management organization, loreal
DESCRIPTION
L'OréalExecutive SummaryThe report gives an overview about L'Oréal; the company`s short cut history, the possibilities, theorganizational circumstances, the environment; in general and in Thailand respectively Asia; and thepossible options.The French cosmetic producer is based on a healthy financial base and is conducting 18 researchfacilities all over the world. L'Oréal is market leader, acting worldwide and got a huge productportfolio for men and women albeit the main target group are women between 18 and 44 years.L'Oréal is an innovative and worthy business and maintains a wide range of brands and products inthe cosmetic business. They are acting in all markets, the biggest market are Western Europe, NorthAmerica and the Asia- Pacific market.Our advice is to use the name and the reputation of L'Oréal- Paris to offer low and middle pricecosmetics in the Asian market. L'Oréal could use their innovative research facilities and the name toimplement the new strategies to reach and create a bigger target group.TRANSCRIPT
Management Organization April 7, 2012
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Management Organization
L'Oréal
4/7/2012
Student
Marco Engler
Management Organization April 7, 2012
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L'Oreal
Executive Summary
The report gives an overview about L'Oréal; the company`s short cut history, the possibilities, the
organizational circumstances, the environment; in general and in Thailand respectively Asia; and the
possible options.
The French cosmetic producer is based on a healthy financial base and is conducting 18 research
facilities all over the world. L'Oréal is market leader, acting worldwide and got a huge product
portfolio for men and women albeit the main target group are women between 18 and 44 years.
L'Oréal is an innovative and worthy business and maintains a wide range of brands and products in
the cosmetic business. They are acting in all markets, the biggest market are Western Europe, North
America and the Asia- Pacific market.
Our advice is to use the name and the reputation of L'Oréal- Paris to offer low and middle price
cosmetics in the Asian market. L'Oréal could use their innovative research facilities and the name to
implement the new strategies to reach and create a bigger target group.
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Preface
The assignment is based on a document of 2003. The document was handed out to write an
assignment about L'Oréal`s circumstances in Thailand. In details, the documents gives information’s
about the story of L'Oréal, its management situations, partnerships, issues and the market in Asia.
According to the guidelines, there are few facts to mention in the report. The foundlings are listed in
the Executive Summary on Page three. The report is structured by the guidelines of the grading form.
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Table of Contents
Executive Summary.............................................................................................................................2
Preface ...............................................................................................................................................3
1 Introduction ................................................................................................................................5
2 Analysis of current situation ........................................................................................................7
2.1.1 Mission ........................................................................................................................7
2.1.2 Goals ...........................................................................................................................7
2.1.3 Strategic ......................................................................................................................7
2.2 Internal environment...........................................................................................................8
2.2.1 Core competence .........................................................................................................8
2.2.2 Synergy ........................................................................................................................8
2.2.3 Value creation..............................................................................................................8
2.2.4 Functional analysis .......................................................................................................9
2.2.5 Corporate culture ........................................................................................................9
2.2.6 Organizing ................................................................................................................. 10
2.2.7 Total Quality Management ........................................................................................ 10
2.3 External environment ........................................................................................................ 11
2.3.1 Porters five forces ...................................................................................................... 11
2.3.2 SWOT Analysis ........................................................................................................... 12
2.3.3 Confrontation matrix ................................................................................................. 13
2.3.4 Conclusion SWOT ....................................................................................................... 13
3 Strategic choice ......................................................................................................................... 14
4 Strategic Gap............................................................................................................................. 14
5 Implementation ........................................................................................................................ 15
6 Conclusion and Recommendation ............................................................................................. 15
7 References ................................................................................................................................ 16
8 Exhibits ..................................................................................................................................... 16
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1 Introduction
L'Oréal is a French cosmetic enterprise, founded in 1909, with its head office in Clichy, France. The
market leader is consisting of 23 brands worldwide and is conducting 18 research facilities all over
the world. ("L'Oréal - Company Overview, 2010) In 2010, the net profit was € 3.06 billion. (Annual
results, 2010)
The product portfolio includes hair colours, beauty and car products for body, hair and skin. The
portfolio includes also product lines for men and women. ("L'Oréal - Company Overview, 2010)
The legal form is Société Anonyme and registered is L'Oréal in Paris. The concern is decentralized.
There are several departments, related to the markets Asia- Pacific, Eastern Europe, Latin America,
Africa- Middle East, North America and Western Europe. In these departments there are several
offices in almost every country in which L'Oréal is operating.
The first products were distributed in Thailand in the early 1950`s. L'Oréal products were not sold in
huge markets but rather by local agents. In the 1990`s were two entities of L'Oréal. The first one was
a joint venture with a local business but L'Oréal bought out the partner`s share in 1998. The second
one was a daughter company of L'Oréal, founded in 1992. Both were part of the L'Oréal group but
they acted in different locations and cultures.
L'Oréal has a wide range of cosmetic products and is operating in several markets worldwide. The
biggest market shares and hence the main focus lies on North America and Western Europe.
Additionally there are also the markets Asia- Pacific, Eastern Europe, Latin America and Africa-
Middle East. (Annual results, 2010)
According to the website of L'Oréal from 2010 there are 64.600 employees from more than 100
countries. ("L'Oréal - Company Overview, 2010)
The biggest markets are the North America and Western Europe market but the Asia market,
respectively the market which includes Thailand, got a market share of 12.8 % in 2010. The allocation
can be seen in the diagram below.
The main target group are women between 18 and 40 years all over the world.
Exhibit 1.1 Market Share of L'Oréal in 2010 (WikiInvest, 2010)
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Since the early 2000er years, L'Oréal divided its business in three divisions. Nowadays, there are four
divisions. In the figure underneath there is a market allocation of these divisions, related to the
operating income from 2009. The concern consists of 23 brands which are divided in these four
divisions:
Consumer products professional products Luxury products
L’Oréal Paris, Kérastase, Lancôme, Helena Rubinstein, Kiehl's,
Garnier, Redken, Biotherm, shu uemura
Maybelline Jade Matrix, Viktor & Rolf, Giorgio Armani,
shu uemura, Yves saint Laurent beaute,
L’Oréal Professionnel Diesel, Cacharel, Ralph Lauren,
Active cosmetics
Vichy, SkinCeuticals
La Roche-Posay,
Innéov, Roger & Gallet
Furthermore, there are also nature cosmetics like Laboratoire Sanoflore and The Body Shop.
Exhibit 1.2 Operating Income by Business Segment of L'Oréal in
2009 (WikiInvest, 2009)
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2 Analysis of current situation
2.1.1 Mission
L'Oréal mission is to deliver beauty for everyone. On the website, L'Oréal says:
“BEAUTY FOR EVERYONE
For more than a century L’Oréal has been pushing back the boundaries of science to invent beauty
and meet the aspirations of millions of women and men. Its vocation is universal: to offer everyone,
all over the world, the best of cosmetics in terms of quality, efficacy and safety, to give everyone
access to beauty by offering products in harmony with their needs, culture and expectations. […]“
L'Oréal is using its name to sell high quality products. They are dominating the price segment and
delivering worth.
2.1.2 Goals
The goals of the L'Oréal group are to growth the profit and establish in the markets, rather than
keeping the position of the market leader. On the other site, L'Oréal is a flexible company which
changed the last years, took over several companies to find and create market niches. Therefore,
there should be the focus lies on the external and internal environment. After the crisis in Asia in
1997, the company could increase and solve the problem of decreased profits. Years ago, the
product portfolio of L'Oréal was different in some areas. To increase the situation in Asia,
respectively in Thailand, there was introduced several products in other markets. Instance of, they
entered the market in Asia with a hair colouration.
2.1.3 Strategic
L'Oréal solved the crisis in Asia with several strategies. The government relieved the entrance for
foreign investors through new hypermarkets, supermarkets and personal care stores like in the
United States. In this way, L'Oréal was able to extend the distribution channels. Today, one of the
strategies is to be more focused on traditional customs and the behaviour. Besides, L'Oréal is also
focused on traditional trading formats. Nowadays, this is one of the new strategies especially
because rivals are entering the market either.
Global Strategy
The French cosmetic producer and retailer want to keep the market position through high
technologies and innovations. This can be accomplished with research and improvements of the
products. The gap between producing costs and turnover is quite big; hence L'Oréal has not to be
focused on costs producing. The investment in Marketing is quite high, higher than the investment of
developing.
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Corporate-Level Strategy
In order to ensure its product quality, L'Oréal has to be more focused on product innovations,
marketing, reputation and the price- performance ratio. Furthermore, they have to be aware of
changes within the markets and progresses of competitors. Therefore L'Oréal started a joint venture
with a Nestle to find new market niches.
L'Oréal decided tore reconsider in its product portfolio of the Asia market and used new distribution
channels
Business- Level Strategy
The mission of L'Oréal to offer and deliver a wide range of beauty products for a fair price is a rather
difficult mission when as they are acting on such a global scale. They have to set new trends and
reach as possible a big target group. So, L'Oréal always needs to come up with new product
innovations, and be able to adapt to new trends and needs to be sure that they can maintain the
same quality and same price level.
Functional – Level Strategy
in 1997 L'Oréal was faced with a big crisis in the Asia market. One of the internal issues was that they
did not use traditional trading ways in Thailand and other countries. To solve this problem, it was
necessary to get help of the government by easier market entrances of new retail platforms and a
broader, internal view of the markets and targets. They get more aware and established L’Oréal itself
in the market. Nowadays, the market in Asia is the third biggest of L'Oréal.
2.2 Internal environment
2.2.1 Core competence
The core competence of L'Oréal is producing, developing and improving cosmetic products. L'Oréal
has 18 research facilities worldwide. They are improving their products to deliver beauty to everyone
and keep the leading position in the markets all over the world. Furthermore, another core
competence is the wide range of products, alternatives and the market leading position.
2.2.2 Synergy
L'Oréal is using the synergy effect of the brands name, which is staying for quality, and the progress
of its research facilities. The name L'Oréal stays for quality and product innovations.
2.2.3 Value creation
The cosmetic producer and retailer create values through the name and the price level. L'Oréal`s
products are not cheap to suggest the consumer that he or she is purchasing quality. Furthermore
there is a wide range of several alternatives for each product to act in every market respectively
market niche. The corporate culture can be described as adaptable culture. L'Oréal is focused on the
external market and takes over other companies like Body Shop in 2010 to work more flexible in all
markets and expand the business. Besides, L'Oréal is a learning organization. The image below shows
an overview of the corporate cultures. L'Oréal knows the fact that people are aware which products
they buy for their body and health. In this segment, the consumers are willing to pay higher prices.
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2.2.4 Functional analysis
Management and
Organization
Marketing Human Resource
- The management
quality is good.
Measurable through
the market position
and the financial
situation
- The staff quality is
high.
- The company is
decentralised in
regions
- L'Oréal created and
published 2007
guidelines for
informational and
control systems.
(External and Internal)
- Distribution channels:
Supermarkets,
personal care stores
hypermarkets,
internet.
- Big market share,
market leader
- The advertising is not
efficient. The costs
are higher than the
invest in research
- Customer satisfaction
is good but some
consumer are
disappointment due
wrong advertising
promises
- The staff satisfaction
is high.
- Employee experiences
are very well.
Finance Production Research and Development
- L'Oréal is very healthy
and market lieder.
- L'Oréal has not even a
good quality control,
they are improving
also its products and
the employees
continually
- They are known for a
lot of product
innovations
- 18 research facilities
- Great laboratory and
technology
circumstances
2.2.5 Corporate culture
The corporate culture can be described as adaptable culture. The company is focused on an
adaptability culture which can be determined by the fast ability of interpreting and translating signals
of environmental changes. L'Oréal is focused on the external market and takes over other companies
like Body Shop in 2010 to work more flexible in all markets and expand the business. Besides, L'Oréal
is a learning organization. The image below shows an overview of the corporate cultures.
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2.2.6 Organizing
According to article 10 § 1 of the Articles of Association: “The Board of Directors determines the
directions towards which the Company’s operations must be aimed, and ensures that these
directions are followed“. (Articles of Association, 2007) L'Oréal can be described as a learning
organization with a view of total quality. The enterprise is adaptive in a sense of changing in the
markets and innovations of the products but the decentralized structure is quite staring. There is a
headquarter and several offices all over the world, rather than 23 brands like Body Shop which acting
more or less separate. In the Articles of the Association are different guidelines for the board of the
directors established. Every department determine decisions, which are related to the environmental
circumstances, by themselves.
2.2.7 Total Quality Management
To ensure the Quality and the youth image in the Article of Association were founded these
regalement’s: “If the number of directors of over 70 years of age is greater than one-third of the
directors in office, the oldest director is automatically deemed to have resigned; his tenure will expire
at the end of the next Ordinary General Meeting, unless the said Meeting appoints one or more
directors, so that the requirement stipulated above is met. If the number of directors on the Board is
equal to the maximum stipulated by law or by the Articles of association, the limit on the number of
directors aged over 70 will be deter- mined after the replacement of the director(s) deemed to have
resigned, and they must be replaced within a period of three months from the date of resignation.
“ (Articles of Association, 2007)
The terms of selecting are four years.
This means also a continually improving and benchmarking within the company. One of the most
important needs of L'Oréal is the developing of new products within their research facilities. In this
way, they try to focus on consumers’ needs and wants.
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2.3 External environment
2.3.1 Porters five forces
In 2010, L'Oréal growth in all markets rapidly. Six years before, there were huge problems especially
in Thailand and Asia. Related to Michael Porter´s Five Forces it is applied to L'Oréal for a better
comprehension of the business as such.
Internal /Rivalry/ Competitors
The business is operating in highly competitive industry which is also characterized by local low
priced cosmetic producers all over the world.
Bargaining power of buyer and supplier
L'Oréal is producing its products by itself and is developing new products and improvements for the
different market segments and niches. Chemicals and ingredients can be delivered by long term
relations with suppliers. Buyers have a great power over L'Oréal ´s product line and the level of
success. Useful is a wide range of products, a good reputation and satisfied, loyal customers. L'Oréal
can deal with loyal consumers.
Potential entrants
The entrance of competitors, especially small local companies, is quite big. The biggest benefit for a
company should be the innovations and new product lines. L'Oréal should be aware of changes in the
market and in the mind of the consumers to consider in time and continually what the current
consumer needs are. L'Oréal should use the research facilities to underline the own approach and
achieve the goals of keeping the market leader position.
Substitutes/Complements
Finally the issue of substitutes has actually been a plus for L'Oréal when the organization changed its
product mix by a complement product that were sold and in addition to make the substitutions
offered by other firms irrelevant.
As a conclusion, viewing L'Oréal in the Porter's 5 Forces, it can be assumed that the company can use
its benefits, position and structure, but also has to be aware of the rivalry changes in all markets
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2.3.2 SWOT Analysis
Strengths Weaknesses Opportunities Threats
- Market
position
- Research
facilities
- Financial
situation
- Worthy
brands
- Loyal
customers
- Innovative
image
- High price
level
- Small male
target group
- Products are
inadaptable
for children
- Problems
with
achieving
advertising
promises.
- Expand in
new niches
- moving to
middle or
cheap price
segments
- Cheap brand
with the well
named name
L'Oréal
- Creating joint
ventures with
other
companies.
- Producing
healthy bio
food
- Takeover of
competitors
- Losing
market
leading
position
- New
entrance
- Missing and
failing in
trends and
needs
- Decrease of
sale by bad
reputation
- crisis, of the
segment
and in
general
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2.3.3 Confrontation matrix
Strengths Weaknesses
Op
po
rtu
nitie
s
S1 - Market position
O1 – Expand in new niches
S5 - Costumer loyalty
O2 - moving to middle or cheap price
segments
S6 - innovative image
O5 – Bio food
S3 - financially healthy
O5 – takeover of competitors
W1 – high price level
O2 - moving to middle or higher price
segments
W2 – small male target group
O1 – expand in new niches
W3 - Products are inadaptable for children
O1 – expand in new niches
W4 – Problem achieving advertising
promises
O4 – moving to middle or cheap price
segments
Th
re
ats
S1 - Market position
T1 – Losing market position
S2 – Research facilities
T3– Missing trends
S3 – worthy brand
T4 – getting bad reputation
S4 – loyal consumers
T2 – New entrance of compoetitors
W1 – Expand in marker niches
T3 – missing trends
W2 – small male target group
T1 – losing market position
W3 – products are inadaptable for children
T2 – new entrance of competitors
W4 - Problem achieving advertising
promises
T4 - getting bad reputation
2.3.4 Conclusion SWOT
There are a lot of strengths and weaknesses of L'Oréal, what should clarify the importance of
awareness in the market and improving of the company image, product innovations and possible
new market niches to reach new costumers. The SWOT illustrates the danger of external and
uncontrollable forces. Beauty products are not really necessary. If there rise a huge crisis in the
market segment or a general financial crisis, people will only buy important products.
It is extremely important to force the strengths, the market position and the brand reputation to
avoid big entrances of competitors. Furthermore, L'Oréal took over some companies worldwide, built
joint ventures and worked together with other enterprises like Nestle to damp rivals.
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3 Strategic choice
L'Oréal is a well- named; big and successful company which is established in all markets and is market
leader. Therefore there are just small possibilities to improve the current situation. One of the
common goals is maximize the profit and brace the pole position in the market. We considered three
possibilities to improve the current situation of L'Oréal. These strategies are short- term activities
and are focused on the market in Asia, respectively in Thailand. But they are also compatible for
other regions. The options come from the results of the SWOT Analysis.
Option one: L'Oréal can introduce bio foot products. People associate health and well care products
if they hearing L'Oréal. In this way, L’Oréal could establish a healthier and more humanity reputation.
In particular because people are currently very interested in healthy bio foot and are willing to pay
more for eat if they can trust the company.
Option two: L'Oréal can reconsider the targeting. The main target group are women between 18 and
40 years. Option two offers the chance to get more male consumers. A problem could be that men
are not interested to pay much money for personal care products.
Option three: The name of L'Oréal is related to good products and high quality. A lot of companies
using the technology and offer cheap or middle price segment products to reach also lower income
customers. L'Oréal could offer cheap products and use its name to catch other targets.
We prefer option three.
A lot of research whether Asian people are interested in beauty products or not has to be
considered. Therefore option two needs more time to introduce and implement.
Option one is also difficult to introduce as L’Oréal needs to take over a bio foot enterprise and
evaluate the eating behaviour of people in Asia, rather than Thailand.
Option three can be implemented fast, increases the profit and makes the target group much
broader.
4 Strategic Gap
L’Oréal has customers all over the world but the price segment is high. Hence, L’Oréal should
establish also lower and middle price products.
Desired situation:
- reach more consumers
- establish in all markets and segments
- use market niche before big rivalry use the gap
The gap between the current and the desired situation is just the product range. L’Oréal should use
the well- known name to reach more customers, also for low and middle income consumers.
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5 Implementation
The implementation process is very easy. L’Oréal can use its technologies to produce the products,
the unused producing capacities can be used and the distribution channels are the same like for the
common L’Oréal products.
Therefore there are no changes in the organization and leadership, the culture and the controlling.
The development process can be modified and maybe the costs can be reduced.
6 Conclusion and Recommendation
The concern consists of 23 brands in the beauty product, the cosmetic, business. The group itself is
called L’Oréal. The people associate with the name the same-named brand L’Oréal- Paris. L’Oréal-
Paris is known for quality and high product quality and therefore the name can be used to reach
other potential consumers with lower or middle income.
Therefore the advice is to produce low or middle price products to extend the target group. Our
advice is to reach the bigger target group of small and middle income through low and middle price
qualities. L'Oréal can use the name and reputation to offer these products in Asia like other
companies, which use similar products with a similar price but reduce producing costs and
advertising costs.
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7 References
"Annual results 2010." L'Oréal. N.p., 10 Feb. 2011. Web. 25 Sept. 2011. <www.loreal-
finance.com/_docs/fichiers_contenu/0000000596/OREAL_results_2010.pdf>
"Articles of Association." Articles of Association. N.p., 14 Feb. 2007. Web. 26 Sept. 2011.
<www.loreal-finance.com/_docs/fichiers_contenu/0000000103/LOREAL_STATUTS2007_GB.pdf
"L'Oréal - Company Overview ." L'Oréal : cosmetics, beauty, perfumes. N.p., n.d. Web. 25 Sept. 2011.
<http://www.loreal.com/_en/_ww/html/our-company/mission.aspx?>.
"WikiInvest." Market Share of L'Oréal in 2010. N.p., n.d. Web. 25 Sept. 2011.
<www.wikinvest.com/stock/L%27oreal_%28LRLCY%29>.
"WikiInvest." Operating Income by Business Segment of L'Oréal in 2009. N.p., n.d. Web. 25 Sept.
2011. <www.wikinvest.com/stock/L%27oreal
8 Exhibits
Exhibit 1.1 Market Share of L'Oréal in 2010 (WikiInvest, 2010)........................................................................... 5
Exhibit 1.2 Operating Income by Business Segment of L'Oréal in 2009 (WikiInvest, 2009) ................................... 6