Management Essays – Loreal Cosmetics

Loreal Cosmetics

Introduction

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. Gal derma 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.

Situational Analysis

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.

Strengths

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, 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. 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. One of the strengths of the company is that it has the advantage of economies of scale. 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.

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Weaknesses

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. Due to decentralization coordination between the departments has decreased

Opportunities

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.

Threats

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.

Marketing Objectives

These objectives focus on the customers need and wants. This company makes all the efforts to attract the customers. Products such as, Trix hair styling are designed to create soft illusions effects, which strongly appeals to a younger clientele for this they use promotional packaging which is required to convey this innovative style and differentiate the products from competitors products. Other objective focuses on the innovations, market orientation, and customer orientation.

Strategies

In order maintain its sales records L’Oreal is concentrating on the broadening its existing business portfolio. 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 an enhancement in the company’s corporate image

Financial considerations: under financial consideration company has planned to acquire the 50% hold in Le Club des Createurs de Beaute which is held by 3 Suisses International. L’Oreal and 3 Suisses International jointly created Le Club des Createurs de Beaute in 1987. Another consideration includes the plans of acquiring Body Shop; it is a successful brand with huge potential of growth.

Time table for implementation

Implementation of strategy means the sum of activities and choices required for executing the strategic plans. L’ORÉAL, is a joint stock company having a share capital of 135,212,432 € situated at 14 Rue Royale, 75008 Paris (France). The vice presidents of various sub units and functional areas put together the implementation plans. For the implementation of plans they developed specific strategies and processes for key people including evaluation, reward, selection, performance management and communications.

L’Oreal came out with a winning formula that provides a rising portfolio of international brands. This has transformed the French company into the beauty of United Nations. Blink L’Oreal has presently sold 85 products across the world. For implementing the marketing plans L’Oreal is reaching more and more peoples, who are having bigger range of incomes and cultures. For the implementation of these plans company develops various programs, budgets and procedures. The company separately allocates budgets for all the departments. Its total sales are $2.4 billion ahead of its closest competitor, Unilever.

References

• 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
• Clichy.(2006) . Body Shop Retrieved April 12, 2008 from http://www.loreal-finance.com/bali/eng/060317-com1.asp