L’Oréal is one of the largest beauty and personal care manufacturing companies in the world. It was founded by Eugene Schueller in 1909 and grew into a well-known French public company that is a part of Euro Stoxx 50 market index. L’Oréal is headquartered in Clichy, Hauts-de-Seine and operates in more than 130 countries (L’Oréal Annual Report 2014). 78,600 people work at L’Oréal and the company owns 32 well-known brands and 501 patents (L’Oréal Annual Report 2014). According to the statistics portal Statista.com (2015), L’Oréal’s brand value equals to 23.36 billion US dollars.
In 2014, L’Oréal’s sales equalled to 22.5 billion Euros. The sales can be divided in 4 categories: 7.7% - active cosmetics, 14.0% - professional products, 28.6% - L’Oréal Luxe and 49.7% - consumer products (L’Oréal Annual Report 2014). Some of the most famous brands that belong to L’Oréal include The Body Shop, Garnier, Maybelline, L’Oréal Paris, Vichy, Bioterm, Lancôme, etc (L’Oréal Annual Report 2014).
Western Europe (35.5% of total sales) and Northern America (35.5%) are the key markets for the company. Asia and Pacific (24.9%), Latin America (21.1%), Eastern Europe 8.6%, Middle East (7.3%), and Africa (2.6%) are also important for L’Oréal (L’Oréal Annual Report 2014). The company is very pleased with the sales in the “new markets” that have been growing for several years in a row and in 2014 they equalled to 36.6% (L’Oréal Annual Report 2014).
In general, L’Oréal operates in the market that is worth of $180 billion and with the annual growth rate of 3%. There are several strong companies such as Unilever (21.3% market share), Procter & Gamble (20.5%), Estee Lauder (10.4%) and Shiseido (7.77%). In 2014, L’Oréal was ahead of its rivals in terms of the market share that equalled to 30% (L’Oréal Annual Report 2014).
The customer profile for L’Oréal’s products is difficult to define and depends on the business segment, the particular product and the geographic location. In general, L’Oréal targets the women that are 18-35 years old as the most important group of customers. There is also a wide range of products that is targeted at the people with middle and high incomes. What is more, the company always faces the global-local tension and therefore needs to build such a brand portfolio that would satisfy the customers in different regions of the world. For, example it has French (L’Oréal Paris, Lancôme), American (Maybelline, Kiehl’s), British (The Body Shop), Japanese brands (Shu Uemura), etc (Hong & Doz, 2013).
The SWOT analysis of L’Oréal that will be presented further in this paper shows that L’Oréal has a very strong market position and is resilient to the changes in the global economy. There are a number of strengths that allow the company expand into the new foreign markets and react to the current market trends. At the same time, the company faces a number of challenges such as slower rates of economic growth, increased competition with the local companies, etc. that harm L’Oréal’s business operations and profitability.
Strengths. L’Oréal has a relatively narrow portfolio of brands and focuses mainly in beauty and personal care in comparison with the key competitors Procter & Gamble and Unilever. A limited portfolio of brands allows the company to concentrate more on the innovation of the existing products. L’Oréal has a Research & Development team that develops the new products in order to stay atop of the market and attract the new customers (L’Oréal Annual Report 2014).
Secondly, as it was written above L’Oréal operates in 130 countries. For that reason after adjusting its products to the local conditions and using the quality advertising, the company can attract the new customers and extend its market share. One of L’Oréal's key objectives is to boost its customer base up to 2 billion people by 2020-2025 (L’Oréal Annual Report 2014). In order to accomplish such an ambitious aim, the French company has been trying to boost sales first and foremost in the emerging countries. The new markets that include China and India are of the highest importance for the company.
Thirdly, L’Oréal is strong in using the premium and mass brands for maximizing the profits. In addition, the company has a range of products with a large number of variations. For example, L’Oréal offers approximately 15 variations in the category of the shampoo, and conditioners. The existing range of products helps the company to build a large customer base and use the product differentiation for the profit maximization.
Weaknesses. The cosmetic industry is extremely dynamic and competitive. Therefore the products need to be regularly upgraded or modified due to the changes in customer preferences. L’Oréal has to invest a lot into keeping their customers loyal and satisfied with the quality of the products.
Moreover, there are a large number of competitors that are ready to turn away L’Oréal’s customers. In addition to the companies that were mentioned above, there are local and small international companies that offer their products at lower prices or that correspond better to the customers’ preferences. So, despite owning some well-known brands with strong identity, the competition is very fierce for L’Oréal.
Opportunities. One of the biggest opportunities that L’Oréal would like to use in order to keep the profits at high levels is supply of the organic products. People are more conscious about their health and lifestyles then before. Therefore they pay attention to the quality of the cosmetic products that they would like to buy. L’Oréal has already acquired The Body Shop which is a brand that is well-known for its organic products and expects to outperform the competitors that sell similar products.
Successful expansion thanks to the global brand recognition can help L’Oréal attract the new loyal customers around the world. This opportunity is especially important at the economically challenging times. Consumption in Africa, Middle East, Eastern Europe, Latin America and Asia, Pacific will be growing more actively than consumption in the countries of Western Europe and Northern America. L’Oréal has been observing the growth of the cosmetics market that is driven by the emergence of the middle classes in the new markets (L’Oréal Annual Report 2014). In the short-term and long-term L’Oréal will be paying more attention to the business operations in such countries as China, Brazil, India, etc.
Threats. Economic development has slowed down in Europe, Brazil and China that are important markets for L’Oréal. Sales of cosmetic products usually depend on the purchasing power of the customers. Therefore if there is an economic and financial crisis, L’Oréal will fail to reach their strategic goals in various regions of the world. For example, when the global economic crisis occurred in 2008, the company was unable to maintain high levels of sales in the USA, France, Spain and other developed countries (L’Oréal Annual Report 2008).
Another threat for L’Oréal is the changes in the consumer preferences that are difficult to predict. For example, by buying The Body Shop, L’Oréal damaged the brand’s credibility. There was much criticism about this deal and the French company had to invest a lot of resources into the promotion of The Body Shop in order to maintain and increase the customer base. So each strategic acquisition of the local brands or unique international brands represents a threat for L’Oréal.
Challenges. From the above SWOT analysis it becomes clear that L’Oréal’s profitability depends on a large number of external factors. Nowadays L’Oréal is interested in selling its products in the countries that have positive economic growth. Therefore, such factors as political instability or social unrest may have a very negative influence on L’Oréal’s sales.
What is more, L’Oréal needs to pay much attention to the cultural, social and psychological factors that influence the consumer behaviour in different parts of the world. The standards of beauty are different from country to country, and L’Oréal needs to conduct the market research on a regular basis to be familiar with the peculiarities of the consumer behaviour. For example, nails, hair, and body are the most important elements of beauty for the Brazilian women, and they are eager to spend much money on the cosmetic products. In turn, the Chinese women have different values and do not buy as many cosmetic products as the Brazilian women (L’Oréal, 2015). Another example is the use of hair gels and sprays. In Mexico, men prefer to buy hair gels and in fact they buy gels more often than women. On the contrary, in Germany, which has a very mature economy, men prefer to use hair sprays and use them in 12 different ways (L’Oréal, 2015).
Nowadays one of the main challenges for L’Oréal is to adapt its products and business models to the local conditions. In order to be more effective, L’Oréal involves the employees with multicultural backgrounds. As the result, L’Oréal has become a global company where the multicultural executives are responsible for the accomplishment of the company’s goals (Hong & Doz, 2013).
Finally, L’Oréal’s possible unethical practices are sometimes brought to the public and the company needs to prove the opposite. In the past years, the company denied testing its products on animals and using the misleading advertising. Moreover, every year L’Oréal publishes the Progress Report in which one can read about the company’s activity targeted at reduction of the environmental footprint and promotion of sustainable innovation and production. For instance, the company has been trying to reduce the use of palm oil in the production and to cut the CO2-emmisions by using renewable energy and optimizing transportation (Progress Report, 2014). Nevertheless, the business activity in accordance with the principles of sustainable development will certainly be a challenge for L’Oréal in the future, because the company has set up a goal of increasing the number of customers by one billion people by 2020-2025.
In conclusion, L’Oréal is one of the best-known French companies in the world. This company is a market leader in the beauty and personal care industry and was able to implement a business strategy that led to the expansion overseas. In the developed countries with high incomes, L’Oréal relies on the value addition and launches of the new products across the broad pricing range. The USA and Europe remain to be the key markets for L’Oréal. In the developing markets, L’Oréal’s strategy is dependent on various market conditions. In most countries, including China, L’Oréal has been increasing sales in the premium and mass markets. The global brand recognition and the balanced brand portfolio help the French company to be successful in both developed and developing markets. However, there are some challenges that L’Oréal needs to address more actively. They include the company’s image, focusing on the cultural differences and being able to work in the volatile economic conditions.
References
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