Moet Hennessy Louis Vuitton a Leading French Holding Company - Case Study Example

LVMH CASE STUDY Table of Contents Page Executive Summary 3 2 Introduction 4 3 Segmentation 4 4 SWOT Analysis 5 5 Management Strategy & Options 6 6 Louis Vuitton Products 8 7 Strategic Market Options 9 7.1 Product Strategy 10 7.2 Promotional Strategy 11 8 Conclusions 11 8 Bibliography 13 1 Executive Summary The impressions of the LVMH group operations on a worldwide basis have been recorded and a SWOT analysis was carried out. Based on the SWOT the LVMH Management strategy was considered and critical observations made for future adoption. The future marketing strategy options were also recommended for catering to emergent markets. Louis Vuitton’s product range was discussed and its unique positioning and marketing was explored. 2 Introduction Moet Hennessey Louis Vuitton S.A (LVMH) is a leading French Holding company and the world’s largest conglomerate of luxury brands. Its distribution network is spread worldwide and caters to the upper class fancies and it has a number of high value brands in its fold. It mainly deals in wines and spirits, Fashion and Leather Goods, Perfumes & Cosmetics, Watches and Jewellery and Selected Retail Items. It has over sixty subsidiaries and they are autonomous in their operations. As a result the brands are mostly sold in upmarket locations, often through exclusive boutiques and showrooms and are not ordinarily available in Malls or markets. LVMH came into existence in 1987 with the merger of two of the largest wine makers Moet and Hennessy. Later they were merged with Louis Vuitton and added a great portfolio of 60 prestigious luxury brands. Christian Dior owns a part of LVMH and both companies are headed by a common CEO. Although its headquarters are in Paris, yet over 70% of its 64,000 strong workforce is based outside France. Its distribution channels are spread over 1,800 stores worldwide. 3 Segmentation LVMH has banked upon segmentation of the market successfully. It has chosen the upper strata of the society and is in possession of highly coveted items in fashion, wines & spirits, watches and jewellery and perfumes. Its customers are celebrities, high profile individuals, business leaders and executives and the political class. On the second rung it also caters to the wealthy consumers who are growing in numbers due to opening up of global career opportunities. It caters to people in their early twenties to sixties and has a vast product range for them. As the world turns into a global village, a new breed of customers from emerging and developing market is making its way to its stores. Having been long deprived, but attracted to the name and image created by its products they are proving to be the mainstay of LVMH in many a new markets. Thus we see a proliferation of LVMH group’s stores of different brands coming up in the Asian and Latin American markets. 4 SWOT Analysis Globalization has opened new avenues and new markets for LVMH. A SWOT analysis presents this picture perfectly. However there are some weaknesses and threats to take care of as well as some opportunities for growth. STRENGTHS 1 Valuable Mergers 2 Famous Brands 3 Experience over several decades 4 Excellent Portfolio of Products 5 Vast number of Stores & Boutiques 6 Brand Image worldwide 7 Diversified activities 8 Environment friendly manufacturing 9 Celebrity endorsements WEAKNESSES 1 Competition – declining market share 2 Luxuries are easier to replicate 3 Declining demand for Luxury Goods 4 Making acquisitions outside its core area OPPORTUNITIES 1 Emerging Markets around the world 2 New Segments of customers 3 Increase in wealth of Individuals 4 Improved Marketing Strategies 5 Mergers & Acquisitions THREATS 1 Recession in the Developed World 2 Counterfeit goods 3 Small number of buyers looking for greater variety – low life cycle of products 4 Small specialist competitors in marketplace 5 Management Strategy & Options Determining the strategic drive of the company is the primary task of top management. This mission is aided by above SWOT analysis. With this assessment, objectives are set. This involves formulation of Vision statements – this is the long term goal of the company like what the company should look like 10 years from now. Keeping in mind the SWOT scenario LVMH should look beyond and visualize what it wants to become in ten years time. It could remain a Luxury Brand producer and distributor but could develop a side business by diversifying into related activities. This could help it to first survive the inevitable downtrend in market as well as growing competition in the relatively small luxury items market. Secondly it could offer future growth and expansion opportunities Mission statements – this is the short term objective like excellence beyond compare, and quality commitments. Corporate objectives – this is the benchmarking of excellence within the company and outside. It needs to evaluate the quality standards and set rules for itself and discipline its employees to achieve these standards in a short period. Customer satisfaction should be one singular aim. The formulation and implementation of the market communication strategies falls under this objective. This is a very important activity as this is the face of the company that is visible to the public and it must be overseen and executed with great care. Strategic Business Unit (SBU) objectives – this the defining of the core activity or activities of the business and its main profit centers like the wine & spirits, perfumes, luggage & fashion etc. Tactical objectives – these are measures to take care of all above goals at different points in time like training the staff and installing a supply chain management system. These objectives suggest a strategic plan. The plan provides the details of how to achieve these objectives. Once the plan is formulated it needs to be implemented. The implementation process must be detailed to the minutest degree as this is the crux of the whole strategy. A strategy that is on paper only is a wasted exercise. It is very clear in its Mission Statement when it states that “The mission of the LVMH group is to represent the most refined qualities of Western "Art de Vivre" around the world. LVMH must continue to be synonymous with both elegance and creativity. Our products, and the cultural values they embody, blend tradition and innovation, and kindle dream and fantasy”. (The Mission Statement) The Strategic Management Strategy of LVMH is now under severe strain. The current fall in market share due to competition by other luxury brands and the mass availability of counterfeits is eroding the profitability of LVMH. Thinking out of the box it has devised two distinct strategies. One is Merger and acquisition of other companies to strengthen its base and to add to its existing portfolio of brands. The other is Diversification into Media by acquisition of Print Media. However both these strategies are distraught with mounting difficulties. On the merger front there is stiff competition as other luxury brands have taken a cue from LVMH and have started off making similar mergers in their own verticals. Hence the creation of similar luxury brand groups like the PPR group which has Gucci in its fold; and Richemont too has a portfolio of luxury brands, leave few high value brands for amalgamation or takeover. On its strategy of Media acquisitions, LVMH announced that it was in discussions with Pearson of UK to acquire Les Echos, a French publication, prompting a series of staff strikes at the paper in protest at a perceived threat to editorial independence. It offered 240 million Euros for it while others offered slightly more. There is however a doubt whether the company culture is up to managing a volatile business compared to the comparatively sedate business of manufacturing and selling luxury brands. It must therefore decide carefully about how it should expand and not to move radically far away from its core activities. 6 Louis Vuitton Products One very famous brand in the LVMH stable is Louis Vuitton. Under this brand luxury has reached its uppermost height. Louis Vuitton is synonymous with luxury and without any doubt it is the most prestigious luxury brand in the world. Its popularity rating can be gauged from the fact that only 1% of this brand is genuine and the other 99% sold worldwide is counterfeit. To ensure maintain the authenticity of its products, Louis Vuitton sells its merchandise exclusively through its own boutiques, or through exclusively managed counters in very large departmental stores worldwide. Besides only one online seller eLuxury.com is authorised to sell some of its creations online. Its product line is so famous and popular that some of the designs created in the 1930’s are still a rage. Examples are the Noé bag and the Speedy Bag that were introduced in 1932 that are in production even today. More recently after the merger into LVMH the Epi and Taiga leather products were introduced. These exclusive leathers are used in manufacturing small purses to large luggage pieces. 7 Strategic Market Options LVMH need to follow a Marketing Plan, especially for the emerging markets where they can expect to expand and grow at a healthier pace. The management needs to understand buyer behaviour in these markets and go back to the basis. Four different reasons influence a buyers’ decision. They are also known as 4P. 1 Product. The buyer is greatly influence if the product is perceived as useful for him. Sometimes it may not be of immediate use but its uniqueness is the attraction. Future valuation is also a decision making factor. 2 Price. The price is not usually a stand-alone factor in luxury products. It is the image that the product carries that is more important. 3 Promotion. Image plays a very important role. Whether it is the image of the product which enhances value or status or the image of the buyer when he acquires a product or service, both factors are extremely important for the buyer in arriving at a purchase decision. 4 Place or Time of offer. It is of great value to the buyer if a product or service is offered to him at a place and time that suits him. The importance of this can be gauged from the fact that often a deal is concluded at the most awkward time and place just because of the whim and fancy of the customer. This is more applicable when individual customers are involved for high value items or services. There is an however, an additional fifth factor that influences a buying decision and it is, 5 After sales service. In most cases a satisfied customer is a recurring customer and the best publicity a product or service can wish for. Therefore good backup and attentive staffs ensure sales. The company needs to understand Buyer Behaviour by applying this concept 7.1 Product Strategy. Luxury goods are unique products and not purchased everyday. The buying decision requires deliberation and pecuniary considerations by the buyers. It would be prudent to place the product in a niche category and upmarket positions. They require Category and Brand Management, Product Identification, and New-Product Planning. LVMH have established a name for them and are popular. They have achieved this position in the market by virtue of their best business practice. This Branding is already established worldwide. Brand Attitudes are defined as consumers’ overall evaluation of a Brand (Wilkie 1986). Often they form the basis for consumer behaviour (e.g. Brand Choice). Similarly, a brand may be associated with its “country of origin” (i.e. the country in which the country makes the product or provides the service) in such a way that consumers infer specified beliefs and evaluations. (Erickson, Johansson, and Chao 1984; Hong and Wyer 1989, 1990) 7.2 Promotional Strategy. Integrated Marketing Communications plays an important. Communication is the foremost strategy for informing or advising the customers of their products’ features and that can be achieved through many methods. The TV has become a reliable mode of delivering communication and short attractive commercials should be used for projecting the products different segments of Targeted customers. Advertising, Sales Promotion, and Public Relations are the next methods and for this prominent displays on Billboards at strategic points like Highways and Expressways are suggested. One-to-One Marketing is the traditional method of inviting the customer as he/she is attracted to be serviced by the same salesperson who gave satisfaction on previous occasions. This can go a long way in developing a long period of happy and mutually beneficial relationship between the customer and the company. Training of staff on a continuous basis and upgrading their knowledge as well as marketing and people skills is very important and the company needs to work our these plans consciously and professionally. 8 Conclusions LVMH is at the cross roads at the moment. While it leads the world in owning and distributing top luxury brands, it faces decline in business in its traditional markets. However banking on its strengths it can take advantage of opportunities in the emerging markets by adopting fresh marketing strategy and continue to rein as number one in the world. It however has to safeguards itself from the evils of counterfeit products which are popular in these countries and can do this by better marketing communication with its prospective customers. 9 Bibliography Erickson, Gary M., Johny K. Johansson, and Paul Chao (1984), “Image Variables in Multi-Attribute Product Evaluations: Country of Origin Effects,” Journal of Consumer Reearch. 11 (September), 694-699 Hong, Sung-Tai and Robert S. Wyer (1989), “Effects of Country of Origin and Product Attribute Information on Product Evaluation: An Information Processing Perspective.” Journal of Consmer Research, 16 (September). 175-187 The Mission Statement available at LVMH website: http://www.lvmh.com/ Wilkie, William (1986), Consumer Behavior, New York: John Wiley & Sons, Inc Read More