Louis Vuitton Case Study Essay

The global opulence goods market placeplace in the past decade has experienced nonhing short of a complete development and transformation. This industry has abolishured global economic d witnessturns in advanced economies such as the United States requiring them to branch break with of their comfort zones and expand into emerging markets unique(predicate)ally the BRIC countries.These Asian nations possess juicy GDP rates that atomic number 18 anticipated to increase serviceman-shakingly in the upcoming years. Luxury goods were once a possession of rigorously the wealthy, dishonor conscious consumer with a broad(prenominal) usable income. Within these developing economies reside a peeled breed of young entrepreneurs and noveau riche consumers, offer monumental potential within the middle program market for lavishness steels (Pan). Although these countries offer world-shaking promise, access will come at the cost of fierce competition, potential of counterfeiting and international trade barriers.Bernard Arnault, the head of the Louis Vuitton Moet Hennessy brands, recognizes that penetration, growth and development in these emerging markets ar a critical crack up of the brands long-term global strategy. LVMH is the pargonnt company of around 50 sub-companies that run autonomously and implements the title-holder Brand formula.The company is determined to capture the growing Asia market with particular focus on China, Japan, southern Korea and India. Although these areas are quite affluent and familiar with Western luxuries, LVMH faces difficult challenges such as raising consumer awareness, counterfeiting, and show purchase within ones give nation state.The recommendations of this case analysis addresses each of the challenges and offers both(prenominal) a short term and a long-term implementation plan. If LVMH executes the suggested recommendations, the organization will be a global billethouse by both western and eastern standards . LVMHs Mission, Vision and Core setLVMH MissionTo represent the most re all rightd qualities of Western Art de Vivre around the world. LVMH must continue to be synonymous with both elegance and creativity. Their wares, and the cultural values they embody, blend tradition and innovation, and kindle dream and fantasy. fivesome FundamentalValuesBe creative and innovativeAim for product excellenceBolster the material body of brands with passionate determinationAct as entrepreneursStrive to be the best in all they doChallengesMaintain Status as the Leader in the Luxury Goods MarketPart of LVMHs mission is to be the leader in the global market for high life goods. LVMH is the worlds tremendousst and most bankable player in the extravagance goods market. They waste established this with a product life cycle that evince product elegance, quality and uniqueness. The challenge is to stay on top. The vision of the company is to chief(prenominal)tain its customers loyalty and its s trong brand come to, while finding new markets worldwide. LVMH is working hard at charge its star brands in the limelight and constantly reinforcing the value of its brands. Economic D protestturnsThreat of New EntrantsMultiple scatterings bring/marketing strategiesBrand loyalty and recognition of larger companiesLarge investment cost for initial attractGovernment intervention (importee tariffs)A plethora of distri merelyion channels are available for new entrants into the luxury goods industry. These marketing strategies include but are not limited to franchising, mergers and acquisitions. many of todays largest luxury concerns have achieved their success globally through implementation of these approaches.Although opportunity exists for new entrants, barriers are quite high in regards to qualitative and quantitative measures. Mature and established luxury goods brands such as Louis Vuitton and Gucci, have a strong brand loyalty and recognition amongst consumers, suppliers and retailers (Manning-Schaffel).Luxury goods raise awareness and gross revenue to the public through marketing tactics, which are quite pricy. With any product in the early stages of the product development thither is a red-blooded initial investment required to create brand consciousness. This is most felt by small and or independent brands. A typical global advertising campaign is extremely costly and ultimately drives gross revenue (Wittner).Lastly, depending on the artless(prenominal) a luxury good is looking to penetrate presidency intervention and import tariffs may act as a barrier, especially in the Asian market. In China alone, import duties have increased from 10% to 30% since 2007 (hktdc.com). Regardless the amount of tariffs imposed and deportation costs make it quite difficult for new entrants into theluxury goods global market place. Bargaining authority of SuppliersVarious suppliers availableIndependent sourcing initiativesSupplier bankruptcyWithin the luxury goods industry, a suppliers role is to hand over materials such as fabric, and raw goods in order to create the end high quality end products. The number of suppliers varies based on geographical location and specific material need. Hence supplier power can vary but in most cases is quite high.Therefore because some raw materials are limited and/or much costly across the globe some(prenominal) concerns are taking matters into their own hands. The brand Hermes is a perfect typesetters case of this. In the past the group had worked with crocodile suppliers in Louisiana, but referable to high charged costs this changed (Wheeler). Instead the luxury group now breeds its own crocodiles in Australia on an individual basis in order to address global demands for the Birken handbag (Jlieman).During the current economic durations and conditions many suppliers have been forced to file bankruptcy. This has a detrimental effect on many luxury concerns. fit in to one clause, the company would lose time trying to buy materials directly, resulting in a delay in the construction (Jieman). The time it takes to switch suppliers is also one that is quite costly to the luxury concern. Bargaining forefinger of BuyersGlobal economic & security crisisBrand recognition and perceived valueHigh concentration of distribution channelsThere have been several notable economic and security crises that have occurred globally, which have had significant impact on the luxury goods market place. Therefore buyers (consumers) have a significant possess a tremendous amount of power. The last few years have shown that no country is invincible to recession. This diaphragm is evident in the Asian financial crisis, the current United States recession and most recently, the debtcrisis of the European Union. exigent financials are not the only woes causing decrease sales in the luxury goods industry.Decline in work is also attributed to security issues. These security concerns include the terroris t attack on the United States in 2001, as well the SARS outbreak and chicken flu within Asian in 2003. Each of these events has had a detrimental effect on the luxury goods market (Prince Associates 2008).Security measures have escalated tremendously and are conducted far more thoroughly therefore increasing travel. The luxury goods market therefore has seen considerable growth (Prince Associates 2008). Many residents within Asia will travel internationally for western goods due to perceived quality and value associated with specific brands, such as Louis Vuitton (Chadha).There is a high concentration of distribution channels of luxury goods ranging from high-end retail chains to privately owned boutiques. Due to the global recession, buyers within these channels have a substantial amount of bargaining power. It is primary(prenominal) to note that this bargaining power varies significantly around brand. For example, Louis Vuitton and Hermes offer no sales or discounts to their prod ucts regardless of geographical location. Therefore there is little bargaining power feature by buyers. It is this lack of negotiation to both consumers and buyers that increased the perceived value of brands (Noor). Threat of SubstitutesCounterfeit swap strawmanIncrease in discounted designer goodsPurchase of designer goods abroad versus in home countryAlthough many financial opportunities exist for luxury brands to expand their availability internationally, there is also a charge for threats of counterfeits. These risks are most often associated to Asian markets, in particular China and Hong Kong. According to a the States Today article, it has been calculated that 80% of all confiscated counterfeit luxury goods originate from China (ODonnell).This imitation swap is available through an array of distribution channels ranging from the street vendors to online store sites. These outlets allow for individuals to purchase these goods at a low cost regardless of geographical resi dence. Therefore, threatof substitutes is radically high.In a time of global recession, many designers have adjusted their products to a cost effective strategy. Products such as Prada and Gucci for example allow for their high-end merchandise to be sold at a discounted price in order to strike down inventory. In addition, designers such as Vera Wang and Dana Buchman have created lines to be sold at retailers such as crisscross and Kohls to appeal to the middle class (Coffey).Jimmy Choo who also offers a special line to H&M in certain geographical areas implements this sales strategy (Sibbles & Pidd). Louis Vuitton as mentioned above does not offer sales or discounts on any fashion or leather goods merchandise and therefore runs a high risk of substitution to price sensitive consumers (Noor).Prices are raised internationally in order to counterpoise the price of import tariffs to certain geographical settings. For example for European luxury brands in order to import goods to the Asian market the price of the good significantly greater than one would wage in a European country. This has caused the threat of substitutions to rise. Competitive RivalryLarge concerns economies of scaleAvailability of counterfeit merchandise replacement from superluxe to simpleluxe (Wheeler)Competitive rivalry is exceptionally high globally in the luxury goods market. This occurs because of the existence of many large economies of scale, availability of designer counterfeit merchandise, low cost designer products, and a shift from expensive sybaritic brands to more simplistic less expensive ones.One reason in particular is that there are several large concerns of economies of scale. These concerns include but are not limited to Louis Vuitton Moet Hennessey, Gucci and Cartier. According to hoovers.com, Large companies have advantages in economies of scale in operations, can more easily raise capital, and have strong name recognition. It is with this available capital that succe ssful advertising campaigns have been launched, driving market share and consumer brand loyalty.As mentioned previously, the availability and demand of counterfeit designer goods is on the rise. Availability of this merchandise decreases sales of the legitimatise designer products. According to one article by Donald Brown a journalist from the Independent, Research has tack as many as seven out of 10 buyers of luxury goods are willing to blend in and match designer brands alongside known fakes. And evidence has emerged of a soaring market for lookalike goods in which low-coster products are passed off as the real thing, simply without the designer label (Brown).The depressed global economy has been named the main culprit in even the rich and wealthy seeking simpleluxe vs. superluxe (Wheeler). This transition defined in an article by Karen Wheeler is that many people, are looking for now is simple-luxe smaller, accessibly priced luxuries that improve everyday life earlier than flaunting your wealth (Wheeler). This phenomenon has been seen across continents, as individuals are not willing to spend a months salary on a luxury good, therefore impacting the luxury goods industry tremendously, especially on sales of their bigger price tag items.AlternativesLVMH should introduce security labels to eliminate counterfeiting and for gray-market protection. ProsImplement intelligent security labels, a unique label that will identify genuine Louis Vuitton products from counterfeited products. Louis Vuitton created the signature monogram Canvas to prevent counterfeiting. The company takes counterfeiting seriously and employs a team of lawyers and special investigation agencies that are actively pursuing offenders through the courts worldwide. LVMH is allocating a significant budget amount to counteract piracy of its goods.The company closely controls the distribution of its products Louis Vuitton sells its products strictly through its own retail stores, small boutiq ues in high-end department stores and online through its website. ConsLouis Vuitton is one of the most counterfeited brands in the fashion worlddue to its image as a status symbol. LVMH faces a gray-market in Asia, where handbags cost 40% more in Japan than they do in France. Arbitrage business of handbags people fly to France to buy handbags for the spirit of resale through parallel channels in Japan.LVMH should increase the number of Duty free shops and airport stores presence around the world. ProsOver 100 million of Chinese travel annually and nontaxable shops are important shopping locations for Chinese travelers. On average Chinese travelers spend $928 on shopping in duty-free shops and airport shopping during their outbound trip. Shopping is considered a must-do by most Chinese travelers when traveling overseas.Chinese outbound travelers tend to be young (20-39 years old), well educated and with higher income, working professionals, tech-savvy and mod (interested in cutti ng-edge gadgets and latest fashions). Confectionery, fashion, fashion accessories and cosmetics are the most popular or international brand items purchased by Chinese travelers during their foreign overseas trips. India has been ranked as one of the fastest growing travel and tourism economies in the world both for inbound and outbound travel. India has an increasingly affluent middle class with growing disposable income willing to spend on luxury items.The product categories mostly purchased by the Indian outbound travelers on their trip abroad are confectionery, fragrances/perfumes, fashion and accessories, leather goods and cosmetics. Duty-free shops and stores at overseas airports are the most frequented purchasing places for Indian travelers. Shopping at Duty-free shops and airport stores is more impulsion driven than pre-planned for Indian travelers which they expect to see various offers available such as exclusive fine gifts or exclusive fashion collections.There is not muc h else to do at most airports new(prenominal) than walk around window-shopping and occasionally making purchases. ConsPrice difference can be quite large from one duty-free to another, depending on its location, sometimes for the same size, brand and product purchased. Even though Duty-free shops do no apply local or national taxes and duties, shoppers may still have to pay duties in their home country on items purchased from a duty-free shop. LVMH should reach out to the middle-classcustomers who are willing to purchase luxury items. ProsSales of luxury products are on the rise in Asia-Pacific area. maturation middle class in India and China is increasingly buying designer goods. In India, shoppers mainly invent of status seekers and technology savvy. ConsIn order to make their products more affordable for middle-class consumers, LVMH king have to compromise on quality, by lowering labor costs or moving performance offshore. Using less skilled workers and the ability to provid e more merchandise lines to their stores, could make the brand less exclusive in the long run because of increase in popularity and mass appeal. Open manufacturing plant for handbags in IndiaProsReduce/Eliminate tariffs and transportation costs.India has an English-speaking population.Improved social and political stability in India.India has cheap labor force and will cost the company less to manufacture the handbags. Growing middle-class with disposable income willing to spend on luxury items. ConsMade in France was an important selling point at LVMH, although 2 of 14 factories were in Spain and one in California. Customers expect western quality. Buyers in India are touch with being offered the latest products and designs. The myth of the brand is linked to where the product is manufactured. Compromise on quality by slashing labor costs and making the products in India. Conditions in operations in India are not promising.Create new markets and advantages by introducing LVMH bran ds to children/teenagers ProsIntroduce LVMH brands to kids they become lifetime customers. Create new markets by offering merchandise specifically to children/teenagers. These offerings will allow for womb to tomb mentality and increase customer lifetime value as well as brand loyalty. ConsInvestment and inquiry is costly.Very risky.Small market segment.RecommendationsCombat CounterfeitingDiversification of product lines and innovation is essential for LVMH to stay ahead in the luxury goods market. one-way LVMH to achieve this is to extend their customer base to include children and teenagers. Many reports indicate luxury buying is back up more from Baby Boomer grandparents and relatives who are eager to spare no expense. Some experts even suppose that the lavish spending and pampering is due to an opposite psycho-economic creation to a persons own strict upbringing, (Mesa).Parents are also experiencing higher incomes and tend to save on certain items the families consume but a re trading up on products for loved ones specifically children and pets, (Mesa). Children also have more learn in regards what products they prefer. Children and teenagers are experiencing higher allowances than weve seen in the past (Mesa).Louis Vuitton would not be the only luxury goods brand when launching childrens and teenage product line. Luxury goods producers such as Dolce & Gabbana and Versace embraced this opportunity and broadened their product lines by launching clothing lines. Dolce & Gabbana launched the ready-to-wear line D&G Junior and offers a unique 2004/2005 collection aimed at newborns and pre-teens, (Mesa). Versace rolled out a clothing line that target kids ages 4 to 14 (Mesa).This strategy may prove to be risky and LVMH will have place investments towards research and development and eventual marketing and advertising costs upon launch. The childrens market, although potentially lucrative for a business, is a small segment. However, Louis Vuitton, among othe r luxury brands, has already entered in the featherbed market through products like baby bags. This will provide LVMH with leverage in that particular product segment.Since baby bags are more close to a fashion accessory with functional benefits for parents to carry, it is not surprising that luxury handbag makers have jumped on the baby bandwagon, (Mesa). Many products such as mini-handbags, jewellery, and shoes can be diversified and included in the childrens product line.Works Cited(2009). DATAMONITOR LVMH Moet Hennessy Louis Vuitton SA. LVMH Moet Hennessy Louis Vuitton SA SWOT Analysis, 1-8. Retrieved from Business Source Complete database. Boorstin, J. (2005). Louis Vuitton Tests a New counselling to Fight the Faux. Fortune, 151(10), 34. Retrieved from Business Source Complete database. CLCB Website (2009, October 22). LVMH Acquires Chinese Traditional Spirits Distillery Could Westerners Be Sipping Baijiu In Coming Years? 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