Business Strategy and Policy of the Luxury Market in the Asia-Pacific Region - Case Study Example

An Assignment on Business Strategy and Policy Table of Contents The Problem 3 Long-Term Strategic Plan of the Luxury Brands 3 Long-Term Expansion Plans of the Luxury Brands 4 Analysis of Buyer Power 4 Analysis of Supplier Power 4 Impact of Substitute Products 4 Analysis of Growth of Entrants 5 Internal Rivalry in the Asian Luxury Markets 5 Comparison of Sales Trend and Product Mix before and after the Strategy Implementation 5 Evaluation of the efficiency of the Strategy Implementation 6 Introduction The paper reflects on cooling of the sales observed for potential luxury brands, such as, Gucci, Prada and Louis Vuitton, in key markets pertaining to the European and Chinese region. It analyzes potential causes that had prompted the above situation and the different strategies needed to be incorporated by brands in order to revive their stance and expand into the Asian markets. The Problem It is observed that the luxury fashion brand, Prada, encountered a decline in sales during the first quarter of 2014 such that sales and revenue volumes were potentially affected in the European and Asian markets. The main reasons behind such decline in its sales and revenue position were cited to be fluctuations in the level of the exchange rates, a steady decline in the level of wholesale deliveries and growth of competition in the international markets (Reuters, 2014). The sales of the luxury products marketed by Louis Vuitton also countered a potential decline as the management failed to anticipate the changes in consumer behavior relating to the shift of focus from branded luxury merchandises. The share prices of the company recorded a rise of 5 percent compared to a 20 percent rise in the overall luxury market, which in turn also experienced an EPS growth of only 6 percent during 2013 compared to 15 percent for the luxury sector (Wendlandt & Denis, 2013). Similarly for the luxury brand, Gucci, it was observed that demand for the luxury merchandises had declined in different regions like, Europe and China. The fall in demand in the Asian markets like, China, was observed mainly for the shift in demand by the Chinese consumers from Gucci and Louis Vuitton to other smaller brands such as, Bottega Veneta and Yves Saint Laurent (Roberts, 2014). Long-Term Strategic Plan of the Luxury Brands The luxury brands can focus on taking resort to a differentiation strategy relating to the generation of product or service offerings to the customer. Taking resort to a differentiation strategy relates to the manner in which a company generates a product or service to the customer, who perceives it to be different in comparison with those delivered by the rival organizations. Differentiation is observed to be a generic strategy that focuses on enhancing perception levels of the customers regarding a product or service brand such that the latter tends to perceive a sense of value addition offered by the company and hence, agree to procure the same at an increased price. The differentiation strategy can be used by a company through incorporation of needed innovation in the manner of providing service and product offerings, thereby enhancing the parameter of accessibility and customer service offered. Consequently, the luxury brands tend to compete in order to provide goods and services for a target market comprising of a niche elite customer base. Thus, the differentiation strategy that ought to be undertaken would be reflected as a focused differentiation strategy (Lewis, Goodman, Fandt & Michlitsch, 2006). Relating to the luxury brands such as, Gucci, Prada and Louis Vuitton, it is observed that they tend to use the differentiation strategy through creation of different product assortments that are to be sold in both online and physical paradigms. Differentiating on the merchandise marketed online and through physical outlets as well as formulating different marketing and communication strategies is undertaken to restore the exclusive feature of a luxury brand. Customers of luxury products tend to perceive the products from highstreet luxury retail stores such that they reflect an affinity to the décor and customer service provided. Owing to the above effect, along with differentiating the product assortments relating to online and physical stores, the luxury companies also encourage the customers to order products online and then avail the same from the highstreet retail stores. Hence, this feature potentially differentiates the established luxury brands from the emerging ones that are attempting to promote their merchandises by establishing online stores (Petcu, 2010). Long-Term Expansion Plans of the Luxury Brands The problem faced by the luxury brands pertaining to the Asian markets like, China, is observed to be the shift in focus of the consumers from the global luxury brands to other local brands. The luxury brands struck by the above problem endeavor to enhance their retail presence in the Asian markets. An expansion plan in compliance with the long-term needs of the luxury brands can be developed based on the Porter’s Five Forces model, which would help in conducting the industry or sector analysis of the luxury market in Asia. Analysis of Buyer Power With development in the economic position of the Asian markets like, China, consumer classes, relating to rich and affluent individuals, has emerged that desire to procure the luxury products so as to effectively sustain and enhance their social status. Along with the affluent male consumers, the female consumers are also observed to direct greater focus on the purchasing of luxury goods. The Chinese consumers while purchasing the luxury products tend to generate greater significance on the heritage parameter such that they show more inclination towards availing luxury products marketed by Japanese companies compared to that of the American and European marketers (Chevalier & Lu, 2011). Analysis of Supplier Power The Asian markets, like, China, reflect the growth of indigenous suppliers and designers who aim to generate potential competition to the western luxury product companies. Unlike the Chinese market, the Asian markets of Japan and Hong Kong contribute in generation of an active market for western luxury products such that the western luxury product companies can exert influence on the supplying of luxury products (Okonkwo, 2007). Impact of Substitute Products The rise of the indigenous designers and suppliers related to the Asian markets like China is observed to largely prompt in the rise of cheap substitutes that act as counterfeit products to the western branded luxury products (Okonkwo, 2007). Analysis of Growth of Entrants Though the Japanese market for luxury retail reflect weaker regulatory mechanisms that contributes to the growth of foreign direct investment in the luxury market the same does not stand for China that reflects higher trade and intellectual property regulations. Thus the Chinese market tends to generate formidable barriers to entry of foreign luxury firms (Flora, 2014). Internal Rivalry in the Asian Luxury Markets The internal rivalry related to the Asian markets for luxury products is observed to be less relating to the Japanese markets than in other markets in the Asia Pacific regions. The Japanese market reflects greater promotion for the growth of international luxury brands than other Asian markets that reflect greater internal rivalry owing to existence of regional competitors (Bell, 2008). Comparison of Sales Trend and Product Mix before and after the Strategy Implementation The changes in the sales trends and also in the product mix before and after the implementation of the integration of the online and the physical marketplace relating to the luxury product companies can be evaluated based on the PESTLE Analysis. The PESTLE Analysis would reflect on the influence of the political, economic, social, technological, legal and environmental parameters. It is observed that potential luxury brands like Gucci, Prada and LMVH reflected that the sales of the luxury products had been largely affected owing to shift in changes of consumer tastes and fashion and also of the rise of regulatory and trade mechanisms in key Asian markets like China. Regulations brought about by the Chinese government to help control the growth of counterfeit products and also to control the sales and consumption of gift items is taken to reduce the growth of sales of brands like Gucci compared to the global landscape. In the Asia-Pacific belt Gucci recorded a growth of 2 percent in sales compared to a 7 percent growth globally during the first quarter of the 2012 accounting period. The consumers in the Asia-Pacific region were also observed to lay greater stress on the procurement of local luxury brands than depending on the procurement of western brands. The use of the above strategy related to the integration of the online and physical stores with also the growth of the number of physical stores in many regions in the Asia-Pacific region contributed in addressing the needs of the customers related to China and other Asian markets (Online, 2013). The Chinese consumers reflected an interest of being effectively serviced by the luxury boutiques opened. Demand for being effectively serviced also required the luxury marketers to plan for product assortments that would contribute in the meeting of the consumer expectations. Further changes were incorporated in the technological paradigm such that use of LED screens were used for generation of further interaction with the shoppers with also the integration of the online and the physical stores to generate the needed product to the customers. Other regulatory and legislative changes relate to the reduction in the tax rates on the luxury products that contributed to the increase in demand and consumption for luxury merchandises in key markets like China. On the environmental front the growth of shopping malls around the retail markets in China prompted further growth in sales of luxury commodities. The overall changes brought about in different Asian markets prompted the growth of sales of luxury products in retail markets of Tokyo such that it increased by around 2.6 and 30.7 percent year-on-year during 2013 related to highstreet retail and departmental stores respectively. It is further held that by the close of the 2015 period, China solely would account for 20 percent of the total luxury commodity sales in the global landscape (Murray, 2013). Evaluation of the efficiency of the Strategy Implementation The evaluation of the success of the strategy implemented by the luxury marketers like Louis Vuitton, Prada and Gucci through the creation of physical retail spaces along with online retailing activity would be conducted through the use of the balanced scorecard. The balanced scorecard would be diagrammatically presented as under. On the financial front the implementation of the strategy is taken to enhance the revenue and profitability position of the luxury retail companies. The implementation of the strategy is also taken to help in satisfying the needs of the customers through greater accessibility. Similarly relating to internal business it is aiming to integrate the online and physical sales paradigm which in turn contribute in the enhancement of expertise and knowledge to develop new communication tools. The luxury companies focus on promoting the growth and learning of the internal people such that they would help in rightly serving the needs of the customers in the different retail stores and also contribute in generating effective customer service. Conclusion The paper reflects on the decline in sales for different luxury brands like Louis Vuitton, Prada and Gucci relating to the luxury markets operating in the Asian economies like China and Japan. Major decline of the luxury brands is observed relating to China owing to the shift of tastes of the Chinese consumers to fix their focus on local brands and also the existence of potential government and trade regulations and legislations. The paper thus conducts a holistic analysis of the issue affecting the luxury market in the Asia-Pacific region and the different strategies that would be need be undertaken by the luxury marketers to counter the impacts of the changes in consumer behavior and in influencing the government to generate supportive trade and tax regulations in promoting growth of luxury markets in key markets like China. Key strategies that were undertaken by the luxury marketers related to the growth of the shopping malls and also in generating a close integration between the online and physical sales paradigm. The above strategy coupled with the change in the product mix and communication strategies contributed in helping the customers enjoy an enhanced shopping experience in the highstreet and departmental stores. Further changes in the regulatory paradigms with supportive tax laws and also in the legislative structure contributed in promoting the growth of the luxury market in Asia. 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