This has a direct impact on cosmetics sales. In such countries
there is a growing demand of higher quality products, even if this means
higher priced brands.
The use of technology in the cosmetics production is something more
and more at hand, especially for cosmetics giants. This allows cosmetics
producers to put a higher price on their products. Furthermore, this means
The awareness of health and wellness that characterizes consumers
nowadays is extremely beneficial for cosmetics companies. This allows them
to exploit niche areas and to introduce innovative products that help them
access a larger market share.
As mentioned above, the current macroeconomic environment is not a
stable one and it is characterized by significant turmoil that affects even
the cosmetics industry. The risk factors that might affect L'Oreal's
activity are categorized as business risks, legal risks, industrial and
environmental risks, liquidity risks, financial and market risks.
Business risks are represented by image and reputation, product
quality and safety, seasonal nature of the business, geographical presence
and overall economic situation, distribution network, competition,
Legal risks are represented by intellectual property, trademark and
models, industrial property - patents, changes in regulations, other legal
risks and litigation. Financial and market risks are represented by
currency risk, interest rate risk, share risk, risks regarding the assets
hedging employee commitments, counterparty risk, customer risk (Annual
4. SWOT Analysis Evaluation
The risks that the company will have to face in the following priod of
time are not something out of the ordinary. Any company, no matter its
field of activity, is probably confronted with similar risks. However, the
position from which the company is managing these risks is what makes the
Also, the opportunities of the business environment are the same for
every cosmetics company. What matters is the ability to react very quickly
to these opportunities and the financial ability of the company to exploit
In other words, the faster the company takes advantage of these
opportunities, the more important the results. Also, in order to benefit
from these opportunities, the company will have to invest important sums
into research and development.
L'Oreal has already anticipated very well the evolution of the market
and some of its trends. As a consequence, the company has already started
to follow the directions required by these trends.
Other opportunities that L'Oreal should pay more attention to consist
in brand loyalty, investing in research and development, natural cosmetics
creating price-resilient demand, nutricosmetics' growing demand, customers
want a higher quality for the money they pay on cosmetic products, emerging
markets (Mohiuddin, 2008).
Nutricosmetics is a niche segment in the cosmetics market that is
expanding more and more. The United States market has not been very
impressed by this segment yet, but western and Asian markets are responding
very well to nutricosmetics or nutriceuticals.
L'Oreal has already taken a great step in this direction, by the joint
ventures with the Nestle partner. It is expected that the development of
this sector will help the company expand its geographical area, increase
the number of customers, address new categories of customers, and
therefore, increase the overall sales volume.
5. Corporate-level Strategy
The company's mission is "to help men and women round the world
realize the aspiration to beauty, 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 employees" (L'Oreal, 2009).
The values and principles upon which the company guides its entire
activity are represented by consistent quality worldwide, workplace safety
and environmental standards, making the company's own product locally,
innovation, research and development. Diversity is an important matter for
The lines of business the company activates in are interrelated, but
they can also function independently. These lines of business consist in
cosmetics, pharmaceutical, and dermatological fields.
The company's corporate-level strategy is based on related-constrained
diversification. This means that a great percentage of the company's
revenues are provided by the dominant business. Also, the company's
businesses share product, technological, and distribution linkages.
The advantages provided by this strategy are numerous. One of these
advantages consists in increased economies of scope. Also, such a strategy
grants the company solid market power because this way the company is able
to block its competitors by activating in several directions.
Financial economies and tax advantages are also determined by this
Another result of diversification consists in the fact that sharing
activities between the company's businesses helps reduce costs by achieving
economies of scale, increasing utilization efficiency, moving more rapidly
through the learning curve. This way, the cost of differentiation can also
6. Business-level strategy
The business-level strategy applied by L'Oreal consists in
differentiation. If the company's strategy is focused on differentiation
rather than on cost, it does not mean that cost is not important. The
company is aware that in order to address a broad audience, the costs must
However, for some of the company's products, the price can exceed the
value that the customers are willing to pay initially. Also, the strategy
addresses customers that focus on differentiated products rather than on
lower costs, customers that value quality and are willing to pay a
reasonable price for it.
The quality of the company's products is a superior one. Ever since
the company's establishment, quality has been a sine qua non condition for
the provided products.
High customer service is another component of L'Oreal's strategy. The
company understands how important each customer is and for this customers
should be provided the best care and service. The company's slogan "Because
you're worth it" proves this attitude.
The company is also counting on its prestige and image on the market
when addressing its products to the targeted customer segments. Even mass
cosmetics are designed to be special and to make each customer feel special
when using them.
In addition to this, the most important part of the company's strategy
is based on innovation. Ever since its beginning, the company was all about
innovation regarding its products. The first product ever developed by
L'Oreal, a hair color product, was an innovation in the field.
7. Structure and Control Systems
L'Oreal's organizational structure is a decentralized one. The company
is active in several business fields, like cosmetics, pharmaceutical, and
dermatological. Even if these activities are closely linked, there is still
some degree of independence for each of them.
Also, the company manages many different brands, including: consumer
brands: L'Oreal Paris, Garnier, Maybelline; professional brands: L'Oreal
Professionnel, Kerastase, Redken; luxury products: Lancome, Biotherm,
Helena Rubinstein, Giorgio Armani, Ralf Lauren, Cacharel, Diesel; active
cosmetics brands: Vichy, La Roche Posay, Skinceuticals; and The Body Shop.
Each of these brands addresses a different customer segment. They also
have a different history and tradition behind. They follow different
directions and this is why they must be managed by different divisions.
The company's global presence also requires a decentralized
organizational structure. In such conditions, it is very difficult to
control each segment of the business. Control systems are applied locally,
in a decentralized manner. If a clear set of goals and objectives is set
from the beginning for an established period of time, control is easier to
be performed. However, things could be improved in this direction.
It is not easy to make recommendations regarding a possible
improvement of the activity of a company the size of L'Oreal's. The group
is the world's largest cosmetics manufacturer, which means such a position
is not attained by having important weaknesses.
However, there are still some aspects of the business that the company
could work on improving. Control systems are one of them. The size of the
company, its numerous worldwide subsidiaries, and the high degree of
diversification make it difficult for the company to have a clear and
correct view at all times on different aspects of the company's activity.
Regarding the opportunities provided by the cosmetics industry, the
company should continue to address the nutricosmetics niche. L'Oreal is
famous for its innovation, research and development, and for the fact that
the company continuously introduced new products on the market. Even if the
nutricosmetics market segment is not very developed in the United States at
the moment, in comparison with the Western or Asian markets, L'Oreal should
still focus on developing such products. This will allow the company to
have a strong position on this market segment when it will be more
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5. Annual Report…