Strategic Analysis of L’Oreal
Strategy analysis focuses on the long-term objective generating alternative strategies, and selecting strategies to pursue. The firms present strategies, objectives and mission, couple with the external and internal audit information, provide a basis for generating and evaluating feasible alternative strategies (David 200).
LOreal has numerous competitors. To have an advantage on competition, LOreal has to apply some strategies that include internal audit information and external opportunities that will make the company stronger. They will also prevent competitors to have an advantage over LOreal.
This report will be based upon the effectiveness of current strategies of LOreal, a real global leader in every segment of the industry.
LOreal encounters threats and opportunities and they have weaknesses and strengths. It is known as the TOWS matrix. It is an important matching tool that helps managers develop four types of strategies: SO Strategies, WO Strategies, ST Strategies and WT Strategies. The external opportunities and threats were identified earlier (see part 1) by developing the External Factor Evaluation Matrix and Competitive Profile Matrix is important for the current strategies development. LOreal internal strengths and weaknesses will be discussed further in this report.
SO Strategies uses the internal strengths to take advantage of external opportunities of a firm. LOreal has always taken these advantages with their new innovations and global expansion. The company is reaching out to more people across a bigger range of income and cultures than just about any other beauty-products company in the world. LOreal strategy positions it beautifully to profit even further when the middle class begins to grow stronger in emerging markets. That makes LOreal competitors more hustling to catch up.
WO strategies aim at improving internal weaknesses by taking advantage of external opportunities. Laws and governmental regulations require companies such as LOreal to maintain certain standard in quality and responsibility for their product. Rules may vary depending on the country. LOreal also have it own set of regulations that are very strict on quality. Whatever product is put on the market, one can be sure that it has gone through a very thorough and scientific series of tests. Those tests are usually even more severe than any regulation, so that the company is assured of the quality of the product.
ST strategies use a firms strengths to avoid or reduce the impact of external threats.
LOreal has made strategic acquisitions that strengthen its position in different categories. By doing so, they have taken hold as a leading position that other companies have trouble matching. As an example, LOreal can now offer product to Black consumers, because it has acquired Carson Inc that specialize in cosmetic products for black consumers. By achieving this significant progress in the ethnic beauty market, they avoid the threat of losing to other competitors.
WT strategies are directed at reducing internal weaknesses and avoiding environmental threats. As a company, LOreal has commitments to its employees by training and recruiting people with talents. It avoids having to face losing potential employees to competitors. Their reputation of performance is an everyday reality for LOreal Group. Employees have the opportunity to be innovative and that leads to more responsible and committed personal.
EFFECTIVENESS OF STRATEGIES
LOreal capitalize on opportunities in the global market. They are international with laboratories on three continents: in Europe, the United State of America, and Asia. They have test centers in many countries, enabling a better understanding of local customers preferences. Their increasingly global outlook, ensure a better and closer identification of specific local requirements. Now acquisitions enable LOreal to new developments in rich segment.
STRATEGY RECOMMENDATION AND JUSTIFICATION
LOreal strategy is a well-developed fact. It has adapted to every particular environment. It will differ from one country to another with the basic plan that is molded to the need and function of the company.
Economic factors have been favorable to LOreal and continue to be. Their expansion is well organized. Nothing is done without having done its homework first. That in it-self is a key to success.
LOreal has opened the last door to the world. Not only do they have physical access and contact all over the world, now the world comes to them. They educate, advertise, and sell whatever they offer.
With the market integration in everyday reality, the company has found a new way to ensure a better integration and better opportunities for those who have a taste for additional responsibilities and commitment. They are also willing to train them , so that they can be very productive and competitive.
They have an expertise in global market that facilitates and pleases the prospective and current customer. One can have service in its own language without leaving home.
Also, they aim to raise the profile of the company. To achieve that, they provide training for employees throughout the world that joins them.
With the help of new strategies, and despite disruptive world events, LOreal sales continue to grow. The consolidated sales of L’ORAL in 2001 reached 13.7 billion, in line with the group’s expectations.
The sales growth rate compared with 2000 was 8.4%. Exchange rate fluctuations, still positive at 0.5% at the end of September, had a 0.3% negative effect. The growth rate excluding exchange rate fluctuations was thus 8.7%.
In structural terms, the positive net impact of disposals and acquisitions in 2000 and 2001, which was 2.4% up to the end of September, amounted to 1.6% for the whole year. In 2001, the group made two acquisitions: BioMedic, which specializes in skin care products to accompany dermatological and plastic surgery treatments, and Colorama, a Brazilian mass-market make-up brand. On a like-for-like basis, i.e. with an identical structure and exchange rates, the group sales grew by 7.1%. The Group’s cosmetics sector continued to grow faster than the world market. This achievement can be attributed to strong international growth combined with the successful worldwide rollout of the group’s core brands. Fourth quarter sales were satisfactory (up by 6.2% like-for-like), with good growth in Western Europe (up by 5.8%) and continuing strong growth in the Rest of the World (up by 13.8%). In North America, sales advanced by 2.2%: some American retailers cut inventories sharply following the tragic events of 11th September.
The dermatology sector continued to achieve rapid growth worldwide.
Sales growth by sector and area
Millions GrowthExcl. exch. rate fluctuations
Group sales by sector
Cosmtics13,394+ 8.7%+ 9.1%
Dermatology (1) 292+ 11.3%+ 10.9%
Cosmetics sales by area:
Western Europe6,580+ 5.6%+ 5.8%
North America4,257+ 14.0%+ 11.0%
Rest of the World2,557+ 8.8%+ 14.9%
(1) L’OREAL Group share: 50%.
LOreal is a company that has seen various external opportunities and threats. They know how to handle their strengths and weaknesses to their advantage. Developing analytical strategies will improve and increase LOreal competitive advantage over Revlon, Clairol and others. With the global expansion, new innovations and the Internet strategy, it will definitely increase the sales and automatically more profits.
If they follow their strategies and mission, LOreal will be in business for a long time and will find new ways to surprise us.
David, Fred R. Strategic Management: Concept ; Cases. New Jersey: Prentice hall, 1999.
LOreal: The Beauty of Global Branding Business Week. 11 April 2002
Strategy Tip Of The Week. 23 April 2002.
Annual Report 2002. LOreal. 26 Mars 2002 .