Louis Vuitton (LV) is the world’s leading luxury brand. It is ranked number 1. It is also regarded as the leading brand of the LVMH group and the 1st world group of luxurious goods which were produced and distributed. This brand was created in 1987. LVMH earned worldwide sales of €16. 5 billion in 2007 (+7. 7%). This achievement has ensured and conquered competition with its revenues being three times greater than its follower Richemont Group. The group has been split into five core activities with a rich portfolio of over 60 brands. Fashion and leather goods constitute €5. billion sales which accounts for nearly 34 % of the group’s turnover. It is also this sector that stimulates the group’s growth engine. LV dominates the luxury segment by reaching a target of €1. 659 billion turnover in 2006 (which is nearly 2 times its two main followers PPR and Valentino),. Further, LV owns 405 stores (+15 net openings in 2008). Its mission focuses on aiming at being the ’ambassador of the occidental art of life’, to be the symbol of elegance and creativity by realising its selling dreams crossing tradition and modernity.
Hence, it frames its core values with concepts such as creativity and innovation, state-of-the art product quality, and an invaluable brand trademark appeal. The high dynamism of the global group is driven by the exceptional appeal of the LV branding, its efficiency in strategic development, and a long standing presence worldwide. Credit goes to factors such as the strong organic growth, innovative and creative product development, the influential and impact driven communication means and messages on luxury voyage and thematic ideas, the French prestigious lifestyles, the authentic know how and the well managed distribution network.
All these factors have fuelled LV’s dynamism. The current strategy has been developed on three main axes1: Strengthening of its position in the emerging market segment: As growth relays when mature markets slowdown (E. U. &U. S. ) or declines (as in the case of Japan), with a retail network extension, there is a high growth potential of new customers with increasing purchasing power and eagerness to adopt the foreign luxury goods (e. g. China, Russia, and India).
A ’premium” positioning’: By adopting a differentiation strategy, selling high quality innovative products at a higher price, and then staying above the emerging competition of the middle markets, rivals trade up in such a manner that they begin comforting its profitability. Therefore, they simultaneously engage a production cost cutting policy, while steadily investing in marketing, promotion and communication strategies which is essential to enhance the brand image. This serves as the main factor of the purchasing decision of such luxury goods.
Innovation and communication: Innovation and communication is essential to support the premium strategy and to increase the customer panel by taking advantage of globalisation and the democratisation of the luxury market. Resource-based analysis Resources Main Characteristics Tangible Financial – High sales revenue worldwide and a well-balanced and a developed situation versus emerging markets. (€ 5. 6 billions) – High growth rates (+7. 7%) – Financial resources and the capacity to support growth and investments (€ 246 millions in 2007).
Physical – 405 owned boutiques worldwide, and the increasing presence in the emerging markets (China: +9 openings in 2007, and 3 planned). – Progressive and discrete relocation of production sites to low labour cost locations (such as Portugal and India) Intangible Technological – High artisanal skills and the technically savvy know how – Numerous trademarks and models being patented – Efficient use of IT in retail and marketing sectors, and for worldwide strategic management Reputation Ranked as number one in the luxury market and has acquired the 17th position in Global brand market2 Emulates as image of luxury occidental and French lifestyles Voyage, elegance, excellence, style and quality Suitable for all occasions as its trends are in-between tradition and modernity Human Resources Designers, skilled workforce, sales force, and marketing internationally well-known brand icons From a Porter’s value chain concept (1990), the internal resources of LV are well allocated and linked.
This has enabled the company’s capabilities to create a sustainable competitive advantage on a differentiation strategy by translating the brand communication, distribution, product innovation, and pricing policy. This translation has occurred while the production is gradually and confidentially being relocated to low labour cost countries in order to improve margins. The marketing strategy is of highest importance for the LV luxury strategy to feel the market trends, and to translate its value of excellence and prestige in a message which is perfectly perceived by the customers.
External Environment: (Louis Vuitton in China) – Macro Environment: PESTEL analysis3 The luxury market has challenged its growth by increasing its growth rate over the last decade (except 2001). This strategy was especially supported by the emerging markets of China, India, and Russia… as growth relayed in the mature and almost saturated historical area (E. U. , U. S, and Japan). The increasing trends of international tourism, ’new rich people‘ and the favourable world economic growth, enabled the support of the luxury industry and the emergence of new customers and the subsequent trading areas.
However, the financial crisis in 2007 and its economic aftermaths damaged the world economic growth. This in turn resulted in a slowdown in the areas of international trade and tourism. Further, there was a shocking decline in the stock markets, the savings, and the depreciating currencies fluctuations. China is a very dynamic country. It is a dynamic and versatile country in terms of being open to integrated and international trade. The buoyant economic growth begins with benefitting population, with the subsequent high potential middle to upscale consumer market which is emerging and looking for luxury and foreign accessories.
However, the cultural matters and political lack of transparency has raised some informal barriers (i. e. it has been ranked as the 83rd country in which macro environment facilitates the theory of ’doing business’). Political factors: Gradual transition from a centrally, planned and closed environment to a social market China is a communist state government having a track record of being highly involved in business matters. Some of its examples have been cited as under:
Incrementally FDI oriented, since 1979: This has resulted in price liberalisation, fiscal decentralisation, diversified banking system and stock market development… 2007: It saw the evolvement of the unified corporate income tax (end of domestic fiscal protection). WTO member since 2001, meant obligations to implement international regulations It has still been regarded as a non-tariff trade barrier (existence of licensing, norms, quotas and cultural barriers). Additionally, costly and time-consuming red tape obstacles have to be overcome. Implementation of the ’One child’ policy over three decades.
Continental China’s retention with Hong Kong and Taiwan in terms of specific statues and relationships. Issues: Being sensitive to diplomatic relationships in countries such as Tibet, Manchuria and Japan. Also, being aware of the human rights and fundamental freedoms internally. Economical: The impact of the ’economic miracle’ : In spite of a double digit GDP growth over the last decades (11. 9% in 2007), the same was eroded by the financial crisis and a subsequent economic slowdown was anticipated (7-8% expected by 2008) 2007 was earmarked: China achieved the 4th position from a worldwide point of view in terms of GDP growth. his was $3. 251 trillion. It also achieved the 2nd position in PPP ($7. 099 trillion). Despite these achievements, it continued to remain in the lower-middle income per capita ($ 1740, in 2005) group. China’s international and integrated/dependency: From obtaining a GDP of 10%, international trade in 1978 rising to 60% in 2006 versus a decreasing portion of national consumption which was below 40% in 2005. Inflation rate: China’s inflation rate was 4. 8% in 2007 Exchange rate: As per reports in 2008, the exchange rate (i. e. the US $ / RMB) was 7. 8.
Real estate and land price reached a bubbling effect A system of fiscal incentive for FDI in specific coastal areas was introduced Huge workforces and low wages in comparison to low productivity and business management skills was effective and rampant Social: A buoyant emerging consumer market China’s population : A country constituting 1. 3 billion inhabitants (1/5 world population) and a population growth rate of 0. 629% (2008) Ageing population Education: As per surveys and reports in 1999, the country’s GDP was 1. 9% wherein a literacy rate of 90. % was achieved in 2006 Rural exodus : Conversion of rural areas in urban localities is only a new principle in China. Past data reveals that nearly 44% of area constituted to rural areas and there were 25 cities over 2millions inhabitants in 2006. The coastal development (i. e. ’ the two China’ and its downstream economic inequalities) was prevalent.
Income Capacity: An additional 24% of urban households have reached an earning capacity of over $5000/yr annually. This increase has been observed over a terms of 10 years. It has also been predicted and forecasted that a population of nearly 5. million would have already started following the ’Western’ levels of disposable income (i. e. >=$10,000/yr). Asian savings concept : As all Asians have a traditional trait of saving, the theory holds good even for the Chinese who have high saving rates (25%) versus the low but increasing credit access and dependency Consumption: The consumption formula for the Chinese is deduced as under : Consumption = 1st economic driver (which is over taken by the FDI) Western impact on the society and its lifestyles: In China, the social values and lifestyles are changing i. . westernisation is at its peak. Habits and attitudes such as foreign attributes and brand awareness, fashion trends and social purchases (vs. utile), mass consumption, materialism, individualism (vs. collectivism), independence (vs. loyalty) are vibrant in the country.
Technological factors: Technological advancement in China reveals that the country has left no stone unturned to ensure growth and sophistication. The initial heavy investment n infrastructure from the coastal development to the present inward mainland expansion is a critical example of technical advancement. To quote other examples, the increasing usage of internet. The only constraint being in the access to controlled information. Environmental factors: Huge costs to be borne for environmental damages The concept of ’Energivor’ for economic development and a national reserve for a limited capacity
Legal factors: some progressions and transparencies which still remain undone Property rights and intellectual property matters: The issuance of patents, copy rights, and counterfeits’ (legal ownership property and the legal concept which was introduced in 2007) Non conformity to ILO legislation and the international quality controls and standards Guanxi versus contractual obligation and corruption (3. 3 score, the transparency international index in 2006) ’Constitution being ambiguous on judicial review of legislation, has not accepted compulsory ICJ jurisdiction’ (cia. gov).
This has resulted in low independency from the government. Micro Environnent: competition’s structure and analysis LV is far ahead of the competition in the luxury segment for fashion and leather goods and accessories across the world. Further, China has been considered as one of the first-movers since 1992. However, LV has to be mindful of the high levels of the competitive structure, which is currently striving. However, the striving competitive structure has not been effectively established in emerging markets. The current trends shaking or stalling the competition are:
The diversification of luxury brands: By this we mean, the degree or the extent to which rivalry is increasing in every luxury segment especially in accessories and fashion goods era. The democratisation trend of the luxury industry: This has resulted in a subsequent erosion of the entry barriers. Indeed, upscale and mass consumption brands are ’trading up’ their products (‘masstige’, i. e. mass production + prestigious marketing strategy). However, it might be an opportunity to enlarge the customer base by increasing sales and by trading down. The after effects could be that the LV brand image might deteriorate.