loreal resources and capabilities
G003
M0458689105101.pdf
Title：Case Study about Global Strategic Management of L’Oréal
Author(s): 王玉寶、高水玲、吳采芝、阮坤輝、康新慧
Class: 1st year of Department of International Business
Student ID: M0458689、M0414490、M0427674、M0461893、M0561257
Course: Global Strategic Management
Instructor: Dr. 羅芳怡
Department: Department of International Business
Academic Year: Semester 1, 2016-2017
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ABSTRACT
This paper attempts to analyze L’Oréal as a beauty leader and its strategies which made
the company become and remain the largest cosmetics and beauty company. L’Oréal is a
worldwide company and has large shares of market in the most of marketplaces where it
invests, making use of powerful variety of marketing tools and strategies. Exploiting both
traditional and innovative marketing techniques, L’Oréal aims to grown its customer base to
two billion by 2020 while implementing CSR strategies, analyzing their business units by
identifying high-growth prospects according to growth rate and market share and
investigating the strategies that have been used to achieve it.
The evolution of the L’Oréal journey throughout the years shows how the brand
combination within a portfolio is a key factor for company growth and development which is
a crucial phase to understand the company competitive advantage. With the combination of
large amount in capital available and high technical capabilities, L’Oréal 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 corporate level strategies involve horizontal
integration, vertical integration and strategic alliances to build a stronger image in different
geographic markets. The importance of market analysis in all business areas, the corporate
strategies and marketing challenges as they globalize, the importance of understanding the
customer, proper use of resources and capabilities, customizing its products and business
strategies as key points to strive and prosper are being discussed in the paper.
Keyword： L’Oréal, Global Strategy, Global Strategic Management, Globalization, Product
Development, R&D, CSR, Multiculturalism, Global Business, Universalization.
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TABLE OF CONTENT
Abstract .....................................................................................................................................1
Table of Content .....................................................................................................................2
List of Tables ............................................................................................................................3
List of Figures ...........................................................................................................................4
Chapter 1. Introduction ........................................................................................................5
Chapter 2. Corporate Strategy ...........................................................................................11
Chapter 3. Strategy Map .....................................................................................................21
Chapter 4. Industry Analysis ............................................................................................. 33
Chapter 5. Strategy Group ..................................................................................................43
Chapter 6. Analyzing Resources and Capabilities ..............................................................50
Chapter 7. Value Chain Analysis .........................................................................................66
Chapter 8. BCG Matrix Analysis .........................................................................................76
Chapter 9. Outsourcing and Differentiation ....................................................................... 82
Chapter 10. National Diamond Analysis .............................................................................85
Conclusion ..............................................................................................................................92
Reference ..............................................................................................................................93
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LIST OF TABLES
Table 1: Acquired brands of L'Oréal from 1967 – 2015 ....................................................11
Table 2: Resource VRIS ........................................................................................................60
Table 3: Capabilities VRIS ...................................................................................................64
Table 4: Consolidated sales by geographic zone .................................................................79
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LIST OF FIGURES
Figure 1: Business level strategy ...........................................................................................16
Figure 2: Strategy map of L'Oréal .......................................................................................21
Figure 3: Research and Innovation ......................................................................................21
Figure 4: Corporate Social Responsibility ...........................................................................24
Figure 5: Human Resource Management ............................................................................26
Figure 6: Marketing .............................................................................................................28
Figure 7: Finance .................................................................................................................30
Figure 8: Growth of the worldwide cosmetics market from 2006 to 2015 .......................33
Figure 9: Porter Five forces ..................................................................................................34
Figure 10: Bargaining power of suppliers ........................................................................... 35
Figure 11: Bargaining power of new entrants .....................................................................38
Figure 12: Intensity of rivalry ...............................................................................................40
Figure 13: Capabilities and Resources .................................................................................53
Figure 14: Sale of operational divisions ...............................................................................76
Figure 15: Sale breakdown ...................................................................................................77
Figure 16: Sale and growth ...................................................................................................78
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Chapter 1
INTRODUCTION
I. Background of L’Oréal
1.1. Overview
L’Oréal is the world's largest cosmetics company headquartered in France. It’s core
business focuses on manufacturing cosmetics. Their main products are hair colour, hair care,
perfume, skin care and make-up. Dedicated for the beauty for over 100 years, L’Oréal ranks
number 1 in the list of the world’s top cosmetics companies in 2016 by Women Wear’s Daily
Magazine which is a fashion-trade industry journal sometimes called “the bible of fashion”.
L’Oréal annual report has shown that it has the highest sales in 2015 with US$29.94 billion,
followed by Unilever with US$21.66 billion and nearly twice higher than Procter & Gamble.
1.2. History
Founded by Eugène Schueller - a young and creative chemist in 1909, L’Oréal innitially
began with first hair dyes that he himself formulated, produced and offered to hairdressers in
Paris. Since this first step, the founder set up culture that is now typical gene of L’Oréal:
research and innovation in the service of beauty.
Through one century operation, the company experienced four main phases.
1909-1956: The first steps, constructuring a model
Its founder - Eugène Schueller graduated from France’s national chemical engineering
school in 1904 and went on to establish his own enterprise on 30th July 1909 that later
wellknown as L’Oréal .
Thanks to deep knowledge in chemics , Schueller developed his abiity for new ideas and
came out his fitrst hair dye named Oréal which was combination of blended harmless
chemicals. The dye was an outstanding breakthrough at that time, offering a wide range of
colors different to others in the market which commonly used henna or mineral salts so gave
quite artificial look.
In 1925, the company renamed as L’Oréal. Since that time, It has changed consumer’s
daily life much.
1957-1983: Globally expanding through acquistions
This period was formative years of “Le Grand L’Oréal”. At the decision of its former
chairman – Mr. François Dalle, the Group went to internationalization. Its strategy was
acquisitions of other strategic brands, grounding spectacular growth for the Group.
Emblematic products joint in. The company’s motto was “Savoir saisir ce qui commence”
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(seize new opportunities).
Brasil was the prior destination with a direct presence in 1959 which became platform for
the whole of Latin America. The acquisition of Lancôme - a fantastic perfume, skincare and
make-up brand - in 1964 was the first strategic move to become a luxury cosmetics empire.
One year later, purchasing Garnier enabled L’Oréal to own a portfolio of organic haircare
products – a different compliment to haircare. In 1970, by taking over Biotherm, L’Oréal
stepped its research effort to skincare field. Specially, the year 1973 revealed the growth of
the Group in dermatological and dermopharmaceutical activities after its acquired a majority
interest in pharmaceutical company Synthelabo. In 1976, L’Oréal bought mascara brand
Ricils to enter make-up segments. At that time, the agreement with Netsle provided L’Oréal’s
international development in particular markets as Japan to expansion in Asia. In 1983, it set
up an R&D centre focusing on hair care and skincare to tailor its products to the Japanese .
1984-2000: Become number one in the beauty industry
These seventeen years were marked by a great growth, dominated by significant
investments in research. The Group had successfully become the world cosmetics leader
through its global presence of brands owing to numerous strategic acquisitions.
2001-now: Embracing diversity in its global growth
Building a portfolio of powerful and international brands, L’Oréal has enhanced its
competitive advantage by embracing diversity in its global growth agenda. The Group keeps
making new acquisitions to catch global and regional needs. It also undertakes social
responsible initiatives to enjoy sustainable development. Interestingly, the acquisition of The
Body Shop in 2006 marked its encouragement in natural products and against test on animals.
1.3. Key facts and figures
Until now, L’Oréal operates in 140 countries by 82,900 employees. It has about 35,000
patents granted in total and nearly 500 patents newly registered every year. Its strength in
Rerearch and Innovation is recognized in top 20 Diverse and Inclusive companies by
Thomson Reuter in 2016. It has 34 research and evaluation centers, 44 factories and 153
distribution centers worldwide. In 2015, it recorded US$29.94 billion of sales, in which
17.4% acounted for operating profit.
II. Performance of L’Oréal
2.1 A global success
L’Oréal presents in 140 countries on all five continents. While the world was in affection
of global crises, L’Oréal still earned money in all over the countries they opperate and
continued to improve and develop their current capability. In 2015, L’Oréal’ sales in Europe
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growth 2.3% in Western Europe and 9.8% in Eastern Europe while that number in North
America was around 3.5%. Because of good performances in Japan, India, Australia and
Thailand, specially L'Oréal Luxe brand improved in the fourth quarter, its sales went up by
4,7%. 4.6% growth in sales was revealed in Latin America. The highest growth was
particularly in Africa, Middle East with figure of 12.1%. Specifically, Egypt, Pakistan and
Saudi Arabia sales growth reached the top of 20%.
2.2 L’Oreal Mission
Beauty is a language
For over a century, the company has devoted energy and its capacity for an only purpose:
beauty. It is a rich business sense, as it allows all individuals to express their individuality,
get confidence and open up to others.
Beauty is universal
L’Oréal is committed to all the world's women and men to provide the best quality,
efficacy and safety of cosmetics innovation. By satisfying the infinite diversity of beauty
needs and desires around the world
Beauty is a science
Since its inception, the group has been pushing the frontiers of knowledge. Unique
research arm enables it to continuously explore new fields, invent future products, and inspire
beauty rituals from all over the world.
Beauty is a commitment
The company provides access to products that enhance well-being, mobilizing its
innovative strength to preserve the beauty of the planet and supporting local communities.
These are exacting challenges, which are a source of inspiration and creativity for L’Oréal.
Beauty is for all
By leveraging the diversity of its team, as well as the richness and complementarity of its
brand portfolio, L’Oréal has made cosmetic the universalization of its next few years of projects.
2.3 L’Oréal ambition
L'Oréal's ambition is to create more and more people around the world by creating an
unlimited variety of cosmetic products to satisfy their beauty needs and desires.
Beauty for all, beauty for each individual
In L’Oréal, there is no single and unique beauty model, but numerous forms of beauty,
with the period, culture, history and personality linked to attract more women and men to use
our products to contact an extremely diverse population, with Universalization of the
beautiful vision. In our view, universalization does not imply reunification, but instead is
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inspired by the diversity of innovation.
Observing local beauty customs
L’Oréal’s research and innovation team to reshape themselves, to create the world's
diversified cosmetics. In every region of the world, it has set up a research platform, a true
professional center, designed to customize the beauty. These fields of study have created new
products that can be a global success. This is a real turning point in thinking about innovation.
Facilitating access to cosmetics products
In the market undergoing major changes, L’Oréal every year forward, bringing the best
beauty for everyone. With a portfolio of 32 international brands and an organizational structure
based on distribution channels, the company has the ambition to meet the needs of each consumer
according to his or her habits and lifestyles. Therefore, L’Oréal in their own way to promote the
development of the border, and to meet the challenges of more and more innovation.
Accelerating the regionalization of our expertise
In order to win another billionaire in the world is an ambitious project to inspire L’Oréal.
An economic, but also human adventure requires rapid deployment of its forces and
companies in various fields, including research, manufacturing, marketing, sales,
interpersonal and administrative teams to accelerate the transformation. This big project is
also an opportunity for innovation and the establishment of L’Oréal tomorrow.
III. Divisions of L’Oréal
L’Oréal has a strong and long-term brand which is being positioned to consumers across all
income levels by providing a wide range of beauty product. The company wants people around
the world to have easy access to their products that match their desire, lifestyles and beauty needs.
L’Oréal’s segmented its brand into five different Division where each of the brands develops a
specific image of beauty by universal consumption and distribution channels.
L'Oréal has 5 brands and divisions that are detailed below.
3.1 L’Oréal Luxe
L’Oréal Luxe opens a unique world of beauty. Its international brands incarnate all the
phase of elegance and purification in three major specializations: skin care, makeup and
fragrances. This division product is sold in department stores, cosmetics stores, travel retail,
own-brand boutiques and online site.
3.2 L’Oréal Consumer Products
The Consumer Products Division offers the best in accessible cosmetics innovation to a
wide customer around the world and distributed in mass retailing channels.
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3.3 L’Oréal Professional Products
The objective is to be the leader in each professional beauty category: hair care, nail
beauty and skincare and distributed in worldwide salons.
3.4 L’Oréal Active Cosmetics
Highly complementary beauty-health brands supported by professional healthcare
partners and sold in health care channels worldwide including pharmacies, drugstores and etc.
3.5 The Body Shop
The Body Shop using the world’s finest natural ingredients to create a high-quality
product in a sustainable and ethical way.
Consumer Products Division has generated highest sales compare to other brand divisions
and is strengthening its leadership in a dynamic dermo-cosmetics market. L'Oréal Luxe are
also catching up with its growth driven by its cutting-edge innovations. The Professional
Products Division is taking benefits of new plan to boost the professional beauty market, and
continues to improve steadily. Last, the Active Cosmetics Division are doing well by
conquering the health care channels worldwide.
IV. Reasons why we choose L’OREAL as our case
The background of L’Oréal has motivated and inspired us to make deeper research on. It is
obvious that L'Oréal got start from the hair-color business, such a small business with one person
in that time but shortly after, successfully branched out into other cleansing and beauty products.
For over a century L’Oréal has been devoted all energy and competencies to just sole business –
beauty. Nowadays, L'Oréal is such a truly global beauty brand with a large number of
internationally famed products. The beauty of passion of L'Oréal really excites our attention.
The second impression is the unique strategy of L'Oréal – universalization strategy. It is
convinced that there won’t be existed a single and unique model of beauty at L’Oréal, However, it
is an infinite diversity which changed according to the times, cultures, histories, individuals…etc.
The definition for L’Oréal’s strategy is: “Universalization means globalization that respects
differences. Differences are at desires, needs and traditions”. L’Oréal is driven by the vision of
universalization of beauty over the world to catch a larger numbers of male and female and meet
intensive diverse populations. With prosperity of unique and international portfolio of 32
complementary brands on 140 countries, L’Oréal believes to push back the boundaries and meet
every demand of customers according to his or her habit and lifestyle.
Last but not least, Product innovation is a factor that makes L'Oréal to become special. In
order to create cosmetic products which could adapt to the rich diversity of people on over
the world, L’Oréal has have established many Research platforms, veritable centers of
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expertise in the service of a personalized beauty on five continents. They believe that product
innovation ought to meet cultural expectation, it managed to adapt to specific cultural
difference in beauty market on over the world. L'Oréal currently has six worldwide research
and development centers, two in France, One in the U.S. Another in Japan. In 2005, L'Oréal
established one R&D in Shanghai, China, and the final is in India.
“For a Brazilian woman, hair and body are most important, for a Chinese woman facial skin
is the priority, for an Indian woman it’s make-up. Our approach is the ‘universalization’ of beauty,
i.e. globalization without uniformization” explained Jean-Paul Agon – Chairman of L'Oréal.
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Chapter 2
CORPORATE STRATEGY
I. Corporate strategy
1.1. Expand through Acquisition
L’Oréal growth strategy has been carried out both through internal development and
through acquistion of companies already operating in the cosmetics industry. In particular,
external growth by acquisition is part of L’Oréal’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. Purchases 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’Oréal to quickly expand its geographical horizon and develop its
market segments. The actual portfolio of 25 prestigeous brands is the results of a series of
acquisitions that began many year ago, which is described in the table below.
Table 1: Acquired brands of L’Oréal from 1967 - 2015
Year Luxe Consumer
Products
Professional
Products
Active
Cosmetics
The Body
Shop
1967 Lancôme
(France)
Garnier
(France)
1971 Biotherm
(France)
1980 Vichy
(France)
1985 Ralph Lauren
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(the U.S);
Giorgio
Armani (Italy)
1989
La
Roche-Posay
(France)
1993 Redken (the
U.S)
1996 Maybelline
New York
(the U.S)
2000 Kiehl’s
(the U.S)
SoftSheen.Cars
on (the U.S)
Matrix (the
U.S)
2002 Shu Uemura
(Japan)
2005 SkinCeuticals
(the U.S)
2006 The Body
Shop (UK)
2008 Yves Saint
Laurent Beauté
(France)
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2010 Essie
(the U.S)
2011 Clarisonic
(the U.S)
2013 Urban Decay
(the U.S)
2014 NYX
Professional
MakeUp (the
U.S); Magic
Moment
(China)
Decléor
(Japan -
Shiseido);
Carita
(Japan -
Shiseido)
2015 Niely (Brazil)
All acquistion of L’Oréal had been decided strategically. The target firms usually have
ideal characteristics:
- Diversifying products in different geographical markets which L’Oréal is already there
(Redken in the U.S as example);
- Operating in profitable geographical markets in which L’Oréal aims to be leadership
(Magic Moment in China is a good example);
- Offering types of products that completes the portfolio of L’Oréal products or brands
(the American Essie helps L’Oréal complete consumer products by its diverisified nail care
and art products);
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- Having technologies and competences complementary to those of L’Oréal, both on
products and on market segments (La Roche-Posay entered in L’Oréal, thanks to its strong
dermatology research capability).
As a results, these critical acquisitions provide L’Oréal chances to obtain important
objectives. They help the group reach a needed size for exploiting economies of scale not
only in R&D but also in marketing and distribution, therefore enhancing its market share.
New resources, competences and technologies have been quickly acquired thanks to several
purchasing of companies owning series of laboratories. Satisfying local needs is another
advantage of this strategy. Owing to own local companies, L’Oréal easily overcomes entry
barries in some market where cultural obstacles and tariff barriers are presented.
1.2 L’Oréal global strategy
L'Oréal 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 countries and regions with more than 88,900 employees. Its global product portfolio is
represented by 32 global brands, controlling 19,9% of the world's 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'Oréal
Professional) that is used and trusted worldwide throughout high end salons. L’Oréal
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’Oréal chose a unique strategy: the popularity of. This means capturing, understanding
and respecting the globalization of differences. The difference lies in desire, needs and
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traditions, to provide tailor-made beauty, and to satisfy the wishes of consumers around the
world. L’Oréal is driven by the vision of the world.
L’Oréal very powerful design brands / products to meet the regional and national needs.
They have a wide variety of products ranging from make-up, skin care to hair care, attracting
all different types of consumers. They also started men's products, such as Kiehl's men's
fragrance, lotion and shower gel.
They feature famous celebrities such as Beyoncé, Penelope Cruz, and Jennifer Lopez to attract
worldwide attention but also to appeal to a wide range of ethnic consumers. They have also started to
offer products that are all-natural, plant-based, and sensitive or acne-prone skin types.
Based on conditions such as demographic, geographic, socioeconomic, lifestyle /
personality, L’Oréal determines the characteristics of the client so that they can approach best
suited to each audience segment groin
- Demographic: Age, marital status, gender
- Geographic: Global, hemispheric, national, state, city, postal code, climate, rural, urban.
- Socioeconomic Income, class, vocation, education, religion, ethnicity.
- Lifestyle/personality Attitudes/opinions, interest, tastes and preferences.
II. Business Level Strategy
The detail action of Business level strategies is to provide value to customers and gain a co
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
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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:
Figure 1: Business level strategy
In L’Oréal, it is obvious to see that differentiation is the strategy they has chosen over a
century whichever are the divisons. 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’Oréal
only - L’Oréal Paris. The reason why we choose L’Oréal Paris is that it belong to L’Oréal
Consumer product divisions. As we know, L’Oréal’s Consumer product divisions are all
highly sensitive to global economies of scale and scope, it not only reached customers’
demand but also is reponsive to expectation of L’Oréal, 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’Oréal Consumer product divisions are going to apply to achieve
broad target market.
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2.1 Multicultural
Serving diversity type of markets need an adaptation of products, services, and business
models that meet the local country conditions by understanding different type of cultures
and the various needs of consumers in the cultural market area which we can seen in context
of L'Oréal market as well.
The French cosmetics companya indicate this global-local tension which has formed a
portfolio of international brands from many different cultures such as French (L'Oréal Paris,
Garnier, Lancôme), American (Maybelline, Kiehl’s, SoftSheen-Carson), British (The Body
Shop), Italian (Giorgio Armani), and Japanese (Shu Uemura). L'Oréal dedicated
multi-cultural beauty as part of consumer products division.
All L’Oréal products have been spread around the world, inspired by the beauty rituals and
culture. They are not only successful in the place where they originated from but also have go
international, they think the traditional concepts of beauty change as you travel the world.
Beauty is short-term and can be expressed in diverse ways, it is not just an esthetic but
reflects a deep and bold personality. L'Oréal has chosen famous stars with inimitable
charisma that inspire women around the world with their unique style. The incredible careers
and charismatic personality of L’Oréal’s ambassadors appeal in the motto "Because we're
worth it", a powerful message of empowering beauty for the last 40 years. Furthermore, the
market for multicultural beauty is set to become even more diverse, as the growth of
interracial couples creates new dynamics in terms of skin,hair colour and behaviour.
2.2 L’Oréal Paris
L’Oréal Paris is one of the brand of L’Oréal’s parent which encompasses in many field of
beauty business. There are four major beauty categories now, these are hair-colour, cosmetics,
haircare, and skincare. All branches of L’Oréal Paris are really famed and successful. In
hair-color, some renowed brands like Superior Preference® and Couleur Experte® . In
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skincare, these are Revitalift® , Age Perfect® , Men Expert, Sublime Glow, Sublime Bronze,
Excellence et Feria®. L’Oréal Paris Cosmetics are Colour Riche®, True Match™,
Voluminous®, Telescopic®, and Volume Shocking™ mascaras. Hair Expertise™ is the
famous products as talking about Hair-care. With a wide porfolio of products under L’Oréal
Paris brand, the market segment of L’Oréal Paris become larger and larger. In 2015, the sale
percentage of L’Oréal Paris make up at the half the sales of the consumer products SBU.
As the leader of beauty industry over the world, L’Oréal Paris has made an unparalleled
commitment R&D, technology in order to provide piece of groundbreaking innovation, high
quality products for not only femal, male, children but also person of all ages and ethnicities.
L'Oréal Paris has developed from one philosophy: “to innovate and offer top performing
products at great prices to the greatest number of consumers possible”. L’Oréal Paris has
placed executives from combined socio-cultural backgrounds in its activity: new product
diversification and new market development.
2.2.1 New product diversification
With the mission is to make these scientific innovations accessible to all. L'Oréal Paris
believe offering opportunity the whole world for improving their well-being and self-worth.
Keep up with the lastest beauty fashion trend, L'Oréal Paris work really hard to offer a wide
range of new products which gain high ranking from all type of customers in 2016 from
skincare, haircare to makeup. For example, three kind of clay mask with main ingredient
(Kaolin), a most common ingredient could remove oil and dirt quite well without stripping
the skin. A full set of L'Oréal Paris Extraordinary Clay hair care including shampoo,
conditioner and mask with 30% mineral clay, which is believed to absorb excess oil and
purify the hair right after, providing long-lasting freshness. In addition, L'Oréal Paris seem to
the first drugstore brands that spotlight the first make-up for hair, . “Root cover up” – a
temporary root touch up spray, quickly cover gray hair.
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However, the most successful for L'Oréal Paris in 2016 is broght from make-up “L'Oréal
true match foundation” with 23 shades. It is believed to bring the best beuaty to every women
all over the world, no matter what their ethnicity or background. To celebrate this products,
L’Oreal Paris has launched the #YoursTruly True Match campaign, which share the diversity
stories behind the relationship of True Match. Discovering 23 influential individuals stories
of what diversity and finding what perfect shade truly express one’s esteem. In addition, the
“Youth truly campaign” is not target for women, is aim for man as well. L’Oréal Paris is the
first cosmetic company who is featuring a man as a mass market cosmetics. With the slogan
“ because we’re worth it”, L'Oréal Paris desire to create beauty product which can be used by
all, they fancy to bring beauty to as many people as possible, no matter their genders are.
2.2.2 New Market development
For developing new market, in 2015, L’Oréal Paris focuses on developing China. Many
products were sold in China from skincare, hair care to make-up, not only for female but also for
male. “Facial skin is the most important for Chinese women” Understanding the culture of this
countries, L'Oréal Paris researchers have latched onto cosmetic waters in vogue. This routine has
recently emerged in China which was inspired by Japanese, and have thus offered a unique and
special innovative texture for skincare products is necessary. For make-up, Chinese girls are
likely to be surfing on cushion as well as all in one liquid trend. In addition, L'Oréal has launched
an app, named Makeup Genius, to let women virtually try on make-up with many styles. This app
is really successful attracting 4.7 million over total 14 million downloads.
Furthermore, China where is becoming one of the giants of global e-commerce with greatly
influential by social networking site. L’Oréal Paris has quickly to follow and take advantage of
the kind of this platform, built up the first international brand on T-mall and some powerful
online selling website of China. In 2015, L’Oréal Paris was voted as the first foreign and
successful brand in China. Currently, China has become the second larger market in sale
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generation, behind the United States yet before France.
III. Functional Strategy - Operational
L’Oréal’s operational decisions are guided by some overall strategic considerations, such as
distributing around the globe headquarters, production sites, evaluation centers and research centers.
Nowadays it consists of:
- 5 Hubs – USA, Japan, Brazil, China, India and world center.
- 23 – Research Centers
- 16 – Evaluation Centers
- 49 – Scientific and Technico-regulatory departments
Managing operations on the universalization strategy is based on a specific industrial policy,
arranged by regions in order to stay close to markets, and make the most of all opportunities faster.
Each headquarter has its own marketing, human resources, financial department, etc. Even
though these departments have their own local strategies they all follow guidelines. Operations at
L’Oréal cover seven different fields: purchasing, production, quality, environment-health & safety,
supply chain, packaging & development, and real estate. L’Oréal has a tactical plan towards to
improving and opening new factories and hubs to facilitate the distribution of products and be
closer to the markets.
Since 2010 they are implementing a “wall to wall” approach. This tactical plan is based on
including a packaging production unit on-site in order to reduce the time between production and
preparation of orders. It also increases the productivity and the flexibility of the factories. L’Oréal
has been expanding geographically open new markets, accordingly to the corporative strategy of
globalization. Along the years L’Oréal has started important changes related to the way the
company operates, focusing on streamlining, simplifying and making business more efficient. The
business has been through continuously industrial re-engineering in all areas, focused in optimize its
operations and increase productivity. The long-term goal is to consolidate growth around globe
while establishing strong and sustainable growth in the new markets.
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Chapter 3
STRATEGIC MAP
L'Oréal’s mission is to provide beauty for all. To take it in practical, a strategic map is
very crucial to clarify what tasks to do to reach a particular goal. L'Oréal’s strategic map is
centered by mission BEAUTY FOR ALL and five dimensions circulated to help the Group
achieve its mission. The five dimensions are: research & innovation, corporate social
responsibility, human resource management, marketing and finance management. What
L'Oréal does in each dimension are described as followed.
Figure 2: Strategy map of L'Oréal
I. Research and Innovation
Figure 3: Research and Innovation
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For 100 years, L'Oréal has built its unique research model to response to the world’s
vastly diverse beauty expectation. It believes only strong cosmetics research can generate
products that provide apparent and sustainable results. Its research & innovation model is
organized to three major pillars with main function as follow:
- Advanced Research: to enrich knowledge and discover new active ingredients for all
kind of product lines;
- Applied Research: to develop new effective formulations from vast collection of
ingredients;
- Development Research: to tailor formulations adapted to particular brands identities and
consumer expectations.
1.1 Assets for innovation
To keep staying ahead of the world market and bring cosmetic innovations to everyone, L'Oréal
builds three precious assets: a unique collection of effectively active ingredients and formulation
which is constructed by Advanced and Applied Research; huge amount of experts in cosmetics
industry and expertise in evaluation which is indispensable for convincing new products to the market
by demonstrating their safety and effectiveness scientifically and rigorously.
1.2 Research that listens to customers
L'Oréal is founded on not only scientific research but also attentive listening to consumers
from all walks of life and observation of their behavior to beauty.
By strengthening its global presence through the six regional poles - Europe, Brazil, the
U.S., India, China and Japan - L'Oréal's Research and Innovation can step closer to its major
customers and enrich its beauty concepts of each region. The research teams build partnerships
with local experts to discover new territories. To be clearer, L'Oréal develops 19 research and
innovation centers located in 6 poles all over the world. The European pole majors Advanced
Research, covering 3 global centers for each of the 3 lines of business – skin, hair care and
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make-up. Other poles are in the U.S., China, Japan, Brazil and India. Mission of these poles is
to tailor the global strategy to specific features of their markets. They are not only there to
invent new products that later may become global innovations; but also observe and listen to
local consumers in partnership with 16 evaluation centers. In the evaluation centers, "bathroom
laboratories" which are equipped with several cameras support local teams to explore consumer
behavior all around the world. These teams also go to customers houses to meet them,
interview and gather information. Besides, importantly, compliance of L'Oréal global products
with local regulations is another crucial role of these teams.
1.3 Advance technology to support research teams
L’Oréal provides scientists powerful means to take advantage of their creativity. They
typically have medical imagery technology, intelligent robots and even 3D modeling. Thanks
to medical imagery, the L'Oréal researchers are able to collect information in real time and
three-dimensional images inside human skin, including thickness, structures’ variety and
composition till micro level. This is a modern means of assessing effectiveness of active
ingredients and formulas in the epidermis up to the upper dermis. Automatic robots are now
working alongside scientists to help them doing routine tasks, following by saving a lot of
time and giving freedom to their creativity. Interestingly, success development of an
energizing model of a head of hair assists researchers to hypothesis aggression of hair lines
being wet, cut, or grown with a real challenge.
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II. Corporate Social Responsibility
Figure 4: Corporate Social Responsibility
Inherent in its mission of providing beauty and personal care products is L’Oréal’s
responsibility towards its consumers, partners, employees and other stakeholders.
Sharing growth is part of the main topics underlying L'Oréal's commitment to its community.
Especially, it means that the group pays a lot of attention to its surrounding communities, by
creating helpful projects that meet real social needs and are aligned with L'Oréal's activities.
The Group has also developed a remarkable platform of predictive strategies that allows
them to identify new ingredients or new innovations to constantly enhance our products’
safety as well as their performance. In addition to this, their practice of listening to our
consumers or other stakeholders helps them to understand their concerns and to consider
these also when deciding to reduce or to remove certain ingredients.
L’Oréal developed a sustainability program to explore their 2020 objectives,
commitments and concrete achievements. The program explores four pillars Innovating,
Producing, Living and Developing. Some of actions include:
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Enhance biodegradability and reduce the water footprint in order to minimize the
environmental impact of formulas, and thus have a better environmental footprint of their
products. Amid the products launched in 2015, some show biodegradability levels between
97% and 99% in the L’Oréal Group’s brands.
The Water Footprint Network explains water footprint through a ‘‘virtual water’’ concept,
which identifies the quantity of water necessary for the production and use of a product. It
incorporates two key parameters that mirror the environmental quality of raw materials,
biodegradability and aquatic eco-toxicity.
By 2020, L’Oréal aims that 100% of their new products will have a better environmental
or social profile while the consumer will experience better benefits, and better packaging
solutions is really important to achieve this goal.
In 2007, L’Oréal started a responsible packaging policy with three important pillars:
Respect, Reduce and Replace.
Having better packaging solutions relies on responsible sourcing of the materials used.
Especially, using resources from sustainably managed and preserve biodiversity. Likewise,
L’Oréal aims to completely stop using PVC in its packaging by 2016.
L’Oréal’s approach is built upon three pillars:
- Using renewable and raw materials.
- Creating eco-friendly processes.
- Creating ingredients with favorable environmental characteristics. Eco-design helps
improve the formulas’, particularly by improving their biodegradability and reducing the
water footprint.
Achieving zero deforestation is another crucial commitment. As part of its commitment to
zero deforestation, L’Oréal puts in practice action plans to make sure a sustainable supply of soya
oil, palm oil and wood-fibre based so that none of its products is related with deforestation.
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Final, but not last, is respecting biodiversity. By 2020, 100% of their new products will have better
environmental or social characteristics. To achieve this goal, the Group prefers to use renewable raw
materials sourced from sustainable supply chains or processed using Green chemistry.
III. Human Resource (HR) Management
Figure 5: Human Resource Management
L’Oréal’s quest for universality has profoundly changed the challenges and lives of the group
around the world, while developing a positive strategy for recruiting international talent. Their HR
policies focus on two areas: exploring talented individuals, diversity in all, being able to manage the
markets around the world today and tomorrow, but also ensuring that talent can be expressed in a
collective framework that provides them with respect, Incentives and career development
possibilities. This is a key point because economic success and best social performance must go
hand in hand. They have a responsibility to put their values into practice and to create a working
environment based on respect, solidarity and recognition of individual values.
L’Oréal’s human resources management strategy can be classified as: the diversification of
management as the company's core values, global recruitment strategies, investment resources
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and training programs. Because their ethical principles shape their culture, strengthen our
reputation, and must be recognized and recognized by all honest L’Oréal staff - to act in good
faith is essential to building and maintaining trust and good relationships, respecting their Work
on many people's lives, courage ethical issues and transparency to be true, sincere, able to prove
our actions and decisions. For their culture, they accept up to 50 graduates per intake, as well as
more than 140 interns and placement. They are looking for innovative, socially competent
entrepreneurs who will invest in our culture and make incredible new bonds, support each other
inside and outside the office, and discover active social life in L’Oréal as their sports team, Dance
classes and fantastic event planning. Their goal is to make L'Oréal a great place in which to work
and treat their employees is the greatest asset. Employees have a right to a safe and healthy
working environment in which individual talent and merit are recognized, diversity is valued,
respect for privacy is maintained, and the balance between professional and personal life is
balanced. They provide employees with an exciting environment, exciting personal opportunities
and a changing opportunity to encourage openness, courage, generosity and respect for the
atmosphere so that all employees are free to raise their questions, thoughts and concerns. For their
global recruitment strategy, they unified brands across all sites in the countries they operate in.
Each site's work section lists available positions in the country, with only a few links to the
relevant social networks. Their work site links to Facebook pages, LinkedIn pages, Twitter feeds
and YouTube. In order to ensure that employees in the earliest stages of career exposure to staff,
L’Oréal decided to establish a formal entry plan. L’Oréal organized "FIT Week" activities, held a
series of meetings for all employees. At the same time, it is widely publicized via e-mail, intranet,
posters and contests. New recruits or persons transferred from another country or department are
automatically enrolled in Level 6 courses. At least five days before their arrival, the HR
department ensures login details, e-mails and phone calls are in place, and a desk and security
pass is ready, as well as a product "goodies package". On their first day, the new arrival coincides
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with human resources and their line manager. They are shown to their desk, introduced to the
team, and then spent time with their HR manager, who explains how FIT plans to work. There is
a team lunch, and they are assigned a mentor who is in this role for at least the first year. In the
next two weeks, new employees meet with other employees from the company - whether it be
marketing, health and safety, or product planning. In the first month, they and the human
resources department to review, follow-up on a regular basis.
IV. Marketing
Figure 6: Marketing
L'Oréal had success so far in reaching out to the diverse needs of customers from different countries
around the world, across different income level, cultural patterns and offering them products that worth
every penny. L’Oréal sold its product based on the fundamental of customer demand in a country rather
than selling identic type of products across the globe. The company build a large number of brands adapted
to local culture and attracted to different market segment instead of generalizing the brand. L'Oréal went on
not only being a local product but also doing well in international market. Below several marketing
strategies that L'Oréal use to sold their beauty products across the world.
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4.1 Digital Marketing
At the forefront of the digital revolution, L’Oréal is constantly looking for new ways to
connect with consumers. From innovative e-commerce strategies to cutting-edge apps, they are
leading the way into a new era of beauty. The digital strategy adds value to L’Oréal innovations
by catching up to latest trends via Internet monitoring, introducing the new cutting edges mobile
apps called Makeup Genius and creates an even closer relationship with consumers through their
well-known brand ambassadors with millions of fans following them on social networks.
Social media is crucial to driving engagement and affinity for marketing. L’Oréal’s social
media presence is impressive. Being present where your customers are, being part of the
wider conversation and playing a part in the evolving consumer journey are the key element
in the use of social media for business purposes.
From E-commerce side, L’Oréal had great potential in its distribution channel, thanks to a
strategy tailored to the specifics and different practices of each market. They also set up an
online shopping to enhance customers online shopping experience.
4.2 Content Marketing
The beauty category is a perfect for content marketing where most of women do blogging
and following influential beauty expert through those platforms which give brands the
opportunity to teach and entertain consumers in an authentic way. In 2011 L’Oréal launch a
website called Makeup.com, providing beauty hacks, tutorial video and expert tips daily in a
unique design. L’Oréal used to partner with YouTube influencers, beauty bloggers which allows
the brand to reach an elusive audience, the essential key to increasing company growth. When
combined with product recommendations from L’Oréal’s brand, the result is not too obvious
which made it that looks relevant without overselling it to customers.
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4.3 Collaboration
L’Oréal had done many campaign with well-known celebrities, partner with famous
designer in launching new product lines and fashion shows. By doing this kind of
collaborations had make L’Oréal brands getting more popular and known worldwide, fashion
designers may get all the attention during fashion week but beauty brands also play a
significant role from makeup to professional hair style which presented during a catwalk soon
consumers will start to look up for the products that being use in the models.
For the campaign, a beautiful campaign built of the raw insight of the everyday struggle of
women of color. Beauty does not apply to only single face shape but there’s a lot different face
shape all over the world. The problem that we have in the beauty industry is the lack of makeup
shades variety. L’Oréal Paris finally introducing the solutions through its new campaign for
the True Match Super Blendable Foundation, this campaign aims to highlight that there is a
perfect foundation shade that fit each person, regardless of what your skin tone is.
V. Finance
Figure 7: Finance
Together with the business units, the finance and management control are key important part
for L’Oréal’s performance, making valuable contribution to its dynamics of growth. Finance and
Management control has some grass-root functions, such as the teams directly contact with the
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business units to provide accurate information for their need, and also help draw up appropriate
predicts and recommendations. There are three kind of financial strategic management in L’Oréal.
Those are corporate finance, finance management and business control, and internal audit.
5.1 Corporate Finance
Accounting and treasury have a major part for L’Oréal acquisition globally. With security
and reliability, the main mission is to provide relevant information on accounts and financial file
for entity in together will local regulatory timeline.
In close collaboration with other business and the internal audit, the accounting teams have to
ensure that procedure and accounting standard must be properly applied. For instance, they have to
modify the organization operation pursuant to the changes in accounting or tax law and regulation
both at national or multinational level.
The treasury teams appraise the cash-flow and currency exposure throughout the fiscal year.
They also manage banking relationship, focused more on security and some payment method to
ensure L’Oréal correctly applied.
Simply speaking, corporate finance is overall L’Oréal financial consolidation. They analyze
and interact with other division, reporting their activities directly to Paris headquarters.
Other corporate finance functions include:
- Financial communication: the task is to provide the annual Report, the L’Oréal Finance
digital magazine, the Letter to Shareholders, digests and newsletters. Their activities mainly
involved in publication
- Brand/ Commercial Finance: it used to analyze, manage with interaction with different
functional department like Marketing, Sales, Operations, and Purchasing
- Operation Finance: their activities are to provide financial analysis and strategic support
for all production and distribution from manufacturing, supply chain to corporate operation.
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5.2 Finance management and business control
Here are the “financial eye” of each subsidiary of L’Oréal. They analyze, plan and control the
way which the revenue is generated. They also help to make the right investment decisions and
profitable evaluation and prediction. There are some functions which are divided in finance
management and business control
- Junior Controller: The purpose is to participate in the budget planning and make forecasts
for brands or SBUs. Within high responsibility, it is required to check expenditure allocation and
help optimize costs. The contribution of Junior controller for business is offering monthly reports,
being involved in the main strategy.
- Business Unit or Plant Controller: It is also responsible for budgets drawing, but for
higher level than Junior controller. Besides that, accounts checking, cash flow, expenditure
allocation are another task of them. They help to manage all resource and expense to make sure
the optimize for each investment.
- Country Chief Finance Officer: It ensures the economic scale and balance by managing
different functions from management, account, finance, legal and tax for whole countries in
which subsidiary is located.
5.3 Internal audit
Obviously, the mission of internal audit teams is to ensure that all regulations standards and
internal controlled methods are properly applied. It is need to assess and timely assist
management teams by carrying out audits, recommendation and implementation. Their
identification and risk assessment may affect L’Oréal’s operation for not only subsidiaries but
also divisions and whole L’Oréal. The Internal audit teams must deal with a wide range of
problems such as commercial policy, logistics, stocks, cash flow, purchases, accounts, etc.
Sometime they also need to work with accounting approaches or audit systems to make sure
providing the excellent opportunities and financial exposure.
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Chapter 4:
INDUSTRY ANALYSIS
The field business of L'Oréal group is mainly in cosmetic industry, which has grown over
the past few decades to become a billion-dollar industry nowadays. However, there are
certain factors which affect the profitability of cosmetic industry. These are bargaining power
of customers and suppliers, threat of new entry, the threat of substitutes as well as intensity of
rivalry in the industry. In this report, we will briefly analyze those factors by using Porter
Five forces analysis. Before analyzing the five forces, it is better to understand cosmetic
industry, the growth rate, market share, the structure of market in general.
I. Cosmetic industry
The cosmetic industry is such a highly competitive and timely changing market due to
consumer preferences and industry trends. These products are facing, and will continue to
face, with competition of consumer recognition and market share. The graph below illustrates
the growth of global cosmetics market, estimated annual growth rate, as %.
Obviously, the worldwide cosmetics market has been slightly stable over the past five
years, pushing up the total market value from €127 billion in 2005 to reach the peak at €203
billion in 2015. The latest growth number, estimated for 2015, grew by an estimated 3.9%.
Figure 8: Growth of the worldwide cosmetics market from 2006 to 2015
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There was a considerably slowdown at 2.9%% and 1% respectively in the financial crisis
years of 2008 and 2009 only.
In conclusion, the whole market in general, is a particularly robust market. The value of
product is adaptable of consumer preference, it changes over and over. The cosmetics
consumer always seeks for quality and novelty value with leading-edge technology and new
trends.
One the other hand, notably, it must be admitted that cosmetic industry is large market
which has high entry costs. It is such a dynamic industry yet requires huge investments in
research and development to meet client needs. Furthermore, although it is competition
market, however, all competitors are rather intensive. Those are large and famous
manufactures such as The L'Oréal Group, The Procter & Gamble Company, Unilever,
Shiseido Company, Limited and Estée Lauder Companies, Inc.
Further analysis with respect to the Porter Five forces will be undertaken below.
Figure 9: Porter Five forces
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II. Number of suppliers
Figure 10: Bargaining power of suppliers
L'Oréal works with several hundreds of suppliers world-wide whom it has long and close
relationships with. Suppliers for L'Oréal are varied in four main domains: raw material,
packaging material, contract manufacturing and machinery. The Group has selected them on
their sensitivity to create new things, ability to deliver service on time and a bunch of
standard including flashpoint of their supplied ingredients. All suppliers are regularly
assessed based on key performance indicators: quality, efficient logistics, social and
environmental responsibility, innovation, competitiveness.
In general, in cosmetics business, there are hundreds of suppliers but a few giant
customers dominating market (L'Oréal, Unilever, P&G, Shiseido and Estée Lauder), leading
to weak bargaining power of supplier. Moreover, because L'Oréal is the biggest cosmetics
company, its suppliers are put in very weak negotiating position.
2.1 Cost of switching suppliers
Having an enormous account of suppliers always available for 44 factories around the
world provides L'Oréal easy way to switch from one supplier to another if anyone of their
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suppliers does not satisfy its conditions.
2.2 Unique/differentiated products of suppliers
Mass production in giant factories of L'Oréal needs standardize inputs. Therefore, L'Oréal
issues a strict regulation to their supplier to follow. Let’s take renewably sourced raw materials as
an example. L’Oréal has been engaged since 2005 in principles from the Convention on
Biological Diversity to no longer reference products with an unfriendly environmental source.
Therefore, a series of actions were implemented to its partners to guarantee they also follow all of
these principles. The Group provides them what it wants to have on the environmental profile of
the purchased materials. Same approach is taken with packaging and equipment suppliers.
L'Oréal strongly supports its suppliers in reaching its expectations, also restrict give an
end to relationship with suppliers who persistently lose track. Therefore, products of suppliers
are generally hard to differentiate
2.3 Ability to forward intergrated in to focal industry
Many of L'Oréal’s products are sold through retail channels, such as department stores or
supermarkets, drug stores. It makes close and long lasting relationships with these chains to
prevent any potential threats as supplier’s upgrade to producers and sell their new but
alternative products in the market.
With these factors, the bargaining powers of suppliers can be considered very low.
III. Bargaining power of buyers - low
Customer profile of L’Oréal
Age 16 to 60 years’ old
Middle to upper class
Higher education and cultural knowledge
Higher income level
Influence on the world in general
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Man and woman, the majority of women
Have leisure time
Is critical, and informed consumer
Not afraid to complain, not tolerant of mistakes and failures in products
The customer is the company's main source of income. However, it is possible for buyers
to switch between competing products / services, which gives them the power to bargain for
price, quality, availability of information and place of purchase. Buyers' bargaining power
depends largely on the degree of market competition and the number of alternative products.
Buyers' ability may be high when buyers focus on the ratio of firm concentration, dependence
on existing distribution channels, buyer information availability, buyer price sensitivity, and
differential advantage (uniqueness) Home switching costs. The customer's bargaining power
analyzes the impact of consumer price changes on the beauty industry. This factor analyzes
the power of consumers to manipulate price changes caused by changes in demand (Aaker,
2000: 102-120). When consumers have high bargaining power, manufacturers and sellers
may not be able to fully predict the future needs of the market. This may prevent them from
achieving long-term profitability due to unpredictable demand patterns.
The power of the consumer to the company is growing, because the accessibility of the
company's information is growing. However, L’Oréal is considered a high-end and high-tech
industry leader, guiding demand rather than follow. Purchases are quite low, so suppliers have a
high level of product quality and differentiation. Because of the high price (luxury), do not need
a lot of buyers. Incentives for higher quality products and products with a strong brand identity
make L’Oréal and luxury cosmetics industry, consumer bargaining power is relatively low.
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IV. Threat of new entrants
Figure 11: Bargaining power of new entrants
The strength of the L’Oréal brand amongst new entrants relies on the offer of a vast gamma of
products for different segments and the benefit from economies of scale for its production.
In the cosmetic industry, brand identity and product differentiation is very high. Also, a high
capital is required for investments in R&D to create new products. As well as it needs high
investment in product testing, and advertising.
Only a few middle and small-scale firms have access to the funds and expertise required to
perform this effectively and new entrants might encounter challenges positioning their products
on the shelves due to the high control of the distribution channels, and having to deal with
government policies and regulations that continue to get stricter in the cosmetic industry, creating
capital and social barriers.
It also needs to be considered the switching cost, which apparently doesn’t seem high.
However, consumers develop a trust relationship with brands and might not want to take the risk
of trying a new product and being allergic to it.
In conclusion, the threat of new entrants is fairly low because there are big players in the
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global cosmetics market that have the power to create barriers to entry. In spite of that, visionary
new entrants can dedicate their products to markets that aren’t fully explored, for example
products dedicated to vegans and celiac allergy.
V. Threat of substitutes
It is rather less potential for products substitution. L’Oréal is a big beauty company that had
many diversifications for its beauty products which divide into different type of product divisions.
Their products ranging from cosmetics, skin care and down to hair care products. Honestly, it is
complicated to find substitute product of L’Oréal products in beauty market business. The only
substitute that believe might become a replacement for the products called cosmetics surgery.
Most women feel that wearing makeup does make them feel more secure and confident
where it remarkably affects the way people view themselves and how they feel about their
own looks. When you feel lack of self-confidence to go out without putting makeup then it’s
supposed to be a problem that should not be ignore further.
The concept of cosmetic surgery has finally gained the popularity that it has now
especially among its takers in this modern world. There’s a lot of cosmetic surgeries like
embroidery eyebrow, eyeliner tattoo, lips filler and so on, by getting those surgeries women
think it help them save a lot of times and pure utter laziness.
Yet, it remains as one among the many interesting and controversial issues discussed in
beauty industry. The cost of surgery is very expensive and considering side effects that might
happens, customers are unlikely to get cosmetics surgery. Still, the rise of cosmetics surgery
considers to be a threat to L’Oréal.
Another potential substitute called ‘no makeup’ or so called natural looks. Those who was
born with natural and fair skin might not need to put on makeup cause somehow, they already
good without makeup.
The threat of substitution that appeal in an industry will affects the competitive
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environment within the company in the same industry and will drive company ability to
achieve greater profit because consumers can choose to purchase the substitute products
which offer almost equal standard. In conclusion, due to L’Oréal wide variety of products
that covers most of the beauty lines the potential of substitute products considers low.
VI. Intensity of rivalry in industry
Figure 12: Intensity of rivalry
6.1 Concentration
The cosmetic market is highly concentrated with most major key players The L'Oréal
Group, The Procter & Gamble Company, Unilever, Shiseido Company, Limited and Estée
Lauder Companies, Inc., being mentioned in cosmetic industry part. Those are large
multinational companies with great facilities, finance, capital…, resulting in high fixed cost on
manufacturing and high competition on price.
In conclusion, the degree of rivalry’s concentration must be assessed as high due to the
elevated level of competition.
6.2 Industry growth
The industry growth rate is considered relatively high. This is because, consumers are aware of the
necessary and important of cosmetic, especially for their self-esteem and confidence.
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6.3 Exit barriers
Barriers to exit which included the high fixed cost for development and research,
manufacturing… so forth. There are a large number of machines and equipment which used for
researching and developing cosmetic products. Due to the high investments, it is really difficult
for firms to leave the industry without achieving, at least the ROA (return on assets).
6.4 Diversity and Product differentiation
L’Oréal has a strong and long-term brand which is being positioned to consumers across all
income levels by providing a wide range of beauty product. The competitive advantage of
L’Oréal is diversity and product differentiation. This is because L’Oréal has strong marketing
abilities and product engineering. They also have strong capacity in research from basic to
advance level, reputation for quality and technological advance, long history and strong
cooperation of channels. However, for perfume industry, it is quite difficult for L’Oréal to
position and differentiate itself from competitors.
VII. Conclusion
In summary, based on some analysis above, it can be concluded that the intensity of rivalry in
cosmetics industry is extremely high to medium.
All in all, the impact of Porter Five forces on L'Oréal has also been discussed thoroughly. It is
shown that L'Oréal has low threat of suppliers, substitutes, new entrants and customers bargain
power and high competitive rivalry. Those factors create for L'Oréal a great amount of
opportunities and threats.
As analyzing above, global cosmetic industry is robust market with high profitability, lucrative
as well as competitions. L'Oréal should be able to vindicate their position, predict the change in
market segment in order to become a pioneer who seizes profitability of industry. There are three
major trends underpinned the growth worldwide of cosmetics market nowadays. The first one is
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the expansion driven by digital communications, next is the high-end channels, and final one is the
increase of the middle classes in the New Markets, in which more and more consumers are looking
for innovative, high-quality products. By focusing on these tendencies, L'Oréal could ensure that
they will definitely achieve a market segment, develop customer loyalty and long-term
profitability over the years. Particularly, defeat industry rivalries.
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Chapter 5:
STRATEGY GROUP
I. Variables identification
Beauty is a diverse market that has a wide range of products, it offers from hair products
to skin care cosmetics and make up. Cosmetic buyers are viable prospects for marketers as
women today are constantly being reminded of what is considered beautiful. Cosmetic buyers
are as diverse as the products they buy since we all have different preferences
while making purchase decisions.
When it comes to product selection, aside from choosing brands the most used parameters
are age, divided by teenagers (below 18 years old), young adults (19 – 34 years old), adults
(35 – 49 years old) and mature (above 50 years old) then price range was divided by low,
medium and high.
The cosmetics brands were categorized in three categories, each one of them having six
different brands as showed below:
High End: Cle De Peau, Chanel, YSL, Dior, Lancôme, NARS
Mid End: Shiseido, Make Up Forever, Smash Box, MAC, Clinique, Benefit
Low End: L’Oréal Paris, Maybelline, Cover Girl, Avon, Revlon E.L.F
Teenagers consider makeup really exciting when they first start wearing it, probably
because it is something they haven't been allowed to wear before or had the opportunity to try
it, which stimulates them to buy and try it themselves, starting with light makeup such as
lip-gloss, mascara and progressing further. For example, America has seen a sharp upswing
in marketing geared to teens since the 1980s, indicating their significant buying power. The
use of beauty products by teenage girls circulates over $9 billion dollars a year. The money
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for buying these products is provided by parents, but also by summer and part-time jobs.
Young adults’ usage in cosmetics is driven by self-conscious, feels insecure or as if
something is missing from their faces and the desire to keep up with trends where celebrity
idols have a given certain amount of influence in this group as they tend to trying their
favorite idol looks.
Adults’ consumption is based on their desire for maturity and flawless complexion looks,
creating the illusion of fair skin while trying to punch up the looks without being garish.
For the mature category is about choosing the colors judiciously, keeping their skin
healthy and enhancing the strength points of their appearance. Cosmetics believe to equate a
part of women self-worth with how they look on the outside and how much makeup is able to
improve their appearances.
When it comes to beauty, in general, price plays a tricky role. Most of makeup consumers
search for items that can help to build up their self-esteem and are willing to pay more money
for it either because the product promises a special result or because an influencer wears it, at
the end it all comes to feeling confident.
II. Clusters Identification
Following the identification of the parameters and brands positioned, seven clusters were
identified. The seven clusters are as shown below:
- The Premium cluster: is composed of brands that focus on women in a mature stage of
their lives that look for products with high quality and affordable price. The respective brands
included in this group are: Dior, Lancôme, YSL and Chanel.
- The Luxury cluster: involves brands connected to desire and not easily accessible. Those
brands are focused on women at young adult ages that are successful and use brands to reflect
or emblazon it. This cluster included only one brand: Cle De Peau.
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- The Essentials cluster comprises brands that are focused on affordable makeup essentials.
The respective brands included in this group are: L’Oréal Paris, Avon, E.L.F, Maybelline,
REVLON and Cover Girl.
- The Trendy cluster is composed by brands connected with fashion tendencies and due to
the volatility of it these brands are often launching new products and exploring new ways of
getting in touch with their consumers online. The respective brands included in this group are:
Makeup Forever, Benefit, NARS and Smash Box.
- The Cosmeceuticals cluster is composed by brands that bring up the non-aesthetic benefits
of the products. The respective brands included in this group are: Shiseido and Clinique.
- The PRO cluster includes only one brand, MAC, that doesn’t fit perfectly to others
clusters due to its strong reference as a quality brand and fairly accessible price and
purchasing access compared to brands with the same reputation.
III. Internal competition among clusters
Beauty industry now is a growing and potential market that particularly robust in
make-up market which is steadily expanding. It is obvious that make-up market is dynamic
and intense competitive market.
Traditionally speak, as we know “Essential cluster” with its low-end brands aim to
celebrate uniqueness and specialty about each individual consumer to help them reach their
own beautiful potential. The cluster comprised of teenager and trendy young females with
low income or someone who don’t want to pay so much money on makeup. Those brands are
quite common and can be easily found anywhere, for example, drugstores, discount store,
supermarkets or cosmetic specialty stores… to name but a few. Inexpensive and suitable for
all women around globe are the characteristic of this clusters.
The Premium and Luxury cluster, high-end makeup brands that targeted high income woman,
who loves to spend a great amount of money on beauty products. Up to some extent high price is
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the indication of good quality. Many of them think that if they pay higher price they get durable
and best quality products. They often think that “drug store” brands, the brands in essential
cluster is not long-lasting, ineffective and easily causing irritation, redness… so on.
Comparison with essential, premium and luxury clusters seems to the big debate that is
always going on when women (young adults and adults) talk about make-up, they seem to
have pretty strong opinions about it. Some only buy in “essential cluster” and often think that
“premium and luxury cluster” is a waste of money, which consumers are paying for the nice
package only when a drugstore dupe would work as well. Others are reversed, because they
stated that “you get what you pay for”.
Among them, there are still lots of woman who don’t really care about the price. For them,
price is not the difference between expensive and cheap definition. They have to be faced
with more options when buying makeup, sometimes expensive makeup maybe not the best
option. Lifestyle, budget and effectiveness are things which need to considerate when buying
makeup. They make comparison among brands and try to find out which is the best. For
instance, they devote more of beauty budget to expensive foundation in premium and luxury
clusters. The expensive foundation hides all imperfections very well and product natural,
bright and flawless skin. The first choice of mascara will definitely be in “Essential clusters”
due to hygiene reasons. Most of mascaras are in liquid which are used near the eyes where
every time you re-insert the brush back into the tube, it coincidentally pumping more air and
bacteria into the tube. Using old mascara that has gone bad can lead to eye infections and
conjunctivitis. Hence, this type of product needs to be replaced every two to three months.
Nevertheless, lipstick is quite different. A good lipstick relies on excellent pigmentation and
good wear throughout the day. High-end brands in premium and luxury cluster also definitely
add more moisturized ingredients to their lipsticks, therefore, customers can get the benefits
of add-ins like Shea-butter, olive…etc to prevent from drying out. This is a common
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complaint received from drugstore lipstick users. However, high-end brand is not frequent
chic, sometimes they either cannot offer trendy color nor they are quite expensive. That is the
reason why the option for lipstick is mainly in “Trend cluster” or “Pro cluster”.
Among three clusters mentioning above, “Trend cluster” has high competition. It is
believed to be the optimum way of the true value of make-up. Save the budget yet provide
good quality. Take primer for instance, in “Trend cluster” many brands like Make-up forever,
Smash box…etc. they have launched an entire range of alternative versions to suit every
different skin type and requirement and given skin a soft-focus finish and silky texture.
There is little inter-competition for “Cosmeceuticals and Pro clusters”. Cosmeceuticals
cluster with some brand like Shiseido, is not responding rapidly enough to changing markets,
consumer values and purchasing behavior. The targeted market of them is mature and high
income person, who love classic and elegant appearance.
The difference between MAC make up and other cosmetic companies goes as follows: Frist
of all, a very large variety of eye shadows and lipsticks colors, including foundation shades for
each skin tone. MAC is following professional way. Many cosmetic consumers had complained
that they got trouble as finding certain shades, whether it is foundation or eye shadow. They
could not find the one that matches their skin tone and reveal perfect. Other competitors such as
NARS, Dior, and Makeup Forever also have some renowned primer or foundation shades but
they still lack in the eye shadow collection which could match foundation.
IV. Mobility barriers among clusters
The barriers were divided into:
Low-Medium mobility barriers
This barrier separates Low End category with the others. While Low Ends are lower-priced
Products suitable for customers who do not want or can’t spend large sums of money.
L’Oréal’s Low Ends products are L’Oréal Paris, Maybelline, Cover Girl, Avon, Revlon E.L.F.
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They share a same characteristic that is aimed to young people that still go to school every day
and receive support from parents or part time jobs but prefer a famous brand and keep up with
trends of celebrities. Products in this category focus on teenage needs.
Medium-High mobility barriers
This barrier separate Mid-Range with High End categories. Mid-Range products are
Shiseido, Make Up Forever, Smash Box, NARS, Clinique, Benefit while High End products
are Cle De Peau, Chanel, YSL, MAC, Dior and Lancôme. Those products price are expensive
and focus on specific needs of customers, keeping the healthy skin with enhancing the
strength points of appearance. High End products provide best solutions with premium
material for beauty care which only fit for successful females where beauty product is also a
way to reflect who there are.
V. Conclusion
From previous analyzing of internal competition of clusters and barriers among them, we
propose the best cluster is TRENDY cluster. Following are main reasons:
Firstly, easy mobility of trendy cluster provides it potential chance to switch to another
cluster. Thanks to positioning at medium end price, trendy companies can upgrade to
high-end when they want to diversified their product portfolio with less confusing from
customers about quality than companies in low-end segment. Besides, if trendy wants to
widen customer base to lower class during economic downtrend, it could get appreciated
response in the market easier than a very high-end coming down.
In the second place, because of demand to be always new to catch the fashion waves,
trendy companies can take full advantage of its R&D facilities and marketing strategies.
Trendy focuses on young adults who get more familiar with digital marketing than the elders,
followed by efficiency of using modern marketing strategies (which are popular in cosmetics
industry now) on them– affordable investment but large spread to a huge number of
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consumers. Also, investment in R&D facilities can be compensated by little high price and
huge amount of consumption.
Finally, competitiveness inside clusters is not so hard. Number of companies in trendy cluster
is less than essentials, but higher than luxury and premium’s. This means competition is not so
fierce as in essentials, but still at a significant level which encourages companies to always renew
themselves’ products. It is consistent with cluster’s characteristics – be always new to catch the
latest trend. Again, competition in this cluster brings more advantages than disadvantages.
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Chapter 6
ANALYZING RESOURCES AND CAPABILITIES
I. Resources
L’Oréal is recognized as a leader brand on the beauty segment and maintains its competitiveness
due to the use of numerous strategies involving value-adding resources and capabilities.
In order to present in a clear and easy understanding way the resources were split into three
subdivisions: tangible, intangible and human.
Among the tangible resources are L’Oréal financial, physical and organizational resources. The
first one is mostly related to capital, equity, debt, assets and earnings. Annually L’Oréal releases
reports presenting relevant information about the company’s financial status and these indicators point
out the direction the company is taking and its growth. L’Oréal physical and organizational resources
include a vast number of locations where the company operates, since its headquarters, industries,
hubs and R&D centers are strategically distributed in order to have an optimized coverage,
establishing exceptionally successful distribution channel.
The intangible resources include critical factors for the company such as its branding strategies
and acquisitions, reputation, history, costumer’s experiences and loyalty, patents, and copyrights.
Throughout its history, L’Oréal has worked hard in order to build a trustful relationship with its
customers and construct its reputation as one of the most respected and reliable beauty brand.
Ultimately, its human resources, this group include a mix of important tools for any company that
aims to achieve a successful position in the market, and L’Oréal is conscious of its importance. The
combinations of skilled and qualified employees, that understand their jobs are recognized as a key
point to the business success, and also are empowered by their leaders and therefore feel satisfied and
have a better performance. These same employees are stimulated to work in teams and have their
skills being frequently improved through training processes and courses.
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L’Oréal is a company conscious of the importance of its human capital and provides among
different things a working place ranked as one of the most desired places to work in the world.
The combination of valuable resources and capabilities, have the potential to provide favorable
scenarios with high competitive advantage. L’Oréal, takes actions to increase its potential resources,
therefore guaranteeing its market positioning.
II. Capabilities
2.1 Innovation
With 3,871 researchers and a budget representing 3.1% of its sales, L’Oréal has the largest
research and innovation capability in the cosmetics industry. L’Oréal has competitive
advantage in all range of cosmetics research, from basic ingredients to advanced formulation
research. More than ever, success and growth is driven by “new, different, better” products.
By pouring a huge amount of money into innovation, L’Oréal always makes one step ahead.
2.2 Acquisition management
With history of 100 years, the Group has built up, through series of successful
acquisitions, a diverse portfolio of international brands which are fame of L’Oréal. Owing to
its strategy management of acquired brands, L’Oréal can develop without internal conflict
among brands about target consumers, target market, retail channel or supply chain.
2.3 Negotiating capability
L’Oréal is proud of their negotiations capabilities. The Group builds on-job training
program for everybody. Not only sellers or purchasers who negotiate directly with customers
or suppliers but also back-office personnel are train through basic to extensive negotiation
skills. Its purpose is to enhance individual tactical and powerful influence in cooperating with
all stakeholders. As a result, for example, L’Oréal products are always in the favorite position
on shelves in supermarkets or attractive locations in department stores in comparison with
other rivals’ products.
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2.4 Efficiency of supply chain
L’Oréal has a complex supply chain, but very efficient. To connect suppliers through
manufacturers till points of sales, it uses an integrated information system. This technology
provides sharing information of market demand, forecasting, daily sales and warehousing to
every parts of supply chains, then help managers of each functions make suitable decisions
on time. Besides, procurement has deep relationship with suppliers to facilitate 44 plants
always in available materials of ingredients and packages.
2.5 Responsiveness to market trend
L’Oréal finds that their multicultural employees (multicultural) are precious resource to help it
always control market trend. According to a director who worked with multicultural for 5 years,
“Their background is a kind of master class in holding more than one idea at the same time. They
think as if they were French, American, or Chinese, and all of these together at once”.
2.6 Partnerships
Years by years, L’Oréal’s Research and Innovation department has built partnership with
a number of private and public institutions to strengthen its science. These partnerships
enhance their ability to further research.
2.7 Responsibility to Society
Corporate social responsibility is the first capability when saying about this phenomenon.
They are reducing carbon-dioxide emission, zero deforestation, tracing back source of
ingredients, etc. Besides, L’Oréal also cares about women position in our society. It promotes
women role in the company. Also, it has training for disabled people to join beauty industry,
providing jobs or chance to have better life.
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III. Developing strategy implications
3.1 Deriving Strategy Recommendations from Resource/Capability Analysis
We’d bringing together the importance and relative strength of the company into the four
quadrants tables as below.
Figure 13: Capabilities and Resources
*BLUE = Capabilities, BLACK = RESOURCES
3.2 Appraising L'Oréal resources and capabilities
3.2.1 Superfluous Strength (Low importance, High strength)
Geographic
L'Oréal use decentralized structure for the company where they located manager in each
of its subsidiaries companies around the world. As we know that L'Oréal had many
subdivisions of products, somehow there are difficulties in the coordination and control of
activities when operating in a global market. It’s not important to located each manager in
each region instead nowadays with the advent of internet they can just remote control the
subsidiaries from headquarters.
3.2.2 Key Strength (High importance and strength)
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Tangible resources
Strong capital, high cash flow and long term investment in latest digital technology,
science and from investors had enabled the company to achieved sustainable development
and profitable growth prospect.
Intangible resources
Devoting itself to beauty for over years, they had gained many criteria for an outstanding
reputation including their brands and the quality of products and services in keeping customer loyalty.
Being transparent, trustworthy and responsive are important to the sustainability of the company
where by maintaining a positive reputation for company future growth prospect, increases corporate
worth, provides sustained competitive advantage and existence of their business.
Human resources
L’Oréal’s impressive global success as the universalization company due to company
adaption in the Group’s Diversity strategy to their local context by recruiting professionals
with multicultural backgrounds in new product development, know how skills and creativity.
Technology
Advanced technology at the heart of innovation where company investing in trends and
technology and innovating digitally. At the forefront of the digital revolution from innovative
cutting-edge apps to 3D technology machine, they are leading the way into a new era of
beauty that will generate even greater innovation in the future.
Acquisition
The company did a series of strategic acquisitions to expand regionally by acquiring
brands with global or regional reach and building a portfolio of international brands. These
acquisitions are in line with its Universalization strategy, reaching out a billion new
consumers over the world and enable to spread its footprint globally and improve profitability
for the company’s future growth.
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Negotiating
Possessing unique expertise in terms of channels, sales, retail outlets that include strategic
aspect, drawing up brand and sales strategies, and maintaining relationship side of things.
Understanding the brand value gives the L’Oréal power in negotiating where the key objectives
is to build strong relationship with key retailers, how you develop your relationship with your
key clients while ensuring to hit target sales, creating demand that meets consumer needs and
how we commercialize the products together in the hand of retailers.
Market intelligence
An association of market intelligence play significant roles to assess market entry
opportunities and to formulate market development plans since standards of beauty varies
from one culture to another. In-depth knowledge of diversification in demographic, market
potential, culture habits and beauty rituals had become the source of inspiration for the
development of new products. This is particularly useful for L’Oréal which is large with
many divisions that need to be monitored. Gathering market intelligence may be the most
crucial element of L’Oréal executing effective plans for company prosperity.
3.2.3 Inconsequential Weakness (Low importance, Low strength)
Partnership
L’Oréal’s less focus on creating mutually beneficial partnerships with publishers, beauty
expert and influencers. Like giving out beauty samples on magazines is not new where readers
have been attracted to free sample products, bonus gift and money off vouchers instead L’Oréal
choose to given the real experiences to customers along with a consult from beauty expert.
3.2.4 Key Weakness (High importance, Low strength)
CSR (Corporate Social Responsibility)
CSR is a common thing that almost every company had applied, L’Oréal had
sustainability commitment where they produce and innovate in an ethical way but somehow
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the process of act is still not good enough. For example, microbeads that using in the beauty
products. Those tiny plastics usually can be find in facial or body scrub, after wash those tiny
things can go through water filtration system then goes to ocean, consume by marine animals
(ex: fish) then the chain goes up to human who consume fish. Microbeads contain toxic
chemicals which is danger for humans, after that L’Oréal had stopped to produces products
that contains microbeads.
IV. RESOURCE VRIS
In many ways, the purpose of resource strategy is to achieve competitive advantage via
the proper use of resources. As a result, the most important goal of resource analysis is not to
value the assets of company. It is used for achieving sustainable competitive advantage. There
are some characteristics used to evaluate whether resources fulfill or not. These are valuable,
rare, Imperfect-Imitability, and Substitutability, referred to as VRIS.
- Value (V): A resource must enable a firm to employ a value-creating strategy. It makes a
valuable contribution to firm.
- Rareness (R): How rare or limited is the resource?
- Imperfect Imitability (I): How difficult is it to imitate the resource
- Substitutability (S): Is it not able to be substituted.
4.1 Tangible resource
4.1.1 Financial resource
Cash
Cash can be used to support acquisitions activities and repurchase the stock or even
enhance shareholder value. That is the reason why cash is important and value to L’Oréal.
The kind of this asset is rare and not easy to imitate or substitute.
Debt
Debt is value because debt brings more money from outside to L’Oréal, it also helps tax
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deduction. Due to cosmetic industry characteristic, all competitors are intense and power.
They do have high credit and qualification, connected many sources like bank or institution
to borrow money. Therefore, debt is not rare, not difficult to imitate or substitute.
Equity
Equity finance is about to be more valuable than other sources of finance. Because the
funding will be flowing to L’Oréal by investors if business is doing well. In addition, with
equity finance, L’Oréal doesn’t need to keep up with some costs like interest rate of bank
loans or debt finance for example. Potential investors always seek comprehensive
information on company and their business before investing, they look at carefully about the
past results and forecast for future. Investors will invest as they can make sure the profitable
and potential of company. Besides that, it is costly and time consuming to raise equity finance
It may take more time to manage and provide regular information for investors. Those are the
reasons why equity is finance is rare, difficult to imitate or substitute.
4.1.2 Physical resources
Physical resources are another important component of resources of L’Oréal. The location
and size of headquarters, hubs and R&D centers are really important to L’Oréal. In order to
achieve mission to listening to customers, L'Oréal's Research and Innovation has been placed
closed to its major markets. The headquarters of L’Oréal are being designed as a connected
workplace to create an enhanced collaborative environment that reflects a culture focused on
innovation, learning, and growth. Specific attention is being paid to our environmental footprint,
which aligns with the company's sustainability goals. Hubs are designed in international network
place for easy distribution. It took L’Oréal so much time and money to find out the right location.
Therefore, the location is valuable, rare, imperfect imitability and substitutability.
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4.2 Intangible resource
4.2.1 Reputation
Brands
L’Oréal has the most well-known brands in together with image of brands with prosperity
of unique and international portfolio of 32 complementary brands on 140 countries from
luxury to consumer products. It is certain to take much effort to create a successful and
reliable brand which customers believe and trust in. A business wouldn't be successful if it
does not obtain the values of brand recognition by customers. Furthermore, brands are unique,
so it is hard to imitate or substitute.
Customer loyalty
Customers are at the heart of a business, keeping existing customers is just as important
as getting new customers. Loyal customers lead to repeat business, they tend to make more
single transaction, that mean they will buy product from company again and again, spend
more money on brand. In addition, loyal customers are likely to explore and try out different
product or services. Hence, loyal Customers are extremely valuable. Customers loyalty is
unique as well, when customer become truly loyal, company is the only brand prioritized
consideration in their mind, other brands seem to be disappeared. Loyalty customer cannot be
imitable yet it can be substituted. Customer loyalty is quite difficult to retain. The reason is
that cosmetic industry is too sensitive. It changes days by days along with weather, beauty
trends or human biology. If the company product is not state of the art, customers may switch
into another brand to meet their demand.
History
History is a valuable contribution to company in cosmetic industry. One reliable
cosmetic product ought to have more time to research, innovate and create. After creating, it
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still need more time to test for irritation, breakout issues. The more tests they do, the deeper
knowledge and experience company can gain. They will know well all kind of situations
which occur on customers’ skin. By doing this, company is believed to create a product
with the least irritated percentage.
4.2.2 Technology
Patent right
Patent right is value to company, because it helps company to achieve a monopoly market for
such a long time (20 years). That means the precious investments is definitely paid-off. However,
patent right is unique within registered country only. When exporting abroad, the power of patent
right seems to be decreased due to patent regime of that country. If exporting countries are piracy,
they just change some part of product and apply for new patent protection.
4.3 Human resources
Skilled and qualified staffs
A skilled staffs is a person who has special skill, knowledge, and ability in their work.
Sometimes a skilled and qualified staffs who may have attended a famous college, university or
technical, vocational institutions, or may have gained some special skills on the job. A skill and
qualified staffs are valuable because as employing them, they seem to bring new innovation, new
perception to company. Everyone has his/her own unique skills. Hence skills and qualification
could not be imitable or substituted.
Innovation skills
Innovation skills are important and valuable to all industry in general and cosmetic
industry in specific. Innovation ability not only in products and services, but also operation,
management which have a significant effect on productivity then growth.
Experienced staffs
Obviously, employees are the heart and soul of the business. They are the mechanism that
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help business run smoothly and fast. Experienced staffs are not valuable but essential to
business. This is because experienced staffs have a solid knowledge base on their major. They
can predict and master all circumstances which occur in work. They also have some skills
which are likely to make a precious contribution to work, such as technique skills, time
management skills and some interpersonal skills. Experience staffs are about to be valuable,
rare, and non-substitute, yet it could be imitable by using systematization.
A briefly resource VRIS analysis was described as following table
Table 2: Resource VRIS
RESOURCE
V R I S Competitive
consequences Performance implication
Tangible resource
Cash
Sustainable
competitive
advantage
Above average return
Debt × × × Competitive parity Average returns
Equity
Sustainable
competitive
advantage
Above average return
Location
Sustainable
competitive
advantage
Above average return
Intangible resource
Brands Sustainable
competitive Above average return
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advantage
Costumer-
Loyalty
×
Temporary
competitive
advantage
Above average to
average return
History
Sustainable
competitive
advantage
Above average return
Patent right ×
Temporary
competitive
advantage
Above average to
average return
Human resource
Skilled and
qualified
Sustainable
competitive
advantage
Above average return
Innovation
ability
Sustainable
competitive
advantage
Above average return
Experienced
staffs
×
Temporary
competitive
advantage
Above average to
average return
V. Capabilities VRIS
5.1 Innovation
Innovation is the key to L’Oréal’s new strategy. L’Oréal’s commitment to innovation has always
been to introduce the formula to enhance the consumer product experience. Not only to continue to
develop their knowledge of the physiology of skin and hair types from around the world to meet
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everyone's needs, but also to listen and observe consumers, to study climatic conditions in a way they
live in order to better understand their Beauty ritual and are encouraged by the return. From the
production of skin care, hair care, makeup, nail products, L'Oréal has successfully developed the
L'Oréal cosmetic genius application that allows users to use their cell phones to make a digital
makeup. Consumers responded positively and downloaded 7 million applications.
5.2 Acquisition management
While developing their own brand, L'Oréal also does the M&A activities. The money to
acquire the other brands is huge but the achieved benefit is not small, it helps the company
operate smoothly without going through the initial stages of market intelligence, research,
culture ... Although the M&A is not new, even their rivals as Unilever also conducted
numerous M&A but L'Oréal has been very successful with this strategy. At present, the number
of brands which was acquired by L'Oréal is 20.
5.3 Negotiating capability
As we mentioned before, L'Oréal does not only focus on external negotiation as dealing
with suppliers, customer, partner, or repurchasing brands, L'Oréal also focus on relationships,
interpersonal communication within the company. The company annually organizes many
training sessions to help their employees practicing. Even in L'Oréal South Africa branch, any
employees who want to be on the Retail design & Merchandising department are required
some skills like negotiation, conducting Win-Win situation…
5.4 Efficiency of supply chain
L'Oréal in 130 countries worldwide sales of products, annual sales of 23 billion euros. The
company operates 153 distribution centers and 39 manufacturing sites. There are 7,500 supply
chain professionals worldwide. The organization is very complex and it is a unique culture. The
complexity of the business is high. In the past 12 months, 50% of L'Oréal products are new, the
growth rate of 3-4%. Their strategy is to grow in new markets, expand distribution channels (deep
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trade items) and build e-commerce channels. As a result, supply chain rhythm and cycle faster than
ever before. For supply chain leaders, the boundaries between channels are blurred.
5.5 Responsiveness to market trend
L’Oréal’s employees, talents from around the world, are developing their products in
addition to match the customer needs in specific regions. The link was created between
companies among regions to help updating quickly with the latest trends. L’Oréal shows how
the unique features of multicultural thinking enable them to better play five key roles than their
single cultural counterparts.
These roles are:
- Creation of creative associations and mapping between geographic markets to enable
L'Oréal to develop global products and establish global brands while maintaining sensitivity to
local market differences.
- Interpreting complex knowledge, i.e., implicit, collective and cultural dependence, it is
not possible to simply "explain" cross-cultural and contextual skills in marketing products such
as cosmetics, many of which are understood to be tacit and culturally dependent.
- Predicting cross-cultural conflicts that are critical to the effectiveness of the global team.
- Integrate new team members from different cultures into a team, quickly establish their
own interactive norms, a strong "inside and outside" identity, once the team has been
particularly difficult for some time to join the team.
- Mediate the relationship between global teams, the cultural diversity of their members,
the senior managers they report, or their interactions with their affiliated employees who work
with them, usually a single culture.
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5.6 Partnerships
For example, Economic Policy Analysis ECOPA provides specialized economic advice to
countries and regions with economies in transition, EPA EPA USA, National Toxicology Program,
National Institute of Health and the Food and Drug Administration to predict the potential toxicity
of chemicals and develop Cost-effective way to prioritize the thousands of chemicals that require
toxicity testing. And Pasteur, France, Laval University Hospital Research Center, Canada, Ohio
State University, academic research and activities.
5.7 Responsibility to Society
L'Oréal to make every effort to take responsibility for the community. In 2014, they
reduced CO2 emissions by 50.2 percent for their plants and distribution centers, and 67 percent
of the new products they evaluated had improved environmental or social impact.
A briefly capabilities VRIS analysis was described as following table.
Table 3: Capabilities VRIS
CAPABILITIES
V R I S Competitive
consequences
Performance
implication
Innovation
Sustainable
competitive
advantage
Above average return
Acquisition
management
× Temporary
competitive
advantage
Above average to
average return
Negotiating Sustainable
competitive Above average return
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advantage
Efficiency of
supply chain
Sustainable
competitive
advantage
Above average return
Responsiveness
to market trend ×
Temporary
competitive
advantage
Above average to
average return
Partnerships × × × × Competitive
disadvantage Below average return
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Chapter 7
VALUE CHAIN ANALYSIS
I. Primary activities
1.1 Inbound Logistics
Superior incoming materials raise the quality of the finished products
Materials for producing are carefully purchased with full certificate of quality. For
example, regarding palm oil, L’Oréal imports 400 tons of palm oil every year, palm oil
derivatives which need 60,000 tons of original palm oil to refine. Since 2012, Total L’Oréal’s
palm oil has adapted RSPO certification (Roundtable on Sustainable Palm Oil certification).
Furthermore, so as to ensure a deforestation-free, L’Oréal deployed an unprecedented
approach within the oleo-chemicals sector and started to map its entire supply chain and to
trace derivatives back to their origin. In 2015, L’Oréal achieved to trace back 80% of its all
kind of derivatives up to the stage of refineries, and 50% up to level of factory mills.
Superior handling of incoming materials so as to minimize damage
Suppliers for L’Oréal are engaged with “Ethical Commitment Letter”. This letter,
translated into 11 languages, recommends suppliers to follow international and local laws
about labor force, environment protection. Once joined in “Ethical Commitment Letter”,
suppliers automatically agree to be audited regularly and irregularly.
Superior market research and forecast
To forecast market demand, L’Oréal has a complex supply chain, but very efficient. To
connect suppliers through manufacturers till points of sales, it uses an integrated information
system. This technology provides sharing information of market demand, forecasting, daily
sales and warehousing to every parts of supply chains, then help managers of each functions
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make suitable decisions on time. Besides, procurement has deep relationship with suppliers to
facilitate 44 plants always in available materials of ingredients and packages.
1.2 Operation
At L’Oréal, production can be rescheduled up to three days before, giving flexibility to
manufacturing chain while preventing site operations from excessive troubles.
Operation is installed through serious continuing steps. When primary materials arrived at
site, they are identified and labeled. They read material composition and history, lot number
and profile of the provider. They also take samples from each lot to test quality meets
requirement or not. Only after being accepted, results are attached. In the later steps,
operators can double check materials by scanning their label before input them into
manufacturing machines.
In manufacturing step, corresponding recipes are displayed and instructs operator through
the procedure when the operator receives an order. Firstly, it checks availability of necessary
materials, then, verifies that materials comply with quality for this kind of production or not.
The careful preparation raises correctness of production chain although L’Oréal owns
thousands of different ingredients. After weighing recipes for production, they come to be
mixed, transformed and become final products. They continue to be labeled and come to
packing site.
At packing site, they system checks availability of equipment, packaging materials and
characteristics. It instructs packaging engineers to take samples of different production lots,
shows suitable places in the warehouse to store finished products in order to help fork trucks
easy to take later.
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1.3 Outbound Logistics
Automated technology
L’Oréal is implementing a “goods-to-person” system in distribution centers in North
America and Western Europe. This system automatically delivers boxes and products to the
suitable places in the warehouse to help people easy to find it when they are about to
distribute. The Group also integrates warehousing and e-commerce sales to enhance
distribution performance.
Slotting to warehousing
L’Oréal uses slotting system in its warehouses which brings many advantages, including:
- Reduction in travel time inside warehouses;
- Efficiency in using space in warehouses to store products and materials, also using pallets;
- Reduction in storing or lifting errors;
- Categorization all items logically;
- Ability to track history load in and out, help to forecast.
Now a day, the lines picked per hour has increased about 12%. Much improvement has
seen such as reduction in bends and reaches up to 28%, decrease in travel distances up to
21% and climb in lines per hour picked from 10% to 30%, depending on the maturity of the
operation. Slotting program is installed in factories in Chile, Mexico, Chile, Brazil, Argentina,
France, Canada, other facilities in Western Europe, Asia and South Africa.
Slotting is delivering a sustainable competitive advantage.
1.4 Marketing and sales
Marketing and sales provide the means by which the consumer / user is aware of the
product or service and is able to purchase it. L'Oréal offers a portfolio to advertise to their
clients so that they can realize that their products are available to the market. Some of the
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areas they use are:
- TV, print, retail and billboards (e.g. magazines);
- Celebrity (Spokesperson);
- Sponsors, film and media (e.g., Cannes);
- Digital and internet (for example, YouTube / destination beauty, you can get in L'Oréal,
Facebook / how to video shoot beauty blog, user-generated website and the use of network
personal, LinkedIn / you are IN? Flipboard / L'Oréal Career)
- Brand storm (the competition between new marketing ideas among students);
- Grassroots movement (for example, assistance to Sharon).
By providing technological innovation to its research team, L'Oréal provides them with a
powerful tool to express their creativity and gain faster and faster knowledge of the skin and
hair. Today, advances in medical imaging, robotics and even 3D modeling are helping to
develop innovative products.
L’Oréal operates 153 distribution centers and 39 manufacturing locations and sells
products in 130 countries, there are 7,500 supply chain professionals. That why they easily
identify and rapidly provide customers' need. Besides that, L’Oréal has the brand system from
low to high end market such as for adults, they have L’Oréal Paris with low price and YSL
with high price and so on. Thanks for efforts of L’Oréal in widening their distribution around
the world and meets the needs of customers. The company’s sale in 2015 was 25.26 billion
euros, an increase of +12.1% to 2014’s.
L'Oréal stated: “Creativity is the air we breathe - it nourishes our inspiration and shapes
our ideas, enabling us to launch 500 new products every year. At L'Oréal, marketing - which
fine-tunes these ideas - is right at the heart of our strategy.”
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1.5 Services
At this stage, the company will investigate after-sales service. Services include all
activities that enhance or maintain valuable products or services, such as training, installation,
maintenance and spare parts.
"Because you deserve it." And L'Oréal, the world's largest cosmetics company, few
companies have a more intimate relationship with customers. With 32 global brands, including
Orchid, Maybelline and Redden - L'Oréal helps millions of people to feel proud and beautiful
every day. In order to protect and promote these important brands, the company uses Salesforce
to maintain operational coordination and interaction with customers. The company uses
Salesforce to consolidate its sales and back-end systems to help the professional products
division share data and coordinate branding to improve overall operational efficiency. L'Oréal
also provides a portal for coordinating salon events for product representatives and beauticians,
with product information, demos and training materials. Salesforce is an important tool to
enable their endless quest to understand their customers.
L'Oréal not only applied technology in the field of scientific research, but also to provide
customers with building applications, such as: L'Oréal cosmetic genius application, 3D print
hair follicles. L'Oréal is proud to present a variety of genius makeup applications on March 9,
2016. Make-up geniuses bring a significant added value to women, enabling them to access a
large number of their product portfolios, try to use them, share them on social networks and
buy them easily. About 3D printing of hair follicles, L'Oréal is developing new technologies
that can lead to 3D printing of new hair follicles that can sprout new hair. The technique uses
laser-assisted bio-printing to produce biological tissue and can position cells in 3D with
extremely high cell resolution (about ten microns) and cell viability (more than 95%)
according to L’Oréal’ statement.
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Skin care and makeup products are often easier to use, however, the hair products often
difficult for us to do for ourselves. To resolve this issue, L’Oréal introduced hair color products
that the customers can manipulate not need to salon. The product divides into 2 types: shampoo,
and spray. Features of this product is not kept color too long on hair, only 4 to 6 weeks, so for
those who want to change hair color regularly, this product is a great choice.
L’Oréal always tries their best to create the best product and they do have policies to make
sure that their customers will go back home with a smile and their products on hands.
II. Supporting Activities
These activities support the primary functions above in helping the firm to achieve its
competitive advantage. These activities are classified as:
2.1 Infrastructure
Firm infrastructure refers to a structure from its management planning, control system
accounting, financing to company culture…etc. It is believed to be essential that can help
company to create more advantage. For L'Oréal's, organizational structure is important and
necessary to ensure a sustainable development. However, it is quite complicated. Simplicity,
L'Oréal makes a labor division into centralization and decentralization. Centralization is
definitely for upper level manager of L'Oréal who often makes important decision. The
workforce has been organized into head-quarters and six regional research centers.
Decentralization is defined as two levels. The first one is broad committees, the lower level
region management. L'Oréal also processes departmentalization for decentralization level.
These are product departmentalization which is used for managing all brands of products of
L'Oréal within the groups based on divisions, geographical departmentalization that the
managers of different geographical zones in which L Óréal is located. Research and
development departmentalization is use to make customized products for all the diverse
customers with diversity habit and lifestyles. Administration, Finance and Human resource
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departments are divided base on division and region, but they have same function, that is to
make a full connection for whole L Óréal.
The second important for L'Oréal is Finance management. Together with the business
units, the finance and management control are key important part for L'Oréal's performance,
making valuable contribution to its dynamics of growth. Finance and Management control
has some grass-root functions, such as the teams directly contact with the business units to
provide accurate information for their need, and also help draw up appropriate predicts and
recommendations. There are three kind of financial strategic management in L'Oréal. Those
are corporate finance, finance management and business control, and internal audit.
In addition, L'Oréal is leader multinational cosmetic company. For them, raw material
control is indispensable part, which requires to be managed well. How successful L'Oréal was
as applying PRODAC system. All of data of raw material is now readily available and the
entire production process is controlled through stringent quality control of raw materials.
2.2 Human resources management
People are a significant source of value. A good HR management is believed to support
the attainment of strategic business plans and goals, then stimulating business development
with a clear advantage in turn. With this in mind, L’Oréal HR works hard to reconcile three
aspects. The first one is Global recruitment. In order to support L’Oréal’s managers
worldwide, the HR team recognizes that individual talents are the root of all great ideas. The
mission of them is to attract, identify, select, develop, reward and retain the finest talent.
Recruitment at L'Oréal is about the people and not a process. It is likely to be a long-term
process which proactively detects individuals who are certain to enrich HR teams with their
diversity, experience and perspectives. L'Oréal has widely use social networking sites to
recruit in various countries worldwide. It means different country will have different platform
for it. The jobs section of each website lists available positions in that country only. They also
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take advantage of Facebook, LinkedIn and Twitter. The objective of those kind online
platforms are to help each student or candidate to gain the deeper perspectives and the best
define for career plan, those also help L’Oréal recruiters to detect high potential or talent as
well. Besides that, L’Oréal has conducted many kinds of programs to achieve the talented
candidates. The most two famous games which help L’Oréal identify experts, profession or
potential candidate are Reveal and Brainstorm. Take L’Oréal brainstorm for instance, a
groundbreaking business game, visits over 280 schools and universities over 40 countries
worldwide. Thanks to the competition of this program, over 7000 international participants
were attracted, and over 170 employees were employed every year.
A company definitely cannot be successful without creating favorable conditions for the
development of talent. That is the reason why diversity management is important for L’Oréal.
Their ambition is to set up the standards for gender equality, non-discrimination, the inclusion
of the disabled as well as providing opportunities to people of all ethnic and origins within
the 140 countries where we operate. Furthermore, L’Oréal has implemented many specific
diversity training programs for all level of employees.
The final one is fostering innovation of employees. Global dynamic competitive and
diversity is not enough to stimulate innovation for each employee. Understand this issue
L’Oréal is continuous improvement by creating many programs like global mentoring
program, Employee resource groups, Multicultural talent management, Strategic partnership
development, e-Learning modules. By running these programs, the connection of innovation
could be maintained and nurtured effectively.
2.3 Technology development
This includes the use and development of technology to enhance the effectiveness of
primary activities in terms of value creation such as R&D, product design, cutting edge
application and process automation. For L’Oréal, beauty is all about a scientific adventure,
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scientific knowledge of the skin, hair, active ingredients, formulation procedures, evaluation
technologies where L’Oréal R&D constantly innovate new and unique products that meet
customers need that adapt to local conditions around the world. L’Oréal invest a lot in
technologies include the digital one which help them generate even greater innovation to
satisfied customers. To make further progress, L'Oréal's researchers mostly rely on its
advanced technology ─ medical imagery, robotics, 3D modeling that considerably enrich
their approach to development of innovative products that enhance the consumer’s experience.
With its focus on technology development, L’Oréal is believed to accelerate its innovations
and maintain its competitive edge.
2.4 Procurement
Procurement means purchasing the raw materials for the final products and other inputs used
in the value creating activities. Variety of raw materials are used to produce cosmetics formulas
where L'Oréal purchase those from specialized suppliers who are involved in a constant process
of quality and safety research. L'Oréal works with several hundreds of suppliers worldwide
whom are regularly evaluated on the basis of their key performances such as: social and
environmental responsibility, innovation, quality, logistics and competitiveness to establish long
term, transparent relationships with high quality, committed suppliers, thus engaging in a process
of continuous improvement. L’Oréal has developed a sustainable sourcing policy for renewable
raw materials and guaranteeing the high quality of supplies.
III. What is the value from?
In a year marked by a worldwide economic slowdown and increased international
volatility, L'Oréal achieved strong growth in 2015, supported by a positive monetary effect,
and outperformed the market in three of its four Divisions.
L’Oréal strategies and investments have kept the company growing even during
unfavorable economic times. Producing in large scales and being able to distribute its
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products in wide markets all around the world, therefore creating opportunities of growing
and encountering its consumers adequately.
The company has also positioned itself close to the markets it explores; this way has been
decreasing some of its distribution costs and exploring bigger margins on its retiles prices. Also,
during the last 5 years, L’Oréal has improved its online marketing strategies and has started
selling through some of its brands websites, this way increasing even more its profit margins.
IV. Low cost or Differentiation
Differentiation - Competitive Advantage Strategy
L’Oréal 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’Oréal 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’Oréal’s
effective production process and distribution through wide amount of channels provides a
favorable scenario for decreasing costs.
Meanwhile, L’Oréal’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’Oréal marketing strategies have been always focused on bringing to the customers the
benefits and reliability of all products, and making sure the perception 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’Oréal as leader and reference in the beauty market.
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1724.4
6154.9
3595.3
1021.4
398.6
1740.3
6161.4
3486.7
1018.6
411.9
Professional Consumer L'oréal Luxe Active cosmetic The body shop
1st half 2016 1st half 2015
Chapter 8
BCG MATRIX ANALYSIS
The BCG matrix aims to help corporation analyze their business units by identifying
high-growth prospects according to growth rate and market share.
I. L'Oréal Consumer Product – Cash cow (High relative market share, Low future growth)
Cash cow is one of the four segments of the BCG growth-share matrix which represents the
division that has a large market share in slow-growing industry or in mature market.
L'Oréal Consumer product which products are distributed in mass-market retail channels
is the highest SBUs in term of operational sales among the other divisions belong to L'Oréal.
Figure 14: Sale of operational divisions
As announced on financial report for 2015 and the first half 2016, Consumer Products Division
is accelerating. The sale growth is rising in all zones, with strong expansion for in North America and
new markets (China and India). In addition, consumer product division is successful in strengthening
its leadership in taking up the initiatives in make-up. In 2015, Maybelline was voted for number 1
makeup brand in America, has regained its strong momentum. Thanks to making acquisition of
NYX profession makeup, the power of makeup consumer products division of L'Oréal has been
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increasing significantly. Besides that, haircare section caught more attention, based on innovation
and successful digital strategy, it would lead to help L'Oréal Paris roll out its powerful and get
achievement in China, successfully expand into German and Spain market. All in all, Consumer
products has outperformed its market and become the huge income generation for L'Oréal.
Regarding market growth rate for consumer products SBU, it is rather pity to know the
market is slow-growing, or in other words, it is mature market. This is because cosmetic for
consumer products is vast industry with intense competition (strong competitors and new
entrants). That means there will be have a large number of suppliers, excessive suppliers with
competitive prices and promotion or discount strategy. However, the demand of customers
does not grow because the desire of them seems not to appear in consumer products more.
The standard of living is higher and higher, people, women in particular, mainly care more
about themselves. They fancy to seek some quality products instead. The second sign of
mature market is disruptive innovation. Investing in new innovation may too costly and
time-wasting, because sometimes it is not paid-off.
In conclusion, due to high market share, well performance in mature or slow-growing
market, L'Oréal consumer product division is considered as Cash-cow.
II. L'Oréal Luxe – Star (High relative market share, high future growth)
Figure 15: Sale breakdown
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L'Oréal Luxe (“Luxe” for short) is the second highest SBU in term of sales contribution
with figure of 29% (only after Consumer Cosmetics SBU being 47%) in both 2015 and 9
months of 2016. It demonstrates Luxe has been doing good job for the Group.
Luxe reveals an upward trend in all geographic areas, especially dominates Western
Europe market. In 2015, Luxe gained significant market share in five main countries: Italy,
Spain, Germany, France and the U.K. Lancôme, Yves Saint Laurent, Giorgio Armani
women’s fragrances has proved their success when they were in Top 10 best seller brands.
Figure 16: Sale and growth
As for growth rate, Luxe sees a fluctuation in growth rate of sales during the past 6 years.
The highest rate is 16.7% in 2015 thanks to dynamism of make-up and fragrances, as well as
e-commerce. Also fluctuating, the general trend is going up through years. The best brand
with highest growth rate in this luxury division was Yves Saint Laurent of +18.4%.
In general, Luxe is expected to continue very high future growth at about 15% in the next year.
III. The body shop - Dogs (Low growth, Low market share)
In this quadrant, the Body Shop was considered Dog due to its low market share and
growing slowly in the beauty market. The Body shop, which also known as green cosmetics
since they’re using natural ingredients is L’Oréal’s weakest business and generate lowest
sales compare to other brand divisions, struggling to keep up with other divisions revenue.
Beside that The Body Shop do less advertisement unlike the other brand divisions which
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recruit famous stars to advertise the products which make customer unaware of Body Shop
product lines. Before they only produce body lotions, creams but then as they start to making
new way to increase their sales then they start to sell makeup and hiring beauty consultants to
help customers with their complexion problems.
The worst things if The Body Shop won’t see any further improvement for their sales, in
Dog quadrants divestment strategy was used. Instead the money they in this quadrant can be
used in cash cow or star.
IV. L'Oréal Active Cosmetic – Question (low market share, high future growth)
L'Oréal Group active cosmetics division of the relative growth rate of 7.8%, thus
becoming the group's market leader. Skin cosmetics are recommended by health
professionals (doctors, dermatologists, cosmetologists and pharmacists) for specific skin care
needs because their ingredients are safe and effective. These cosmetics are distributed in
traditional medical channels such as pharmacies, over-the-counter pharmacies, pharmacies,
clinics or medical spas (Medi-Spas). The Active Cosmetic Division's mission is to help
everyone improve the quality and health of their skin, whether or not they are affected by
sensitive skin or dermatological conditions in all health care channels around the world:
pharmacies, beauty and health retailers, pharmacies and medium.
Table 4: Consolidated sales by geographic zone
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The dermo-cosmetics market represents 4.4% of the global beauty market and valued at
about 7.6 billion euros. However, L'Oréal Active Cosmetics division’s sales is more than 1.5-1.8
billion euros, equal to 20-23% of the whole market. As we can see in this table, consolidated
sales of Active Cosmetics Division are significantly increasing over years. By more than 100
million Euros increase in sales every year and 10% growth rate, L’Oréal’s Active Cosmetics
Products are selling leader is France, Germany, Brazil, Italy, China. With 6 brands in over 60
countries, 2 factories and many partnerships, Active Cosmetics Division really is a potential
income maker as all Zones are contributing to growth. In the New Markets, the Asia, Pacific,
Latin America and Africa, Middle East Zones have all recorded rapid growth. Western
Europe accelerated in the second half.
V. L'Oréal Professional Products – Question (low market share, high future growth)
The Professional Products Division allocates its products in shops worldwide. Through its vast
array of brands, the division can meet the needs of different hair care salons and hair care needs.
L'Oréal Professional has a significant presence among L’Oréal’s SBUs in terms of sales,
contributing with 13% of it. They generate relevant amount of cash sales although the market
it is inserted has a slow future growth potential. Due to the most advanced innovations in hair
care products and services, the Professional Products Division has been increasingly growing,
especially on sales of hair color. Also, professional skincare has been increasing due to the
fact the more people are looking for alternatives to keep one’s appearance fresher.
L’Oréal takes advantage of its know-how in R&D and capability of developing new
products to attend the highest standards of quality and expertise from beauty salon
professionals all over the world and has kept its investments on the Professional Products
Division leading us to believe that it is a segment with great potential if well worked.
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VI. L’Oréal Synergy
L’Oréal has been increasing its investments on L’Oréal Active Cosmetic and Professional
Products SBU’s through the last years. Focused on increasing its presence on these potential
markets where its market shares still low compared to L’Oréal Consumer Product and L’Oréal Luxe.
The company has invested in developing new products bringing innovation to its consumers and
has increased the number of channels where they are distributed, including online sales.
Although, L’Oréal doesn't have the best outcome on these segments, they have
significantly increased through the years, due to the increase of consumers concerns about
aging, beauty and consuming safe products.
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Chapter 9
OUTSOURCING AND DIFFERENTIATION
I. Corporate Level Strategy
L’Oréal corporate level strategies involve horizontal integration, vertical integration and
strategic alliances, combining the advantages of each strategy to build a stronger image in
different geographic markets.
Horizontal integrated corporate level strategy can be seen through L’Oréal strategy in
acquiring companies that are industry competitors building up its competitive advantage in
the scope it operates. Examples of this are the recent acquisitions of Magic Holdings in China
or Niely Cosmetics in Brazil and the latest one was on January 2016 when L’Oréal acquired
key assets from Rayon Corporation, a wholesale distributor of salon professional products,
strengthening its professional products segment and distribution coverage in USA.
L’Oréal implements vertical integration is noticed on the strategies used on The Body Shop
and throughout the organizations integrated research, development and production facilities.
Although The Body Shop outsources is raw materials for use in product manufacturing, they also
participate in vertical integration by selling their products in their retail stores.
II. Outsourcing Strategy
L’Oréal has devolved mostly as a highly independent business focused in growth and revenue,
aiming to stay close to its customers. In terms of manufacturing, and unusually for the cosmetics
industry, most of L’Oréal branded products are still manufactured internally. The culture of
outsourcing strategy is not really strong particularly due to L’Oréal culture of local power. Although,
L’Oréal has a co-sourcing project on procurement of direct material; ingredients and packaging and
has developed some procurement of indirect categories; human resources, IT and telecom. L’Oréal
combines elements of consulting and outsourcing, with a strong emphasis on risk and gain sharing.
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Unlike a consulting approach, and in line with a traditional outsource, the provider would take
line management responsibility. But there would be no transfer of staff; instead, the provider team
would work alongside existing L’Oréal procurement staff. The provider would also take significant
risk in terms of linking reward to real, measurable bottom-line savings, and would commit to a skills
transfer program. Finally, the provider would be engaged on a relatively long-term basis but with
measures in place to ensure that the contract could be re-competed at that point.
L’Oréal also has an agreement with IBM essentially for expert procurement services using
advanced cloud analytics, aiming at achieving new procurement contracts and cost reduction to be
delivered at the end of the fiscal year. As part of the deal, IBM brings in strong procurement and
category expertise to work along with the existing sourcing team at L’Oréal. Together, these will help
the marketing and procurement team at L’Oréal gain immediate and broad access to global data to
make faster and more insightful decisions, while ensuring purchasing compliance.
The difference from common outsourcing agreements in this case is L'Oréal retains the
procurement department and operations and IBM supplements these operations with its different
assets. They provide the analytics platform along with the domain expertise. IBM provides the
procurement and category experts to work with L'Oréal and aid in their everyday jobs. L'Oréal
retains the team and the process, and has complete control over the business function. IBM was to
transform the process and retrain the users and augment L’Oréal’s skills with the IBM experts.
III. Diversification Strategy L’Oréal
At L’Oréal, beauty and diversity are related where its global presence and brand divisions had
allowed the company to integrate the concept of diversity at all levels while carrying out their
beauty mission: beauty for all. L’Oréal use efficient diversification strategies to build a
competitive advantage and to take advantage of a financial opportunity that aligns with the
business strategic plan. Diversification can be segmented into related diversification or unrelated
diversification and for L’Oréal, the company use related diversification where they only focused
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on the beauty business. For more than a century, L’Oréal has devoted their energy and
competencies solely to one business: beauty (makeup, cosmetics, haircare, fragrances).
Founded in 1909, the L'Oréal Group has become the largest cosmetics and beauty
company in the world. L'Oréal has kept the top position for years while the rest company in the
same industry underwent some changes. The reasons why L'Oréal can become and remain the
world's largest cosmetics company by revenue are its sole focus on cosmetics and beauty
products. They never tried to take a different route like other companies do; like having food,
beverage and home care business. L’Oréal ambition is to attract more people around the world by
creating the cosmetics product that meet the infinite diversity of their beauty needs and desires.
L’Oréal 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’Oréal’s long-term strategy, with a long-term
annual growth goal of 10%. The acquisitions help promotes L’Oréal to quickly expand its
geographical horizon and develop its market segments.
With all those brands acquisition, L’Oréal being positioned it to consumers across
all income levels by providing a wide range of beauty product. The company wants people
around the world to have easy access to their products that match their desire, lifestyles and
beauty needs. L’Oréal’s brand portfolio is organized by Division, which each develops a
specific vision of beauty by consumption universe and distribution channels.
The brands in different subdivisions didn’t compete against each other since one divisions contain
more than one brand, so the important fact was defining a strong brand positioning. One brand doesn’t
copy try to copy another. Related diversification give company the advantages of a diversification
strategy such as advantage of existing expertise, knowledge and resources in the company when
expanding into new activities which may result in transfer of skills, such as research and development
knowledge and sharing of resources.
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Chapter 10
NATIONAL DIAMOND ANALYSIS
The Porter Diamond, properly referred to as the Porter Diamond Theory of National
Advantage, is a model that is designed to help understand the competitive advantage nations or
groups possess due to certain factors available to them, and to explain how governments can
act as catalysts to improve a country's position in a globally competitive economic
environment. The model was created by Michael Porter, a recognized authority on corporate
strategy and economic competition, and founder of The Institute for Strategy and
Competitiveness at the Harvard Business School. It is a proactive economic theory, rather than
one that simply quantifies comparative advantages that a country or region may have.
I. FACTOR ENDOWMENT
1. Human capital
For French culture, they think human capital is indispensable part of business’s success. It
is defined as “productive wealth, embodied in labor, skills and knowledge. Started from France,
L'Oréal devoted more effort into staffs and employees. However, due to the Universalization
strategy. L’Oréal stepped up efforts in recruiting, training the talented person globally. L’Oréal
has created some programs like internship training program or graduate program, in which all
candidates are required to work in a variety of department within 1 years. By doing this, it
could not only help candidate find out their passion and strength, but also help L’Oréal figure
out which suitable position for each person. Honorably, L'Oréal was the first winner who was
being award twice for best human capital initiative of company in the CAC 40 (the top
companies on the French stock exchange), 2009 and 2010 sequentially.
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2. Infrastructure
2.1 Research and innovation
In order to close and understand customer around the world, L'Oréal strengthened its global
presence by operation through the six regional poles (Europe, United States, Japan, China, Brazil
and India). Their mission is also to listen and understand the habits, demands in together with
criteria for preferences of local residents where beauty is concerned.
To be clearer, L'Oréal now has 18 research centers worldwide, organized into 6 poles. Among
there, the European pole center in France has main function as the global center for Advanced
Research to support the other centers. The mission of these poles is to adapt the global strategy to
the specific features of its markets. Besides that, there also set up 16 evaluation centers which are
believed to support center research.
2.2 Manufacturing facility
As we know, there are three major responsibilities for operations, these are Design,
Production and Distribution. Operations contributes to L’Oréal’s reputation and works towards
its corporate social responsibility commitments. L’Oréal now has:
- 44 factories worldwide
- 153 distribution center worldwide
- 515,000 delivery points
The mission of production and distribution is to support the all of the brands, particularly as
they conquer the new markets.
3. Technology
Advance technologies at the heart of innovation. While the development of active ingredients
and formulation believed to be the heart of L'Oréal's innovation, the research teams still need to be
relied on technology to make progress. These are some famous technological advance of L'Oréal.
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The first need to mention is Episkin which was developed by head-quarters in France is a
reconstructed skin model providing as an alternative way to animal testing. This model can be
adaptable to create a range of skin colors and human cells from young to old. Thanks for the
creation of this reconstructed skin model, a safety tests with eco-friendly is conducted.
Nanotechnology and nanomaterials with tiny molecular will help cosmetic absorb into skin quickly.
It also helps to bring some renowned active ingredient like retinol or Vitamin A into deeper layers
to play wonderful effect. The next one is Virtual biopsy. Thanks to Biphotonic microscopy, the
L'Oréal researchers have gathered enough image and information inside skin in real time with
three-dimensional, including its thickness. This is a means of assessing the effectiveness of active
ingredients and formulas as applying into skin. The fourth essential technology for L'Oréal is
SkinChip® sensor. It is used to measure the level of skin hydration. The purpose of evaluating the
level of hydration is to possibly design new product that are faster and better adapted on each skin
in all region, particular for aging skin. L'Oréal also use automatic robots to support their work to
save more time. In addition, some special works are designed for robot like in chemist or biology
with relevant to strong chemical ingredients. Last but not least, human 3D animation is play
essential part in creating new products. It helps researchers to anticipate in reality, non0invasive
manner. For instance, how hair will behave as wet, dry, cut… so on.
II. DEMAND CONDITIONS
Nowadays people’s demand in beauty is creasing as long with population. From face, hair
to body with different types of skins and purposes as day use, night use, moisturizing, etc.
Those factors or demands make the beauty industry bigger and bigger. Not at all, people’s
demands are also depended on their income and afford for product’s quality, plus the
demands in being differences. By the way, there are more and more men also interested in
beauty products for their job’s needs or just habit. Because France was known as the country
with highest fashion standard and most fashionistas in the world, their people’s demand and
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requirement in beauty industry must be very high in both requirement and demand. So that,
L’Oréal had done these things to create development opportunities based on the available
capacity and demands of people in France and threading all over the world:
Research in L’Oréal’s genetics
L’Oréal has been a lot of investment in research, and cosmetics innovation will be placed
in the center of its growth model. Their mission is also to understand the beauty of the local
population preferences, habits, needs and standards. As a result of this interaction between
research and marketing, L'Oréal is able to offer cosmetics that adapt to different skin types,
hair types and cultures.
A rich and diversified brand portfolio
L'Oréal has a rich portfolio of international brands, unique in the world, covering all the range
of cosmetics: hair care, coloring, skin care, makeup and perfume. Are very complementary, and
these brands are managed within the group by their respective departments with expertise in their
distribution channels. This organization is one of the main advantages of L’Oréal. It makes it
possible to respond to each consumer's expectations according to his or her habits and lifestyles,
and to adapt to the local distribution conditions anywhere in the world.
Expertise and services close to consumers
To meet the needs of consumers, the operations department in its three core areas (i.e., quality
(brand protection), security (personnel and asset protection) and sustainable development
(environmental protection) "sustainable plan.
III. FIRM STRATEGY/STRUCTURE
In the environment of the most fashion country in the world, L’Oréal 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,
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medium to large which located in different places in county, the differences in strategy,
technology are much noticeable.
However, L’Oréal used M&A strategy to own many firms and research centers to reduce
competitors, improve their capability and to make sure that their name appears everywhere.
Their ambitions over the next few years are to win the world's other 1 billion consumers by
creating an infinite variety of cosmetics that meet their beauty needs and desires. To achieve
the suggested target, they have many strategies to develop their brand such as:
Corporate strategy
Expand through acquisition
L’Oréal 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’Oréal’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. Purchases 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’Oréal 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
L’Oréal Global strategy
L’Oréal chose a unique strategy: the popularity of. 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.
Marketing strategy
Empowerment
L'Oréal is about empowering clients. The company is not only promoting itself as a
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cosmetic and beauty brand, but also as a source of consumer power and confidence. L'Oréal
remains vigilant to ensure its content is licensed to customers and gives them a positive
outlook for the brand.
Education
L'Oréal Paris is a trustworthy brand. The company has high brand loyalty and excellent
repeat business. Once a female consumer finds her favorite make-up or beauty product, she
tends to stick with it. This opens the L’Oréal Paris educational content marketing opportunity.
How to make video, DIY, and provide consumers with facts is an important way for brands to
reach consumers, while providing useful information and engaging new fans.
Aspiration
By sponsoring events such as the Golden Globe and the project runway, L’Oréal will be
positioning the brand as a trademark of hope. The highlight of the charms or fashion shows is the
L'Oréal If you want to improve yourself and reach a higher goal of health and beauty, insert and
build yourself as the ideal place to buy the product.
IV. Related/Supporting Industries
4.1 Suppliers
L’Oréal creates and develops solid and sustainable relationships with its suppliers around
the world, including suppliers of raw materials, packaging and equipment.
Suppliers of raw materials
L'Oréal uses thousands of material such as palm oil, coconut oil, tea tree oil, petrolatum,
etc. in production of a huge amount of global products. Even though some materials are
plentiful in France, the rests are not. Only France hardly provides enough materials to be
adequate its huge demand for 44 plants worldwide. Therefore, L'Oréal need to buy from other
countries all over the world.
Suppliers of packaging
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Packaging includes carton, glass, plastic in different size and form. The purpose of
packaging is to keep main finished products as fresh as possible, also usable easily and
eco-friendly. So, the package should be in time the products already produced which means
packaging suppliers should be near factories. L'Oréal not only has factory in France, but also
in several countries. Therefore, France could not supply all packaging for L'Oréal. It needs to
find overseas suppliers.
Suppliers of equipment and service
To facilitate 44 plants, L'Oréal needs a lot of machines and equipment such as heating,
cooling, washing machines, etc. These kinds of machines are not typical products of France,
could be bought from China or Japan for better price and quality. So, same situation with
other suppliers, equipment and service suppliers of L'Oréal are mainly from overseas.
4.2 Research and Innovation Centers
There are many beauty research centers in France, but they are in small or very small size,
or not famous. Vichy is an example. Vichy used to be a pure laboratory center famous for
medical cosmetics, then, it was acquired by L'Oréal. It means L'Oréal has been acquiring
smaller research and innovation centers in France to diversify their research field. More
important, L'Oréal also creates research centers in other countries to reach local concept
because the aim of L'Oréal is beauty for all. Besides, L'Oréal takes partnership with some
universities and institutes to cooperate in research.
4.3 Distributors
A wide range of distributors helps L'Oréal provide its products to customers as much as
possible. For luxury products, there are department stores. For consumer products, there are
supermarkets, cosmetics chain and convenient stores. For active products, there are drug
stores. These kinds of distributors and retailers are at very corner of the world, bringing
L'Oréal to every people.
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CONCLUSION
After using different tools to analyze, L'Oréal is a very successful case in the cosmetics
industry. With the purpose of beauty for all, L'Oréal 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 substitutes or new entrants. Its main rivals are Unilever,
Shiseido, P&G and Estée Lauder. Those five giant competitors are dominating cosmetics
market, resulting high intensity. But L'Oréal 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'Oréal has taken huge advantage of economic
of scale and not depended on outsourcing much. At business unit level, L'Oréal has five
divisions which play different roles. L'Oréal Consumer Products is a cash cow business, bring
stable profit to the company to invest in L'Oréal Active and Professionals units. L'Oréal Luxe
is the star unit with high relative market share and high potential for future growth.
Regretfully, The Body Shop which was acquired 10 years before is in the dog category in the
BCG matrix due to its fall in market share and growth. However, in general, the company
uses differentiation strategy to diversify its portfolio to gain profit from worldwide market.
From first hair dyes, L'Oréal has grown to other lines of products as skincare, 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'Oréal 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.
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