L’Oréal is a French multinational company specializes in beauty and personal care products. The core products of the company include makeup, cosmetics, haircare, skincare, perfumes and other related product for beauty and personal care. L’Oréal is the largest company of cosmetics at an international level with its presence in all 7 continents of the world. The company provides beauty and personal care products for both men and women. To keep the international leading position of the company, it is of vital importance to analyze different factors from that industry creating an impact on the company. Porter’s five forces analysis is conducted to understand the dynamics of the cosmetics industry so that strategic planning can be done accordingly.
Competitive Rivalry
The competition in the global cosmetics industry is of the highest level because of the strength of the competitors in the industry. The global cosmetics industry has earned a revenue of 532 billion USD in 2017 which is expected to increase at the rate of 7 percent between 2018 and 2024. The major international brands in the cosmetics industry include L’Oréal, Maybelline, Dior, Chanel, Urban Decay, Lancôme, and Estee Lauder (Zion Market Research, 2019). L’Oréal is leading the market with the highest market share due to its range of products and brand reliability. The other brands also have international presence and acceptance which is the reason for fierce rivalry in the global cosmetics industry. Although the competition is high but the competition is not negatively impacting the current state due to the massive growth of the industry. Despite increasing the number of companies, the number of buyers is also increasing which is neutralizing the negative impact of high competition.
Bargaining Power of Suppliers
The suppliers have low bargaining power because the raw materials used in the cosmetics industry are not rare and the suppliers are also available in abundance which makes it easy for the companies to negotiate. Due to such massive growth and sales of the cosmetics companies, the suppliers focus on giving the highest value to get the contract of international brands. This value of the companies for the suppliers in the cosmetics industry is the reason that the companies negotiate through a dominant approach (Pereira de Carvalho & Barbieri, 2012). Therefore, the bargaining power of the suppliers is low due to their high dependence on the companies.
Bargaining Power of Buyers
There are multiple international and local brands available for the buyers to buy from. The switching cost is also not high from one cosmetic brand to another cosmetic brand although there is a factor of brand loyalty due to skin sensitivity. But the overall factors are not so impactful that it restricts the buyers to a particular brand so closely. The availability of the same quality brand with the same or even competitive pricing has increased the bargaining power of the buyers. The cosmetic companies have to keep in mind the bargaining power buyers while developing the products and setting the prices for the products (Darabos, 2013).
Threat of New Entrants
The hurdles for the new entrants in the cosmetics industry are there but some of them are negated due to the exceptional growth of the cosmetics industry. The expertise is requiring to manufacture the cosmetics products and the testing of the different products is a complex process requiring skills and capital. The issue of banning animal testing in the cosmetics industry has further intensified the complexity of the operations in the cosmetics industry which is a hurdle for the new entrants. The fast market growth neutralizes the negative intensity of the hurdles which is the reason that the threat of new entrants in the global cosmetics industry is moderate (Ulubeyli, 2017).
Threat of substitutes
The skin and beauty care products have become a need and there is no chance that the people would not be concerned about the beauty, skin, and personal care. This need requires the beauty, skin, and personal care products in the industry which keeps the threat of substitutes low. It is important to note that the way and products have changed and evolved but the need for beauty care products is there and it will remain there with radical or incremental innovations in the products and processing of the cosmetics.
References
Darabos, M. (2013). Strategic Analysis Of Croatian Cosmetics Industry. Economic and Social Development: Book of Proceedings, 951.
Pereira de Carvalho, A., & Barbieri, J. C. (2012). Innovation and sustainability in the supply chain of a cosmetics company: a case study. Journal of technology management & innovation, 7(2), 144-156.
Ulubeyli, S. (2017). Industry-wide competitiveness assessment through fuzzy synthetic evaluation: the case of cement industry. Journal of Business Economics and Management, 18(1), 35-53.
Zion Market Research. (2019). Global Cosmetic Products Market Share Expected to Reach $863 Billion by 2024: ZMR. Available at: https://www.globenewswire.com/news-release/2019/01/31/1708263/0/en/Global-Cosmetic-Products-Market-Share-Expected-To-Reach-863-Billion-by-2024-ZMR.html