantage and allows them to stay ahead of their competitors will be studied. To further break down Loreal’s competitive advantage, there are two other main types of advantages firms can have. These are comparative and differential advantages.
Comparative Advantage The impression about L’oreal unique strategy Universalization Strategy Its convinced that there won’t be existed a single and unique model of beauty at L’oreal. However, it’s an infinite diversity which changed according to the times, cultures, histories, individuals..etc.The definition for L’oreal’s strategy is “Universalization means globalization that respects differences. Differences are at desires, needs, tradition”. They believe that product innovation ought to meet cultural expectation, it managed to adapt to specific cultural difference in beauty maret on over the world. L’oreal currently has six worldwide research and development centers, two in France, One in the U.S. Another in JApan. In 2005, L’oreal established one R & D in Shanghai, China and the final is in India. Low cost or Differentiation Differentiation Competitive Advantage Strategy L’Oreal makes use of a hybrid differentiation strategy. It focuses in decrease the costs and consequently being able to decrease the price when necessary while increasing the perceived value.Due to the combination of large amount of capital available and high technical capabilities, L’Oreal has access to resources to produce in a large scale while making use of its strong research and development department to bring up innovation.The capacities of optimize the use of resources promoting high productivity and L’Oreal’s effective production process and distribution through wide amount of channels provides a favorable scenario for decreasing costs.Meanwhile, L’Oreal’s actions skewing towards creating an emotional connection with its consumers instead of highlighting only its products, clearly shows the company’s differentiation strategy.The company over its consolidation process has always paid attention in building a strong branding strategy, being widely recognized and holding a strong loyalty from its customers.L’Oreal marketing strategies have been always focused on bringing to the customers the benefits and reliability of all products, and making sure the percepti on of superior quality is stronger than any other competitors.The combination of these strategies, and minor adjustments made from time to time,along the years has brought L’Oreal as leader and reference in the beauty market.
Corporate Strategy Expand through acquisition L’oreal growth strategy has been carried out both through internal development and through acquisition of companies already operating in the cosmetics industry. In particular, external growth by acquisition is part of L’oreal’s long-term strategy, with a long-term annual growth goal of 10%. This option has also been facilitated by the group’s liquidity and low debts. Purchase of more companies allows the group to reach the critical size needed for exploiting economies of scale both in R & D activities and in marketing and distribution, The acquisitions also promote L’oreal to quickly expand its geographical horizon and develop its market segments. The actual portfolio of 25 prestigious brands is the results of a series of acquisitions that began many years ago. Global Strategy L’oreal is a global company that spans the globe. French cosmetics company French cosmetics company(SFTIC) set up more than 100 years, developed into a multinational company in 140 companies and regions with more than 88900 employees. Its global product portfolio is represented by 32 global brands, controlling 19.9%, of the World cosmetics market. They have a very well known and trusted image because they have been around for so long as a quality brand. They also have a professional sector (Keratase, Redkin, L’Oreal Professional) that is used and trusted worldwide throughout high end salons.
L’Oreal Laboratories has developed groundbreaking innovations such as the first shampoo without soap, the first fast bleaching agent, which first highlights the enhanced enhancement shampoo,the first hair color without ammonia or artificial skin called Episkin.With the slogan “Because we’re worth it”, they push the message”beauty for all” to attract a wide range of consumers regardless of their ethnicities, gender, and age.L’oreal chose a unique strategy: the popularity of it. This means capturing, understanding and respecting the globalization of differences. The difference lies in desire, demand and traditional order to provide tailored beauty, and to satisfy the wishes of consumers around the world. Business Strategy The detail action of Business level strategies is to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product or service markets. In other words, business-level strategy is concerned to create the differences between firm’s position and rivalries in an industry. In order to pinpoint the position, the firms have to decide whether it should perform activities differently or act different activities in comparison with its rivals. In business level strategy, there are two types of competitive advantage, one of them is Lower cost, the other is Uniqueness (or Differentiation). Firms ought to compare which kind of competitive advantage would create more value. Before doing it, it is required to define which competitive scope firms want to choose to compete across, a broad market or narrow market.
The final step of business strategy is to decide generic strategies in business level. There are five generic strategies, as demonstrating in figure 1 In L’Oreal, it is obvious to see that differentiation is the strategy they has chosen over a century whichever are the divisions. The target market is always global. In order to make our reports more clearly and accurately, it is decided to analyze according to one brand of L’Oreal only L’Oreal Paris. The reason why we choose L’Oreal Paris is that it belong to L’Oreal Consumer product divisions.
As we know, L’Oreal’s Consumer product divisions are all highly sensitive to global economies of scale and scope, it not only reached customers’ demand but also is responsive to expectation of L’Oreal, achieve global to local balance and the sale is increased year by year. Now we can take a look of multicultural in unique diversification strategy of L’Oreal Consumer product divisions are going to apply to achieve broad target market. Firm Strategy/Structure In the environment of the most fashion country in the world, L’oreal is still in No.1 position in beauty market with the previous success and current reputation and variety brands in clusters but the story is not that simple. In the country like France, competition level is also highest in the world as of their people’s standard. With many companies vary from small, medium to large which located in different places in country, the difference in strategy, technology are much noticeable. Marketing Strategy( Empowerment) L’oreal is about empowering clients. The company is not only promoting itself as a cosmetic brand , but also as a source of consumer power and confidence.
L’oreal remains vigilant to ensure its content is licensed to customers and gives them a positive outlook for the brand. Conclusion After using different tools to analyze, L’Oreal is a very successful case in the cosmetics industry. With the purpose of beauty for all, L’Oreal use globalization corporate strategy as the main direction for other business and functional strategies. Playing in quite dynamic industry but low bargaining power of suppliers and consumers, the company stays at highly beneficial position with low threat of sub stitutes or new entrants. Its main rivals are COTY, REVLON, Unilever, CLARINS, CHANEL..
Those five giant competitors are dominating cosmetics market, resulting high intensity. But L’Oreal has its own strategy to be no.1 in the world. It creates itself much precious resources and capabilities that are sustainable competitive advantage, such as strong innovation, clever acquisition management and efficient supply chain. Thanks to vertical integration deeply, L’Oreal has taken huge advantage of economic of scale and not depended on outsourcing much. At business unit level, L’Oreal has five divisions which play different roles. L’Oreal Consumer Products is a cash cow business, bring stable profit to the company to invest in L’Oreal Active and Professionals units L’Oreal Luxe is the star unit with high relative market share and high potential for future growth.
However, in general, the company uses differentiation strategy to diversify its portfolio to gain profit from worldwide market.From first hair dyes, L’Oreal has grown to other lines of products as skin care, body care, fragrances, etc. It also expands from hometown–France-to other markets as the U.S., Latin, America, Japan, China, to name a few. Thanks to high demand of beauty products of the French, L’Oreal has developed its business to catch expectation of every kind of beauty in other countries, also to find more suppliers and factor endowments as human resources,technology to enhance and sustain its competitive advantage to keep leadership position in the world cosmetics industry.