L’Oreal Group is a French-based pioneer beauty company that was founded in 1909. The tag line of L’Oreal is “sharing beauty with all.” The company operates through two working divisions Cosmetics Division and Body Shop Division. Not only is it the first cosmetics company in the world, but it also is the top one(Medgadget). Having thirty-six brands, the company is based in more than 150 countries. By 2018, the company had registered 505 patents with 26.9 billion euros of sales. This section attempts to explain the business model of L’Oreal and its strengths and weaknesses by employing business model canvass and SWOT analysis, respectively.
But before moving on, L’Oreal’s commitment to sustainability is so outstanding that it deserves a separate mention. L’Oreal’s involvement in the organic beauty products industry, as well as its astonishing sustainability, has allowed it to retain its prestigious position for many years. L’Oreal launched a brand new line of organic products in 2018. The organic beauty industry only in France grew by 7%, much more than the traditional beauty industry, with worth over 400 million euros (Mansfield-Devine). Not only has the launch of this organic line totally resonated with the customers’ demands, but it also has crowned the entrepreneurial spirit of L’Oreal, keeping its leadership status in the industry unchallenged. This initiative of L’Oreal where meets the market demands and garner customer satisfaction, also is a support program for the farmers of the Provence-Alpes-Côte-d’Azur region in France from where all the raw material to be used in the new line, particularly the extra virgin olive oil, are collected (Mira). L’Oreal’s “bringing responsible beauty to all” tag line for organic products, again triumphs the market which is considered plagued, by customers, with brutal practices of animal testing, torturing animals for excavating material to be used in beauty products, particularly fragrances, and the frequent usage of harmful chemicals like aluminium and mercury. Hence L’Oreal’s commitment and continuation with using plant-based ingredients for more than 115 years have made it the industry leader(Organic Beauty for All), not just in terms of its’ earning but also earning customers’ hearts and caring for its’ surroundings beyond any doubt. Similarly, just the way L’Oreal has been concerned about the health of its customers, it also has been equally careful about planet earth. For the purpose of sustainability, in 2013, L’Oreal initiated “sharing beauty with all” campaign; a series of commitments which it had to meet by 2020. The latest report that L’Oreal published was its progress report in this lieu for 2018. These commitments were divided into four pillars and measure and address the impact of activities throughout the value chain. Through these commitments, L’Oreal has contributed to all seventeen goals set out by the United Nations, as mentioned in the 2018 progress report. It is rare, if not totally non-existent, to see a beauty giant stick to sustainable practices but also publish its progress report, and hence is the most popular strength of L’Oreal(L’Oreal).
The business model canvas can be used to comprehend any businesses strategies and models in a straightforward way quite efficiently. Business model canvas can provide not only insights about one’s own business but also that of one’s competitors.(The Business Model Canvas: Tool to Help You Understand a Business Model).
The first segment of canvas on the extreme right is about customers of any firm; that of L’Oreal is men and women who are really careful about their appearances. The second segment, which lies in the middle of the canvas, highlights the value propositions. L’Oreal offers sustainability, “bringing responsible beauty to all,” “high quality and prestige,” and being the “world’s largest cosmetics company.” The third segment; channels of supplying, lying on the left side of the first one, includes stores, promoting events, social media campaigns(Repositório Do ISCTE-IUL), pharmacies, and regional distributors. Fourth segment; customer relationships lying just above the 3rd segment includes customer loyalty, brand awareness and aspiration, and also 900 million euros investment in finding alternatives to animal testing. The fifth segment lying in the bottom right corner highlights revenue streaming, which includes the sale of products. The sixth segment sheds light on the key activities of the firm. For L’Oreal, it primarily includes, R&D (L’Oreal), sales, production, and “dermatology, toxicology, tissue engineering, and biopharmaceutical research fields”. The seventh segment, resources, is probably one of the most important ones. It includes brand, “intellectual properties, production facilities, and its distribution network. The “share and care” social program for employees as well as communities, rewards and recognitions, and the top non-technology patent holder in the USA, human skin 3D printing.” Eight segment being key partners is also an essential one. The fashion industry, media houses, advertising agencies, influential personalities, distribution network, investors and shareholders, suppliers and subsidiaries like the Body Shop and Lancome. The last segment; cost structure includes all the expenditures on the process from creating, delivering to earning revenues. Creating process would include branding efforts and ensuing promotions, then delivering will include distribution, and paying employees, and runningR&D facilities and factories.
Based on this canvas, the following section draws up an analysis of the strengths, weaknesses, opportunities, and threats (SWOT) to L’Oreal(Bhasin).
Being the largest beauty enterprise in the world is one of the significant strengths of L’Oreal. Next up is its continuous and unhindered investment in R&D(Ambuja Solvex). Not only is the quality of L’Oreal products is top-notch, but its brand portfolio is also a very prestigious one. The marketing campaigns of each brand of L’Oreal and strong media communications are also a strong suit of L’Oreal. L’Oreal is divided into many sub-divisions. This stands out as its weakness as handling a lot of subdivisions of L’Oreal, conducting magnanimous operations has the potential to cause many discrepancies. Its budget for human resource management is also enormous as around eighty-thousand employees are working in L’Oreal(BFM Business). Extreme competition from Sunsilk and Head & Shoulders shampoos, produced by other industry giants HUL’s and P&G’s, respectively, against L’Oreal’s Garnier, is one of the most prominent weaknesses of L’Oreal.
Personal hygiene, concerns about physical appearance are only going to heighten the demand of the beauty industry. So this area holds vast potential opportunities for L’Oreal as many animal rights artists are demanding an end to animal testing. Hence this objective of L’Oreal, as mentioned above,to uphold the sustainability commitments will surely shoot L’Oreal’s sales as organizations advocating animal rights get more vocal(Amberg and Fogarassay).
The ever increasing competition as the cosmetics industry grows poses a constant threat to L’Oreal(Collins). Besides, demand from the consumers also keeps updating and changing, so it is comparatively tougher for L’Oreal to cope with the ever-evolving demands cosmetic industry (Rajput). Secondly, having so many sub-brands divide the revenues accordingly. But if the economy faces any setback, then all the lines of any company face the cash crunch. The Covid-19 pandemic also has wiped out many businesses and has also affected L’Oreal. Besides owing to the division of labour and integration, if a unit of L’Oreal in one state faces setbacks, ones in the other countries will also bear its brunt.
References
Amberg, Nora and Csaba Fogarassay. “Green Consumer Behavior in the Cosmetics Market.” MDPI. Last modified July 30, 2019. 30 7 2019. <https://www.mdpi.com/2079-9276/8/3/137/htm. >.
- Ambuja Solvex. “Importance of Research and Development for the Cosmetic Industry.” .” 22 3 2019. <https://www.ambujasolvex.com/blog/importance-of-research-and-development-for-the-cosmetic-industry/. >.
- BFM Business. “Soumier, Stéphane. L’Oreal Annual Report 2018. .” 2018. <https://www.loreal-finance.com/system/files/2019-10/LOreal_2018_Annual_Report_0.pdf.>.
- Bhasin, Hitesh. “”SWOT Analysis of L’oreal – L’oreal SWOT Analysis.” .” 21 4 2019. <https://www.marketing91.com/swot-analysis-loreal-2/. >.
- Collins, Allison. Fast Beauty: New Business Models Cause Industry-wide Shift. 15 5 2018. <https://wwd.com/beauty-industry-news/beauty-features/fast-beauty-new-business-models-cause-industry-wide-shift-1202648539/.>.
- L’Oreal. “L’Oréal’s Model of Innovation: Strong Research.” n.d. L’Oréal – L’Oréal Group | World Leader in Beauty | Official Website.<https://www.loreal.com/research-and-innovation/our-innovation-model>.
- —. Sharing Beauty With All; The L’Oreal Sustainability Commitment. Progress Report. Paris: L’Oreal, 2018.
- Mansfield-Devine, Patricia. “L’Oréal unveils new organic beauty brand, La Provencale Bio.” 12 10 2018. Cosmetics Business.<https://www.cosmeticsbusiness.com/news/article_page/LOreal_unveils_new_organic_beauty_brand_La_Provencale_Bio/148024>.
- “Global Cosmetics Market 2019 Key Players, Trends, Sales, Supply, Demand, Analysis and Forecast 2025.” 23 9 2019. <https://www.medgadget.com/2019/09/global-cosmetics-market-2019-key-players-trends-sales-supply-demand-analysis-and-forecast-2025.html. >.
- Mira, Nicola. “L’Oréal launches organic skin and body care brand La Provençale Bio.” 5 10 2018. Fashion Network.<https://ww.fashionnetwork.com/news/L-oreal-launches-organic-skin-and-body-care-brand-la-provencale-bio,1021399.html>.
- “Organic Beauty for All.” 2019. <https://www.loreal-finance.com/en/annual-report-2019/consumer-products-3-3-0/organic-beauty-for-all-3-3-3/>.
- Rajput, Nilesh. Cosmetics Market Size, Share, Industry Trends and Analysis. n.d. <https://www.alliedmarketresearch.com/cosmetics-market.>.
- Repositório Do ISCTE-IUL. “:The Impact of Influencers in the Consumer’s Purchase Intention: the Cosmetic IndustryNovember 27, 2020.” n.d. <https://repositorio.iscte-iul.pt/handle/10071/19346.>.
- “The Business Model Canvas: Tool to Help You Understand a Business Model.” Business Models Inc. . 21 4 2017. <https://www.businessmodelsinc.com/about-bmi/tools/business-model-canvas/.>.
- Zito, Sara. “Business Model Adaptation in the Cosmetic Industry; The Nyx Professional makeup case.” 2017. The Luiss Guido Carli University Degree Thesis.<https://tesi.luiss.it/19715/1/190281_ZITO_SARA.pdf.>.
