Management Organization, Loreal 1i6f2v

Management Organization

April 7, 2012

Management Organization L'Oréal

4/7/2012 Student Marco Engler

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L'Oré al 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, . 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 ed 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 t 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 AfricaMiddle 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, Garnier, Maybelline Jade

Kérastase, Redken, Matrix, shu uemura, L’Oréal Professionnel

Lancôme, Helena Rubinstein, Kiehl's, Biotherm, shu uemura Viktor & Rolf, Giorgio Armani, Yves saint Laurent beaute, 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 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 t 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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Management Organization 2.2.4 -

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-

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Functional analysis Management and Organization 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) Finance L'Oréal is very healthy and market lieder.

Marketing -

-

-

-

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 Production L'Oréal has not even a good quality control, they are improving also its products and the employees continually

Human Resource -

The staff satisfaction is high. Employee experiences are very well.

Research and Development - 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 deter- mined 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 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 Market position Research facilities Financial situation Worthy brands Loyal customers Innovative image

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Weaknesses - High price level - Small male target group - Products are inadaptable for children - Problems with achieving advertising promises.

Opportunities - Expand in new niches - moving to middle or cheap price segments - Cheap brand with the well named name L'Oréal - Creating t ventures with other companies. - Producing healthy bio food - Takeover of competitors

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-

-

-

Threats 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

Management Organization 2.3.3

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Confrontation matrix

Threats

Opportunities

Strengths

Weaknesses

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

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 – 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 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 t 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’OréalParis 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.lorealfinance.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. . "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

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