Sample of assignment: L’Oréal Paris Business Plan

By | April 19, 2014

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2012 to 2013 L’Oréal Paris Business Plan – For Vive Pro Color Vive Shampoo Sector

1.        Introduction of the business objectives and aims

L’Oréal Paris as a global leader in cosmetics market has been dedicated to the well-being of the human beings by focusing on the cosmetics industry with the energy, know-how and professional expertise for nearly a century (Loreal.com.my 2011). Products made by the company in Malaysia market range from color cosmetics, skin care, hair care, hair color and fragrances. The overall objective of the Malaysia business will be to contribute to a world for beauty and well being. And based on last year’s double digit growth of its sale in Malaysia, the aims of this business plan is to provide a particular guidance to Malaysia business to keep a 15% annual growth in sale in 2012 to 2013 financial year.

2.        Mission and vision

The vision of L’Oréal Paris states that cosmetics are part of the universal quest for beauty (Pelsmacker, Geuens & Bergh 2010). And the mission of L’Oréal Paris is to assist men and women in the globe to achieve the aspiration to beauty and express their individual characteristics to the full potential by providing quality products suiting all ages and geographical boundaries with continuous research and innovation. And this is what gives the meaning and value to the company’s business and to the working live of the employees of which the L’Oréal Paris people are proud of (Leeman 2010, p. 138).

3.        Current issues

In the Malaysia market as mentioned above, according to the data released in the official website, there has been a double digit in the Malaysia market last year while the global sale positioned around 5% growth in the first half of 2011, and also it is said that in Malaysia there is a strong growth in consumer product division which includes the shampoo products (Loreal.com.my 2011). The advantages of L’Oreal Paris is that its shampoo products like its many other cosmetics are inexpensive with solid quality and also the product lines are comprehensive enough with each of them focusing on the particular market segments (Cosmeticscop.com 2010). But as a shampoo brand, there are also some disadvantages of L’Oreal Paris. On one hand, the brand awareness in Malaysia is still not as high as its skin care cosmetic products; and on the other hand though L’Oreal Paris is expanding rapidly in the shampoo market in Malaysia, there are still some places where people can not get access to these products due to the under-development of the distribution channel particularly in the remote areas distant from the major cities.

4.        External assessment

 

4.1    Macro environmental check – Implications of the ETP

The Economic Transformation Program or ETP is proposed by the Malaysian government in 2010 to transform Malaysia into a high income economy by the year of 2020 indicating that the per capita income will be increased from the current US $6700 to above US $15,000 (Singh 2011). With the anticipated high growth of economy and increase in the level of people’s income, there are two major implications of the ETP to the shampoo industry and to L’Oréal Paris Vive Pro Color Vive Shampoo series: market share and positioning. Firstly, with the growth of the economy and people have more dispensable income, there will be more and more people getting in love with making desired hair styles at salons to show their personalities and getting some color in the hair will be inclusive within this trend. In this point, there will be a rapid growth in the market of shampoo and post-shampoo conditioners and other products for the color treated hair. Secondly, with the expansion of the market value, it is also expected that the high end market segments will mature with diversified and differentiated needs for the specific treatments for the specific color hair problems such as damage and dry color hair.

4.2    Five forces analysis

We have performed a five forces analysis in the previous assignment and have come to some conclusion about the level of the shampoo industry in Malaysia as summarized in the table below.

Name of forceDegree of competition
The risk of entry by potential competitorsMedium level
Rivalry among established companiesMedium to high level
The bargaining power of customersMedium to low level
The bargaining power of the suppliersMedium to low level
The threat of substitutesLow level

Table 1 Summary of five forces analysis on shampoo industry in Malaysia   Here we will deepen the analysis on competition by focusing on the recent trend in the rivalry among the existing shampoo brands. Based on the findings in an industrial report, the leading position in Malaysia is still taken by Procter & Gamble (M) Sdn Bhd by holding a 17% market share in 2010. The leadership was enhanced by solid brands including Pantene and Rejoice (Euromonitor.com 2011). The rivalry is also strengthened by the increasing fierce competition between Unilever’s SunSilk and Procter & Gamble to fight for the no.1 position. Another trend in the shampoo industry is the great contributions by the competency of innovation such as the most recent Pantene Recharging Fluid Pro-V Formula.

4.3    Environmental issues

According to the related early statistics, the Malaysia government spends about RM 0.06 per kg per day to cope with the whole country’s 0.8 kg per capita waste per day. Together with other environmental issues the government was rather forced to focus on the environmental protection and preservation by continuous educating and reminding the public to increase their environmental awareness (Brebbia 2011, p. 432). Such education in increasing the public awareness in environmental preservation can be seen in the various media in Malaysia. And the expected increasing environmental awareness among the society would also have three major implications for the future business development in the shampoo industry in Malaysia. Firstly, as plastic pollution is one of the major environmental issues that concern the society most in the cosmetic industry, it is important for the shampoo manufacturer to use the plastic that could be recycled and contain less detrimental chemicals to the environments once exposed in the natural conditions. Secondly, innovations should also be focused on replacing any potentially harmful chemicals in the ingredients of the shampoo to make the products more popular and welcome among the increasing number of green product consumers. Thirdly, public relationship management efforts need to contribute the sustainability of the society by helping with the environment issues that attract the society’s attentions. Failure to meet the trend of environmental protection using green product strategy could create difficulties for the company to achieve its business aims to maintain a rapid growth in the future and fulfill its vision and missions as stated above.

5.        Internal assessment

5.1    Value chain analysis

Figure 1 A two-stage decision model in value chain analysis Source: Peng 2009, p. 93   The value chain of a company typically consists of two major areas which include primary activities and support activities. And in deciding whether the primary activities will be done in-house or outsourced a two-stage decision model could be helpful to clarify the manufacturing activities in the value chain in term of the source of the resources and capabilities.   In L’Oréal Paris, as the world’s largest beauty products manufacturer, it has a philosophy to produce its own products that it sells as much as possible. And according to the two-stage decision model, L’Oréal Paris has the needed resources and capabilities to add value to the value chains better than the competitors; so an in-house production by acquiring its own resource and capabilities will be a good option for the company. As of 2008, there had been 42 manufacturing plants all over the world manufactured approximately 95 percent of all the products that L’Oréal Paris sold. And it is said that it is the process of the formulas, the way how quality is managed in the manufacturing and how supply chain is control important to the strong manufacturing strategy that add value to the company’s core competitiveness (Manufacturing-executive.com 2011).

5.2    Present growth strategies

The McKinsey Growth Pyramid, similar to Ansoff’s matrix, is a model that describes the growth options for an organization based on four types of skills: Operational skills, Privileged assets, growth skills and special relationships (Leinemann 2009, p. 101). Figure 2 McKinsey Growth Pyramid Source: Leinemann 2009, p. 101   According to the strengths of L’Oreal Malaysia in privileged assets and operational skills, the company is more focusing on boosting the business growth by introducing new products. New products will be developed based on the local consumers’ needs in Malaysia in term of special formula owned by the company’s privileged assets. And in term of the ways of achieving the growth, organic investments will be adopted by the company based on two reasons. Firstly, the use of the organic investments is with the lowest risk to expand the business scale because the company itself will be in charge of the majority of the activities involved from the beginning to the end; secondly, the effectiveness of the organic investments is enhanced and supported by the company’s healthy and strong financial situation.

6.        Strategies formulation – application of SPACE theory

Strategic position and action evaluation or SPACE is an extension of the two dimensional portfolio analysis (BCG), it is utilized to decide the suitable strategic posture of the companies (Swayne, Duncan & Ginter 2006, p. 299). Figure 3 The Strategic position and action evaluation model Source: Thompson 2001   The application of the strategic position and action evaluation (SPACE) model in helping L’Oreal Malaysia to locate its strategic direction is shown below:   We allocate product quality, market share, branding and product life cycle into the as the indicators measuring the competitive advantage (CA); entry difficulty level, growth potential, access to financing and consolidation in the calculation of the industry strength (IS); return on assets, liquidity level, leverage and cash flow in the calculation of the financial strength (FS) and technology, inflation, tax and changes of customer preference and demand elasticity in the measurement of the environmental stability (ES). Each of the factors is measured either by referring to the annual report to calculate the results or by making comparisons to the industrial competitors and we calculate the competitive advantage (CA) and environmental stability (ES) by rating scale from -6 (the worst) to -1 (the best) and rate the industry strength (IS) and financial strength (FS) through rating scale ranging from +1 (worst) to +6 (best). The results are summarized as following.

CAProduct quality-2
Market share-2
Branding-4
Product life cycle-3
ISEntry difficulty level5
Growth potential3
Access to financing3
Consolidation4
FSROA4
Leverage3
Liquidity5
Cash flow4
ESInflation-3
Technology-2
Tax-3
Changes of customer preference-5

Table 2 Rating of the individual indicators   With the CA averaging -2.75, IS 3.75, FS 4 and ES -3.25, the total axis X is 1 while the total axis Y is 0.75. And come back to the model, these results suggest that the company is falling into the first quadrants which is the “aggressive strategy” indicating that the company should turn to a aggressive expanding strategy in the future. Below we will base on these findings to select the appropriate strategies to implement this strategic positioning.

7.        Strategies selection

Below we will select the set of strategies in three different level, corporate level, business level and functional level to achieve an aggressive business target as identified above.

7.1    Corporate level strategies

In the corporate level, L’Oréal Paris with its vision to assist men and women in the globe to achieve the aspiration to beauty and express their individual characteristics to the full potential by providing quality products suiting all ages and geographical boundaries will continue to include the four major operating segments in the Malaysia market: active cosmetics division, luxury products division, professional products division and consumer products division. Besides this overall strategy for our company in Malaysia, we will also have two major directions in the business level: diversification by introducing new products and fitting into various cultural needs. On one hand, the company visions to meet the increasing needs from a new Malaysia which owns a high income population with personalized needs. And diversification will be a major trend in our company. The diversification overall strategy means that the company will need to seek to increase profitability through greater sales volume obtained from new products and new markets by focusing on the various customer needs in different groups in the near future; On the other hand, with the examination of the macro environment we have come to the conclusion that focusing on and fitting into the various cultural needs is extremely important in Malaysia, a market with highly diversified cultural systems.

7.2    Business level strategies

In the business level of the shampoo business that we are focusing on in this study, as found out in the application of the strategic position and action evaluation model, it is more suitable for the company to pursue an aggressive strategic direction. To achieve this, we will have three major kinds of business strategies: Firstly, we will have an ambitious corporate planning at the tactical level to maintain and increase the competitive advantage in the existing product and markets; secondly, we will further segment the market by measuring the different functional and product needs by different ages, nature of hair, cultural background, sex and races and also try to educate and meet their diversified needs with more diversified product lines design to provide more specialized hair treatments accordingly; thirdly, while we set the business target of the shampoo market value with a 15% annual growth in the coming financial year we also aims at increase the overall financial performance to better serve our investors.

7.3    Functional level strategies

The functional level strategies set are used to support the company’s corporate strategy and business strategy that we just mentioned in term of different functional tasks: marketing, production, human resource management and research and development.

7.3.1            Marketing strategies

In term of marketing strategy, as mentioned earlier, because there is an expected increasing awareness in the environmental protection our marketing strategy will be focusing on creating an image that L’Oréal Paris as a shampoo manufacturer is dedicated to the contribution to a green planet by keeping a sustainable business. And regarding the selection of media, social media will be more used to transmit our marketing communication to our customers based on the trend of increased use of various media such as Facebook.

7.3.2            Human resource management

In term of the human resource management, due to the adoption of an ambitious growth strategy in the shampoo business sector we will also support this strategy by initiating a strategic human resource planning to equip the company with the future needs of human talents. We not only will systematically predict the future needs of human resource in term of number of employees in different levels and positions and make them available positions in the labor market; we will also slim down the management levels to further speed up the decision making process and increase the management flexibility in reacting to the changes. Also the diversity strategy will be utilized in the human resource management to better represent the diversified culture in Malaysia in our working environments.

7.3.3            Research and development

The efforts made in the area of research and development is important to the future fast growth business target because as analyzed above there will be greater contributions by the competency of innovation as a trend in the shampoo industry in Malaysia. The company will be more than ever focusing in researching the special formula designed for different various group of users in term of different sex, ages and other dimensions. Also the R&D department will need to invest more effort and resource in developing more products that are more environmental friendly and benefit the human beings.