Strategic Management Marketing and Enterprise

The Body Shop Current Situation and Strategic Options

Introduction

This paper examines the strategic choices that Body Shop has at its disposal and suggests the best course of action. In order to set the stage for the analysis that follows, a quick overview of the Body Shop’s internal and external settings is given at the outset. Relevant academic models are used to identify various strategy options based on the results of the environmental investigations. After a succinct review of the analysis’s main findings, one choice is chosen, assessed according to Johnson et al. (2011)’s acceptability, feasibility, and suitability criteria, and its superiority for the Body Shop is explained.

The Body Shop

L’Oreal, a French beauty and personal care firm, currently owns the Body Shop, which was founded in 1976 by Dame Anita Roddick (Shearman, 2011, p. 1). Following the 2006 takeover (Costello and Groves, 2006), L’Oreal repositioned the Body Shop twice: in 2008, they put more of an emphasis on ethics to offset the potential effects of the takeover (Marketing, 2008), and in 2011, they put more of an emphasis on customer relationship management, loyalty, and a redesigned website (Shearman, 2011, p.1). With an eye on India, the Body Shop has since grown to become a global brand (Bhattacharya, 2011, p. 22).

Environmental Analysis: Review

The external environment is currently in an extreme state of flux, as various economic crises in Europe and the USA threaten to cause a depression similar to that seen in the 1930s. As such, to provide an up-to-date context for the strategic option analysis, the macro, competitive and internal environments of the Body Shop will be reviewed.

The Macro-Environment

The PESTEL checklist, which consists of the Political, Economic, Socio-Cultural, Technological, Environment, and Legal aspects of the environment, is part of the macro-environment, which Worthington and Britton (2009, p. 6) define as “those macro-environmental… influences on business which affect a wide variety of businesses and which can emanate not only from local and national sources but also from international and supranational developments.” Rather than the environment, Worthington and Britton (2009, p. 6) include ethics in their list of issues. Here, we will use the STEEPLE framework, which is the result of combining the two types. This report highlights a number of critical difficulties for the Body Shop, as women are disproportionately affected by the present economic downturn, which reduces their disposable income and discretionary expenditure on cosmetics and other luxury items.

The Competitive Environment

Porter’s (1979) Five Forces—the threat of substitutes, industry rivalry, buyer and supplier bargaining power, and the threat of new entrants—are typically used to analyze this. The main conclusions drawn from this analysis are that Body Shop and L’Oreal both have substantial purchasing power and provide a variety of products at various price points. But with both store/private and national/manufacturers brands available to consumers, the struggle for dwindling disposable, discretionary expenditures is growing (see Kotler and Armstrong, 2012, p. 270). Once more, this emphasizes how important it is for Body Shop products to stand apart.

Body Shop: Resources and Capabilities

Organisations have both resources and capabilities. Barney (1995, p.50) defines a firm’s resources and capabilities as “all of the financial, physical, human and organisational assets used by a firm to develop, manufacture, and deliver products or services to its customers”. Identifying the Body Shop’s resources and capabilities will enable its strengths and weaknesses to be compared to the opportunities and threats within the external environment.

Resource Definition* Body Shop
Financial Debt, equity, retained earnings and so forth Significant underlying resources from L’Oreal, minimising need to borrow excessively. Impossible to ascertain the amounts of debt, equity and so forth associated specifically with Body Shop.
Physical Machines, manufacturing facilities and buildings … used in … operations Again, L’Oreal have significant amounts of fixed assets to support their operations, including the network of Body Shop outlets.
Human The experience, knowledge, judgment, risk taking propensity and wisdom of individuals The human resource of Body Shop was retained as part of the L’Oreal takeover, resulting in the ability to combine the knowledge and expertise of Body Shop personnel with that of L’Oreal. This has resulted in Body Shop’s operations becoming more sophisticated (Alarcon, 2008, p.19)
Organisational History, relationships, trust, and One of the major risks
  organisational culture … formal associated with the takeover of
  reporting structure, explicit Body Shop by L’Oreal was the
  management control systems possible loss of customers as
  and compensation policies they perceived that Body Shop
    had abandoned its ethical
    principles. This was countered
    when L’Oreal’s first Body Shop
    campaign focused on Body
    Shop’s ethical stance. There is
    still the danger that Body Shop
    is swallowed up in L’Oreal’s
    pursuit of profit. Currently, the
    Body Shop still has its own
    reporting structures and control
    systems, rather than L’Oreal
    imposing their own.

* Barney, 1995, p.50

Table One: Resources and Capabilities Analysis: Body Shop (based on Barney, 1995, p.50)

An alternative means of analysing Body Shop’s resources and capabilities is proposed by Grant (2010, p.146):

On this basis, it appears that the Body Shop is in a position to withstand some of the economic problems affecting the UK. However, its main problem is differentiating itself and its products from those of competitors without compromising on the high ethical standards underpinning its reputation or the brand equity associated with the Body Shop.

Strategic Options Available to The Body Shop

There are several tools that can be used to generate strategic options for the Body Shop. This report uses the SWOT/TOWS matrix, Ansoff’s Matrix and brand development tools.

SWOT/TOWS Matrix

A SWOT matrix identifies the internal strengths and weaknesses of an organisation and compares them to the opportunities and threats available in the external environment (Barney, 1995, p.49). Johnson et al (2011, p.108) take this a step further by combining the strengths, opportunities, weaknesses and threats to generate strategic options. 

Much appears to depend on how long the current economic difficulties last, and how great an impact they will have on different markets and consumers’ disposable income. L’Oreal have several options, from retaining and developing the Body Shop brand, to selling it if it fails to make sufficient profits relative to the investment made in purchasing the company.

Ansoff’s Matrix

Ansoff’sMatrixisalsoknownasthemarketoptionsmatrix(Lynch,2009,p.313)and is designed to identify “the product and market options available to the organisation, including the possibility of withdrawal and movement into unrelated markets”.

Some of the options here relate to options already identified within the TOWS matrix. The safest option for an organisations to target existing markets with existing products (market penetration), while the riskiest option is to develop new products and introduce them into new markets (diversification). Given the current economic climate, Body Shop would do well to play safe and focus on its existing products, introducing them into new markets (market development), whether those markets are domestic or foreign. Developing new products to introduce into existing markets (product development) is also another relatively safe option.

Brand Strategies

One of the Body Shop’s most precious assets is its brand.A brand is “a name, term, sign,symbol,design,oracombinationofthese,thatidentifiestheproductsor services of one seller or group of sellers and differentiates them from those of competitors” (Kotler and Armstrong, 2012, p.255).Over the years, the company has developed significant brand equity, which is “the differential effect that knowing the brand name has on customer response to the product or its marketing” (Kotler and Armstrong, 2012, p.267).

In the case of the Body Shop, the area of brand development would appear to have the greatest potential, which offers four alternatives: The two most useful strategies here are line extension, which is “extending an existing brand name to new forms, colours, sizes, ingredients, or flavours of an existing product category” (Kotler and Armstrong, 2012, p.274), and brand extension, which is “extending an existing brand name to new product categories” (Kotler and Armstrong, 2012, p.274).

Conclusion

The Body Shop appears to have a lot of alternatives, but in reality, there aren’t many when you take the contextual context into account. Since the Body Shop’s business depends on maintaining its reputation and brand, it is imperative that it do so. If something were to ever happen to tarnish the brand, it would require a lot of labor to restore it, assuming it could be restored at all. Because of this, some of the riskier tactics are disqualified because of the excessive danger to the brand.

Recommendation

This report suggests that Body Shop carry out market research in developing markets that have the best chance for a profitable group in the medium to long run. This fits within Ansoff’s matrix’s market development option and is backed by the organization’s strengths as determined by the TOWS matrix and the resources and capabilities analysis. It is important to evaluate the domestic market and explore the possibility of temporarily lowering prices until the economy stabilizes, at which point they can be progressively increased to what would be regarded as normal levels.

Assessing this recommendation against Johnson et al’s criteria of suitability, acceptability and feasibility demonstrates that it meets all three criteria:

Criterion Definition Body Shop Proposed Strategy
Suitability “Assessing which proposed strategies address the key opportunities and constraints an organisation faces”1 Key Opportunities: Developing overseas markets in both developed and developing nations
    Maintaining existing sales levels in current markets
    Attracting customers who are trading down
    Key Constraints:
    Current UK, European and global economy in constant state of flux
    Protection of the Body Shop brand and reputation
    Reduction in disposable incomes and discretionary spending power

1 Johnson et al, 2011, p.364

Acceptability “Whether the expected performance outcomes of a proposed strategy meet the expectations of stakeholders”2 L’Oreal – owner of Body Shop, seeking profitable growth. Overseas expansion allows growth of turnover and profits to counter the sales stagnation in the UK and Europe
    Consumers – looking for value for money especially in the current economic climate, wanting to purchase ethically and support organisations that take their environmental responsibilities seriously
Feasibility “Whether a strategy could work Body Shop has already begun
  in practice”3 expansion into the developed
    and developing world, which
    provides experience in the best
    ways to achieve this and avoids
    costly mistakes. Research still
    needs to be conducted to ensure
    entry into new countries and
    markets is achieved in the best
    possible manner, protecting and
    enhancing the brand while
    generating profits.

Table Two: Strategy Evaluation: Body Shop

(based on Johnson et al, 2011, pp.364-386

The proposed strategy is grounded in the existing experience of both the Body Shop and L’Oreal, and aims to provide a balance to the Body Shop’s product and market portfolio. It should prove successful within the context in which the Body Shop currently operates.

References:

  • Alarcon, C. (2008) ‘L’Oreal’s Other body Beautiful’ Marketing Week Vol. 31 No. 13 p.19
  • Barney, J. B. (1995) ‘Looking Inside for Competitive Advantage’ Academy of Management Executive Vol. 9 No. 4 pp.49-61
  • Bhattacharya, P. (2011) ‘The Body Shop Gets Closer to Mass Market in India’ Global Cosmetic Industry Vol. 179 No. 2 pp.22-24
  • Campaign (2011) ‘Body Shop to Reposition’ Campaign (UK) Vols. 31/32 p.6
  • Costello, B. and Groves, E. (2006) ‘Body Shop Oks L’Oreal Bid’ WWD: Women’s Wear Daily Vol. 191 No. 59 pp.2-22
  • Grant, R. M. (2010) Contemporary Strategy Analysis: Text and Cases (7th edn.) Wiley, Chichester
  • Johnson, G., Whittington, R. and Scholes, K. (2011) Exploring Strategy (9th edn.) FT Prentice Hall, Harlow
  • Kotler, P. and Armstrong, G. (2012) Principles of Marketing (Global Edition) (14th Edn.) Pearson Education, Upper Saddle River New Jersey
  • Lynch, R. (2009) Strategic Management (5th edn.) FT Prentice Hall, Harlow
  • Marketing (2008) ‘Body Shop Goes Back to Ethics’ Marketing 20 August p.3
  • Porter, M. E. (1979) ‘How Competitive Forces Shape Strategy’ Harvard Business Review Vol. 57 No. 2 pp.137-145
  • Shearman, S. (2011) ‘L’Oreal Eyes Loyalty in Latest Body Shop Shift’ Marketing 3 August p.1
  • Worthington, I. and Britton, C. (2009) The Business Environment (6th edn.) FT Prentice Hall, Harlow

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