Macro Environmental Analysis of Louis Vuitton - Case Study Example

A Report on Louis Vuitton By (Name) Presented to (Instructor) (Course) (Institution, State) (Due Date) Table of Contents Introduction 3 Part I: External Analysis 4 Macro Environmental Analysis of Louis Vuitton…………………………………...…….4 Industry Analysis………………………………………………………….………………6 Opportunties and Threats……………………………………………………………….....7 Part II: Internal Analysis .8 Analysis of LV Resources and Competencies………………………………………….....8 Strengths and Weaknesses……………………………………………………………….12 Part III:LV’s Current Corporate and Business Strategy 13 Bowman strategic model…………………………………………………………………13 Part IV: Issues and Challenges 14 Part V: Identification and Evaluation of the Main Strategic Options for Growth……...…………………………………………………………………………...………15 The Asnolf matrix model………………………………………………………………...16 SFA Framework Evaluation on Louis Vuitton…………………………………………..17 Implementation…………………………………………………………………………..18 Recommendation and Conclusion…………………………………………………….…...…..18 Reference List……………………………………………...………………………………...….20 Introduction The report main purpose is to summarize key historical information on Louis Vuitton foundation and establishment for future decision making. The paper also illustrates and elaborates the conditions responsible for the current Louis Vuitton state. It also focuses on the social, political and economic impact it generates on its internal and external working environment. The core values of business operations and guidelines of Louis Vuitton are to revive and reinstate the brands heritage in the art of traveling. Traditionally the company is known to associate with outstanding personalities recognized worldwide ranging from professionals to celebrities. The initial primary focus of LV was to redisign trunks. Initially, the trunks were oval shaped, which proved to be inconvenient and unstack able (Richard 1995). Louis Vuitton would then expand and develop other luxury brands ranging from perfumes, clothes, and watches. The company operates in the fashion industry with its primary focus being on expensive items. Its products range from leather goods, handbags, trunks, shoes, watches, jewelry and accessories. It also endorses famous personalities such as Angelina Jolie, Muhammad Ali, and Michael Phelp brands (Vuitton 1983). The geographical market for Louis Vuitton products is high in Europe and America while China, on the other hand, has the highest growth market rates overtaking Japan (Rambourg 2014).” The company also offers services such as low key private areas for its absolute customers who value their privacy. The company mission is to continue being synonymous with both elegance and creativity. Their vision is to represent the most refined qualities of Western "Art de Vivre" around the globe (Bellu 2008). Its key stakeholders of Louis Vuitton are Bernard Arnault, Chairman and Chief Executive Officer of LVMH and Yves Carcelle head of Louis Vuitton. Yves has been the manager and chief designer for over 20 years (Rambourg 2012). Part 1: External Analysis Macro Environmental Analysis of Louis Vuitton PESTEL Model Louis Vuitton has an access to a large market due its multinational foundations across the globe. The pestle model tries to create a vivid description of the challenges it faces in each societal structure. Political Factors The existence of certain political factors influences the implementation of policies that negatively affect a business environment. Most of the countries in which Louis Vuitton operates enjoy political stability giving the company a favorable environmnet to conduct its activties. Economic Factors Globally, luxury items have experienced an increase in growth rate over the recent years with an estimated worth of 1.1 trillion euros. According to Andrew (2012), Louis Vuitton and its merger had approximated earnings of over 250 billion Euros. Louis Vuitton could have been in trouble, if not for the constant increase of purchases in mainland China (Rambourg 2014). The issue was as a result of the recession in America and the rising exchange rate of the euro and yen in Japan. Social Factors The globe continues to change rapidly especially in China as its leaders are opening up their political system in its efforts to host globalization. Under this changes, traditional values and attitudes have evolved through their massive consumption remain the same. The only difference is that the political changes have opened up import market for luxury items. The influence of foreign culture has lured Chinese and Japanese for imports designs, such as Gucci. Technological Factors Louis Vuitton being a luxury company prefers face to face transaction rather than E-commerce due to its effectiveness. E-commerce, on the other hand, is used as customer support based systems. The majority of its marketing, advertising and purchases are carried out through the internet due to its ease of access and depth of information (Anon 2015). The internet provides a very cheap and accessible platform where the company can display their products for review. Environmental Factors Louis Vuitton Company comprises of widely redistributed stores in densely populated cities globally. The company CEO is a risk taker as he sets up new stores in countries where luxury is perceived to be insignificant. Some of these countries are like Brazil, India, Russia and China due to their historical sophistication and diversification (Cheviakoff 2007). Legal Factors Louis Vuitton is prone to legal restriction especially in China as it imposes higher consumer taxes on luxury goods as an attempt to increase income distribution (Chevalier et al. 2010). Imitation of Louis Vuitton products is rampant in the America and China among low-income earners. Consequently, Louis Vuitton spends 18$ million annually on private investigators and lawyers in its mission to safeguard its products against duplication (Ciun, 2013). Industry Analysis Porter's Five Forces The following are Porter's five forces used to analyze the competitive environment of Louis Vuitton: Bargaining Power of Suppliers: Low Louis Vuitton company core business dealings revolve around the luxury industry that acts as their field of competition. The suppliers have no power to change or switch to other firms operating in the industry. Selective selection prevails among the buyers as they choose their suppliers depending on the quality and standards of the suppliers (Andrew 2012). Bargaining Power of Buyers: Moderate Louis Vuitton is a century old brand known for its exclusivity and high-quality products which have a direct relation to its prices. The availability of brand owned retail shops reduces the risk of acquiring counterfeit goods. The bargaining power of a consumer is considered to be moderate due to the freedom of movement by customers from one brand to another. Threat of Entry: Low to Moderate The global luggage and leather market has an estimated $100billion in revenues, as this induces new entrants in the market (Anon 2015). The uncertainty of the fashion industry on consumer scale of preference renders the threat to be either low or moderate. The threat cannot be high as the luxury market requires a large amount of capital and takes a long time to build a reputation (Bernstein Research 2009). Threats from Substitute Products: Moderate The constant rise in consumer awareness provides a situation where Louis Vuitton products can be substituted for other non-leather and even counterfeit goods (Crăciun 2014. The only way Louis Vuitton can be able to counter this product by maintaining its integrity, consumer loyalty, and 24-hour responsive customer care system (Bernstein Research 2009). Industry Rivalry: Moderate In the luxury industry price is never a pressing factor as consumers are willing to pay any amount depending on the exclusivity of the product at hand. Companies focus on differentiation and licensing of designs to create a long-lasting appeal to the consumers. Most of this luxury companies exist beyond the lifetime of their architects resulting to a little emotional barrier. Opportunities and Threats The company has an opportunity of venturing into new other markets in different parts of the world. According to a research done by Bernstein (2009) the company is present in most of the developed countries such as China and European as well as the United States of America. More also, the capital and brand awareness of the company presents it with an opportunity venturing into vehicle manufacturing industry which its initial venture. The major threat to the company is the substitution of its leather products with non-leather products. Additionally, the fashion industry has the uncertainty of consumer preference considering the many businesses trading in cheap products (Anon 2015). Part II: Internal Analysis Analysis of LV Resources and Competencies The internal analysis accounts for the strengths that are responsible for the massive profits Louis Vuitton and the flaws that handling the achievements of its objectives. Value Chain Model on Louis Vuitton Primary Activities Primary activities refer to the essential activities the company was set up upon during its establishment. These policies lay out the foundation and core ethics of its operation. Inbound Logistics Louis Vuitton Company formulated an awareness program which all companies striving to supply raw materials are required to acquire certain standards. There are also guidelines and laws that the suppliers are expected to abide and supplier. The mode of transport is mostly by sea since most suppliers are located outside Europe (Roccati 2014). Operations Most of Louis Vuitton processing activities are carried out, in-house industry, where a group of designers works together to create, recreate and revive particular several brands. The company also has dedicated 7 out of 17 its factories for leather production purposes (Vuitton 2011). Outbound Logistics Louis Vuitton is one of the biggest luxury brands in the globe. The company’s urge to create a better buying experience and to control counterfeit goods resulted in the establishment of their stores in high-end shopping malls. The aim was to formulate an in-depth understanding of the buyer and focus on an exclusive customer experience. Marketing and Sales Louis Vuitton advertises its products through television, on-screen campaign, newspapers, magazines, using renowned personalities. It also takes advantage of the free and broad market create by the internet through platforms search as Facebook, Snapchat, Twitter, and Instagram. Service The company offers a 24 hours customer services system for all the consumers seeking assistance. Traveling to dress or display their artwork a potential or continuous absolute customer also is provided. Additonally, the private showcase is offered to those exclusive clients who value their privacy. Secondary Activities This refers to the other activities that the company engages in which do not fall in line with the core activities it was formed to do. Procurement The company employs procurement officers whom after intense negotiating sessions, draft and implement contracts and SLAs with strategic suppliers. The hunting of new suppliers includes international research towards “Low-Cost” Supplier's Countries, discussing prices, terms & conditions, to obtain the right mix of price/quality to satisfy my internal clients (Vuitton 2011). Technology development Technology in Louis Vuitton is a key business strategy that focuses on innovation, creativity and the production of Luxury items. Technology also bridges the gap between demand and supply in keeping in check with the current trends and consumer pre and post services. Human resource management The HR department focuses on a talent search and innovation, as Louis Vuitton is a brand known for its sophistication, professional expertise, and top designs. Engaging internship programs are offered especially to the individuals who would later wish to work for the company in future. General administration The general management in Louis Vuitton is a workforce combined with decades of experience with a complete awareness of the objectives of the company. The competence of the management team has enabled the company to make huge profits’ annually. Competence Framework of Louis Vuitton Strategist consultants in Louis Vuitton are always on the verge to determine the suitability and adequacy of its resources. Louis Vuitton is French fashion House Company with over 100 years of experience. Currently, it is the world largest luxury brand with a net worth of $29 billion. Physical resources The fashion and luxury sector is one of the most involving industries in the world today where every single contribution has a significant effect on the final product. Louis Vuitton has a total of 17 factories 12 of which are located in France, 3 in Spain and 3 in America. It operates in over 65 countries in ‎3,708 locations worldwide with a significant focus on retails stores. Financial resources “Louis Vuitton was named the world's most valuable luxury brand. 2012 valuation was US$25.9 billion (Andrew 2012).” The brand has estimated annuals sales of $10 annually though this figure is steadily rising. Employment Resources Louis Vuitton had over 121,289 employees at the end of the year 2014 worldwide, ranging from skilled to semi-skilled. The salary is considered one of the best in the fashion industry. Employment opportunities such designers, distributors and casual laborers slots are offered. VRIO Framework VRIO framework uses the question value to analyze and determine the potential and financial status of the company. The Question of Value External threats such as the entrance of new companies in the industry are very rare due to the high standards and capital requirement of the luxury industries. The competition is very stiff among few key players in the industry. The Question of Rarity The control of resources is considered to be moderate as no firm in the industry has sole ownership of the central resources. Louis Vuitton can negotiate and allocate its funds to suppliers of their preference. The Question of Imitability Replicas are very rampant in the fashion industry and affect the economic capabilities of countries. Louis Vuitton spends annually about $30 million dollars on investigators and lawyers who are responsible for the protection of its products against imitation. At times firms lack the resources to imitate Louis Vuitton brand products due its sophistication. The Question of Organization Louis Vuitton over decades has been able to acquire new brands and venture into new markets due to its financial capabilities. Louis Vuitton has always been very keen on new opportunities that present themselves and are always ready to invest. The company awareness on imitation helps them reorganize themselves, so as to create the ability to counter this item. Strength and Weaknesses Analysis Strength of the Company Louis Vuitton is one of the oldest heritages in the fashion industry with a successful track history in skilled artwork and refined products. The company is considered one of the greatest in its time, due to its vast depth knowledge of artistic capabilities on luxury items that have enabled them to revolutionize the world of fashion. “Louis Vuitton is widely known for its sequential track of brand endorsement of the world celebrated personalities in the political, economic and entertainment sector (Dan 2007).” Availability of company owned retails stores facilitates direct control over the quality, price, and distribution of its products. The weakness of the Company One of the major weaknesses is the inability to evaluate the revenue of counterfeit brand products in the market due to its limited control. Though the company has hired investigators, at the end of the day this is considered to be a waste of resources as the little effect is observed from this department. The non-existence room for bargaining cuts out a potential customer who would be willing to purchase the item only at a cheaper price. LV lacks the customer’s incentive promotions programs such as discounts. Part III: LV Corporate and Business Strategy In this analysis, Bowman strategic model is best preferred due its ability to create an in-depth analysis of the situation at hand vividly. Bowman strategic model Position 1: Low Price/Low Value This position reflects on the bargaining power. In the luxury industry, Louis Vuitton strives to gain new customers in this section and also maintains the loyalty by setting up customer care services. It also increases its sales volume by venturing into new markets and establishing new retails stores to cut out middlemen (Dan 2007). Position 2: Low Price This position has a moderate effect on the luxury industry as lowering of one's prices and increasing the volume of products does not affect key players in the industry. This reduces the brand preference since most of the products would be readily available to any class in the society. Position 3: Hybrid (moderate price/moderate differentiation) This position is a typical phase in the luxury industry especially with Louis Vuitton on the aspirational and accessible customer segment. They adjust the prices to cater for the client exclusive luxury experience purchasing power (Luisa 2014). Position 4: Differentiation This position provides a general statement to the public about the constitution if the company’s core products. Louis Vuitton is known worldwide for its leather products as they are perceived to be of high quality and best craftsmanship. Position 5: Focused Differentiation This position sets up the firm's exclusive designer lines that are different from other lines. The lines Carter for a particular category of people that prefer product perception rather than value e.g. a person wearing designer clothes from great artistry such as Gucci, the society perceives him/her at a higher value than others (Qian 2012). Position 6: Increased Price/Standard Product This strategic situation is carried out through on the exclusive customer segment who places greater emphasis on the buying experience, design, and quality of raw materials used. Position 7: High Price/Low Value This position is not available in the fashion and luxury industry as most sectors are comprised of several big companies eliminating the chance for monopoly existence (Luisa 2014). Position 8: Low Value/Standard Price This position is available in duopoly industry, and cannot be applied in the luxury sector as it will lead to the closure and reduced sales by the company. Part IV: Issues and Challenges facing Louis Vuitton The following some the ongoing issues and challenges facing LV; Imitation Replication is a dominant concern for all the main players in the fashion and luxury sector. Counterfeit products tend to lower the prestige and sales of any company incur enormous unnecessary losses. This is possible due to the duplication of monograms and trademarks of brands on the replicas. High Taxes and Unfavorable Trade Policies Most of the revenues LV group receives are generated from the direct foreign investments in other countries through their retail shops. All luxury products exported to the foreign countries are prone to suffer from massive taxes as a measure to protect local industries. Some of the policies extend almost to the extent where importation of luxury items is prohibited. Direct Relation of Sales with Current State Economic Situation Sale projections rely on the prevailing economic situation of the current country is facing. “In 2008, while America was experiencing a recession, the luxury market sales went down (Anon 2012).” The growing economy in Malaysia has led to the increase in the total demand for luxury products due to the increased disposable incomes. Cultural Constraints The world consists of diverse cultures whose attributes possess unique special different from other cultures. Vague beliefs in some culture state that luxury belongs to a few select in the society. Efforts made by luxury companies to cater for the middle class is often offset by the presence of a cheap replica of their products (Richard 1995). Part V: Identification and Evaluation of the Main Strategic Options for Growth The Asnolf, matrix model The Asnolf matrix model is the best model when it comes to identifying and evaluating LV market and products strategy. Market Development The pestle analysis already conducted on this paper indicates that LV should initiate market research on countries that they wish to invest. The pestle analysis suggests the existence of unfavorable policies and high taxes on luxury items in foreign countries. Other factors include the state of the country, level of security, availability of security firms and environmental factors floods also play a crucial role in the analysis. Market Penetration LV has adapted the online marketing strategy as its new way to reach the physical markets they are not able to cater their services. “Loyalty schemes such as a private invitation to showcases and private display create a sense of attachment to the brand (Pasols 2005).” LVMH acquisition of potential lines that can pose threats and stiff competition in the future creates a good market for LV to thrive. Diversification This is one of the greatest risk strategies as LV introduces new brands to their current and different consumers. Most of the diversifications of LV have resulted in being a huge success such Gucci. The key aim of this strategy is to explore the untapped market and taste of different consumers. Product Development This involves creating new designs for their products, developing new products and improving their customer care services. Customer care services revolve around creating an exclusive purchasing experience and authentic post-purchasing expertise. The client care service tends to save time by giving detailed information on their products. SFA Framework Evaluation on Louis Vuitton Campaign Management The management and promotion team LV strives to evaluate ways in which they can spark public interest. This is achieved through quantitative and qualitative advertising, through face to face, radio and television adverts, internet platforms and customer follows up emails. Some of these adverts require unique features to relay the required information. Lead Management The lead management at LV focuses on the effectiveness of the adverts as to whether they reach the intended audience. Their central focus is to rank the most efficient form of advertising and to select the sectors that need re-modification. Opportunity Management The primary emphasis of this department at LV is to look for emerging opportunities and seize them. LV is known for its sophistication in design, and its readiness to diversify gives room for fresh talented artists. LV focus on expanding its operations worldwide thus the need for a detailed market mix assessment is required. The opportunity management advises the company to which markets it should invest in or a design line acquire and which suppliers offer the best (Qian 2012). Quote and Order Management The Quote Management is responsible for all the quotations the company makes and provides detailed information about all this quotations. LV being a globally recognized company receives a lot of orders from all corners of the worth. The order management is responsible for the organization of these orders and creates follow-up services to ensure the client receives what he/she ordered. Implementation The LV needs to re- organize itself so to cater for the middle class and low class since their combined revenues would be greater than the class high income. The leading question that arises from this strategy is on how to approach search a market and still maintains the luxury of its products. The LV needs to create new brands specifically for these classes by providing standards quality goods at standards prices. This brand will also shadow out the effect of replica since the profits to gain will be me minimal. Part VI: Recommendation and Conclusion Louis Vuitton large foundation base allows it to have retail stores in over 150 countries worldwide. LV should consider investing in South America and Africa, in countries that experience political stability. These continents possess cheap and fair help in the maximization of profits. Most of its countries would offer incentives search as reduced tax rates and guaranteed security personnel. “Louis Vuitton is one of the most counterfeited brands in the fashion world due to its image as a status symbol (Vuitton 2011).” Counterfeits products create losses to this industry, and something needs to be as this is becoming a persistent trend. LV Company should focus their investments in countries that are experiencing economic boom and at the same time have favorable trading policies. LV should also take advantage of the countries experiencing and portraying the effects of globalization and westernization. The most significant step that LV needs to keep in check is the continued satisfaction of its existing loyal customers in its pursuit of new ones. References Andrew, R, 2012. Louis Vuitton Tops Hermes as World's Most Valuable Luxury Brand. Anon, 2012. Brand Finance: Recession Fails to Dent Consumer Lust for Luxury Brands. Entertainment Close-Up Anon, 2015. Case study: Louis Vuitton in China. Chevalier/Luxury China: Market Opportunities and Potential, 125–135 Bernstein Research, 2009. LVMH: King of Luxury Jungle. September 2009. U.K: Sanford C. Bernstein Limited. [Accessed 26 December 2015] Bellu, S., 2008. Louis Vuitton: the art of the automobile, New York: Abrams Crăciun, M. 2014. Material culture and authenticity: Fake branded fashion in Europe.Cheviakoff, S., 2007. Minimalism: history, fashion, design, architecture, interiors: H.f.ullmann Chevalier, M. & Lu, P.X., 2010. Luxury China market opportunities and potential, Singapore: John Wiley & Sons (Asia) Dan, L, 2007. "Louis Vuitton Ad Shows Gorbachev Accompanied by Subversive Text." Luisa, Z, 2014. Luxe Spending to Grow to $1.2 Trillion". Qian, Y., 2012. Brand management and strategies against counterfeits, Cambridge, Mass.: National Bureau of Economic Research. Rambourg, E., 2014. The Bling Dynasty Why the Reign of Chinese Luxury Shoppers Has Only Just Begun. Hoboken: Wiley Richard, M, 1995. Contemporary fashion. Roccati, A., 2014. The Foundation Louis Vuitton by Frank Gehry English-language., Pasols, P., 2005. Louis Vuitton: the birth of modern luxury, New York: Harry N. Abrams. Vuitton, L., 1983. A journey through time: a Louis Vuitton retrospective Exhibition, Paris: Louis Vuitton. Vuitton, L., 2011. Design and History". Available from: famouslogos.net. [Accessed 2015] Read More