Marketing Report For L'Oreal

Introduction

L'Oreal is a cosmetic company, which makes some of the world's biggest beauty products. L'Oreal's success story begins in 1907. It has been the market leader in the cosmetics and toiletries market since 2001 (Euromonitor 2005). Their products are sold in about one hundred and thirty countries worldwide. L'Oreal is divided into four categories - consumer products, professional products, luxury products, active cosmetics. They mainly focus on skin care, make-up, hair care and fragrance. L'Oreal includes some important brands such as Lancфme Paris, Garnier, Mabelline, Softsheen Carson, Matrix, and Biotherm. L'Oreal invests heavily into its research and development which gives them competitive advantage over its competitors.

We as a group are going to produce a strategic marketing plan for L'Oreal.

PART 1A

PEST Analysis for L'Oreal

Political Factors - The political challenge is that L'Oreal should conform to all the different government leadership styles in various countries it operates within. L'Oreal faced a decline in the dermatology branch led by its Galderma brand due to new legislations governing drugs (Euromonitor, 2005). The EU law affects L'Oreal. L'Oreal is restricted in their use of certain kinds of chemicals, such as Phthalates which is carcinogenic (The Rules Governing Cosmetic Products in the European Union). L'Oreal is obligated to produce safe products that do not contain any harmful substances. Also, legislation for advertising is also affecting L'Oreal. L'Oreal has to follow the rules set by Advertising Standards Authority. For example, advertisements cannot be misleading that over-exaggerating the functions of a product (The Control of Misleading Advertisements Regulations 1988).

Economic Factors - L'Oreal should adapt to all the different economic environments and problems in all countries it operates in. For example in 2004, L'Oreal was affected by the continued weakness of the dollar and other currencies (L'Oreal Annual Report, 2004). Due to the factors such as rates of economic growth, there was a sharp and unforeseeable drop in consumer spending in Europe which affected L'Oreal's result in 2004 (L'Oreal Annual Report, 2004). Inflation in UK due to rise in oil prices could mean that people have less disposable income to spend on L'Oreal's luxury products. L'Oreal must adapt to the fluctuating exchange rates as it operates on a global scale. Market structure affects a company's strategy. L'Oreal is involved in a monopolistic market, where there are many competitors producing similar products. (Brassington & Pettitt, 2004). Therefore, L'Oreal is affected greatly by its competitors on pricing, promotion, place and products. L'Oreal has to differentiate itself from competitors in terms of the 4Ps in order to attract customers. E.g. Vichy offers product that protects hair against sun-light, this is an innovative product which helps L'Oreal differentiates itself from the keen competition.

Socio-cultural factors - L'Oreal have to be in line with the changing consumer life styles. L'Oreal has to be aware of all its customer tastes, beliefs and awareness issues in each of the markets it operates in so that their advertising will be sensitive to these differences. L'Oreal has to take into account the religious and cultural factors when advertising in different countries. L'Oreal should focus more on the changing customer preferences as many customers prefer more organic and natural products. For example L'Oreal was forced to withdraw its advertising campaigns in the UK for its cellulite treatment Perfect Slim, because it had a physiological effect rather than a cosmetic (Soaps, Perfumery and Cosmetics, 2005). L'Oreal is also involved in a number of charitable and socially aware initiatives around the issues of health and wellbeing, for example L'Oreal Professional Products signed an agreement with UNESCO with regard to a joint HIV/AIDS education programme (Euromonitor, 2005).

Technological factors - L'Oreal uses technology to develop new products and also invests heavily on its research and development (Euromonitor, 2005). It uses e-commerce as a means to distribute products, such as Lancфme which provides consumers with the benefit of online shopping (Euromonitor, 2005).

Porter's five forces analysis for L'Oreal

Bargaining power of supplier

The suppliers of L'Oreal will have low power as L'Oreal is an established company and it does 94% of its production in-house (www.loreal.com).

Bargaining power of buyer

Generally the power lies with the buyers, as there are many firms that produce similar products. The buyers have considerable choice over whom they buy their products from. Therefore, the switching costs are relatively low, as buyers do not incur any costs for switching from L'Oreal products to other similar products. For example, customers have the choice of whether to buy Maybelline mascara or Maxfactor mascara; they will not incur switching costs if they change their minds about which company to purchase it from (Haberberg and Rieple, 2001). Hence, buyer power can influence the prices that L'Oreal charges for its products (De Wit and Meyer, 1999).

Threat of new entrants

Barriers to entry are low.

* Differentiation: the position of a product or service regarded by the user as different from and of higher perceived value that its competitors (Johnson & Scholes, 2002). L'Oreal invests heavily into its research and development which gives its differentiation and competitive advantage against its competitors.

* Experience: L'Oreal has been the global market leader in the cosmetics and toiletries industry since 2001 (Euromonitor, 2005). L'Oreal invests heavily into its research and development to satisfy its changing consumer demands and lifestyle. L'Oreal has to watch out for new sector entrant such as Playboy as they are launching a cosmetics