DISCUSSION
STRATEGY ANALYSIS
Strategy formulation always begins with the situational analysis; it is the process of
analyzing a strategic fit between the opportunities (external) and strength (internal) in concern
with the threat (external) and weakness (internal). The acronym SWOT stands for the Strength,
Weakness, Opportunities and Threat. This analysis should not only explain the competencies that
are distinct but should also provide identification to the opportunities, which company was not
able to avail due to lack of resources.
Strengths
Strength of LOreal lies in innovation, Research and development, understanding of consumer
needs and wants, distribution channel and financial position. LOreal spends heavily on research,
which is 3 percent of the revenue. Pudong LOreal is the Research Center of the company, which
aims to study the properties of Chinese skin, hair and botanical materials that are used in Chinese
medicine. Company gives due attention in identifying the needs and wants of the consumers; it
develops the products. Company owes a strong financial position. At the end of the fiscal year in
December 2004 The Company recorded revenues of E14, 534 million, and an increase of 3.6%
over 2003. This increase was due to a growth in the cosmetics and dermatology division. Till
today, both these division serve as the major revenue yielding unit. One of the strengths of the
company is that it has the advantage of economies of scale. LOreal has this advantage in
packaging and advertising field, which enables it to improve its profit margins. From the last
decade, its net profit has doubled every 5 years.
Weakness
LOreals weaknesses lie in profit margins. Its profit margin is slightly low compared to some of
its smaller rivals. Another weakness is that it has decentralized organizational structure; as a
result of this, the control over different units becomes difficult. Due to decentralization
coordination between the departments has decreased.
Opportunities
Opportunities always provide a way to strengthen and consolidate the position of organization.
L'Oreal itself came with an opportunity as it focused on the segment, which was lucrative.
L'Oreal concentrated on skincare, cosmetics, hair-styling and color and perfumes. It is the fastest
rising field in the segment of beauty business. Other opportunity is that the demands of these
products are continuously increasing as it is gaining benefit from ageing and affluent
populations, which are increasing in numbers in developed countries. In 2000, cosmetic sales
were about 27% of the emerging market. Last but not the least; this market has very little impact
of the Fluctuations arising in the economy. A major opportunity that lies with the LOreal is that
it has registered around 400 patents last year, which will provide the company with greater
market share. Many acquisitions have provided it with the opportunity to enter into new markets
that too in lower cost.
Threats
It is an unfavorable condition, which creates risk for the organization. There is a possibility of
monopoly that will restrict it from entering into large mergers. Another threat is that L'Oreal's
products are luxuries, which might not be hurt by an economic downturn, although this situation
not found in the past. Another threat is posed by the competitors who might give stiff
competition. For example its major rival is Procter & Gamble and Unilever which are battling for
$231 billion market of cosmetics.
WHAT ARE THE CHANCES AND RISKS THE COMPANY FACES?
As mentioned before, LOreals most promising opportunity is market expansion and the arrival
of new customers. Until they are completely ready to enter a new or expanded market, they have
the chance to work on current product innovation and improvement, as well as developing new
products and expanding their product/service range. Risks, on the other hand, are always present.
From new competitors, through changes in market demand, all the way to world economic crisis,
LOreal has to struggle in their industry if they want to stay on top of the business food
chain.
HOW COULD THE COMPANY RESPOND TO THE EXTERNAL FORCES?
The company needs to be able to keep up with technological trends, since technology changes
rapidly, and its the key factor of every business. Also, the company needs to always be prepared
for sudden government decisions, such as higher tax and interest rates, changing laws and
regulations, etc. This is done by constantly analyzing the political, economic, social and
technological situations in the country of operation, as well as the rest of the world. This is
frequently referred to as the PEST Analysis. But most importantly, the company needs to focus
on knowing their customers needs, and complying to them, as well as knowing what your
competition is doing at every moment.
WHICH MARKETING STRATEGY WOULD ENSURE THAT THE COMPANY
MATCHES ITS INTERNAL CAPABILITIES WITH EXTERNAL OPPORTUNITIES?
Probably the smartest move would be to improve what the company already has. If they start
from the bottom, and with time improve and expand what is already working perfectly, and fix
what is maybe not working so great, they are making more room for growth. Even the smallest
of changes can make a difference.