Management Organization, LOreal

Management Organization April 7, 2012

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Management Organization

L'Oréal

4/7/2012

Student

Marco Engler


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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 determined 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

www.loreal-

www.loreal-finance.com/_docs/fichiers_contenu/0000000103/LOREAL_STATUTS2007_GB.pdf

http://www.loreal.com/_en/_ww/html/our-company/mission.aspx?>.

www.wikinvest.com/stock/L%27oreal_%28LRLCY%29>.

www.wikinvest.com/stock/L%27oreal

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