L'Oreal (OR) SWOT Analysis / TOWS Matrix / MBA Resources
Personal & Household Prods.
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for L'Oreal (Italy)
Based on various researches at Oak Spring University , L'Oreal is operating in a macro-environment that has been destablized by – geopolitical disruptions, supply chains are disrupted by pandemic , increasing government debt because of Covid-19 spendings, cloud computing is disrupting traditional business models, increasing transportation and logistics costs, challanges to central banks by blockchain based private currencies, there is backlash against globalization,
customer relationship management is fast transforming because of increasing concerns over data privacy, there is increasing trade war between United States & China, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that L'Oreal can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the L'Oreal, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which L'Oreal operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of L'Oreal can be done for the following purposes –
1. Strategic planning of L'Oreal
2. Improving business portfolio management of L'Oreal
3. Assessing feasibility of the new initiative in Italy
4. Making a Personal & Household Prods. sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of L'Oreal
Strengths of L'Oreal | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of L'Oreal are -
Highly skilled collaborators
– L'Oreal has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Personal & Household Prods. industry. Secondly the value chain collaborators of L'Oreal have helped the firm to develop new products and bring them quickly to the marketplace.
Superior customer experience
– The customer experience strategy of L'Oreal in Personal & Household Prods. industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Ability to lead change in Personal & Household Prods.
– L'Oreal is one of the leading players in the Personal & Household Prods. industry in Italy. Over the years it has not only transformed the business landscape in the Personal & Household Prods. industry in Italy but also across the existing markets. The ability to lead change has enabled L'Oreal in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Low bargaining power of suppliers
– Suppliers of L'Oreal in the Consumer/Non-Cyclical sector have low bargaining power. L'Oreal has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps L'Oreal to manage not only supply disruptions but also source products at highly competitive prices.
High brand equity
– L'Oreal has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled L'Oreal to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Analytics focus
– L'Oreal is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Personal & Household Prods. industry. The technology infrastructure of Italy is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Successful track record of launching new products
– L'Oreal has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. L'Oreal has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Cross disciplinary teams
– Horizontal connected teams at the L'Oreal are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
High switching costs
– The high switching costs that L'Oreal has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Strong track record of project management in the Personal & Household Prods. industry
– L'Oreal is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Digital Transformation in Personal & Household Prods. industry
- digital transformation varies from industry to industry. For L'Oreal digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. L'Oreal has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Diverse revenue streams
– L'Oreal is present in almost all the verticals within the Personal & Household Prods. industry. This has provided L'Oreal a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Weaknesses of L'Oreal | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of L'Oreal are -
Workers concerns about automation
– As automation is fast increasing in the Personal & Household Prods. industry, L'Oreal needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High bargaining power of channel partners in Personal & Household Prods. industry
– because of the regulatory requirements in Italy, L'Oreal is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Personal & Household Prods. industry.
Need for greater diversity
– L'Oreal has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Aligning sales with marketing
– From the outside it seems that L'Oreal needs to have more collaboration between its sales team and marketing team. Sales professionals in the Personal & Household Prods. industry have deep experience in developing customer relationships. Marketing department at L'Oreal can leverage the sales team experience to cultivate customer relationships as L'Oreal is planning to shift buying processes online.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, L'Oreal is slow explore the new channels of communication. These new channels of communication can help L'Oreal to provide better information regarding Personal & Household Prods. products and services. It can also build an online community to further reach out to potential customers.
Ability to respond to the competition
– As the decision making is very deliberative at L'Oreal, in the dynamic environment of Personal & Household Prods. industry it has struggled to respond to the nimble upstart competition. L'Oreal has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Lack of clear differentiation of L'Oreal products
– To increase the profitability and margins on the products, L'Oreal needs to provide more differentiated products than what it is currently offering in the marketplace.
Compensation and incentives
– The revenue per employee of L'Oreal is just above the Personal & Household Prods. industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Employees’ less understanding of L'Oreal strategy
– From the outside it seems that the employees of L'Oreal don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Slow decision making process
– As mentioned earlier in the report, L'Oreal has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Personal & Household Prods. industry over the last five years. L'Oreal even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Capital Spending Reduction
– Even during the low interest decade, L'Oreal has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Personal & Household Prods. industry using digital technology.
L'Oreal Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of L'Oreal are -
Creating value in data economy
– The success of analytics program of L'Oreal has opened avenues for new revenue streams for the organization in Personal & Household Prods. industry. This can help L'Oreal to build a more holistic ecosystem for L'Oreal products in the Personal & Household Prods. industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, L'Oreal is facing challenges because of the dominance of functional experts in the organization. L'Oreal can utilize new technology in the field of Personal & Household Prods. industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, L'Oreal can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help L'Oreal to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Using analytics as competitive advantage
– L'Oreal has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Personal & Household Prods. sector. This continuous investment in analytics has enabled L'Oreal to build a competitive advantage using analytics. The analytics driven competitive advantage can help L'Oreal to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Manufacturing automation
– L'Oreal can use the latest technology developments to improve its manufacturing and designing process in Personal & Household Prods. sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, L'Oreal can use these opportunities to build new business models that can help the communities that L'Oreal operates in. Secondly it can use opportunities from government spending in Personal & Household Prods. sector.
Better consumer reach
– The expansion of the 5G network will help L'Oreal to increase its market reach. L'Oreal will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Learning at scale
– Online learning technologies has now opened space for L'Oreal to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Personal & Household Prods. industry, but it has also influenced the consumer preferences. L'Oreal can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Low interest rates
– Even though inflation is raising its head in most developed economies, L'Oreal can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Building a culture of innovation
– managers at L'Oreal can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Personal & Household Prods. industry.
Lowering marketing communication costs
– 5G expansion will open new opportunities for L'Oreal in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Personal & Household Prods. industry, and it will provide faster access to the consumers.
Buying journey improvements
– L'Oreal can improve the customer journey of consumers in the Personal & Household Prods. industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Threats L'Oreal External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of L'Oreal are -
High dependence on third party suppliers
– L'Oreal high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, L'Oreal may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Personal & Household Prods. sector.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of L'Oreal.
Regulatory challenges
– L'Oreal needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Personal & Household Prods. industry regulations.
Increasing wage structure of L'Oreal
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of L'Oreal.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. L'Oreal needs to understand the core reasons impacting the Personal & Household Prods. industry. This will help it in building a better workplace.
Easy access to finance
– Easy access to finance in Personal & Household Prods. industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. L'Oreal can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for L'Oreal in Personal & Household Prods. industry. The Personal & Household Prods. industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of L'Oreal business can come under increasing regulations regarding data privacy, data security, etc.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, L'Oreal can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate L'Oreal prominent markets.
Stagnating economy with rate increase
– L'Oreal can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Personal & Household Prods. industry.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. L'Oreal will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Weighted SWOT Analysis of L'Oreal Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at L'Oreal needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of L'Oreal is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of L'Oreal is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of L'Oreal to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that L'Oreal needs to make to build a sustainable competitive advantage.
