You are on page 1of 11

Last Name 1 Strategic Management LOreal is the largest cosmetics group in the world, operating in 130 countries, offering

27 international brands, and employing 68,9000 people. Its sales accounted for 20.3 billion in 2011. The same year, 613 new patents were registered (LOreal, 2012a, p. 1). The company concentrates on strategic areas offering high technological value, i.e. hair colour, hair care, skin care, sun protection, make-up, and perfumes. It has brands in five major areas: hairdressing salons, pharmacies, Body Shop, and consumer and luxury products. Such division increases the efficiency of its operational processes and distribution channels, e.g. department stores and perfumeries offer luxury goods, while consumer products are distributed through retailers and via mail orders. The most famous brands include LOreal Paris, Garnier, and Maybelline NY using the world famous slogan Because Im worth it (LOreal, 2009, pp. 3, 8, 10). LOreal has a strong competitive position ensured by internal and external organizational factors. The Groups internal strengths are connected to its commitment to the creation of diverse, innovative, quality, safe, and sustainable products. This focus on excellence in manufacturing is accompanied by respective advertising policy, based on proven performance and scientific data, honesty, and clarity (LOreal, n.d.f). Thus, the organization of LOreals operational process becomes a significant strength. Also, the company has creative workforce, which adds much to the creation of loyal customers. Besides, organizational decentralization helps the Group to manage its regional subsidiaries in accordance with local requirements. LOreal has numerous opportunities for market growth, especially in the emerging markets (e.g. through acquisitions) (LOreal, 2009, p. 3). Even during economic recessions, cosmetics consumption tends to remain quite stable, which is a great benefit for the company (Macedo-Soares and Silva, 2012, p. 21). Still, this does not mean that it should not consider the

Last Name 2 possibility of demand declines and fluctuations. Additionally, LOreal builds strategic alliances with its customers and suppliers. This is a significant benefit in terms of stability and adaptability and can provide certain growth opportunities. The company is very responsible about choosing suppliers, which is crucial for its position and brand name, though it may be more time consuming and quite costly (LOreal, n.d.f; Macedo-Soares and Silva, 2012, pp. 22, 26). On the other hand, the Group operates in a highly complex external environment due to economic, social, and political differences around the world. Every country has its own political context and specific requirements, legislation, restrictions, and prohibitions regarding drug and ingredient use, testing on animals, advertising, etc. These peculiarities affect LOreals business operations and require it to adapt and make changes in resources and production process. Besides, political instability and bureaucracy, especially in emerging economies, e.g. Latin America or Asia, can pose a great threat. Also, each country has specific economic conditions in terms of labour costs and exchange rates, availability of raw materials, and possibilities of creation of strategic alliances (LOreal, 2009, p. 5; Macedo-Soares and Silva, 2012, p. 21). Naturally, market competition is high. Being a global company, LOreal competes with Unilever (the Dove, Seda, and Rexona brands), Louis Vuitton Met Hennessy (Dior, Kenzo, Givenchy, etc.), and Procter & Gamble (Gillette, Olay, Pantene, Wella, etc.). Additionally, new entrants and substitute products increase competition (Macedo-Soares and Silva, 2012, p. 21), while rapid technological changes drive it even more. On the other hand, they stimulate LOreals research and development activities, thus increasing its strengths (LOreal, 2009, p. 6). Interestingly, Macedo-Soares and Silva (2012, p. 22) view consumers as an external threat due to their price sensitivity. Indeed, usually LOreals products have higher prices than identical products of other brands. Therefore, its consumers may be attracted by the companys

Last Name 3 competitors offering lower prices. This problem is exacerbated by competition in electronic media. On the other hand, electronic means of product and brand promotion, including ecommerce, can be a good opportunity for LOreal itself (LOreal, 2012a, pp. 74-75). Within this environment of risks and opportunities, LOreal is aiming at fulfilling its mission of beauty, namely offering the best of cosmetics innovation in terms of quality, efficacy, and safety to all people around the world. Therefore, its strategies aim at ensuring beauty for all through meeting the infinite diversity of beauty needs and desires all over the world (LOreal, n.d.a). Thus, as there is no single and unique model of beauty, but an infinite diversity of forms of beauty, linked to periods, cultures, history and personalities, LOreals strategy of beauty universalization does not involve a uniform or global concept of beauty, but rather an adaptation of beauty and its increasing accessibility (e.g. in terms of purchasing power and distribution channels), (LOreal, 2012a, pp. 8-9). Ensuring diversity is of crucial importance in an increasingly diverse world of individuals with different cultural and ethnic backgrounds, unique styles, perspectives, values and beliefs (LOreal, n.d.c). Moreover, such an approach is vital in terms of companys global presence and expanding into new markets. All these factors require the company to use the differentiation strategy or the strategy of diversities. Within this strategy, it aims at the creation of a more consumer-attentive and respectful business model (LOreal, 2012a, p. 7) and becoming a global leader in diversity management (LOreal, 2012a, p. 72). LOreals differentiation strategy relies on the detailed knowledge of its customers expectations, personal beauty habits, lifestyles, and purchasing power (LOreal, 2012a, p. 7). Additionally, this strategy requires not only the knowledge of skin and hair differences across the world, but also in-depth knowledge of beauty rituals in different cultures, including such aspects as the use of various substances in cosmetics (e.g. butter, oil,

Last Name 4 yoghurt, or honey) and availability of water (LOreal, 2012b p. 6). Such cultural awareness is crucial for a cosmetics company to be globally successful (Gelder, 2005, p. 404). Meanwhile, according to another classification, LOreal uses a transnational strategy. It faces high demand for local responsiveness and rather high cost pressures due to the need to ensure the accessibility of its products (especially in the new markets). As a transnational strategy, the companys strategy involves the differentiation of its products, location economies, and thus a decrease in costs (Hill and Jones, 2012, 282-283). However, sometimes, the Group customizes its products to meet local needs in spite of prices, while products developed for one market can become popular on the other markets too (Macedo-Soares and Silva, 2012, p. 21). According to Jean-Paul Agon (LOreal, 2009, p. 9), the ability to see all the opportunities of the new cosmetics world, sensing unsatisfied and unexpressed needs is another important aspect of LOreals strategy. This ability assumes continuous investment in scientific research and development in order to deliver practical, effective, high quality, and safe products (LOreal, n.d.f). Innovation is vital for LOreals success and increasing investments in R&D help the company to meet varied consumer needs in different parts of the world (LOreal, 2009, p. 3). Thus, its products are based on scientific research held by LOreals 3,000 scientists in biology, microbiology, chemistry, biochemistry, toxicology, dermatology, packaging engineering, and quality assurance. These scientists not only develop new formulas and ingredients for its products, but also study skin and hair structure and function, discover new molecules, and investigate combinations. Herewith, one third of the companys R&D resources is used to finance fundamental research projects in skin, hair, and colour issues. As a result, the company has better understanding of skin and hair and therefore is able to develop products to reconstruct skin and fight skin ageing and pigmentation disorders (LOreal, n.d.e).

Last Name 5 Besides creating innovative and diverse products, the company is committed to providing superior product quality and safety. This is ensured through the verification of initial ingredient safety and ingredients safety in finished goods (in terms of duration, frequency, and surface of use, as well as possibility of misuse, etc.), approval of ingredient concentrations, safety testing and validations of finished products, and post-market surveillance. Additionally, LOreal meets or exceeds safety requirements in all those 130 countries where it operates (LOreal, n.d.e). Also, the strategy of diversities involves adaptation to future needs. Consequently, the establishment of research and innovation facilities in each major region enables the company not only to meet specific needs of certain consumers, but also to keep its products up-to-date. For example, the Asian R&I department aims at understanding Chinese beauty customs and needs and identifying scientific opportunities beneficial for all. Herewith, it combines research activities from knowledge to development and from fundamentals to the market place (LOreal, 2012a, p. 32). Similar departments are to be set up in Brazil and India. Such R&I facilities help the company to adapt its products for each specific market. For instance, Blemish Balm Cream formula is adapted to local culture and skin colour in each region, while Indian traditions to oil the hair inspired Garnier to develop Fructis Shampoo & Oil 2-in-1 formula. Also, the needs of Brazilian women whose hair is often curly, frizzy, and damaged by the sun, chemical treatment, and frequent washing stimulated LOreal to launch a specific product - Elsve Total Repair 5. The success of the latter soon spread across Europe, India, and South-East Asia (LOreal, 2012a, p. 33). Thus, local environment is of great importance, and sometimes even within one country. For example, Russia requires a more diversified strategy, as customers expectations are quite varied in this country (i.e. in big cities and in the east of Russia) and a single strategy for its regions will not be effective (LOreal, 2012a, pp. 63, 67).

Last Name 6 Apart from consumer needs, the strategy of diversities involves several other aspects. First of all, the company strives for the reflection of its consumers diversity (e.g. nationality, age, social origin, etc.) in its personnel. Also, this includes the promotion of gender equity within the organization, employment of people with disabilities, and the creation of respectful managerial culture (LOreal, n.d.d). In the context of the Groups differentiation strategy, team diversity helps the company to recognize, accept, and value differences (e.g. through training in diversity issues), while using them to strengthen LOreals position. More specifically, team diversity ensures greater creativity and provides better understanding of consumer differences and needs and therefore enables the company to develop and market products meeting consumers expectations (LOreal, 2012a, p. 72; LOreal, n.d.b; LOreal, n.d.c). Thus, LOreals market strategy impacts its internal policies and strategies, especially HR strategy. The company realizes that employees are at the centre of organization and its concept of beauty and therefore considers them to be its greatest asset. Moreover, people and internal work environment determine the Groups economic performance. That is why LOreal pays much attention to revealing, development, and recognition of talents, as well as the establishment of creative, inspiring, and inclusive environment and a positive, open, safe, and healthy workplace, including respect for privacy and consideration of work-life balance. Herewith, LOreals globalization strategy requires the use of a clear talent strategy. The latter should not only retain and train the managers of the future, capable of managing rapidly expanding markets, but also foster internal manager mobility to ensure the continuity of the Group culture (LOreal, 2012a, p. 72; LOreal, n.d.f). Also, LOreal ensures diversity through such activities as recruitment and integration, training, career management, management and inclusion, communication, policy steering, and actions on the ecosystem (LOreal, n.d.d).

Last Name 7 Besides its major strategy, LOreal uses some indirect policies, i.e. social, in order to create a positive image and attract customers. For example, Solidarity Sourcing programme fosters employment of disadvantaged people or people from economically vulnerable communities (i.e. from Thailand or Vietnam) through training them in beauty professions. Thus, the programme increases their material independence (LOreal, 2012a, p. 71). Also, high social responsibility can be viewed as part of LOreals growth strategy, as it helps the company to create a positive image. The Groups corporate responsibility involves ethics, equity in international trade, green chemistry, and environmental protection, including energy usage cuts, the use of renewable raw materials, and pollution and waste reduction (LOreal, 2009, p. 7). The latter is connected to the companys goal of ensuring sustainable, inclusive, and responsible growth and creating safer products. Moreover, as LOreal states, the world leader in beauty has a duty to help preserve the beauty of the planet. That is why the company uses every rationalization and savings opportunity to become more environmentally friendly. Today, it implements sustainability principles in all stages of a products life cycle, including design of formulas, product development, testing, packaging, and consumption. Also, this objective assumes that product manufacturing should be as close to LOreals markets as possible in order to limit environmental and economic impacts. This involves the creation of local economic systems, partnering with local suppliers, and using local technologies and raw materials. Thus, the company is able to be closer to its customers, adapt its products to local needs, and ensure their accessibility (LOreal, 2012a, pp. 70, 76-77; LOreal, 2012b, pp. 2, 9, 19). On the other hand, sustainability is another aspect of differentiation strategy. For example, the company offers natural Body Shop products excluding chemicals. Thus, it provides an alternative for those, who want to buy environmentally friendly and healthy goods (LOreal, 2009, p. 7).

Last Name 8 Herewith, though prices are not its key focus, ensuring product accessibility is vital for LOreals success, especially in the new markets. Affordable prices help not only to boost sales volumes, but also increase consumer value. Its prices are not the lowest and the company is always looking for the right price, namely the price which consumers are willing to pay for LOreals products. Also, in its attempt to ensure accessibility, LOreal is constantly working on price lowering through cutting production costs, modification and optimization of operational processes, and logistics improvements (LOreal, 2009, p. 8; Pitman, 2010). According to Gelder, (2005, p. 396), global competitiveness requires the creation of new and inspiring value to customers, rather than simply company effectiveness. In this context, LOreal has chosen the best strategy, enabling it to create and develop something new all the time and ensuring marketing creativity. Gelder believes that any companys competitiveness requires proper combination of strategy, creativity, and leadership, as success of the first component is strongly connected to the other two (Gelder, 2005, p. 398). Also, according to Ind and Watt (2004 cited in Gelder, 2005, p. 397), truly creative organizations should engage all their stakeholders in a continuous process of creativity. Therefore, we suggest that LOreal should encourage creativity among its employees, customers, suppliers, and other stakeholders even more. Herewith, electronic means of communication can be very helpful. For example, the company can start an art-involving project and create a common picture of a new or already known product, product function, or new market. Thus, it will get more ideas and will have better understanding of its clients, while consumers art works can provide useful insights into their life, expectations, and needs and suggest some marketing ideas. Also, LOreal can arrange specific discussions regarding certain product issues.

Last Name 9 Additionally, in the context of integral creativity, LOreal should develop strategic alliances and partnerships with governments, suppliers, and other stakeholders in its new markets. This is very important as global alliances create many opportunities and help to mitigate and neutralize certain risks in the new markets, like those of emerging economies (MacedoSoares and Silva, 2012, p. 28).

Last Name 10 References Gelder, S. van, 2005. The new imperatives for global branding: Strategy, creativity and leadership. Brand Management, 12(5), pp. 395404. Hill, Ch.W.L. and Jones, G.R., 2012. Strategic Management. Mason, OH: Cengage Learning. LOreal, 2009. LOreal Corporate Sustainability Report Analysis. Available at: <http://www.businessenglishpractice.com/loads/video/25.pdf> [Accessed 17 September 2012]. LOreal, 2012a. Annual Report 2011. Available at: <http://www.lorealfinance.com/_docs/us/2011-annual-report/LOREAL_Rapport-Activite-2011.pdf> [Accessed 17 September 2012]. LOreal, 2012b. Sustainable Development Report 2011. Available at: <http://www.sustainabledevelopment.loreal.com/DD/media/pdf/publications/GB/VGB_LO2011 _RDD.pdf> [Accessed 17 September 2012]. LOreal, n.d.a. Company Overview. Our Mission. Available at: <http://www.loreal.com/_en/_ww/html/our-company/mission.aspx> [Accessed 16 September 2012]. LOreal, n.d.b. Diversities are Our Priorities. Interview with the Corporate Diversity Director. Available at: <http://www.loreal.com/_en/_ww/html/our-company/interview-of-the-corporatediversity-director.aspx?> [Accessed 16 September 2012]. LOreal, n.d.c. Diversities are Our Priorities. Message from the Chief Executive Officer of LOreal. Available at: <http://www.loreal.com/_en/_ww/html/our-company/interview-of-thechief-executive-officer.aspx?> [Accessed 16 September 2012].

Last Name 11 LOreal, n.d.d. Diversities are Our Priorities. Our Policy. Available at: <http://www.loreal.com/_en/_ww/html/our-company/our-policy.aspx> [Accessed 16 September 2012]. LOreal, n.d.e. Innovation and Research. Product Safety. Available at: <http://www.loreal.com/_en/_ww/index.aspx?direct1=00004&direct2=00004/00010> [Accessed 18 September 2012]. LOreal, n.d.f. The LOreal Spirit. Available at: <http://www.loreal.com/_en/_ww/html/company/pdf/ESPRIT_LOREAL.pdf?> [Accessed 16 September 2012]. Macedo-Soares, T.D.L. van Aduard and Silva, B.B.L. da, 2012. Assessing the Strategy of Firms that Compete Globally in Alliances in the Cosmetics Industry: The Case of LOreal in Latin America. Ownership and Control, 9(4), pp. 19-29. Pitman, S., 2010. LOreal unveils three-pronged strategy for future growth. [Online] (Updated 19 Feb. 2010) Available at: <http://www.cosmeticsdesign-europe.com/Business-Financial/LOreal-unveils-three-pronged-strategy-for-future-growth> [Accessed 18 September 2012].