Louis Vuitton Strategic Appraisal - Case Study Example

Introduction

Most consumers prefer brand items over the unbranded items probably because they can easily relate to a brand. When most people think about a brand, they think of enterprises such as McDonalds or Subway, but they are not well informed about the fact that there exists a huge rift between such brands and luxury brands. In most of the available literature, there is much discussion about brands but the information therein about luxury brands such as Louis Vuitton is very scanty or even lacks completely (Nagasawa, 2009). Therefore, this means that there is need to perform a thorough scrutiny on these luxury brands especially considering their uniqueness and distinction from other commodities in the market despite the fact that they are not sold on a large scale. This paper will focus on assessing the Louis Vuitton brand, and this will involve a breakdown of the brand into price, product, place and promotion among other analytical procedures. The objective of this paper to analyze the generic strategies adopted by Louis Vuitton and the marketing principles for luxury brands incorporated by Louis Vuitton to enable it to achieve the milestones it has today.

Company background

Louis Vuitton is a brand owned by the Louis Vuitton Moet Hennessey Group which operates in the luxury and fashion industry and its application of cutting edge marketing and advertising strategies besides providing high quality and competitive products makes it stand out (Forgang, 2001). In spite of the recession being experienced globally and despite the fact that the luxury and fashion industry saw a decrease in value, Louis Vuitton continues to increase the value of its brands and continues to experience growth as well. Louis Vuitton has approximately four hundred and sixty stores distributed across fifty countries including United States, France, and the United Kingdom among other others. Even though Louis Vuitton does not have many stores in comparison to other fashion companies, its sales prove that it is still a force to reckon with. For instance, in 2015, Louis Vuitton brand was valued at about $28 billion, and its sales stood at $9.2 billion, and this was amidst a global recession (Dion & Arnould, 2011). Louis Vuitton operates in three distinctive markets segments which are mainly determined by the company’s range of customers. These three segments are absolute, aspirational and accessible. The absolute segment tops the pyramid, and it comprises of individuals of having immense wealth and ridiculous net worth (Rod et.al, 2015). Customers in this segment look for absolute impeccable luxury or that which is ultimately unique from any other product, and that causes the beholder of it command respect. The craftsmanship of the brands provided to these customers must be simply the best and nothing short of that. The absolute segment is the largest segment for Louis Vuitton.

The second segment that Louis Vuitton operates is the aspirational segment, and it’s the second largest after the absolute segment. This segment targets customers such as business persons, celebrities, and other professionals who have a lot of disposable incomes (SABRI & SHAIKH, 2010). The products offered in this segment have a close semblance to those in the absolute segment but not a complete semblance. The products in this segment are of high quality; the customer enjoys an exclusive buying experience, and the basis on which the brands are created is that of tradition and heritage. The last segment is the accessible segment. The products offered in this segment targets the customers who would purchase Louis Vuitton brands just to have the feeling that they belong to an elite or high-class group. It targets the individuals who yearn to get a taste of the world that the rich and famous live in (Meldrum & Mcdonald, 2007). The prices offered in this segment are moderate because customers in this segment are very conscious about the prices of products. However, the products must exude exclusivity and must be of high quality. It is important to note that across all these segments, customers value the products mad in France and other countries in Europe more than the ones that are made in the United States or Asia.

Louis Vuitton’s mission is to be a representative of the utmost western refined qualities all over the world. Further it highlights that creativity and elegancy needs to be upheld. In other words, the vision the Louis Vuitton Moet Hennessey group is to continue providing high-end brands to its customers in tall the market segments through continued innovation but without compromising the unique features of the Louis Vuitton brands (Mahnken, 2015). This mission will continue to be pursued by the company concerning the Louis Vuitton brand through the continued application of the product differentiation generic strategy.

The Louis Vuitton brand is competitive over the others for several reasons, and that include the fact that the brand conveys a rich history and culture, it oozes exclusivity and quality, and it exhibits superior craftsmanship. Most of the competitors of the Louis Vuitton brand do not have these qualities, and that favors the brand. The key stakeholders in and who have contribute to the success of the Louis Vuitton brand this far include the customers, the development team, the marketing team and the investors (Bogetoff and Otto, 2012). The investors ensure that the development and research costs, among other costs, are covered while the development team comes up with innovative designs that make the brand exhibit traits relevant to the changing fashion preferences. On the other hand, the marketing team ensures that they capture every bit of uniqueness of the Louis Vuitton brand and concisely show why the brand is worth its price. Finally, customers ensure that Louis Vuitton brand continues to be a successful luxury brand by being loyal and continually wanting more of the brand.

External analysis

External analysis involves an analysis of factors that within the organization’s influence. These factors affect all the companies within that a particular industry. According to (Jolibert et al., 2012), the analysis assists an organization in determining strategies that will ensure that the company improves its competitive position. The analysis involves Pestle analysis and Porters five forces model analysis

Pestle Analysis

Political factors

Just like any other industry, LVMH is affected by the political, economic, social and technological factors as will be seen in the following discussion. Political factors have great influence on the market environment since they play a major role in ensuring that certain policies are enforced in the markets (Jolibert et al., 2012). For instance, increasing taxes has a ripple effect that influences and determines the customers’ level of spending. Often, customers forgo the luxury items, such as the Louis Vuitton brands, in an attempt to reduce their expenses (Choi & Valikangas, 2001). Furthermore, changing policies on issues such as disposable income per capital, reducing or decreasing the wage rates also influences consumer behavior and consumption of luxury products as well.

Economic factors

In 2011, the market for luxury goods was estimated to have a value of $28 billion, and that was considered to be an above average performance (Cavender & Kincade, 2014). Emerging markets such as Mexico and countries in the Pacific Asia region continue to drive the demand for luxury goods upwards and could be the reason why the luxury products industry has realized about 7% growth from 2011 to 2015 (Fujiwara & Nagasawa, 2015). Economic factors affecting the performance of industries and specifically the luxury brands industry in this context include inflation and deflation, overall local and global economic performance, wage rates and competition. LVMH faces stiff competition from the likes of Gucci, which means that application of smart generic strategies is of the essence. In the case of high inflation rates, prices of commodities hike prompting consumers to forego luxury products in preference to the basic commodities (Fujiwara & Nagasawa, 2015).

Social factors

Social factors encompass several factors surrounding society including demographics, cultural and religious beliefs and the ethical standards of the society (Rod et.al, 2015). The relation between LVMH and these social factors cannot be understated especially considering that society harbors individuals who have varying beliefs and preferences concerning products. The market division enabled by geographical segmentation helps some regions or countries enjoy exclusivity such as enabling them to be renowned for certain high-class brands such as Louis Vuitton (Fujiwara & Nagasawa, 2015). Louis Vuitton brand is mainly targeted at the wealthy class of people and such, LVMH creates brands that fit their social identity. Every individual yearns for some recognition in society and Louis Vuitton brands go a long way in helping most individual live that dream.

Technology factors

The social media platforms have grown in popularity and use, and business enterprises have not been left out as the most exploit and reap the benefits of online marketing and advertising. Social media platforms can also be used to gather efficiently customer feedback to identify the aspects of the products that the company ought to adjust. Based on (Kapferer, 2012) this has been used by LVMH to gather opinions and information about the Louis Vuitton products hence enabling the brand to retain its luxurious image owing to frequent adjustments based on customer feedback. In addition to that, there is a growing preference for online shopping as opposed to the traditional mode of shopping since it's efficient and helps save time (Forgang, 2001). Therefore, ensuring that the Louis Vuitton brand has an adequate online presence will greatly contribute to its growing popularity.

Environmental factors

Following the drastic environmental changes globally, more campaigns aimed at sensitizing companies to use green energy solutions in their production activities continue to grow. Moreover, consumers tend to get inclined to purchase the products of companies that have embraced the green energy solutions in support of the course (Jolibert et al., 2012). LVMH is considered to be one of the environmental conscious group in the world, and this fact has drawn a lot of customers to it despite the fact that its prices are significantly high. It clearly indicates that taking measures to conserve the environment by a company does not only contribute to better climatic conditions in the long run but also results in an increase in revenues for the companies (Nagasawa, 2009).

Legal factors

There has been a growing call for regulation of companies especially within the European Union, and there have assertions that this may have an effect on innovation and creativity (Fujiwara & Nagasawa, 2015). The strictness surrounding regulations has been prompted by the rampant cases of terror and discrimination which have affected the perfume merchandisers negatively including the Louis Vuitton brands. LVMH has had several legal related issues such as one where the group was fighting for share acquisition in a French leather goods manufacturers (Choi & Valikangas, 2001). The outcome of this fight was regarded as inadequate as LVMH held that it was clouded by irregularities both legally and performance of relevant analysis.

Porters five force model

Competition within the industry

(Bogetoff & Otto, 2012) highlights that the competition in the industry is significantly high but unlike other industries where customer’s preference is normally inclined to lower prices, the high margins in this industry see the customers’ preference inclined towards the quality and the image portrayed by the brand. Louis Vuitton faces stiff competition from some major players such as Hermes, Gucci, Versace, Chanel, and Prada among others. The growing competition in handbags and other accessories continues to shower some doubts on the potential Louis Vuitton’s sales in the short term (Hill & Jones, 2008). To keep up with the competition, Louis Vuitton is looking to review its strategy and venture into international lifestyle branding concerning accessories (Magretta, 2012).

Bargaining power of customers

Louis Vuitton sales are made directly to the customers while some other sales are made through wholesalers. Statistical analysis shows that about 90% of all Louis Vuitton’s sales are made through direct sales while the rest are generated through the wholesalers (Mahnken, 2015). This indicates that the bargaining power of the wholesalers is lower. On the other hand, Louis Vuitton considers the customers are bargaining power as being moderate, and because the brand enjoys exclusivity and vast recognition, it gets an upper hand over the customer in this sense. Loui Vuitton plans to replenish the appeal of its brand which means that the customers bargaining power will continue to be low in the future (Sand, 2010).

Threat of new entrants

Starting a new brand requires an immense capital outlay for marketing and paying for the office floor (Stone, 2001). Additionally, brand recognition and gaining customer loyalty takes time which is why most luxury is seeking individuals turn to companies such as Louis Vuitton. Considering these factors, a new company looking to venture into the luxury brand industry might give a hard time gaining a competitive edge over the existing players (Cavender & Kincade, 2014). However, because online business is not faced with too many barriers on startup, a company looking to venture in this industry can thrive. As such Louis Vuitton must have in mind the competition posed by the new entrants.

Bargaining power of suppliers

Louis Vuitton s products are not manufactured by the company itself (Hill & Jones, 2008). Instead, this function is outsourced from companies located in China, France, United States and other countries. Recently, Louis Vuitton took over a tannery company which is one of their key suppliers. By so doing, Louis Vuitton reduces the bargaining power of their leather suppliers. Overall, the bargaining power of all Louis Vuitton s suppliers about the companies bargaining power is very low, and this could also be because the company buys raw materials from its suppliers on a consignment basis, that is, it does not rely on a single supplier (Information resources management association. 2015). This technique facilitates efficiency and increases economies of scale.

Threat of substitutes

Louis Vuitton mainly targets people in the middle and high-income zone. Individuals in this zone have a strong preference for high-end and luxury products especially because they have a knack for exhibiting the affluence they live in. Louis Vuitton assists them to do this flawlessly and as such its products and brands will continue to be in demand. That notwithstanding, the company faces a huge threat from counterfeit products that are increasingly flooding major markets such as China (Reuter, 2005). Counterfeits pose a major threat to the company since they have the potential to reduce the value of the Louis Vuitton’s brand.

Internal analysis

This analysis delves in analyzing the factors that within the organizations control. In other words, it is an evaluation of factors that are within its domain. It assists an organization to determine the strategies that it can undertake to ensure that remains competitive compared to its competitors (Choi & Valikangas, 2001).

Value chain analysis

The value chain is a key aspect of every company dealing in consumer products and in the fashion industry, the value chain is complex than it may seem in theory. Louis Vuitton intends to introduce the silk Haute dress into its list of brands and to ensure its success; proper value chain strategy must be adopted (Havard, 2000). Silk which is a key raw material in making this dress is supplied from China to another company the company that is expected to make the dress. This company is connected to other companies within its geographical area that undertake the weaving, spinning, and dyeing of the silk. To ensure that the end product is of the desired quality, one of the designers from LVMH works closely with the company (Cavender & Kincade, 2014). What attracts a customer concerning Product design, pricing and sales in China and Italy are considered to be the fashion house as opposed to the supplier. As such most of the product value is generated in the fashion house and not through the other processes that the product goes through (Stone, 2001). Considering this, display of products in the fashion house is key to attracting customers. In this case, taking the silk dress to the fashion house entails the inbound logistics, the design, and manufacture of each silhouette dress entail the operation activities, outbound logistics entail distributing the dress to various stores owned by Louis Vuitton and its franchises as well. Fashion shows and ensuring adequate media coverage entail the marketing and sales process after sale services can be considered to be the discretion of the service to wealthy customers (Sand, 2010).

Competency framework

The competency framework characterizing Louis Vuitton has enabled it to stand out from most other competitors (BOGETOFT & OTTO, 2011). This framework coupled with sound management has yielded significantly good results for the company. It entails providing high-quality product coupled with strong brand imaging, product differentiation, and market differentiation as well. This is so because Louis Vuitton mainly targets the rich and wealthy but provides products to low-income earners at fairer prices.

VRIO framework

The VRIO framework can be used to assess or evaluate the ability of resources within a company in contributing to its competitiveness (Grimm et.al, 2006). For most luxury products companies, Louis Vuitton in this case, the sustainable resources that help the company gain competitive advantage are the designers and the company’s brand. However, there is some subjectivity concerning what gives luxury products companies’ edge over its competitors. Some assert that skills and technology helps a company in that while others hold that a company’s architecture, its ability to innovate and its reputation should give it a competitive advantage. Other factors that give Louis Vuitton competitive advantage include the reputation of its quality products and its strategic partners (Barko and Nemati, 2004). Additionally, the strengths that Louis Vuitton can brag about include skillful craftsmanship, deep cultural and historical aspect, large market share and brand exclusivity (Analoui & Karami, 2003). On the other hand, some of the weaknesses of Louis Vuitton include limited customer base and heavy debts.

Business strategy

A company’s business strategy encompasses all the aspects of the business that characterize, enable it to run its operations effectively as well as help it gain a competitive advantage over competitors. One of the aspects of market analysis is market analysis (Rao et.al, 2008). Louis Vuitton does this by engaging its customers through the social media platforms and hence understand the customer needs and preferences. Another aspect of the company’s business strategy is product development. Louis Vuitton outsources skilled personnel and manufacturers to ensure that they deliver impeccable products to their customers (Barko and Nemati, 2004). The supply chain is well designed to ensure efficiency in inbound and outbound logistics, operations, marketing and distribution of the end product to the customers. Considering that Louis Vuitton mainly targets the wealthy class, the company ensures that its brands are exclusive, classy and highly priced. Most of the company’s sales are made directly to the customers wholesome are made through the wholesalers.

Challenges

One of the challenges facing Louis Vuitton is a limited customer base. The company mainly targets the wealthy class of people, but this class does not exactly have a lot of people. As if that is not enough, there are some new entrants venturing into this market which means Louis Vuitton’s market share may reduce further as a result. Another challenge facing the company is heavy debts. This poses a big challenge because it means that the credit limit available to the company from financial institutions might continue to reduce (Forgang, 2001). Consequently, the company might not be able to finance some of the major projects it may have the intention to finance. The company is also faced with the challenge of counterfeits which has the potential to dilute the company’s prices. Unless the company pushes for necessary legislation to curb this menace, it might have far-reaching effects on the company’s competitiveness in the long run.

Strategic options for growth

The main strategic option for growth for Louis Vuitton is retailing its products online. Ansoff’s product matrix is used as an essential marketing tool that can be used to determine how new or existing products will be assimilated in an existing or new market. The first party of the matrix denotes penetration into the market (Hill & Jones, 2008). Lvmh is facing a counterfeiting menace that has the potential to damage the exclusivity and equity of Louis Vuitton brand. To curb this, the company may consider doing more advertisements that focus on their painting and hot stamping services. Additionally, creating more consumer awareness about these services might come in handy. Furthermore, advertising through popular magazines such as Vogue and using models would go a long way in securing the company’s brand quality and identity. The quadrant of market development entails taking an existing product into new markets (Information resources management association. 2015). Louis Vuitton should consider taking its products to some emerging markets such as Mexico and Kenya and assess how the products perform in these markets. Finally, the product improvement quadrant focuses on the conception of innovative products for prevailing markets. Customers’ preferences keep on changing and as such frequent product development would enable LVMH to remain relevant and competitive.

The SFA framework focuses on assessing the extent to which a company has used technology to improve its efficiency (Reuter, 2005). Louis Vuitton has not established a strong online presence to exploit this platform fully. Most consumers are continually turning to online shopping due to the efficiency that comes with it. Considering this, Louis Vuitton should lay down proper infrastructure concerning retailing its products online to attract as many customers as possible (BOGETOFT & OTTO, 2011). To successfully implement this option, Louis Vuitton will have to outsource to experts in creation and maintenance of online stores and have them designed in such a way that does not compromise the brand image and exclusivity

Conclusion and recommendation

The dynamic nature of consumer’s fashion preferences continues to allow more growth for the industry. When it comes to fashion, most individuals tend to overlook the price as long as they love the brand and perceive it as being of high quality. Louis Vuitton is widely known for its dealing in luxury products and offering them at high prices. Unfortunately, the group of customers targeted by the company is not so wide which limits the company’s ability to dominate this market. Additionally, the threat of new entrants indicates that the market shares of Louis Vuitton especially among the wealthy could reduce in the long run. Providing the customers with high-end quality and exclusive products has enabled the company to remain competitive. However, in addition to the risk posed by the new entrants, Louis Vuitton also faces a threat from counterfeit goods. As the company takes the necessary measure to cope with the counterfeits, it should also consider widening its range of products for the customers at the aspirational and accessible segment. Therefore, louis Vuitton should aim to diversify and differentiate its products to ensure they are able to stand out from its competitors. This gives the wealthy and luxurious shoppers a reason to choose the company’s products rather than the competing brands.