L'Oreal (OREP) SWOT Analysis / TOWS Matrix / MBA Resources
Personal & Household Prods.
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for L'Oreal (Germany)
Based on various researches at Oak Spring University , L'Oreal is operating in a macro-environment that has been destablized by – geopolitical disruptions, customer relationship management is fast transforming because of increasing concerns over data privacy, there is backlash against globalization, central banks are concerned over increasing inflation, increasing transportation and logistics costs, talent flight as more people leaving formal jobs, increasing energy prices,
supply chains are disrupted by pandemic , challanges to central banks by blockchain based private currencies, 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 Germany
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 -
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 Germany. Over the years it has not only transformed the business landscape in the Personal & Household Prods. industry in Germany 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.
Innovation driven organization
– L'Oreal is one of the most innovative firm in Personal & Household Prods. sector.
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 Germany 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.
Sustainable margins compare to other players in Personal & Household Prods. industry
– L'Oreal has clearly differentiated products in the market place. This has enabled L'Oreal to fetch slight price premium compare to the competitors in the Personal & Household Prods. industry. The sustainable margins have also helped L'Oreal to invest into research and development (R&D) and innovation.
Learning organization
- L'Oreal is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at L'Oreal is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at L'Oreal emphasize – knowledge, initiative, and innovation.
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.
Ability to recruit top talent
– L'Oreal is one of the leading players in the Personal & Household Prods. industry in Germany. It is in a position to attract the best talent available in Germany. The firm has a robust talent identification program that helps in identifying the brightest.
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.
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.
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.
Weaknesses of L'Oreal | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of L'Oreal are -
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.
High dependence on L'Oreal ‘s star products
– The top 2 products and services of L'Oreal still accounts for major business revenue. This dependence on star products in Personal & Household Prods. industry has resulted into insufficient focus on developing new products, even though L'Oreal has relatively successful track record of launching new products.
No frontier risks strategy
– From the 10K / annual statement of L'Oreal, it seems that company is thinking out the frontier risks that can impact Personal & Household Prods. industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
High operating costs
– Compare to the competitors, L'Oreal has high operating costs in the Personal & Household Prods. industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract L'Oreal lucrative customers.
Increasing silos among functional specialists
– The organizational structure of L'Oreal is dominated by functional specialists. It is not different from other players in the Personal & Household Prods. industry, but L'Oreal needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help L'Oreal to focus more on services in the Personal & Household Prods. industry rather than just following the product oriented approach.
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.
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.
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.
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.
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.
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.
L'Oreal Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of L'Oreal are -
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.
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.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. L'Oreal can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Leveraging digital technologies
– L'Oreal can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Loyalty marketing
– L'Oreal has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects L'Oreal can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
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.
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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for L'Oreal to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for L'Oreal to hire the very best people irrespective of their geographical location.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Personal & Household Prods. industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. L'Oreal can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. L'Oreal can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
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.
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.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help L'Oreal to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Threats L'Oreal External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of L'Oreal are -
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
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.
Shortening product life cycle
– it is one of the major threat that L'Oreal is facing in Personal & Household Prods. sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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.
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.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for L'Oreal in the Personal & Household Prods. sector and impact the bottomline of the organization.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Personal & Household Prods. industry are lowering. It can presents L'Oreal with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Personal & Household Prods. sector.
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.
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.
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.
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.
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.
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.
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.