L’Oréal Paris Vive Pro Color Vive Shampoo-Industrial analysis and competitive strategy

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  1.      Generic competitive strategy………………………………………………………………………. 2

1.1       Porter’s generic strategies…………………………………………………………………. 2

1.2       Generic strategy adopted by L’Oréal Paris Vive Pro Color Vive……………. 3

  1. Complementary strategic options…………………………………………………………………. 4

2.1       First-mover strategy…………………………………………………………………………. 5

2.2       Backward vertical integration……………………………………………………………. 5

  1. Industrial analysis……………………………………………………………………………………… 6

3.1       Porter’s Five Forces framework…………………………………………………………. 6

3.2       Five forces analysis of shampoo industry in Malaysia…………………………… 7

3.2.1       The risk of entry by potential competitors – medium level………….. 7

3.2.2       Rivalry among established companies – medium to high level…….. 8

3.2.3       The bargaining power of customers – medium to low level…………. 8

3.2.4       The bargaining power of the suppliers – medium to low level……… 8

3.2.5       The threat of substitutes – low level…………………………………………. 9

3.3       Overall attractiveness of shampoo industry in Malaysia……………………….. 9

Reference……………………………………………………………………………………………………… 11
L’Oréal Paris Vive Pro Color Vive Shampoo

-Industrial analysis and competitive strategy

 

1.        Generic competitive strategy

 

1.1    Porter’s generic strategies

 

In the famous book, “Competitive Strategy”, Michael Porter (1980) presents three basic generic strategies defined along two dimensions which are strategic scope (narrow or broad market scope) and strategic strength (uniqueness or low cost competency) to help business to improve the competitive power. The three generic strategies include: Cost leadership, Focus and Differentiation as demonstrated below in the figure. And according to this model, the competitive strategy of a firm must fall into one of the three basic generic strategies to avoid becoming “all things to all men” which result in a lack of competitiveness (Karlof 1993, p.190).

Figure 1 Porter (1980)’s generic strategies

Source: Eldring, J. 2009, Porter ́s (1980) Generic Strategies, Performance and Risk: An Empirical Investigation with German Data, Hamburg: Diplomica Verlag GmbH

1.2    Generic strategy adopted by L’Oréal Paris Vive Pro Color Vive

Product

 

Image
Shampoo for Color Treated Hair (For dry or damaged hair) *
Shampoo for Color Treated Hair (For regular) *
Shampoo for Highlighted Hair *

Table 1 L’Oréal Paris Vive Pro Color Vive series

Source: Lorealparisusa.com 2011

 

L’Oréal Paris has adopted the focus (with strategic strength on differentiation) strategy in the Vive Pro Color Vive Shampoo product line. According to Sehgal (2011, p.60), the focus strategy is different from overall cost leadership strategy or differentiation strategy is based creating a niche that can be further focused on price or product differentiators. In another word, the focus strategy only select a smaller target group and tailor the business strategy to serve the target customers  exclusively and further differentiation or cost leadership could be used in the focus strategy (Pommerening 2010, p.19). Looking into the shampoo brand of L’Oréal Paris Vive Pro Color Vive, it is using the focus strategy (with strategic strength on differentiation) for the following two reasons: on one hand, rather than focusing on a broad target the product line Vive Pro Color Vive has a narrow target that only targets at those customers with color treated hair which only accounts for a narrow market; and on the other hand, the brand L’Oréal Paris Vive Pro Color Vive does not provide a single product solution to all color-treated-hair customers, and instead it provides three different products with different functions to three types of color treated hair: regular hair, dry or damaged hair and Highlighted Hair as the table above illustrates. The uniqueness gained by providing exclusive shampoo solutions to color treated hair in different natures (regular or damaged) enhances the product competitiveness while at the mean time avoid direct price competition with other shampoo products.

 

2.        Complementary strategic options

 

To support the first competitive strategic choice which is the focus strategy (with strategic strength on differentiation), L’Oréal Paris also adopts two major secondary set of strategic choices to strengthen the competitiveness of Vive Pro Color Vive Shampoo compared to the market competitors: First-mover strategy and Backward vertical integration.

 

 

2.1    First-mover strategy

 

The first mover as a term could usually be referred as the ability to bring a new product to the market in such a way that it captures large amount of market share (Horowitz 2010, p.48). There are a number of advantages by adopting a first-move strategy such as patents protection and lead in technological innovation. In the case of L’Oréal Paris Vive Pro Color Vive Shampoo, in the Malaysia shampoo market L’Oréal Paris was among one of the first movers to release a series of shampoo products to help keep the color in the hair truer and longer based on the application of the new dual UV filter technology and anti-oxidants (Lorealparisusa.com 2011). The first-mover strategy did help the brand to obtain its market share since the release of the product into the market and also it continual improvement in the product lines has been strengthening such first-mover advantages.

 

2.2    Backward vertical integration

 

The concept of vertical integration could be defined as the process of acquiring and consolidating factors of a value chain to obtain more control (Collier & Evans 2010, p.413). And there two kinds of vertical integration: backward integration and forward integration. While the forward integration is the company’s acquisition or increased control over the distribution system, backward integration refers to similar acquisition or increased control over the supplier system (Raisch 2004, p.39). In the case of L’Oréal Paris Vive Pro Color Vive Shampoo, the company has adopted the backward integration to control one of the key inputs of the shampoo products: hair science and technology. In shampoo industry L’Oréal Paris has long invested it R&D effort into the hair science to understand the customer need from a scientific perspective. For this purpose, the company even established a hair science website, the hair-science.com to help customers to understand the unknown scientific and cultural facts about hair (Hair-science.com 2011).

 

3.        Industrial analysis

 

3.1    Porter’s Five Forces framework

Figure 2 Porter’s Five Forces framework

Source: Adapted from Hill & Jones 2008, Strategic Management Theory: An Integrated Approach, 9th edition, Mason: South-Western Cengage Learning

In defining the industrial competitive degree, Porter (1979) proposed one of the most influential and widely used frameworks by identifying five forces that shape the competition within an industry: the risk of entry by potential competitors, the intensity of rivalry among established companies, the bargaining power of customers, the bargaining power of the suppliers and the threat of substitutes. And within these five forces, based on the source of the forces three of them are from horizontal competition which include the threat of substitutes, the intensity of rivalry among established companies and the risk of entry by potential competitors. And the rest two are from vertical direction. One thing to be noticed is that though the five forces model assists in defining the industrial competitive degree and the overall attractiveness of an industry, individual company’s profitability may vary depends on its competitive strategy selection and other factors.

 

3.2    Five forces analysis of shampoo industry in Malaysia

 

3.2.1            The risk of entry by potential competitors – medium level

 

The risk form the potential competitor could be said as medium because on one hand the relatively smaller market volume seems to make Malaysia a less important battlefield for the new or foreign shampoo brands that had not entered into the Malaysian market but on the other hand the relatively less fierce competition has made the market easier to enter.

3.2.2            Rivalry among established companies – medium to high level

 

The intensity of rivalry among established shampoo brand is medium to high level. The justifications are given here: firstly, Malaysian shampoo industry has long been developed and has come to a quite matured status with the well establishment of the distribution network for the major domestic and international shampoo brands such as Sunsilk and L’Oréal Paris; secondly, the direct and indirect price competition of the major established shampoo products in particularly during the major festivals such as the Christmas promotion period though price is not the sole competitive tool used.

 

3.2.3            The bargaining power of customers – medium to low level

 

The bargaining power of customers or buyers in the Malaysian shampoo market is medium to low level for the following reasons: on one hand, individual buyers are large in number and small in consumption volume which means that it is not easy for the individual customers to give the shampoo producer pressure in term of bargaining down the price; and on other hand the individual customers could also create pressures to a certain brand by choosing a different brand than they used to use and what’s more the bargaining power could also from the supermarket and chain stores which have controlled the distribution channel and could have their impacts in bargaining down the prices.

 

3.2.4            The bargaining power of the suppliers – medium to low level

 

Though there are medium to high level of intra competition among the shampoo industry in Malaysia as said above and the manufacturers will compete for the inputs and resources, the bargaining power of the suppliers will still be in a medium to low level for the following reasons: firstly, many manufacturers have already done a vertical integration to eliminate or reduce the bargaining power of the suppliers; secondly, many suppliers are having fixed and long term cooperation relationship with some manufactures which is ensured by clearly stated contracts and inability to conform with the contract will incur results such as law suit; thirdly, the materials and inputs needed by a particular manufacturer could be very different from that of another shampoo manufacturer due to the differences in the production procedures and formula of the shampoo, this directly results in the high switching costs of the suppliers in the Malaysian shampoo industry.

 

3.2.5            The threat of substitutes – low level

 

The threat of the substitutes could be said to be in a very low level according to our current cognition of the hair daily cleaning and nourishing service. It is true that many professional barber shops could provide more considerate and customized hair care service using more expensive chemicals and special formula, but in a daily hair care perspective the professional hair care service is limited only on a periodical basis and the cost is too high for a daily hair care for most customers.

 

3.3    Overall attractiveness of shampoo industry in Malaysia

Five forces Competitive level
The bargaining power of customers Medium to low level
Rivalry among established companies Medium to high level
The risk of entry by potential competitors Medium level
The bargaining power of the suppliers Medium to low level
The threat of substitutes Low level

Table 2 Five forces analysis of shampoo industry in Malaysia

 

A summary of the overall attractiveness of shampoo industry in Malaysia through the analysis of the five competitive forces using the Porter’s Five Forces framework is give above in the table. Based on the findings we have above, we can conclude that due to the low level of threat of substitutes, medium to low level of the bargaining power of the suppliers and bargaining power of customers and also there is not absolutely high level in all five forces, the overall attractiveness of the shampoo industry in Malaysia is medium and it is medium attractive as a business opportunity.

 

 

Reference

 

Collier, D. A. & Evans, J. R. 2010, Om + Bind-in Printed Access Card, Mason, OH: South-Western Cengage Learning. Student Edition, p.413

 

Eldring, J. 2009, Porter ́s (1980) Generic Strategies, Performance and Risk: An Empirical Investigation with German Data, Hamburg: Diplomica Verlag GmbH, p.7
Hair-science.com 2011, Portrait of an unknown element, viewed on 21 Aug 2011 Link:http://www.hair-science.com/_int/_en/topic/topic_rub.aspx?tc=ROOT-HAIR-SCIENCE^PORTRAIT-OF-AN-UNKNOWN-ELEMENT&cur=PORTRAIT-OF-AN-UNKNOWN-ELEMENT&

 

Horowitz, M. C. 2010, The Diffusion of Military Power: Causes and Consequences for International Politics, New Jersey: Princeton University Press. p.48
Karlof, B. 1993, Key business concepts: a concise guide. London: Routledge, p.190

Lorealparisusa.com 2011, L’Oréal Paris Vive Pro Color Vive, viewed on 21 Aug 2011 Link: http://www.lorealparisusa.com/_us/_en/default.aspx#/?page=top{userdata//d+d//|diagnostic|main:pdp//objectid+HCa2_6//{pdp_tab:pdp_overview//objectid+HCa2_6//}|media:_blank|nav|overlay:_blank}

Pommerening, T. 2010, Strategic Changes for Business Models in the German Retail Banking Industry in the Post Financial Crisis Era. Norderstedt: GRN Verlag, p.19
Porter, M. E. 1979, How Competitive Forces Shape Strategy, Harvard business Review, March-April 1979
Porter, M. E. 1980, Competitive strategy, New York: The Free Press.
Raisch, S. 2004, Raisch, Strat. Analysis, Wiesbaden: Auflage Dezember, p.39
Sehgal, V. 2011, Supply Chain as Strategic Asset: The Key to Reaching Business Goals, New Jersey: John Wiley & Sons, Inc, p.60