The Key Aspects of Louis Vuitton Success - Case Study Example

Louis Vuitton Case study Name Professor Institution Course Date Louis Vuitton Case study Tale of Contents Louis Vuitton Case study 2 Tale of Contents 2 Introduction 3 PART I –EXTERNAL ANALYSIS 4 1.1 Macro-Environmental Analysis 4 1.2 Industry Analysis 7 1.3 Opportunities and Threats 9 PART II –INTERNAL ANALYSIS 10 2.1 Analysis of LV resources and competencies 10 2.1.1. Identification of the Resources & Competencies 10 2.1.2. Distinction between Threshold and Distinctive Resources & Competencies 13 2.1.3. Appraisal of the Resources & Competencies 14 2.2 Strengths and Weaknesses 15 Part III LV’s current Corporate and business strategy 16 3.1 LV Corporate strategy 16 3.2 LV Generic Strategy 16 Part IV-LV Main issues and challenges 17 Part V-LV Strategic options for growth 17 5.1 Generating strategic options 17 5.2 Evaluating the strategic option 18 5.3 Implementation 19 Part VI-Conclusion 19 References 20 Introduction Over the years, the luxury product industry has faced a trend leaning towards growth, as more people embrace fashions and designs globally. Companies which have understood that market style and value go hand in hand have used innovation to achieve this status. Louis Vuitton Company is one such company which has innovated and protected its patents to achieve growth over the years. Louis Vuitton Malletier shortened LV or Louis Vuitton, is a fashion house established in 1854 in Paris by Louis Vuitton (Louis Vuitton 2015). The company is rated as one of the leading global fashion houses due to its growth over the years. Seo and Buchanan-Oliver (2015, p.84) claimed that for 6 consecutive years particularly, 2006 to 2012, LV was ranked as the most valuable brand in the world. The company has grown over the years and today, it operates over 460 stores across 50 countries including France, China, Russia, India, the US, Argentina, Australia, Germany, Hong Kong, South Korea, Egypt, UK, Brazil and Mexico among others. LV’s growth has been guided by its mission, vision and value. According to Louis Vuitton annual reports (2014), the company’s mission is “to understand its savoir faire, to innovate continuously and to offer outstanding services to its clients.” On the other hand, the company vision states that the LVMH aimed at representing the most superior qualities and features of Western "Art de Vivre" across the globe. It goes on to say that LVMH has to be identical with both creativity and elegance, and its products, and cultural values the company embodies, matches tradition, innovation, kindle fantasy and dream” (Louis Vuitton 2015). This means the company and its products already have such characteristics. From the mission and vision, it can be derived that that company has five priorities which reflect the primary values which the Louis Vuitton stand for including being innovative and creative, aiming for the product quality and excellence, improve its brand image, serve as entrepreneurs and aims at being the best company is all they do. To understand the success and challenges the company has faced since its inception, this report will analyze the company’s external environment through PESTEL, internal environment through Value Chain model and VRIO framework and discuss the Louis Vuitton’s industry outlook. The report will also discuss Louis Vuitton’s main issues and challenges, strategic option for growth, and provide recommendation for further development of the company. PART I –EXTERNAL ANALYSIS 1.1 Macro-Environmental Analysis PESTEL Analysis Louis Vuitton, similar to competitors in the market experiences economic, political, technological and social macro-environmental concerns and issues. When these factors change, automatically Louis Vuitton can be impacted positively or negatively leading to success or drop in sales. Political The Political climate and risks in Louis Vuitton markets vary since the company operates in more than 50 countries (Mbaskool 2015). In its home country, France political climate has been favorable and allowed business to thrive. The situation is attributed to the fact that France is democratic nation which allow fair trade practices to thrive for both domestic and global businesses. However, the government protects its local business from high competition from foreign companies to enable them to grow. On the other hand, Cavender and Kincade (2014, p.237) contended that France has had sour foreign relations with countries and particularly its stand on terrorism. Due to sour foreign policy, Paris and other French cities have become targets for terrorists. The latest attack took place in November 2015 killing up to 130 people. Such situation could scare customers from visiting France, hence reducing Louis Vuitton sales. Economic Louis Vuitton markets and sells luxury items, hence it targets economically growing markets where members have a high disposable income to buy their items (Cavender & Kincade 2014, p. 239). Most of Louis Vuitton target markets including France, Brazil, Morocco, US, UK, Argentina, Germany, Hong Kong, South Korea and Russia were listed by World as high income countries (Bellezza & Keinan 2014, p.401). In addition, these countries have tourism sectors which attract more visitors to their country. In that way, tourism sector also creates a platform for Louis Vuitton to increase its sales. The growth has increased consumer confidence and spending on luxury goods like watches, wines, handbags, and jewelry. A research by Mahbubani (2013, p.4) claimed that in 2011, Louis Vuitton sales in China mainland increased by 30%. Socio-cultural factors In the luxury product industry, there is a trend in a belief that luxury products manufactured in Europe are superior and valuable compared to those from other countries, especially in Asia, Africa, Oceania and even the US (Joya et al. 2014, p.351). The behavior has contributed tremendously in creating a competitive edge to Fashion houses from Europe and by extension to Louis Vuitton. Location of its stores is also boosted by high population who are potential customers (Deloitte 2014). Research indicates that people tend to shop for more luxury products and strong brands such watches, handbags, T-shirts, shirts, jewelry and wins when they travel from one country to another. Bellezza and Keinan (2014, p.403) posited that wealthy Chinese tend to visit other countries and shop luxury goods on their way. Technological Factors Several developed countries have experienced a growing trend in the advancement and adoption. Kandelmanita (2014) opined that China, Hong Kong, France, the UK, the US, South Korea, Australia are just but some of the countries which experienced trends like adoption of the internet, rising use of Smartphone and application of technology in online shopping. On the other hand, Louis Vuitton has also opened the online platform to enable consumers shop for their luxury products in any part of the world. Seo and Buchanan-Oliver (2015, p.84) stated that LV also uses technology to make their products, conduct product branding, and market the same products. Use of the website, click-on-ad and pop up ads and social media reduces cost of market and even general cost of operations. Environmental The international luxury product industry is likely to pose a negative effect on the environmental if the company has poor control capability on its manufacturing plant (Karnani 2015). Manufacturing plants normally are known to release smoke into the atmosphere and cause climate change of global warming. As the world endure to fight global warming and climate change, Louis Vuitton has to show its commitment to the same course. Seo and Buchanan-Oliver (2015, p.85) argued that some countries Like Singapore has put tough environmental laws that Louis Vuitton will have to prove that their products cannot cause serious harm if the company has the intention of entering into that market. Therefore, Louis Vuitton must manufacture products which are recyclable and can also cause less pollution when disposed of. Legal There are various legal issues companies face regarding taxes, partnerships, a merger and acquisition, competition and relation that must be taken care of before entry into a target market. Mahbubani (2013, p.2) observed that Louis Vuitton wrong procedures in merger with Moët Hennessy in 1987 led the company to several legal battles which resulted to reversing of the whole process. The then CEO Henri Racamier then brought in a property developer Bernard Arnault to help reverse the merger and outdo Moët Hennessy Company in the market. Bernard Arnault would latter acquire more stake of the company and kick out Vuitton family out of the business through a court process (Mahbubani 2013, p.3). As Louis Vuitton continues to operate, it must have the right procedure of handing legal issues entailing market entry, acquisition and taxes to avoid legal suits. The Court process destroys the image of the company and scare aware potential customers. 1.2 Industry Analysis Five-force Model Level of Rivalry Despite staying as the strongest valuable brand and the largest producer of luxury products from 2006 to 2012, Louis Vuitton face stiff competition from strong players in luxury product companies such as Gucci, Hermès, Richemont, Prada, Bottega Veneta, Chanel and Coach (Hennigs et al 2015, p.927). The market is concentrated with several large market players competing for the same customers. The level of rivalry is therefore very high. Threat of New Entrants Karnani (2015) argued that Major companies within the industry are very old with over hundred years of existence, and their brands and history are inclined towards tradition and heritage. Similarly, the entry into the luxury product market requires large capital and also takes time for a new company to build a great reputation (Karnani 2015). The threat of new entrants is very low in this industry. In addition, customers have subscribed to various brands which they value and changing their mindset is very difficult. The situation makes the level of threat to entry very low. Power of the suppliers Besides Louis Vuitton, there are several large companies which are strong in the industry. On the other hand, Yang & Mattila (2014, p.528) claimed that suppliers are many and decentralized making their bargaining power quite low. Several companies including Louis Vuitton have personal in-house manufacturing and suppliers have to satisfy standards by plant managers to be given contract to supply raw materials (Kandelmanita 2014). In fact, many suppliers scramble to be associated with a strong brand like Louis Vuitton so as to improve their position in the industry in order to win supplying tenders with other companies. Buyer Power The level of buyer’s bargaining power ranges from low to moderate within the industry. The market has three types of customer segments consisting of absolute, aspirational and the accessible customers. Quite often, absolute and aspirational segments are concerned with the quality of the product as opposed to price. On the other hand, accessible segment has customers who are price conscious, but are willing to pay more if the products’ quality satisfy their needs. Thus, the market players have the capability of controlling prices and retaining a higher yearly level of growth. Threat of Substitutions Luxury products normally do not have direct substitutions. Sarkar (2014, p.482) posited that even though, the items like jewelry, perfumes, watches and handbags have those ones with lower prices as their substitutions. However, when the aspirational and absolute customers are purchasing, they do not go for substitutions because they have more money to spend (Mahbubani 2013, p.5). Accessible type of customers could buy low price products, though their contribution towards the growth of the industry is also low compared to aspirational and absolute. 1.3 Opportunities and Threats Opportunities Advancement of technology and increase of adoption has created an opportunity for Louis Vuitton to improve its branding and increase its marketing (Chrisman et al. 2015, p.313). The company can capitalize on the increasing attractiveness of technology and more usage of social media to increasing its marketing activities at a cheaper price (Seo and Buchanan-Oliver 2015, p.91). Economic growth in Asia in the current times creates a platform for Louis Vuitton to target countries in the region and increase its sales. The situation presents an opportunity for the company to target the region as most wealthy people, particularly Chinese and Singaporeans prefers luxury products (Sarkar 2014, p.388). Threats Insecurity and terrorism in Louis Vuitton’s target markets could lower its sales (Cavender & Kincade 2014, p.237). Insecurity and terrorism normally lower demands for visiting cities and shopping. Economic fluctuations in the world market could lower currency exchange leading to decrease in profits. Mahbubani (2013, p.2) stated that production of counterfeits at lower prices could threaten Louis Vuitton sales, particularly in China which have inculcated culture of duplication. PART II –INTERNAL ANALYSIS Louis Vuitton internal analysis is very important because it present insights into the company’s capabilities and competencies which will enable it match the external environment changes so as to meet consumer needs. 2.1 Analysis of LV resources and competencies Over the years, Louis Vuitton has depended on its internal capabilities, strengths and competencies to be a valuable brand and a market leader in the luxury product industry. Some of core competence and capabilities include firm infrastructure, human resource management, technology and procurement. This paper will use Value Chain model to analyze Louis Vuitton resources and competencies. 2.1.1. Identification of the Resources & Competencies Value Chain model Firm infrastructure (organizational structure and systems control) Organization firm the key factor in firm infrastructure and defines Louis Vuitton’ management and leadership. One of Louis Vuitton’s major strategic advantages lies in strong leadership. Mahbubani (2013, p.3) asserted that Bernard Arnault who is the LVMH group chairman has led the firm by means of drafting an effective development plan. Under his leadership, the company has turned into most valuable brand and largest luxury product firm in the world. According to Louis Vuitton (2015), Bernard Arnault has encouraged dynamic motivation, radical innovation, efficiency, productivity, and creativity. Figure 1 below depicts leadership structure at Louis Vuitton. Figure 1: Louis Vuitton’s organizational structure Source: (CogMap 2015) Human Resource Management Louis Vuitton considers quality staffs as an important asset to their business (Hennigs et al. 2015, p.925). From the time of its establishment, the company has been hiring qualified staff through its comprehensive recruitment and selection exercise. In 2014, it was estimated that Louis Vuitton had 121,290 employees; an increase from 103,447 in 2012 (Louis Vuitton 2015). The company’s manufacturing activities are considered labour-intensive and require a team setting of 20-30 employees making 120 handbags per day (Louis Vuitton 2015). LV’s recruitment and talent management has led to the company’s success and the most valuable brand from 2006-2012. Procurement To attain provide for its customers, LV designs and make their goods in-house in order to control its production and reduce its reliance on the suppliers (Mahbubani 2013, p.6). LV only employs the third parties to enhance its production so as to realize flexibility based on volumes. Mahbubani (2013, p.6) went ahead to claim that the company buys its raw materials from the international suppliers coming from different nations. For instance, Louis Vuitton has a contact with Tannerie Masure which supplies it with hides that are used for manufacturing of products especially leather at Tanneries de la Comète. Technology Research into Louis Vuitton’s operations has established that the company has it’s a high-tech laboratory for testing of its luxury products (Chrisman et al. 2015, p.314). In its laboratory, Louis Vuitton places its goods under rigorous testing. Mahbubani (2013, p.12) reported that the company also uses robots to drop a handbag with more than 3.5 kilograms and a machine which test features for fading through splashing ultraviolet rays through the bag. Such tests ensure durability and quality for the bag. Primary activities Inbound Logistics Louis Vuitton is often selective of their raw materials to make sure that high quality is attained to meet customers’ expectations. Mahbubani (2013, p.6) observed that leather, clasps, and zippers are purchased from the external suppliers. More expensive items require a higher quality leather source from Northern Europe since such materials have no insect bites (Mahbubani 2013, p.12). Outbound logistics Louis Vuitton has its state of the art stores called DOS stores. Mahbubani (2013, p.6) claimed that this move has enabled the company to control its logistic such as distribution, delivery, and its image. Cavender and Kincade (2014, p.239) opined that Louis Vuitton contracts a FedEx’ services to help the company transport fast-selling products directly from its manufacturing plant to its stores worldwide. FedEx’ company has enabled it to reduce its lead time during delivery to stores across the globe. 2.1.2. Distinction between Threshold and Distinctive Resources & Competencies Competency framework An analysis of LV’s resource and competencies gives a clear picture that the company’s capability satisfies Competency framework. Threshold resources which the company boasts of include employees, large financial base and factory and laboratories which have created the success it enjoys over the years (Louis Vuitton 2015). Similarly, threshold competencies entail skills and knowledge employees hold. Kandelmanita (2014) argued that generally, the company hires qualified employees and since the business environment keeps on changing, the company consistently trains employees to acquire new skills and knowledge needed in production. The company has also thrived and maintained its market position due to distinctive resource and competencies. Technology is one the distinctive the resource the company boasts of. Together with a distinctive competence which computer programs, the company has managed to make monograms and patterns for its products which makes it hard for competitors to counterfeit (Cavender & Kincade 2014, p.242). Competencies Framework Threshold Resources (employees, large financial base and factory and laboratories) Threshold competencies (skills and knowledge of employees) Distinctive Resources (Technological) Distinctive Competencies (computer programs) Figure 2: LV’s competencies Framework 2.1.3. Appraisal of the Resources & Competencies VRIO framework Value: Innovation culture embraced by VRI has created value to its customers (Mahbubani 2013, p.8. Without innovation, the company would have been overtaken by the competitors. Rarity: Other companies have also innovated but Louis Vuitton is more intense with their innovation and product development. Inimitability: The savoir-faire and innovation culture has made hard for competitors to imitate (Mahbubani 2013, p.1). While maintaining the heritage of LV brand, the management has innovated in a manner that meets the environment changes. Non-substitutability: The substitution risk is quite low. Savoir-faire and innovation culture has made it difficult for competitors to have LV products’ substitute (LVHM 2014). Value Rarity Hard to imitate Exploitability by the company? Competitive implications R1 no - - - competitive disadvantage R2 yes yes no yes Competitive parity C1 yes no yes no Temporary competitive advantage C2 yes yes yes yes Sustained competitive advantage Figure 3: LV’s VRIO framework 2.2 Strengths and Weaknesses Strengths Strong leadership Louis Vuitton is a strong brand since it is the largest luxury product company in the world (Louis Vuitton 2015). The company has diversified into other product portfolio, which supplements its profits (Louis Vuitton 2015). The company relies on technology to innovate and improves its products (LVHM 2014). The company has vibrant and innovative employees who develop new products to improve the image of the company. Weaknesses The company has several stores across the globe which is difficult to control. Expansion into several countries has led Louis Vuitton to have high cost of operations. High prices hence the mentality that it targets only the rich (Cavender & Kincade, 2014, p.241). Part III LV’s current Corporate and business strategy 3.1 LV Corporate strategy Louis Vuitton (2015) claimed that the company’s well-defined business model which aligns with its corporate strategy. Under this approach, the company has formulated its growth strategy and portfolio diversification to help gain competitive advantage (Louis Vuitton 2015). The company also employs concentric diversification to spread risks. For instance, LV is involved into different business including wine and spirits, jewelry, perfumes and accessories so as to spread business risks (Seo & Buchanan-Oliver 2015, p.83). 3.2 LV Generic Strategy Cavender and Kincade (2014, p.233) stated that the company uses a differentiation strategy to attract its customers. Its products are uniquely branded giving extra satisfaction better than its competitors. As such, some customers are keen to pay the premium prices for quality service, prestige and superior technology (Cavender & Kincade 2014, p.237). LV has learned how pricing influences their industry. Hence, it has segmented its customers into three and are served into three different prices based on their income. Part IV-LV Main issues and challenges Major issue which Louis Vuitton will have to deal with is competition from other market players. Despite being the largest luxury product market in the world, Louis Vuitton faces stiff competition from Gucci, Hermès, Richemont, Prada, Bottega Veneta, Chanel and Coach (Mahbubani 2013, p.12). Another issues and a challenge is counterfeiting. The issue of duplication of LV product is a major challenge which leads to profit reduction. Normally, counterfeits are cheap and some customers might just abandon LV products for the alternative as duplication culture is high in China (Mahbubani 2013, p.4). In addition, the company also faces a challenge of high tariffs in some of the target markets. When tariffs are high, the company will be forced to sell at high prices making the customer prefer buying luxury products when they travel to other countries at a cheaper price. China is an example of a country with high tariffs to product its local industries. Part V-LV Strategic options for growth 5.1 Generating strategic options Ansoff Matrix In a bid to grow its revenue that had declined slightly from 2012, Louis Vuitton needs to use market penetration and S-O strategies as outlined in Ansoff and TOWS matrices respectively. Louis Vuitton is a luxury product company which has been operating since 1892 as has several products under its name (Louis Vuitton, 2015). Market penetration, therefore, can be a viable strategy in trying to increase its market share. In its market penetration strategy, Louis Vuitton can reduce its price through discounts to lure more customers into buying its luxury products (Yang & Mattila 2014, p.531). The same can be supported by using W-T strategies (TOWS matrix) to stop the weakness of the firm from marking prone to external threats. Based on this perspective, the company can develop cheap products which target economy customers to complement its premium products. Also, the company can increase its stores in Asia ,which currently enjoys high disposable income. 5.2 Evaluating the strategic option Weighing the chosen strategy on SFA framework, the strategy does not pass the suitability test because it does not fit into the company positioning. In fact, it requires that the company reviews its positioning strategy. However, it does satisfy the acceptability test because it meets the expectations of many stakeholders. Yang and Mattila (2014, p.529) argued that normally, most customers need nigh quality products at lower prices. Therefore, lowering the prices means attracting both the rich and lower level customers. This is unlike economic growth in Asia which can stagnate or fluctuate leading to low sales. In strategic selection framework, option remains the best (see figure 4 below). Criteria Strategic 1 Strategic 2 Suitability 5 4 Feasibility 3 2 Acceptability 3 3 Total 11 9 Figure 4: strategic selection for strategic option 5.3 Implementation Technology is the most effective resource needed to develop products of lower prices. Technology will be used to innovate, market and even sell new products to the new market segment. LV has technology strategy program which can help identifying flaws in products such as leather, determines exact size to avoid wastage of material. The same technology can also maintain quality. Part VI-Conclusion The discussion in this paper features the assessment of the Louis Vuitton and the strategic audit for this company including mission and objectives. Louis Vuitton is operating in an ever-changing external environment that needs constant review of those strategies. This ever-changing environment provides concerns to PESTLE factors based on the analysis above. As critically assessed, different strategic alternatives exist for Louis Vuitton. To sustain change in luxury product industry, the provided strategic options are appropriate and ought to be implemented so as to increase share market both locally and internationally. Change in the strategies will make Louis Vuitton sustain its objectives of being successful luxury product industry in future. References Bellezza, S & Keinan, A 2014, Brand Tourists: How Non–Core Users Enhance the Brand Image by Eliciting Pride, Journal of Consumer Research Vol. 41, 397-417. Bennedsen, B & Foss, N 2015, Family Assets and Liabilities in the Innovation Process California Management Review, Vol. 58, No. 1, p.65-81. Cavender, R & Kincade, D. H 2014, Management of a luxury brand: dimensions and sub- variables from a case study of LVMH, Journal of Fashion Marketing and Management: An International Journal, Vol. 18, No.2, pp. 231-248. Chrisman, J.J, Chua, J.H, De Massis, A, Frattini, F & Wright, M 2015, The Ability and Willingness Paradox in Family Firm Innovation, Journal of Product Innovation Management, Vol.32, No.3, pp. 310-318. CogMap 2015, Louis Vuitton Chart, viewed 23rd December 2015 from http://www.cogmap.com/chart/louis-vuitton Deloitte 2014, Global Powers of Luxury Goods 2014: In the hands of the consumer, Deloitte Touche Tohmatsu Limited. Hennigs, N, Wiedmann, K, Klarmann, C & Behrens, S 2015, The complexity of value in the luxury industry: From consumers’ individual value perception to luxury consumption, International Journal of Retail & Distribution Management, Vol. 43, No.10/11, pp.922-939. Joya, A, Wang, J.J, Chan, T, Sherry J.F & Cuiea, G 2014, M(Art)Worlds: Consumer Perceptions of How Luxury Brand Stores Become Art Institutions, Journal of Retailing Vol.90,No. 3, pp. 347–364. Kandelmanita 2014, Market analysis of LVM, viewed 23rd December 2015 from https://kandelmanita.wordpress.com/2014/08/04/market-analysis-of-lvmh/ Karnani, N 2015, Louis Vuitton, viewed 23rd December 2015 from http://www.scribd.com/doc/243050842/Louis-Vuitton#scribd LVHM 2014, Press release: LVMH and Google join forces to fight fakes and commit to innovate for a more engaging Internet“, viewed 23rd December 2015 from http://www.lvmh.com/press/718 Louis Vuitton 2015, Louis Vuitton Official Website, viewed 23rd December 2015 from http://www.louisvuitton.com/ Mbaskool 2015, Louis Vuitton SWOT Analysis, USP & Competitors, viewed 23rd December 2015 from http://www.mbaskool.com/brandguide/lifestyle-and-retail/3424-louis-vuitton.html Mahbubani, M 2013, Louis Vuitton, The University of Western Ontario, pp. 2-19. Sarkar, A 2014, Brand love in emerging market: a qualitative investigation, Qualitative Market Research: An International Journal, Vol. 17, No. 4 pp. 481-494. Seo, Y & Buchanan-Oliver, M 2015, Luxury branding: the industry, trends, and future conceptualisations, Asia Pacific Journal of Marketing and Logistics, Vol. 27 No. 1 pp. 82-98. Yang W.S & Mattila A 2014, Do affluent customers care when luxury brands go mass? International Journal of Contemporary Hospitality Management, Vol. 26, No.4 pp. 526-543. Read More