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 – challanges to central banks by blockchain based private currencies, technology disruption, supply chains are disrupted by pandemic , digital marketing is dominated by two big players Facebook and Google, increasing energy prices, wage bills are increasing, there is backlash against globalization,
competitive advantages are harder to sustain because of technology dispersion, increasing government debt because of Covid-19 spendings, 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 -
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.
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.
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.
Organizational Resilience of L'Oreal
– The covid-19 pandemic has put organizational resilience at the centre of everthing L'Oreal does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Training and development
– L'Oreal has one of the best training and development program in Consumer/Non-Cyclical industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
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.
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.
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.
Innovation driven organization
– L'Oreal is one of the most innovative firm in Personal & Household Prods. sector.
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.
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.
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.
Weaknesses of L'Oreal | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of L'Oreal are -
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.
Skills based hiring in Personal & Household Prods. industry
– The stress on hiring functional specialists at L'Oreal has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Slow to strategic competitive environment developments
– As L'Oreal is one of the leading players in the Personal & Household Prods. industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Personal & Household Prods. industry in last five years.
Low market penetration in new markets
– Outside its home market of Germany, L'Oreal needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
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.
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.
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.
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.
High bargaining power of channel partners in Personal & Household Prods. industry
– because of the regulatory requirements in Germany, 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.
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.
L'Oreal Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of L'Oreal are -
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 acceleration in Forth Industrial Revolution
– L'Oreal has witnessed rapid integration of technology during Covid-19 in the Personal & Household Prods. industry. As one of the leading players in the industry, L'Oreal needs to keep up with the evolution of technology in the Personal & Household Prods. sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
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.
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.
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.
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 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.
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.
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.
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.
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.
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.
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.
