L'Oreal Cosmetic Dermatology
L'Oreal's founded by a French chemist Eugène Schueller. Its core activities comprise of the development, manufacturing and marketing of cosmetics and other products related to dermatology. It has broad operations in Asia, Europe and North America. The Cosmetic segment comprises of consumer products, luxury products, professional products and active cosmetics. Broad range of cosmetic products of natural inspiration comes under the category of Body Shop segment. Galderma is used in the manufacturing of Dermatology products. L'Oreal brands include Garnier, Redken, Maybelline, Kerastase, Matrix and Softsheen. The Group acquired SkinEthic and Laboratoire Sanoflore In February and October 2006 respectively.
In my impression L'Oreal has succeeded in capturing the world wide market and positioned itself as the world's largest beauty company through its quality products. For each and every company, mission serves as the guiding tool. L'Oreal's mission is directed towards the promotion of beauty. It has related beauty to fun, which is easily affordable, fulfilling the needs, genuine and also generous. Apart from this, L'Oreal Paris is committed towards the women in terms of empowering them, celebrating their inner beauty. For this activity, L'Oreal Paris recognizes, celebrates and assists women who serve others in their communities. L'Oreal portrays a good image in the minds of stakeholders.
Strategy formulation always begins with the situational analysis; it is the process of analyzing a strategic fit between the opportunities (external) and strength (internal) in concern with the threat (external) and weakness (internal). The acronym SWOT stands for the Strength, Weakness, Opportunities and Threat. This analysis should not only explain the competencies that are distinct but should also provide identification to the opportunities, which company was not able to avail due to lack of resources.
Strength of L'Oreal lies in innovation, Research and development, understanding of consumer needs and wants, distribution channel and financial position. L'Oreal spends heavily on research, which is 3 percent of the revenue. Pudong L'Oreal is the Research Center of the company on the outskirts of the city, which aims to study the properties of Chinese skin, hair and botanical materials that are used in Chinese medicine.
Company gives due attention in identifying the needs and wants of the consumers; it develops the products for example: - company has interviewed 35,000 women a year to study various problems related to hair fall and ageing. Among them, a woman is under the contact to study aging of hair fiber in Shanghai; her hair is about 13 feet long. Strength also lies in its network; it has a huge network of thirteen evaluation centers around the world. These centers look after the issues that deal with problems such as, are there any national differences in primping styles?
Company owes a strong financial position at the end of the fiscal year in December 2004. The Company recorded revenues of E14, 534 million, and an increase of 3.6% over 2003. This increase was due to a growth in the cosmetics and dermatology division. Till today, both these division serve as the major revenue yielding unit. E2115.9 million was the operating profit of the company during fiscal year 2004; an increase of 16.3% over fiscal 2003 has been observed. One of the strengths of the company is that it has the advantage of economies of scale, which means producing goods at lowest minimum cost. L'Oreal has this advantage in packaging and advertising field, which enables it to improve its profit margins. From the last decade, its net profit has doubled every 5 years.
These are the inherent constraints, which are responsible for creating strategic disadvantage. L'Oreal's weaknesses lie in profit margins. Its profit margin is slightly low compared to some of its smaller rivals. Another weakness is that it has decentralized organizational structure; as a result of this, the control over different units becomes difficult. For any business to succeed, coordination plays a vital role due to decentralization it decreases. Other weakness is that of controlling the activities and image in a better way, this problem has aroused due to its operation in global market.
Opportunities always provide a way to strengthen and consolidate the position of organization. L'Oreal itself came with an opportunity as it focused on the segment, which was lucrative. L'Oreal concentrated on skincare, cosmetics, hair-styling and color and perfumes. It is the fastest rising field in the segment of beauty business.
Other opportunity is that the demands of these products are continuously increasing as it is gaining benefit from ageing and affluent populations, which are increasing in numbers in developed countries. In 2000, cosmetic sales were about 27% of the emerging market. Last but not the least; this market has very little impact of the Fluctuations arising in the economy.
A major opportunity that lies with the L'Oreal is that it has registered around 400 patents last year, which will provide the company with greater market share. Many acquisitions have provided it with the opportunity to enter into new markets that too in lower cost.
It is an unfavorable condition, which creates risk for the organization. There is a possibility of monopoly that will restrict it from entering into large mergers. Another threat is that L'Oreal's products are luxuries, which might not be hurt by an economic downturn, although this situation not found in the past.
Another threat is posed by the competitors who might give stiff competition. For example its major rival is Procter & Gamble and Unilever which are battling for $231 billion market of cosmetics.
Competitive advantage is defined as the superior position of the firm in comparison to the competitors. This superiority may arise from the areas like marketing, finance, new launch of the product, better R&D. Competitive advantage serves as a support to the strategy. As a whole, it can be defined as a fit between the company and the strategy. It is difficult to implement the strategy without having competitive advantage.
In other words, through effective strategy a company can gain competitive advantage but by putting these advantages into use company successfully operates its strategy. In order to pursue the opportunities and deflect the threat, a company revolves around its competitive advantage. A factor can be called as competitive advantage only when it influences company's favor. Hence, only strengths do not amount to competitive advantage (Ramaswamy & Namakumari, 2007).
For example, Competitive advantage for L'Oreal is the energy and idea of its people. They have gained competitive advantages due to Customer Value, Better Quality of Products, integrity, improved performance and environment. L'Oreal Group has not restricted itself to only one gender; rather it integrates men and women belonging to different nationality, races, cultures and backgrounds. All are motivated to take part in business and human venture. The group believes in the conviction of the people.
Value chain serves as a tool to identify the ways how value is created by a company. In this, the company can use the process of assessing its competitive position. Value chain comprises of primary activities and secondary activities. The value creation depends not only on, how well the departments are working but also on the coordination between the departments.
Value chain in the cosmetic product:
Difficulty faced by L'Oreal in the late 1990s is a marked languishing of sales and revenues. As a result L'Oreal has to change its supply chain model and rationalize its distribution. After taking the combined measures including acquiring domestic brands, L'Oreal has become a market leader. L'Oreal now has a network of three factories after it has acquired local beauty brands Mininurse and Yue Sai, 3 regional warehouses, two national warehouses, and 394 distributors.
L'Oreal directly delivers its products to 40 clients. Company's transportation mode comprises of rail and Trucks. Opinion behind using the train was that it was safe and less problematic in winter. Opinion behind truck was that it provided the cheapest means of transportation, but the problem associated with the truck is the increasing cost of using roads and delays because of stricter checks. It was found that on distribution, 1.6 percent of L'Oreal China's sales revenue was spent as compared to the 3 percent for the firm worldwide. This shows that its logistics cost is very low because of the efforts of the distributors (Godfrey, 2004, August).
Corporate strategy deals with three key issues; first is the firm's overall orientation, second, the market in which it competes and third, the way in which management caries out its activities and maintains the coordination. It also deals with managing various product lines so as to maximize the value. In this regards corporate head quarters play an important role. Corporate strategy includes flow of financial resources and includes other resources, which form important part of the company's product lines. One of the corporate strategies is directional strategy, which further comprises of three general orientations; these are growth strategy, Stability strategy and retrenchment strategy.
It focuses on increasing the sales and taking the advantage of experience curve in order to reduce cost of product sold per unit. The main growth strategies are concentration and diversification. Concentration means focusing on a profitable product line; this strategy is followed by the growing firms. Diversification strategy is followed by the company when it becomes mature. Two types of diversification strategies are concentrate diversification and conglomerate diversification.
A company may opt for stability by continuing its core activities without any directional change. This strategy is found with small business owners and it is useful only in short run.
When a company has a week competitive position in few or all product lines, it opts for retrenchment strategy.
L'Oreal is focusing on the broadening of existing business portfolio in order maintain its sales records. Its strategic alternatives include an offer to buy the Body Shop; although, there is no formal dialog. Another strategic alternative includes adding value to the shareholders. From the financial point, it is an important move. If L'Oreal buys the Body Shop, it is believed that new growth opportunities are there for the world's largest personal care player along with enhancement in the company's corporate image (Pitman, 2006, February 27).
Godfrey, M. (2004, August). Case study: L'Oreal. Retrieved April 9, 2008, from http://www.sinomedia.net/eurobiz/v200408/event0408.html
Pitman, S. (2006, February 27). L'Oreal eyes cosmetic retail, considered Body Shop buy. Retrieved April 9, 2008, from http://www.cosmeticsdesign-europe.com/news/ng.asp?id=66082-l-oreal-body-shop-acquisition
Ramaswamy, V. S., & Namakumari, S. (2007). Strategic planning formulation of corporate strategy (first revised Ed.). New Delhi: Macmillan India ltd
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