Full Strategic Appraisal of Moet Hennessy Louis Vuitton - Case Study Example

Full Strategic Appraisal of LVМН Name Institution Professor Course Date 1.0 Introduction and company background This paper aims at offering a full strategic appraisal of LVMH (Moet Hennessy Louis Vuitton). The best way to do this is by offering an external analysis of the organization and this will be offered by undertaking and conducting a PESTLE analysis coupled with the Porter Five Forces model of the organization. The other sections will entail an internal analysis of the organization and it will be achieved with various tools such as the VRIO framework, the value chain model as well as by the competency model. There will be another section that will set out to discuss the corporate and business strategy of the business and this sections will also outline the various challenges and issues that the organization currently faces and there will also be the identification, evaluation and discussion of the main strategic options for growth that the management team can make use of. Lastly, there will be a discussion of recommendations and then a conclusion. Louis Vuitton Malletier is commonly known as Louis Vuitton and in short, its founder Louis Vuitton founded form it is commonly referred to as LV and it back in 1854. Most of its products, which includes leather goods that are ready to wear, watches, shoes, accessories, jewelry, books and sunglasses have the label LV monogram on them (Thomas 2007). When compared to other fashion houses in the globe it is rated among the leading fashion hoses internationally. Most of their products are shall through their standalone boutiques, through the e-commerce section in their website and through lease departments and this are mainly in the high-end departmental stores. The company have operations in more than 50 countries all over the globe and it have stores that exceed 460 globally (Thomas 2007). Due to wide spread and value LV is among the most counterfeited brands in its industry and this is because the company uses their image as being the status symbol. LV aims at creating products that symbolizes uniqueness and which preserve heritage and which have a dynamic engagement. The company aims at achieving excellence in addition to creative momentum. LV is guided by a number of values that includes innovative, creativity as well as product excellence and concerning strategies LV makes use is the differentiation strategy (Daft 2000). 2.0 Part 1: External Analysis 2.1 PESTEL analysis 2.1.1 Political LV seems to operate in a great number of countries all over the globe. This includes countries such as the ones based in Europe, Japan, Asia-pacific and also in America just to mention a few of them and the fact that they sell their products online they are likely to get customers from all over the globe. The main markets for the company products can be termed as countries which enjoy stable political environments and this is of great advantage to the company since their sale in this countries are not likely to be affected by political factors. There are also countries which having high import duties and this is likely to result in an increase in the price of the luxury products. This is likely to reduce the number of products sold since in most instances only the middle class and the upper class can afford to make purchases (Homburg, Sabine & Harley 2009). 2.1.2 Economic Over time, there has been an increase in use of luxury products as people want to present themselves well. Economic factors mainly entail factors such as the gross domestic products, the unemployment rate as well as inflation (Shah, Jamil, Shah & Kazmi 2015). The rates of inflation are considerable low, this offers the consumers with more purchasing power, and this will be of great benefit to the company since they will experience increased sales and profits. 2.1.3 Social The social factors mainly entail factors such as culture, religious norms, demographic population as well as the practices and trends in the society (Johnson et al. 2014). Based on the products they sell, LVMH is in every aspect related to the social factors and this is because there exist different kind of people from various backgrounds who have various preferences and opinions. In this respect, LVMH mainly targets people from different groups and this has led to the splitting of the consumers into three major segments which includes the accessible, absolute and the aspirational consumers (LVHM 2014c). 2.1.4 Technological With the increased use of technology a great number of companies have turned and are currently making use of online means of advertisements more as opposed to other forms of advertisements and this has been in a way been facilitated by the wide usage of social media sites by people all over the globe (Huczynski & Buchanan 2001 and Keshia 2012). LVMH also aims at gathering different kind of information, attitudes and opinions for the internet and they achieve these using bogs, forums, websites and groups. People have also taken up online purchasing due to its convenience it offers (Dominici 2009). 2.1.5 Legal There have been major issues of concern since there is a growing concern for testing and this can in a way limit novelty and creativity. Additionally, terrors acts and discrimination can in a way affect the luxury industry and more so in a negative way. LVMH should always ensure that it is doing the right things and this will save the company a lot in that it will evade lawsuits that may affect the company’s image and affect their revenue. 2.1.6 Environmental In regard to the environmental aspect, green business is a concept that is gaining wide usage all over the globe (Kotler 2000). A great number of people are now opting to spend more on green products and this means that the companies that have adopted such concepts are more likely to benefit as opposed to those who are not using the concept. The top-level management in LV needs to understand and make use of the green marketing. By making use of the approach, LV will benefit in increased sales and in the creation of a good image in the society. Some companies have faced numerous losses when the society learned of some practices and thus failed to purchase products from them. LV needs to ensure that they do what the society demands of them and that their activities do not cause harm to the environment in any way. 2.2 Porters Five forces Model The porters five forces model is used to analyze the level of competition in an industry. It mainly deals with the threats of new entrants, bargaining power of the suppliers, bargaining power of the consumers, industry rivalry and threat of substitutes (Blythe 2009 and Porter 2008). 2.2.1 Threat of new entrants When setting up a new business a company needs a lot of expenditure in that they will need to enhance the brand, market it and also rent or lease facilities which they will conduct their business in (Tatjana 2012). High brand recognition and loyalty are seen as being major determining factors and they usually compel the consumers into making purchase of the luxury products from companies such as LV despite the fact that they price their products highly as compared to their close competitors in the industry. It may be hard; time consuming and costly for a new entrant in the market and this is because the business calls for high level of investments. 2.2.2 Threats of substitutes Based on my evaluation the products of LV are mainly purchased by the high-income groups and the middle class. These two groups of consumer’s usually purchase those luxury products which have some level of affluence and whose demand is not likely to end anytime soon. Despite these, LV faces a major threat in that there exists a wide range of counterfeit products and these products are mainly in countries such as China and other emerging economies such as in Africa. It has also been reported that the main challenge that LV faces is that there exist wide range of counterfeits products in various markets since they make use of the their image as being the status symbol and this makes it easier for other to copy and imitate it (LVMH Press Releases 2014). 2.2.3 Bargaining power of the customers LV sells most of their products using their website, they also sells their products directly to the consumers and there are wholesale channels that they make use of. When the three are compared, the wholesale channel accounts for about 10% of the sales that are made by the company and this is not good for the consumers since it usually limits their bargaining power. Since the time it was founded LV has positioned itself in a manner that places it among the exclusive luxury brands at the same time the company enjoys a strong brand recognition and this is mainly due to the high quality products that the company manufacturers and also the wide range of products for consumers to choose from. Based on the above discussion, consumers are likely to maintain a low bargaining power since LV constantly engaged in efforts aimed at refreshing the brand appeal. This will be of great benefit in that it will assist in offsetting the ever-rising competition in the luxury industry (Mahubani 2013). 2.2.4 Bargaining power of the suppliers In evaluating the bargaining power f suppliers in LV, it can be said to be very low. LV never manufactures most of their products and this means that they usually rely greatly on other manufacturers who are located in different parts of the globe sic as in China, United States and Thailand just to mention a few of them (LVHM 2014b). In a bid to keep the power of the suppliers low, LV has made acquisitions of some suppliers. This ensures that KV saves costs on matters related to the storage space and it ensures that the products supplied to them are of high quality. 2.2.5 Industry Rivalry Like any other industry the luxury industry also have a great number of players. The rivalry in the industry can be termed as being high. It is important to note that the competition between the players in the industry is not based on price but they mainly compete based on quality and the image perception in the eyes of the consumers. LV also has an advantage it that they attract the right designer with the right abilities, which makes them unmatchable. LV faces a lot of rivalry from other fashion houses such as Gucci, Prada and Hermed. 3.0 Part II Internal Analysis 3.1 Value chain Model When it comes to evaluating a company based on the value chain model one need to reflect on the primary activities and on the support activities. 3.1.1 Support Activities 3.1.1.1 Firm Infrastructure When discussing the firm infrastructure it is obvious that one needs to consider the management of the organization. LV is better placed than its competitors, in that it has strong leadership and through such leadership, the company has been able to achieve their developmental plans (LVMH 2016). The strong leadership has also enabled the company to be transformed and be among the largest luxury companies in the world (Mahubani 2013). LV has also ensured that all their products are management separately from one another. Based on the organizational structures that company adopts and makes use of LV makes use of a decentralized organizational structure and based on these they usually ensures that they remain efficient, productive, dynamic and creative. This kind of structure is of great benefit to the organization in that brand are highly placed and also LV has been able to maintaining and build links between their customers and the product development personnel (LVHM 2014c). 3.1.1.3 Human Resource Management Another aspect that is of great importance and that is always considered in a firm structure is the human resource management in an organization. LV places a lot confidence on their creators but they also ensure that they strike a balance between the new and innovative and the classical products. This is evident in that case; in that, they have attained about 15% of their profits from the new products, they marketed (Matlack 2004). While the other share of profits were derived from the sales of their traditional products. At the same it can be noted that company have been adding on their employees year in year out and this is mainly based in the high demand for their products and they are also opening up new stores which need to be managed (Mahubani 2013). 3.1.1.3 Procurement Procurement is also an important aspect in support activities in that it supports the core business of the organization. A significant number of products of LVMH are manufactured in-house and this is mainly done with control and dependent on production (LVMH 2014b). In some instances, the company requires the services of third parties and this is mainly done with the aim of supplementing the manufacturing and with the aim of achieving flexibility in their production. The company suppliers are based in a great number of areas all over the globe. The company also engages in deals with fashion magazines and thus makes use of these magazines to advertise most of their products to their consumers and more so, to those people who likes to read a lot. 3.1.14 Technology development Technology is also a major support activity for most companies. The company has some test laboratory where they test their products before delivering them to the market. This process is done to ensure that the products are durable. The company also use of a computer program which has the ability to detect any flaws in leather. The program further helps in helping to cut the leather in the exact places thus playing an essential role in reducing wastage. The company also makes use of technology on their ordering and this is evident in that they have an ordering system, which makes the running of the business more efficient (Cheng 2007). 3. 3.1.2 Primary activities 3.1.2.1 Inbound Logistics Inbound logistics is one of the concepts of the primary activities of organizations (Hartley & Rudelius 2001).LV usually uses high quality materials and selected their suppliers and raw materials to ensure that they always offer high quality products to their consumers (LVMH case, page 6.). This explains the reason as to why their products are sold at high prices. 3.1.2.2 Operations The designs of the products sold by LV are made in their factories. The company has a great number of stores and they have been increasing their stores very year with the aim of reaching a greater number of audiences. Over the years, LV has made use of technology and a good example of these is the new system that is in place. The new systems allows for the assembling of bags and other to take shorter period as compared to when the system was not in place. This is based on the notion that the workers waste no time since they do not wait for the goods to be moved from one station to another. At the same time shipments in the company is done in very six weeks and this is contrary to the past (Passariello 2006). 3.1.2.3 Outbound logistics In regard to the outbound logistics, LV has a great number of stores all over the globe and this ensures that the company has control of their brand image and ensures that their products are distributed well in all their stores. To ensure that the product reaches the market on time, the company makes use of FedEx transportation services. In this respect, the fast selling products are mainly sold through the FedEx Express, FedEx International priority is used for the rush orders while FedEx Insight is used by the individual shops. The transportation system is used to reduce the lead-time (FedEx Annual report 2005).LV mainly outsources some of their outbound logistics to focus on their major competencies (Paul 2000). The system also ensures that their transactions costs are at the minimal and this is done by having one supplier as opposed to having various suppliers. 3.1.2.4 Marketing & Sales LV mainly uses celebrity endorsements in their campaigns (Mahubani 2013). LV also relies on the deep-rooted tradition of the brand and this is used to target the lower segments and putting emphasis on the two upper segments. 3.1.2.5 Service LV offers excellent services for the consumers and they have a department set aside to deal with after-sale issues. LV also ensures that they meet the needs of customers and more so those that need specialized products (Lucia, Del Barrio-Garcia & Kitchen 2012). 3.2 Competency Framework LV has a number of competencies but they mainly focus on constant improvement on quality and also ensuring that all their transactions costs are low. They also need to apply knowledge gained to expand their clothing lines (Mahubani 2013). 3.3 VRIO Framework Value- LV brand is a valuable brand Rarity- the brand is rare since most companies based their competition on prices as opposed to heritage and quality. Inimitability- at times it is difficult to imitate the brand Organization- LV is very organized and enhances their effectiveness by exploiting their capability. 4.0 Company’s corporate and Business strategy LV makes use corporate strategy is aimed at holding a portfolio of the esteemed, desirable luxury brands and adds value by making use its specialized resources. LV uses the growth strategy by introducing new products, with new features to the already existing products (Henley Business Review 2013 and Marin et al. 2005). 5.0 Issues and challenges facing the company LV faces a number of issues and challenges and this includes The changing demographics the global economic challenges stiff competition Existence of counterfeit goods that were lowly priced (Mahubani 2013). 6.1 Main strategic options for growth (The TOWS Matrix) TOWS Matrix Strengths Strong brand image Diverse products of high quality endorsement from celebrities (LVHM 2014d) Weaknesses restricted customer base Added value Poor brand positioning No offers and discounts Opportunities Engage in numerous campaign Organize regular events and exhibitions Develop strong brand equity S-O strategies Engage actively in CSR activities Make use of advanced technology to increase efficiency Offer different design with different prices (LVHM 2014a). W-O strategies Offer special offers and discounts and mostly on special occasions. Developing strategies to cope with the dynamic environment understanding customers clearly offering new and innovative products from time to time Threats Stiff competition High demand from the growing population augment in trends Endorsement of brand by celebrities counterfeit products (LVHM Press releases 2014) S-T strategies respond to competition (LVHM Press releases 2014) Introduce new and new products Attain information on changing trends and preferences W-T strategies Overcoming the above stated weaknesses by turning them into strengths Coming up with flexible product LV needs to apply the above-mentioned strategies in solving the threats and weaknesses that they experience but they need to mainly focus on; Coming up with new, novice and advanced products Attaining relevant information of the ever changing needs and preferences of the consumers Counter the stiff competition in the industry (LVHM Press Releases 2014). The above selected option offers direct solution to the various challenges that LV experiences. 6.2 SFA Framework The table below shows that SFA framework of LVHM Option 1 Option 2 Option 3 Suitability Acceptability X Feasibility X 6.3 Implementation The implementation process will be done through two major steps and this will be done in the 1st year and the other one in the 3rd year. The first year will entail the gathering of information related to the ever-changing needs of the consumers and what preferences they prefer (LVHM Press Releases 2014). 7.0 Recommendations and conclusion Based on the above strategic appraisal of LVMH, I would recommend that the company gather all the necessary information and more so that information that relates to the ever changing needs of the consumers (Westwood 2002). This will go a long way in ensuring that the new products that are developed meets the needs of the current consumers. 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