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Executive Summary:

Analyzing the case of LOral, it has been shown that although the firm is doing good business
and maintaining profit; there are some problems that has to be identified in case of LOral. Also
the SWOT analysis, PESTEL analysis and Porters five strategies have been implemented on the
firm. Finally, the most appropriate piece of strategy for the firm has been chosen and ways have
been explained in which the strategies would be most satisfactorily implemented.

Introduction:
Founded in 1907, by Eugne Schueller in Paris, the famous and technologically advanced
company LOral has gained reputation for luxury and quality. Technology should be used only
where it adds value to the customers (Faisal, 2002). With this vision, the LOral Group is now
the largest cosmetics and makeup product manufacturer in the world. This French cosmetic giant
group is the manufacturer and distributer of hair color, skin care, sun protection, make-up,
perfumes and hair care. The company has its main office in Paris at the suburbs of Clichy, Hautsde-Seine, France. The company was registered in July, 1909 at Paris. In 1920, the company had
employed only 3 chemists. By the end of 1950, the number rose to 100. By 1984 the number of
employee was 1000 and today it employs a little over 2000 chemists as employees. At first
LOral started hair-color business, but after almost a decade, the company also took its share in
the cleansing and beauty products industry. Currently LOral markets almost 500 brands and
has more than thousands of products in beauty business mainly focusing on hair color,
permanents, hair styling, body and skin care, cleansers, makeup and fragrances industry.
Currently LOral has five international quality research and development centers. Of them two
are in France, one in USA, one in Japan and the other one is in China. And also plans to set
another research and development facility in New Jersey, USA.
Today LOral has been performing business in over 130 countries employing almost over 50000
employees. It operates 42 manufacturing plants in the world which employs nearly 14000 people
all over the world. In 2003, the company announced its 19 th consecutive double-digit growth. In
2007, the company was ranked as 353rd organization in Fortune Global 500. The company had
earned $2,585 million on sales of $19,811 million.
Not only business, but LOral has also contributed to creating corporate social responsibility. In
2008, LOral was acclaimed as the Top employer of Europe by the European Student
Barometer. The LOral - UNESCO award was established for improvement of women in society
and increase their contributions in different scientific sectors. The award established by French
cosmetics giant LOral and the United Nations Educational, Scientific and Cultural

Organization (UNESCO) presents each outstanding laureate an amount of $100,000. It also


established a competition named LOral Brand storm which is organized every year in 43
different countries. The competition presents the top three teams of the completion with the
amounts of $10,000, $5,000 and $2500 respectively. The LOral group has committed to reduce
pollution, waste management and recycling practices. All the products are allergy free and
certified that they are not used on any animals as trials. The motto of the company is "Because
I'm worth it" and with this motto, the company is advancing towards achieving the goals.

Vision Statement:
Because I'm worth it"
The vision statement of LOral explains its marketing and target policy. Also it creates a value
of its products through its vision statement. The vision statement is an indication that LOral
sells its products to those who really deserve the products through their beauty and acts.
Although LOral is widely accused to state racism through its statements. Because it targets
only the posh consumers and shows neglect to the other market segments. The visions of LOreal
group are quite straightforward.

Visions of LOreal:

Striving For Excellence:

At LOral the executives constantly look for better quality and innovations. Constantly
look for perfection. LOral sets its primary goal to innovation and perfection. They believe
that unless they perfect each and every product, they wont be able to succeed to pursue the
consumers to buy their product.

A Passion for Adventure:


LOral believes in their expertise. They believe in their ability to produce the best
quality. They believe that each of their achievement in the sectors of Cosmetics is a new a
beginning.

Enrichment through Diversity:


Diversity is the main motto of the culture at LOral. They believe that nothing can be
achieved without diversification. The Staffs at LOral come from different aspects of
life. They offer different expertise to LOral. So they truly understand the different
needs of their consumers. LOral offers different ranges of production in different

distribution channels. The goal of LOral is to serve beauty and satisfaction of their
customers all over the world.

Valuing Individual Talent:


LOral gives value to its employee to the best extent. At LOral the organization looks
forward to the personal and professional growth of each employee. Because without
employee satisfaction LOral would not be able to reach the success it has reached today.

Leading Innovation in Beauty:


LOral looks for continuous perfection in their products. They believe in research and
development as important as marketing. Their expertise and focus on creativity and
continuous improvement contributes to development of their cosmetics.

Mission Statement of LOral :


At LOral we believe that everyone aspires beauty. Our mission is to help men and
women realize their aspiration, and express their individual personalities to the full. This is
what gives meaning and value to our business, and to the working lives of our employee.
The mission statement of LOral is clear and explicit. They believe in the beauty and try to help
the consumers believe in their natural beauty. This is the main mission of LOral and through
the realization of the organizational mission; LOral creates its importance and value to their
customers and employees. One more point should be appreciated in the mission statement of
LOral is that it does not only adds value to its business. But at the same time, it improves the
lives of its employees at the organization.

LOral at a glimpse:

LOral is the number one cosmetics brand in the world. Their innovation and continuous
improvement in research and development has helped them reach the peak of success. Presently
LOral has the certain feathers of success attached to their caps.

Over 100 years of experience and expertise in cosmetics production.


5 different levels of expertise: hair-care, hair color, skin care, fragrance and make-up
23 international brands of cosmetics range.
Consumers in over 130 countries.
17.5 billion euro sales all over the world in 2008.
581 million euro investment in Research & Development.
More than 67000 employees worldwide.
4.6 billion Units of production in 2008.

Brands of LOral:
The brands of LOral are differentiated due to the different requirements of their customers.
They can be grouped as below.
1. Consumer Products:
These are High-technology products at competitive prices. Usually end users or
consumers are focused and thus marketed through retailing channel.
LOral Paris
Maybelline
Garnier
2. Professional Products:
These include the users at Hair salons and provide customers who use a wide range of
products for business.
LOral Professional
Kerastase
Matrix
3. Luxury Products:
These include luxury items which are offered to the customers at various retail stores,
luxury stores, and travelling destinations.
Lancome
Ralph Lauren
Biotherm
Giorgio Armani
Diesel
4. Active cosmetics:

Cosmetics supported by dermatologists and pharmacists. And consumers who seek for
skin treatment usually are the main focus of the product range.
Vichy
La roche posay

Financial Ratio Analysis of LOral (2008-2009):


Ratio
Liquidity Ratio

2009

2008

Current Ratio
Quick Ratio
Leverage Ratio

1.10
.83

.089
.66

Debt to Asset Ratio


Debt to Equity
Long Term Debt to Equity
Times Interest Earned
Activity Ratio

41.62
.71
.21
27.69

49.52
.98
.24
13.44

Inventory Turnover
Total Assets Turnover
Profitability Ratio

3
.75

3
.77

Gross profit margin


Operating profit margin
Net profit margin
Return on Asset
Return on Equity

70.46%
14.75%
10.27%
7.71%
13.2%

70.43%
15.53%
11.12%
8.52%
16.87%

Growth Ratio
Sales
Net Income

14.58%
10.27%

15.99%
11.12%

Market Positioning Map


We used the top-to-bottom approach to find the two most important variables, Product
Diversity and Market Share. It can be easily recognized that the market competitors of

LOral are Unilever, P&G and ESTEE LAUDER etc. All of them are well established in
cosmetics industry and has a High product diversity and High market share in cosmetics
market.

Global Operations Map

Internal Assessment: SWOT Analysis


Strength

LOral currently has 23 international brands


Operates in more than 130 countries.
Has a diversified distribution channel
The products are of highest possible quality
Has a strong research and development facility to target and make effective distribution
system.

Weaknesses

It has a decentralized organizational policy which makes it difficult to control


It is difficult to capture all the consumers in mass markets of Asia and Europe.
Its annual profit is a bit less than all its other market rivals
Weaker Brand value in some countries compared to other brands

Internal Factors Evaluation (IFE):

Key internal factors


Strengths
23 international brands
Operates in more than 130 countries
diversified distribution channel
highest possible quality products
Research and development
Weaknesses
Decentralized organizational policy
Difficulty in market capture
Lower annual profit
Weaker brand value

weight

rating

Weighted score

.05
.15
.1
.18
.19

3
2
3
4
4

.15
.30
.3
.72
.76

.08
.09
.01
.15
1.00

3
2
4
4

.24
.18
.04
.6
3.29

Analysis:
The overall weighted score of LOrals Internal Factor Analysis (IFE) is 3.29 which states that
the internal function/roles at LOral is strong.

Opportunities

LOral has a huge scope for anti ageing products


Approximately one-eighth of the population use anti ageing products
Life expectancy around the world is increasing in rapid speed
Still LOral has a lot of uncovered market around the world which can be beneficial to
the company.
Improvement of technology has been supporting and can support further in market
acquisition.
Its focus on innovation makes it more competitive in the market
Teenagers as well as youngsters are becoming conscience in an increasing rate which can
be a potential market segment for LOral.
Rise in Income Level

Threats:

LOral has a lot of competitors.


LOrals success may make its competitors imitate the strategies.
Due to a failure in project, it may face the threat of negative reputation.
The diversification policies can affect the main business of the company.
The global financial crisis can affect the overall sales and profit of the company.
Regulations in different countries may pose threat.
Fluctuation in Currency
Increase in environmental pollution
Restriction of product
Competitive pricing
Fall in Income

PESTEL Analysis:
The PESTEL analysis can be used to find the external factors that affect an organization. The
PESTEL analysis of LOral finds the following external factors.
Political Factors:
The company is likely to face political and corporate governance pressures in its operations
around the world due to the following factors:

International environment police


Taxation Policy
Stability of the Government
International political stability
Regulations regarding private investment
Other government decisions

Economic Factors:

It must be said that the factors which mostly influence the operations and achievements of a
business are the economic factors. In a well maintained economy, there exists stability in the
country. Together, this two and some other factors influence the business environment in the
country. If LOral wants to succeed, it must keep the following economic factors under
consideration.

Interest rate
Globalization
Credit control
Money supply
Financial market
Monetary policy
Fiscal policy
Pricing fluctuation

Sociological Factors:
Societys perception plays a very vital role in the success, sales & profit of an organization. Due
to the social differences around the world, changes in sociological conditions may affect LOral.
The different sociological factors are:

Mobility
Distribution of Income
Population
Attitude towards the product
Attitude towards the foreigners
Attitude to job
Working conditions

Due to the differences in all around the world, LOral may face a threat if they do not diversify
their strategies in various countries of their operation.

Technological Factors:
The use of innovative and new technologies will surely help in the prosper and development of
LOral around the globe. Although it must be remembered that technological development and

change often prove to be disastrous (Amjad, 2003). Some of the technological constraints may
be:

Use of latest machinery


Use of latest software
Use of IT development

By using the latest technology, LOral will be able to deliver more value to its customers. This
surely will help in their operations.

Environmental Factors:
Due to the latest development in environmental management, people are now much more
conscious about the environment that they live in. And surely they will not stand any
organization that brings harm to the environment. For successful business, LOral must keep
note of the following environmental issues.

Global pollution conditions


Waste management
Noise pollution management
Environment activist groups
Air and water pollution due to operations

Legal Factors:
LOral may face some legislation and legal problems all around the world. The major law
problems related to business and industry can harm the operations of LOral. These factors may
include:

Employment law
Trade law
Product law
International movement of factors law
Regulatory laws

Addressing these factors of constrain will be very much helpful for the operations and overall
success of LOral.
Porters Five Forces Model

Rivalry among the competitive firms (High)

Since there is a high competition in the market of cosmetics and skin care
products and the main market competitors are giants like P&G, Unilever, ESTEE
LAUDER; LOral needs to have continuance in quality improvements in their
different products. Also they have to improve their distribution channel
continuously to reach all their target markets around the world.

Potential Entrants (LOW)


The potential market size is not so big and there is existing players like P&G,
Unilever, ESTEE LAUDER and LOral. So there is little or no chance of serious
threat from any newcomer to the market. LOral does not seem to have such a
huge threat from any new market Entrants.

Potential Developments of Substitutes (Low)


A huge number of populations in the world is ageing and need skin care products.
Also since there are not much substitute anti-ageing products in the market, there
is little threat of any potential development of substitute products. LOral does
not face any terrible threat of potential substitute in the market.

Bargaining Power of Suppliers (LOW)


Since LOral is a giant in the industry and has a huge production capacity (more
than 4.5 billion Units per year), there is little chance that suppliers will pose a
great threat to LOral. The number of suppliers around the world is huge. So
suppliers have little or no bargaining capacity with LOral. Thus LOral does
not face much threat from its suppliers.

Bargaining Power of Customers (High)


Since there are a number of competitors in the market, consumers have the option
to switch to any brand any time. So LOral faces a threat of shortage of customer.
LOral must address this threat seriously in order to maintain its market share in
the industry.

External Factor Evaluation (EFE)


Key external factors
Opportunities

Weight

Rating

Weighted Score

Scope for anti ageing products


Rise in income level
Rising demand
Selling through pharmacy

.05
.08
.08
.09

3
3
4
4

.15
.24
.32
.36

.1
.1
.1
.1
.1
.1
.1
1.00

4
3
3
4
2
4
3

.4
.3
.3
.4
.2
.4
.3
3.37

Threats
Competitors
Currency fluctuation risk
FDA regulation
Restriction on product
Fall in income
Competitive pricing
Changes in distribution policy
Analysis:

LOrals EFE score has been computed 3.37 which means that LOral is doing relatively well
in responding to appropriate threats and opportunities.

Strategy formulation:
Boston Consulting Group Matrix (BCG)

Boston Consulting Group Matrix (BCG) developed by Boston Consulting Group, gives an idea
that an organizations businesses could be evaluated and plotted using a 2*2 matrix.

Quarterly sales
1st quarter 2011

million

Growth

1st quarter 2012

Like-for-like

Reported

By division
Professional Products

715.5

755.6

3.1 %

5.6 %

Consumer Products

2,583.8

2,769.5

5.1 %

7.2 %

L'Oral Luxe

1,116.6

1,315.5

12.2 %

17.8 %

445.2

468.6

4.7 %

5.3 %

4,861.0

5,309.1

6.4 %

9.2 %

Active Cosmetics
Cosmetics total

Quarterly Data of LOral sales in 2012

BCG Growth Share Model:

Relative market share position


High
Low
L'Oral Luxe

Consumer Products

Hi

gh
StarsII

Question Mark I

Professional Products

Active Cosmetics

Cash Cows III

Dogs IV

Industry
Sales growth rate

Low

The four sections in the matrix help us identify the high potential business sectors and the
unnecessary business segment.
The four sections state the potentiality of the business on the basis of Market share and
anticipated growth rate. They are explained below:

Cash Cows (Low growth, high market share). In LOral the professional products
fall under this category. They generate large amount of cash sales but have very
limited future growth potential.

Stars (High growth, high market share). L'Oral Luxe products fall under this
category meaning these products have fast growing market and hold a dominant share
in the market.
Question Mark (High growth, low market share). L'Orals Consumer Products fall
under this category. These products have huge market growth but a very limited
market share in the industry.
Dogs (low growth, low market share). L'Orals Active Cosmetics fall under the
category. Meaning they do not produce neither require much cash. However these
products do not promise to improve performance in the near future.

Recommended Strategies:

L'Oral Luxe
StarsII
Backward, forward
horizontal Integration
Market penetration
Market Development
Product Development

Consumer Products Question Mark I


and
Market Development
Market penetration
Product Development
Divestiture

Professional Products Cash Cows III


Product Development
Diversification
Retrenchment
Divestiture

Active Cosmetics
Dogs IV
Retrenchment
Divestiture
Liquidation

Internal-External Matrix (IE)


From the calculations done in Internal factor evaluation (IFE) and External factor evaluation
(EFE) we see that the total weighted scores are somewhat near to each other. So there is not

much difference between them and both internal and external factors in LOral have almost
equal part in the outcomes of strategic decisions taken at LOral.

Calculation:
From the Internal factor evaluation (IFE) and External factor evaluation (EFE) we find that,
Total Weighted score of IFE= 3.29 and Total Weighted score of EFE= 3.37

IE Model:
IFE Total Weighted score
4

Strong

Average

Weak

EFE

High

Total
Weighted Score

Low

Recommended Strategies:

Backward, Forward and Horizontal Integration


Market Penetration
Market development
Product Development

Analysis:
Here it is seen that both the IFE total weighted score and EFE total weighted score are high and
strong. This means that both internal and external factors influence in strategic management
decisions of LOral. So none of the factors can alone be blamed for the decisions and
implementation of strategic management in LOral.

Grand Strategy Matrix:


Rapid Market Growth
Quadrant 2
Weak

Quadrant 1
LOral.

Quadrant 3

Quadrant 4

Competitive
Position

Slow

Market Growth

Recommended Strategies:

Market development
Market Penetration
Backward, Forward and Horizontal Integration
Product Development

Analysis:
The grand strategy matrix represents the market competitiveness of a business entity in relation
to its market growth. In the grand strategy matrix, LOral sits in quadrant no.1. This implies
that LOral has a strong competitive advantage among its other competitors. Also it has a rapid
market growth. So, it can be said that LOral will continue to grow in the market of skin care
products until it produces innovative and high quality skin care products.

Quantitative Strategic Planning Matrix (QSPM)


Model:

Integration

Intensive

Diversification

Key factors
Opportunities

Weight

AS

TAS

AS

TAS

AS

TAS

Scope for anti


ageing products
Rise in income
level
Rising demand
Selling through
pharmacy

.05

.05

.05

.05

.08

.16

.08

.16

.08
.09

1
2

.08
.18

2
2

.16
.18

3
1

.24
.09

.1
.1

4
2

.4
.2

3
1

.3
.1

3
2

.3
.2

.1
.1

1
1

.1
.1

2
1

.2
.1

1
1

.1
.1

.1
.1

2
1

.2
.1

2
1

.2
.1

2
3

.2
.3

.1

.2

.2

.2

Threats
Competitors
Currency
fluctuation risk
FDA regulation
Restriction on
product
Fall in income
Competitive
pricing
Changes
in
distribution
policy

1.00
Integration
Key factors
weight
Strengths
23 international .05
brands

Intensive

AS

TAS

AS

TAS

Diversificatio
n
AS
TAS

.05

.2

.05

Operates
in
more than 130
countries
diversified
distribution
channel
highest possible
quality products
Research
and
development
Weaknesses
Decentralized
organizational
policy
Difficulty
in
market capture
Lower annual
profit
Weaker brand
value

.15

.3

.45

.3

.1

.3

.3

.2

.18

.54

.54

.18

.19

.57

.76

.38

.08

.16

.08

.16

.09

.09

.09

.09

.01

.02

.02

.02

.15

.3

.3

.15

1.00

4.1

4.41

3.47

Analysis:
The final group strategy that we have chosen for LOral is Intensive Strategy since the sum
in the Intensive Strategy is the highest.

Conclusion:
Intensive strategies include tools like Market Penetration, Market Development and product
development. If LOral wants to implement the strategy, then it must improve its competitive
advantage with its existing product line. These strategies will enable LOral to achieve the
following goals:

Increase value of Brand


Diversified portfolio
Stronger operation and market
Stronger channel of distribution
Excellence in management and operation
Reduction of cost.

Recommendations for LOral:

Must create brand awareness in the consumers.


Helping professional users get more of the product
Introducing new product
Innovate new ideas to sell the product
Formulate new strategies for test.
Pricing the product in a flexible way.

Strategy Implementation:
EPS/EBIT Analysis for LOral
Common Stock
Financing

Debt Financing

Recessio
n
595.8
0

Normal

Boom

711
0

595.8

TAXES
EAT
# of
Shares
EPS

EBIT
INTERE
ST
EBT

Normal

Boom

712.9
0

Recessio
n
595.8
11.6

711
7.1

711

712.9

584.2

259.7
336.1

255.2
455.8

293.7
419.2

1648378
45

1698378
63

2.04

2.68

Strategy Evaluation:

Combination
Financing
Normal

712.9
9.3

Recessio
n
595.8
5.8

703.9

703.6

537.8

707.45

259.7
324.5

255.2
448.7

293.7
409.9

259.7
278.1

255.2
452.25

2450000
00

1598378
45

1648378
63

2400000
00

1623378
45

1673373
63

708.2
5
293.7
414.5
5
2425
00

1.70

2.03

2.72

1.70

1.71

2.70

1.71

711
3.55

Boo
m
712.9
4.65

Bibliography:
Amjad, U. (2003) E-Business and distributed system handbook. Nge Solutions.
Faisal, H (2002) The Alignment Effect: Hoe to get real business value out of technology.
Financial Times: Prentice Halls.
4rincones.blogspot.com/2008/08/1.html
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