Creating and Sustaining Brand Equity for LOreal - Assignment Example

Creating and Sustaining Brand Equity for L’Oreal Introduction Innovation and diversification are at the heart of a business’s success but lack of proper channels and distribution network can delay the schedule of this success. This is what that happened with the cosmetic giant- L’Oreal. Instead of sky rocketing profits and faring well amidst global slowdown, the sales turnover of L’Oreal slipped by 9 percent, which is a worrying concern for the organization. With this case study, an attempt has been made to delve deep into the strategic disposition of L’Oreal and the issues and challenges confronted by it. How its internal capabilities suffice to challenge the threats are also been discussed. Models like Porter’s Five Forces have been used to match the practical aspects with theoretical ones, along with recommendations on feasible course of action for the company to embrace success in the future. Environmental analysis The environment surrounding a business comprises of both micro and macro forces that shape up the strategy of the business and also test the viability of the developed strategy in real time. For L’Oreal, the market has been a mix of favorable and unfavorable forces where the genius of L’Oreal through its two success recipes- diversification and innovation, changed the tides. Cosmetics industry has been very fragmented yet open to new offerings and product innovations, keeping in mind the needs of varied consumer groups. Demographically, L’Oreal was presented with a host of opportunities to come up with various products with different ethnic and cultural shades. Cosmetics is an industry which is not limited to just creams. It extends way beyond face products and involves hair and skin care and beauty products. Player who was able to operate through these lines of product width was the one who could sustain itself in the booming cosmetic and beauty product market, which was done really well by L’Oreal. Industry analysis The entire industry, as obvious in the case, is in its growth stage with multiple players entering the battle ground. L’Oreal had been able to secure its pole position till now because of new product propositions every year to sustain the wave of innovation and tight control over its operational costs. Yet, the following points emerge out of the industry analysis of cosmetics: Threat of new entrants Cosmetic industry is research and investment intensive and frequent entry of new players is not possible until they have proper back up of financials and research experts. L’Oreal had been operating in the cosmetics industry for long and is aware of the trends and demands that usually prevail. For new entrants, it would be difficult to first determine the trends and then direct their research team to develop product accordingly. This is why, L’Oreal has faced lesser threats from new entrants, but some big players have shown interest towards entering the arena. Threat of substitutes In the case study parlance, threat of substitutes is lower. This is because first of all there are a few entrants and secondly, matching the product quality and exact requirements of consumers at same price range was a daunting task for the other players, which could not allure the consumers to switch over to another brand. Bargaining power of buyers Without the availability of substitutes, buyers cannot bargain over the prices. This has been made sure by L’Oreal which is evident from the fact that it introduced two three new products every year which made the competitors further distant in giving competition to the product range of L’Oreal. For quality conscious customers, L’Oreal offered quality products, reducing the bargaining power further. Bargaining power of suppliers Just like L’Oreal exercised control over market prices, the suppliers controlled prices over materials for L’Oreal. The only drawback in L’Oreal’s strategic disposition was control over its distribution and supply chain network, which let loose this complementary asset for the company. Rivalry Competitive pressures are little or almost negligible for L’Oreal due to absence of stark rivals. Only some small and local players are operating in smaller regions with no visibility of a global brand like L’Oreal. This made L’Oreal’s market standing unshattered. Competitor analysis Some big names tried to enter the emerging markets to give a call to L’Oreal but they could not stand for long in front of L’Oreal’s strategic vision. Diversifying along product lines with product extension every now and then and adding unique features disabled players to threaten the stability of the company. As obvious from the case study, some unorganized competition was confronted by L’Oreal in markets like China where around 2500 cosmetic manufacturers flourished, but they also took a backseat when quality and premium products became talk of the town. Some renowned names like P&G and Beiersdorf have presented stiff competition globally in face cream market but tailor made solutions of L’Oreal nipped this worry in the bud. SWOT analysis SWOT analysis measures the internal and external capabilities of a firm with special focus on how internal competencies are suited to match and align with the externalities. For L’Oreal, its internal capabilities and competencies have been well developed and sustained over time which served as a shield against competitive and market threats. Yet, capabilities do not work in isolation and this was true with L’Oreal also. Internal analysis Strengths The continuing success of L’Oreal was attributed to its untiring research and development activities that aimed to bring out the natural beauty of women. The competition was surpassed by the company due to its ingenuity and foraying into diverse markets like dermatology and pharmaceutical which are generally not looked upon as lucrative by cosmetic players. Its global yet culturally focused advertising and marketing campaign made sure that the innovation reaches the consumer (Grant 2005:147). Moreover, dividing its products into four broad categories enabled it to hold the market pulse. Weaknesses As opined by David Greece, innovations accrue profits to the company that has tight control over its complementary assets like suppliers, distribution channels and network (Afuah 2009:124). This is the pitfall area for L’Oreal where it lacked expertise. Its decentralized organization structure and loose control over its subsidiaries allowed the existence of some loopholes in its overall planning module of globalization and international operations. This alone led to declining sales because distribution networks were not robust enough to sustain the innovation. External analysis Opportunities L’Oreal has reacted proactively to market demand which is full of products for hair, skin, colorant, perfumeries and beauty enhancers. It has brands and products categorized for masses as well as premium customers which have presented the opportunity to judge the market well. Patenting the cosmetic technology also keeps it at top of the mind recall owing to products registered solely to its name. This would reduce switching over by consumers as well as help it in grabbing lion’s share of the market (L’Oreal n.d). Threats Fluctuations in currency exchanges and economic slowdown have been a threat to the company. Moreover, these fluctuations can be absorbed if L’Oreal had strategic supplier relations which actually are not at place. Stagnating innovation can also prove to be a potential threat for L’Oreal. Strategy formulation For L’Oreal, innovation and diversification has been the cornerstone of its successful business proposition. But L’Oreal has missed somewhere in enhancing the efficiency of its suppliers and distribution networks which are equally important in sustaining innovation (Cosmetics Design 2006). For L’Oreal, developing collaborative relationship with its suppliers and vendors is the need of the hour (L’Oreal n.d), anticipating the upsurge in market demand and continuously soaring competition from both local and global players. Till now, only cosmetic market has been followed but very soon, other diversified business lines will be approached by the rivals. In that situation, only robust and flexible distribution network can provide cutting edge to L’Oreal over the rivals. Secondly, its worldwide marketing and advertising campaign should support its intensified research and development activities. Cosmetic market is also prone to image damages from animal testing and ethical issues which have to be taken care of by the company. Recommendations L’Oreal is a dominant player of the cosmetic and beauty products industry and it holds the caliber of influencing the organizational and ethical decisions taken by other cosmetic companies (Kapferer 2008:226). This could be justified and exercised in a better way if the company does not compromise with quality and steps to stay ahead of the competition by introducing and bringing into reality more unique products. References 1. Afuah, A (2009). Strategic Innovation: New Game Strategies for Competitive Advantage. New York: Routledge 2. Cosmetics Design (2006). L’Oreal growth still strong but US performance trails [online] available from < http://www.cosmeticsdesign.com/Financial/L-Oreal-growth-still-strong-but-US-performance-trails> [Accessed 21 April, 2010] 3. Grant, R (2005). Contemporary Strategy Analysis. USA: Blackwell Publishing 4. Kapferer, J (2008). The new strategic brand management: Creating and Sustaining brand equity. London: Kogan Page 5. L’Oreal n.d. Supplier performance [online] available from < http://www.loreal.com/_en/_ww/HTML/suppliers/suppliers-performance/suppliers-performance-quality.aspx> [Accessed 21 April, 2010] 6. L’Oreal n.d. SWOT analysis L’Oreal [online] available from < http://loreal.exteen.com/20080805/swot-analysis-l-oreal> [Accessed 21 April, 2010] Read More