Feasibility study louis vuitton entering russian market

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  • 1. LVMH –Marketing Analysis for Russian Market Page 1 SHANGHAI UNIVERSITY OF INTERNATIONAL BUSINESS AND ECONOMICS International Marketing Clarisse Levi & Antoine Mortellier Louis Vuitton in Russia - Entry Market Strategy Analysis
  • 2. LVMH –Marketing Analysis for Russian Market Page 2 Contents Contents .................................................................................................................................................. 2 I- Executive summary.......................................................................................................................... 3 II- Introduction to the company and product (Clarisse Levi)............................................................... 4 III- Macro-environment research on chosen country........................................................................... 5 IV- Segmentation, target market strategy .......................................................................................... 13 V- Competitive analysis and Positioning (Antoine Mortellier)........................................................... 15 A. Competitive analysis of Louis Vuitton to enter the Russian market......................................... 15 B. Positioning of Louis Vuitton in Russia ....................................................................................... 17 VI- Entry strategy/ies recommended.................................................................................................. 18 A. Strategy to improve sales in big cities: Moscow, St Petersburg…............................................. 19 B. Become pioneer in the settlement of store in smaller cities: Krasnodar, Kaliningrad?............ 20 C. Exit market strategy .................................................................................................................. 20 VII- Marketing mix recommendations ................................................................................................. 21 A. Product ...................................................................................................................................... 21 B. Price........................................................................................................................................... 23 C. Place .......................................................................................................................................... 23 D. Promotion.................................................................................................................................. 24 VIII- Conclusion: To go ahead or not..................................................................................................... 26 IX- References..................................................................................................................................... 27
  • 3. LVMH –Marketing Analysis for Russian Market Page 3 I- Executive summary Louis Vuitton, by entering Russian market has to face few changeovers. First, due to the global aspect of the marketplace, we will suggest a standardization approach for the company while having clear segments and target markets. It will be also interesting to derive a little bit from the original positioning through promotion campaigns by adapting “travelling” to local needs (Russian consumers are used to go shopping abroad, Louis Vuitton is to bring them back to their home country insofar as possible). After having conducted a deep market research of Russian market, we daresay that it is a developing country scattered with big gaps (only 5% of population speaks English and 110 people control 35% of total incomes of the country). As Russia represents 53 million people using internet to get information on products before purchasing, it is required to get a top-notch website and smartphone/Tablets apps in order to match this demand (Russia is the biggest user of internet technology in Europe). High-educated and wealthy businessmen or businesswomen, Nobel prizes, scientists, former politics, artists, athletes between 23 to 55 years old and their offspring broaden the target of the company. Number 1 on luxury market, Louis Vuitton holds a serious advantage compared to its competitors in the Russian consumers mind. They all know the brand exactly and its different products (noticeably top-quality leather bags). Therefore, the company can take position on its strong brand image and promote tailor-made products and craftsmanship. Russian consumers are deeply concerned about quality insofar as country conditions (weather for instance) can ruin a low quality bag quickly. But Louis Vuitton strives for turning both its website and advertising campaigns in Russian language (or Slovak if the brand wants to expend to Kaliningrad later on). Russian consumers do not feel comfortable with this lack of consideration of culture and awareness of the importance of their complex language. Russian consumers want to feel as much European as any other shoppers coming to buy luxury products. Indeed a big challenge will be to draw wealthy Russian customers in homeland because they are used to go shopping in France directly in Paris. Concerning now the positioning of the brand, it must be clear: Prestige, Heritage of long-history know-how and Elegance (Russian consumers grant a great importance to long-history heritage as it confirms high quality of products). Emphasis on functionality of products may be relevant at the extent that it is part of most important criteria of local consumers. Thus, Louis Vuitton will also keep expending through “Greenfield & Acquisitions” entry strategy. That allows the company to be fully visible on Russian market and supervise all its different operations. Eventually, Louis Vuitton does not waste time in launching products that might not match completely the local demand. Nevertheless, limited editions develop all the same to meet needs of wealthy young Russian people. Price reminds constant comprising VAT & customs charges. Big cities remind main targets for the company (improving quality services in those cities before setting other stores). Promotion campaigns must emphasis on Russian culture and remarkable Russian people.
  • 4. LVMH –Marketing Analysis for Russian Market Page 4 II- Introduction to the company and product (Clarisse Levi) Louis Vuitton is a luxury French fashion house founded in 1854 in Paris by Louis Vuitton Malletier1 . At its early stage, the company was dedicated to produce high quality luggage and bags and Louis Vuitton has been identified with the art of travel ever since. The Monogram canvas created later in 1896 is now famous worldwide2 . Today the brand has diversified its offer, selling luxury goods ranging from handbags, trunks and leather goods to ready-to-wear, shoes, watches, jewelry, accessories, books and sunglasses. The mission statement of LVMH is synonymous with elegance, prestige and creativity: “The products, and the cultural values they embody, blend tradition and innovation, and kindle dream and fantasy”. To follow this statement, the company has been integrated vertically and decides to manage all its operations from the manufacturing until the selling. By producing all its items in France, the company implements a localization strategy which is synonym of high quality. This way, the company adopted a different strategy from those of its competitors and sells “the made in France” nationally and abroad. Nowadays, Louis Vuitton is the first luxury brand worldwide. It has been the most powerful French brand since decades and ranks 16th worldwide. The company employs 19000 people across the world, whom 6000 are employed in France, possesses 17 production workshops, one international logistic center and holds 466 stores in the world over 66 countries3 . Furthermore, the brand also comprises 21”Maisons Louis Vuitton”, where clients can embrace the entire Louis Vuitton’s universe in one place. In the early 2000’s, Louis Vuitton contributed up to 60% of the LVMH group’s profits. Today it is still the main brand providing the majority of the group’s profitability and the quarter of its sales (which surpassed 28 billion euros in 2013)4 . The net profit of the group has quintupled since 2000, reaching € 3.4 billion in 2013, largely thanks to Vuitton. 1 http://www.lvmh.com/the-group/lvmh-companies-and-brands/fashion-leather-goods/louis-vuitton 2 Id2,http://www.lvmh.com/the-group/lvmh-companies-and-brands/fashion-leather-goods/louis-vuitton 3 http://www.republicain-lorrain.fr/actualite/2013/11/04/louis-vuitton-la-marque-star-partout-dans-le-monde 4 Id2,http://www.republicain-lorrain.fr/actualite/2013/11/04/louis-vuitton-la-marque-star-partout-dans-le-monde
  • 5. LVMH –Marketing Analysis for Russian Market Page 5 III- Macro-environment research on chosen country In this section, we conducted market researches mainly through secondary research methods. Political After being a communist and then a socialist country due to the disintegration of the Soviet Union in 19915 , since the end of the 1990’s, the structure of Russia’s government has turned toward capitalism, a political system in which free enterprise and private ownership are supported. Regarding the party system, up to the 1980’s Russia remained a one-party state6 , since then Russia enjoy the benefits of a multi-party system, a system in which there is no clear majority, with governments formed through coalitions of several parties, because it is more linked with democracy. Democracy is indeed necessary because it means the country is less risky and thus, it is better to do business. Lately, Russia’s deployment of military army to Ukraine’s Crimea region raised sharp tension within the international community especially between on the one hand the Western Part and on the other hand Russia and Ukraine. The political instability due to those recent events has led to several sanctions against Russia and it is bound to hurt both domestic and foreign investment this year7 . Some meetings like G8 have been canceled and some trade talks have been halted whereas asset freeze were imposed8 . Somehow, the impact of this crisis should be limited; there is no significant risk specialists suggest9 . Regarding trade restrictions, Russia launched more protectionist policies in 2013 than any other country. Currently, they account for 33110 . These measures include cuts in foreign worker quotas, a host of trade restrictions and state support for aircraft makers, companies in the rare earth metals industry and firms in the agricultural sector11 .Under the restrictions imposed by the WTO accession in August 201212 , the Russian government issues flurries of non-tariff support measures to keep Russian agriculture and other less competitive industries afloat. Embargos are only limited to imports on Moldavian wine and European pork13 . Economic: Russia is the world’s 6th largest economy. A member of G8 and G20, identified among the BRIC economies, and a recent entrant to the WTO, Russia is an emerging economic 5 http://www.berjournal.com/russia-in-period-of-transition-from-socialism-to-capitalism-what-sort-a-capitalism 6 http://www.bu.edu/iscip/vol8/Sossinsky.html 7 http://rbth.com/opinion/2014/04/08/political_instability_affecting_russias_investment_climate_35745.html 8 http://www.fas.org/sgp/crs/row/RL33407.pdf 9 http://www.coface.com/fr/Etudes-economiques-et-risque-pays/Russie 10 http://www.themoscowtimes.com/news/article/russia-leads-the-world-in-protectionist-trade-measures-study- says/492368.html 11 Id2,http://www.themoscowtimes.com/news/article/russia-leads-the-world-in-protectionist-trade-measures- study-says/492368.html 12 http://www.wintershall.com/en/partnership-instead-of-protectionism-why-russia-and-the-eu-have-to- budge.html 13 http://www.euractiv.com/global-europe/russian-embargo-european-pork-ca-news-534308
  • 6. LVMH –Marketing Analysis for Russian Market Page 6 powerhouse14 but Russia remains a difficult market for many foreign companies for a variety of reasons. According to the website Coface, risk assessment is B which means that the business climate is relatively poor. Russia often changes laws, decrees and regulations, which has resulted in an unpredictable approach in doing business 15 . In this environment, negotiations and contracts from commercial transactions are complex. Uneven implementation of laws often creates complications between the parties. Regarding the population, 75% is urban16 . Russia’s population is currently about 143.7 million (density population is 8,8 per square km), which represents a 0.4% increase from the population in 201017 . Besides, estimation’s population growth rate is about -0.02%18 . It means that the decrease is not significant and the population will be likely to stagnate. A population mainly concentrated on the western part of the country in Moscow (10 508 97) and Saint Petersburg (4 581 854), the two main cities where the economic power is concentrated19 . In fact, power distance in the society is very high (93), 2/3 of all foreign investments go into Moscow. But Russia has also ten other cities with population over one million that offer plenty of opportunities to reach rich potential customers. But there is an important negative aspect to take into account. According to the UN, Russian population is expected to decrease significantly over the next ten years. It will reach between 121 and 133 million people. Since 1991, population has already decreased by 5 million people including 1 million people who committed suicide. Nevertheless, a positive element concerns FDI. Russia attracted $94 billion of foreign direct investment in 2013, making Russia the third largest country that received FDI in the world according to a research conducted by the United Nations Conference on Trade and Development (UNCTAD)20 ; though a large part of it is due to the deal between the firm British Petroleum and the state-owned oil major Rosneft to acquire the Russian oil joint venture TNK-BP. Some other economics figures are really promising. For instance, annual disposable income keeps increasing since 2010. From 2010 to 2014, it increased from $923,827.5 to $1,296,794.5, which represents a rise of 14%21 . Same trend for the annual gross income which increased from $1,104,853.9 to $1,597,846.9, it represents a rise of 15%. In the meantime, consumer expenditures increased too from $759,932.7 in 2010 to $1,096,687.6 in 2014 (13.5%). For the GDP per capita, according to data World Bank, from 2009 to 2013 it increased from $19486 to $2358922 . It seems that Russia is gradually recovering from the crisis of 2008 so it is a promising aspect. 14 http://www.forbes.com/sites/christinemoorman/2014/02/18/the-riddle-of-marketing-in-russia/ 15 http://globaledge.msu.edu/countries/russia/risk 16 http://en.wikipedia.org/wiki/Demographics_of_Russia#Population_density 17 http://www.tradingeconomics.com/russia/population 18 http://www.worldpopulationstatistics.com/russia-population-2013/ 19 http://www.statista.com/statistics/271344/age-distribution-in-russia/ 20 http://rbth.com/opinion/2014/04/08/political_instability_affecting_russias_investment_climate_35745.html 21 http://www.worldpopulationstatistics.com/russia-population-2013/ 22 http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD
  • 7. LVMH –Marketing Analysis for Russian Market Page 7 Regarding employment, labor market is healthy if we compare figures with the OCDE average. For example, 64% of women have jobs whereas 72% of men have jobs. This is more than the OECD average of 60%23 . This 8 percentage point difference is lower than the OECD average of 12 percentage points and thus suggests that Russia could improve employment opportunities for women in the future. Also, young Russians, aged between 15 and 24 years old, are facing an unemployment rate of 15.5%, slightly lower than the OECD average of 16.2%24 . In Russia, the percentage of the labor force that has been unemployed for a year or longer is only 2% less than the OECD average of 3.1%.25 Considering free trade agreements, in the next years Moscow wants to establish a free-trade zone between the European Union and the Russian-led economic union of former Soviet States26 . Today the current free trade zone in the region is Eurasian Economic Union which was established by Russia, Belarus and Kazakhstan27 . This aspect must be considered because in the future it could lead to strengthen relationships with Russia. Regarding foreign exchange, companies generally face no significant difficulty in obtaining foreign exchange. Finding a bank licensed to conduct foreign currency transactions is relatively easy. Indeed, Russia has no control over company’s capital and there are no barriers to remitting investment returns abroad (including dividends, interest, and returns of capital)28 . But investors should look for expert advice at the time of an investment. Now, considering the Gross Domestic Product (GDP), real GDP grew by 1.3% in 2013. Forecast slightly revised down the GDP to 1.2% due to the recent tensions in the region29 . Indeed, given the geopolitical risks with Ukraine and the west which could lead to even more sanctions by EU and USA, there is a significant apprehension on the market that might induce a downturn in foreign investment, a rise in capital outflows and deteriorate Russia’s overall business climate. Besides, S&P, Moody, Fitch ratings have reduced Russia’s credit rating to negative because of the current political instability30 .Considering now the interest rate, Russian Central Bank raised interest rate from 7% to 5.5% in 2013 due to an increased risk to financial stability and inflation “associated with the increased level of volatility in the financial markets”31 given the political tensions with Ukraine. Inflation raised too, from to Social: One of the big issues in Russia is the lack of an efficient healthcare system. Total spending in health system accounts for only 5.1% of GDP in Russia, much less than the OECD average of 9.5%. And more surprisingly, only 37% of people in Russia are reported to be in good health, 23 http://www.oecdbetterlifeindex.org/countries/russian-federation/ 24 http://www.oecdbetterlifeindex.org/countries/russian-federation/ 25 http://www.oecdbetterlifeindex.org/countries/russian-federation/ 26 http://en.ria.ru/world/20140128/186998455/Russia-Wants-Free-Trade-Zone-Linking-EU-Moscow-Led- Customs-Union.html 27 http://www.worldtradelaw.net/fta/agreements/cisfta.pdf 28 http://www.state.gov/e/eb/rls/othr/ics/2012/191223.htm 29 http://country.eiu.com/russia 30 http://www.atlascorps.org/blog/?p=4437 31 http://www.reuters.com/article/2014/03/03/russia-markets-cbank-idUSL6N0M00BK20140303
  • 8. LVMH –Marketing Analysis for Russian Market Page 8 much fewer than the OECD average of 69%32 . Reasons can be held in often very old facilities, poor equipment in hospitals, poor infrastructures, the lack of member staff in the hospitals… To face those problems, private hospitals are booming and create a big gap between citizens who can afford them and those who cannot. The government lately decided to invest more than 19,3 billion euros to improve infrastructures and medical services in order to keep public health system free though.33 Social inequalities keep increasing in Russia. Today, the minimum wage is only 116 euros. The gap between rich people and poor people are increasingly widening and it is the biggest gap in the world. Indeed, 35% of the country’s total wealth is held by only 0.00008% of the population, which represents 110 persons out of a population of 143,5 millions of inhabitants34 . Besides, 1,4 millions of persons stranglehold over more than 70% of the country’s total wealth. In 2010, 13% of the population was living under the poverty line. Education in Russia is coordinated by the state which ensures general education to be free and available for everyone. Most schools are state schools but private schools have also been established in recent years.35 Besides, 91% of adults aged 25-64 have earned the equivalent of a high-school degree, higher than the OECD average of 74%36 According to the latest OECD data, Russia homicide rate is 10.2, much higher than the OECD average of 2.2. Fear of crime is another important indicator as it can constrain behavior, restrict freedom and threaten the foundation of communities37 . Technological: In 2013, 1.12% of the GDP was dedicated to R&D38 whereas it was 1.25% in 2009. Even if it is slightly decreasing, the amount is till significant. For instance the government is focusing on spending information and communication technology infrastructure given that the IT market is growing quickly. IT market is expected to worth 32 billion dollars by the end of 2014. Therefore, to attract foreign investors in hi-tech hubs for instance, government offers subsidies and cut taxes. For example, Tiger Global Management, a New York-based international investment management firm has recently invested twice in the Russian e- commerce platform Wikimart.ru – $5m (£3.1m) in 2010 and another $7m in 20139 . “Russia’s new appeal comes like a logical outcome of the fast growth of its innovation-led markets”. One out of two Russian people uses the internet and in September 2013, the country overtook Germany as Europe’s largest internet market40 . Another factor favoring investment in start- ups is due to the high level of government in supporting foreign and domestic investment in 32 http://www.oecdbetterlifeindex.org/countries/russian-federation/ 33 http://www.radiancehumanis.com/conseils-sante/infos-sante/systeme-sante-russie 34 https://www.wsws.org/fr/articles/2013/oct2013/russ-o25.shtml 35 http://www.expatica.ru/education/school/The-education-system-in-Russia_15732.html 36 http://www.oecdbetterlifeindex.org/countries/russian-federation/ 37 Id2,http://www.oecdbetterlifeindex.org/countries/russian-federation/ 38 http://www.tradingeconomics.com/russia/research-and-development-expenditure-percent-of-gdp-wb-data.html 39 http://www.telegraph.co.uk/sponsored/rbth/technology/9183881/Russia-technology-foreign-investors.html 40 Id2, http://www.telegraph.co.uk/sponsored/rbth/technology/9183881/Russia-technology-foreign- investors.html
  • 9. LVMH –Marketing Analysis for Russian Market Page 9 private equity. Both at national and regional levels, the government have invested over ten billions of dollars in innovation. Nowadays e-commerce in Russia is expanding rapidly. J’son & Partners Consulting, one of the leading research companies in Russia, expects stable annual growth of the market amounting to 15-20%. That means in 2020 the e-commerce market volume in Russia will reach more than 2,180 billion rubles (about 60 billion USD). According to the research results of Data Insight, in 2011 the volume of the Russian e-commerce market was 310 billion rubles (over 9 billion dollars). Currently, there are about 20 million people in Russia who are shopping online amidst 71 million online users41 (50% of the population) which represent the largest internet base in Europe. For now, the whole online sales are mainly concentrated in the large cities such as Moscow and Saint Petersburg. Even though many clients are eager to buy something in the internet, delivery is not always available in some regions. Indeed, quality of infrastructure remains the major barrier. While IT market is growing rapidly, there are still a lot of improvements that need to be done regarding the quality of infrastructure42 . Russia ranked 102nd on the World Economic Forum's 2013-2014 Global Competitiveness Report in terms of quality of air transport infrastructure, 88th on port infrastructure and 136th for the quality of its roads43 . Furthermore, a KPMG analysis in 2012 of the relative costs of doing business in 14 countries in the Americas, Europe, and Asia Pacific gave Russia the second-lowest score for its distribution infrastructure just behind China, India and Mexico. The government acknowledges this problem and made the decision to invest $13 billion to build new roads and railways at an economic forum in June 2013. Cultural: In Russia, there are more than 170 different ethnic groups. Russians composes by far the largest group at 81%, but five other ethnicities have populations over 1 million44 . The country is divided among 83 federal subjects that are legally authorized to establish their own official languages and constitutions45 . As the official language of the country, Russian is spoken by almost everyone. However, there are still 27 other official languages and more than a hundred other languages without official recognition46 . Today most marketing activities in Russia ignore these ethnic differences. It does make sense for mass market offerings but there may be opportunities to reach underserved niche ethnic markets with specialized products and services. The main religion is orthodox (75%), so Christmas Public Holiday is January 7th instead of 25th December for the catholic like in France. Now, regarding numbers, odd number are considered lucky number whereas even numbers are unlucky. When doing business here, it is important to choose the date with a lucky number when launching a new 41 http://www.borderfree.com/global-insights/ecommerce-in-russia-borderfree-country-report 42 http://uk.reuters.com/article/2013/09/27/russia-investment-infrastructure-reuters-idUKL5N0HG0JF20130927 43 Id2, http://uk.reuters.com/article/2013/09/27/russia-investment-infrastructure-reuters- idUKL5N0HG0JF20130927 44 http://www.forbes.com/sites/christinemoorman/2014/02/18/the-riddle-of-marketing-in-russia/ 45 Id2, http://www.forbes.com/sites/christinemoorman/2014/02/18/the-riddle-of-marketing-in-russia/ 46 Id3, http://www.forbes.com/sites/christinemoorman/2014/02/18/the-riddle-of-marketing-in-russia/
  • 10. LVMH –Marketing Analysis for Russian Market Page 10 product or a campaign. Colors are meaningful too. For example, the word "red" in Russian (krasny) has the same root as the word "beautiful"(krasivy). But since the early 20th , it had been also associated with communist ideology47 . The word "violet" in Russian slang is used to describe utter indifference whereas blue color is the color to depict homosexuality48 . Those two colors must not be used when launching advertising for instance. According to Hoefstede Classification scheme, Russia remains a relatively collectivist society (Individualism is only 39). That means dominant values in society are caring for others and quality of life. People’s self-image is defined in terms of “We”. Russians have also an intense pride in their country and culture. Goehner and Richmond note that “Russians are more likely to be cautious and conservative defenders of the status quo. Their cruel climate, harsh history, and skeptical outlook on life have caused Russians to value stability, security, social order, predictability and avoiding risk. The tried and tested is preferred over the new and unknown.” This last sentence demonstrates that in Russia, the index of uncertainty avoidance is very high. The role of women is complex and thus, Russia remains a masculinity society. Ninety percent of women are working but on the contrary of men they tend to occupy secondary positions. Understanding Russian history and people’s cultural values will be crucial to build efficient advertising strategies in the country. Another cultural aspect to take into account is the distinction between the perception of both domestic and foreign products. For instance, local goods (especially foods) are often preferred by Russians since they believe that Russian products are more authentic and that they tend to be more loyal to Russian companies given their pride for the country. Paradoxically, they also often doubt the quality of those same national brands. These ambiguous perspectives might be confusing for foreign companies and Russian customers are stuck in a difficult situation. According to an article of the magazine Forbes, non-Russian brands in Russia are more successful when they operate in luxury like “automobiles, fashion, beauty, hospitality, and watches”. Furthermore, a study conducted in 2012 shows that most-searched for luxury brands in Russia were all non-Russian brands (BMW, Audi, Chanel, Louis Vuitton, Hilton, Sheraton, Rolex, Swarovski, and Bulgari). Moreover, increasingly Russian companies tend to “capture the high perceived value of western consumer goods” by choosing a name that sounds western49 . According to a research by Data Insight,”E-Commerce in Russia 2013″, Russian internet users purchase mostly clothes and shoes after electronics products. The trend is expected to grow quickly due to high investments in the sector of ecommerce. Lamoda.Ru is one of the biggest fashion shops online. It offers a wide assortment of clothes, shoes and accessories50 . 47 http://rbth.co.uk/blogs/2013/11/14/red_white_blue_color_symbolism_in_russian_language_31727.html 48 http://rbth.co.uk/blogs/2013/11/14/red_white_blue_color_symbolism_in_russian_language_31727.html 49 http://www.forbes.com/sites/christinemoorman/2014/02/18/the-riddle-of-marketing-in-russia/ 50 http://www.digitalintheround.com/ecommerce-russia-trends-players/
  • 11. LVMH –Marketing Analysis for Russian Market Page 11 Big cities inhabitants use online shopping mostly in order to save time and money. That is why electronic and technical goods, books and clothing have the highest e-commerce penetration due to the lower prices, the possibility to compare different shops, social reviews and delivery service. Russian online consumers are highly educated and technologically savvy; their social media commitment rate exceeds global averages51 . Personal consumption levels lead the BRIC countries, with 60% of pre-tax income spent on shopping (the highest in Europe) – with disposable income levels supported by low housing payments and flat personal income tax of 13%5253 . The main development barriers in ecommerce now are the problems associated with logistic challenges and the low credibility of online payment methods within the regions. The online payment topic in Russia is in progress, most Internet users are still suspicious in terms of the credibility of online payment terms. For this reason, e-buyers prefer to pay cash on delivery or offline pre-payment.54 Besides, English proficiency is very low; only 5% of Russians speak English55 . Foreign companies need to translate their websites in Russian. By solving these problems Russia can have a promising perspective in e-commerce sector and will be able to catch up the world Online Shopping leaders like Germany, France and China. Legal: Russia has opened up the majority of the sectors of its economy to foreign investors. The manufacturing and primary sectors are open to foreign capital; the country imposes some ownership restrictions on a scattering of sectors like air transportation, financial services and insurance industry56 . Recently a bill approved that foreign companies can own more than 25% of the capital of a Russian company. Even if a legal structure exists to support foreign investors, the problem is that laws are not always implemented. Somehow, Russia recognizes 51 http://www.borderfree.com/global-insights/ecommerce-in-russia-borderfree-country-report 52 http://www.borderfree.com/global-insights/ecommerce-in-russia-borderfree-country-report 53 http://globaledge.msu.edu/countries/russia/economy 54 http://www.digitalintheround.com/ecommerce-russia-trends-players/ 55 http://www.borderfree.com/global-insights/ecommerce-in-russia-borderfree-country-report 56 http://iab.worldbank.org/Data/Explore%20Economies/Russia
  • 12. LVMH –Marketing Analysis for Russian Market Page 12 that foreign investment has to play a critical role in the country to economic development and thus has encouraged foreign investment by removing administrative barriers and establishing special economic zones, high-technology parks, and investment promotion funds57 . When talking about legal environment in Russia, we cannot also ignore corruption. Transparency International, an organization that measures perceptions of corruption worldwide, ranked Russia 133 out of 176 countries on its Corruption Perception Index in 2012. The country is also ranked poorly on the World Bank's Doing Business Survey; about "ease of doing business", it ranks 112 out of 185 countries 58 . Besides, Transparency International's Global Corruption Barometer revealed that 53 percent of respondents believed that the level of corruption had increased in Russia over the last three years. They perceived the police and public officials as being the most corrupted. To face this major concern, Medvedev signed an Anti-Corruption Strategy in 2012, and then the OECD's Anti-Bribery Convention which placed the country under international scrutiny. The most recent report from the Council of Europe's Group of States against Corruption said the country was striving for fulfilling anti-corruption obligations59 . Companies wishing to do business in Russia or with Russian companies should also consider deeply making an inventory of their intellectual property, proprietary and other sensitive information and developing plans for their protection . Also, registration of trademarks before the product is commercialized in Russia is the best means to ensure that the mark can be protected under Russian law, and to ensure that trademark infringement can be conducted through either administrative or judicial proceedings. Another thing to consider is to develop and register a Russian language version is also a key element while doing business in Russia. If a foreign company does not create a Russian brand (a Russian "nickname") for its product, someone else in Russia may like it and register it in their own name, forcing the foreign firm to "buy it back". 57 http://www.state.gov/e/eb/rls/othr/ics/2012/191223.htm 58 http://www.cnbc.com/id/100805382 59 http://www.cnbc.com/id/100805382
  • 13. LVMH –Marketing Analysis for Russian Market Page 13 IV- Segmentation, target market strategy Demographic: Age: In Russia, 46% of the population is aged between 25 and 55 years60 . We target precisely that age bracket ranging from young adults to seniors (22 – 55 years old). First we target rich people between 35 and 55 years old. But we also target young people between 22 and 33 years old. Socioeconomic: Income: We target people (22-55) with a (very) high income, around $5,500 or above per month. Education: High education (Top Business Schools and Best universities) that lead to highly recognized diploma. Gender: Both men and women. Social status: Both women and men of the upper class with a sense of self-worth and high social status. 60 http://www.indexmundi.com/russia/age_structure.html
  • 14. LVMH –Marketing Analysis for Russian Market Page 14 Occupation: We target all people who have a high qualified job, business men and women, actors and actresses, singers, top models, famous people, entrepreneurs…All kinds of jobs that provide a high disposable income. Internet Usage: Russians have been very quick to adopt technology. In Russia, 50% of the population use internet and 20 million people do their shopping online. Top selling items include fashion products. It represents the biggest internet community in Europe. Beyond using digital media to advertise and promote products, firms use it to overcome the poor infrastructures. So, there are big opportunities for growth. Age distribution accounts for 31% for 25-35 years olds and 22% 35-44 years old61 . Behavior based:”Fun seeker” are rich and young. They want to buy luxury products to seek exclusivity and amazing experiences. “Hedonists”, in other terms people who do not have a preference for a particular brand but who like to switch and do shopping for pleasure. They can mix several kinds of products (trendy cheap products like H&M or Zara and luxury products like Gucci and Louis Vuitton). “Strivers” are active consumers because shopping is both a social activity and an opportunity to demonstrate to peers their ability to buy. Geographic: To follow the brand strategy and stay “exclusive”, we will only focus on a few cities. Big cities: We target mainly our customers in big cities in the western part of the country like Moscow and St Petersburg, where the large majority of rich people are living. Indeed overall income in those two main cities is twice the national average. The city of Sochi also could be considered. Even if the population is only estimated to be 368 000 inhabitants, thanks to the winter Olympic Games that will occur in that city in 2014, it may bring new economic opportunities for foreign firms. 61 http://www.statista.com/statistics/272400/age-distribution-of-internet-users-in-russia/
  • 15. LVMH –Marketing Analysis for Russian Market Page 15 V- Competitive analysis and Positioning (Antoine Mortellier) In this part, a competitive analysis of LVMH in Russia will be held, following by the definition of Louis Vuitton’s brand positioning. Basically, this analysis will be broken down in four parts: strengths of the French brand so as to perform in the Russian market, weaknesses within the same market, and opportunities for the French well-known and most profitable luxury brand worldwide to seize new market shares and eventually what are the threats of Russian market entry. A. Competitive analysis of Louis Vuitton to enter the Russian market STRENGHTS - Strongest brand name worldwide as N°1 in luxury (Same positioning everywhere, standardization product easily memorable for consumers) and most profitable brand (45% operational margin which is noticeable62 ) - Great Brand knowledge & image (Handmade top-notch French Quality, Self-Accomplishment on Maslow Pyramid of needs, Tailor-made related to scarcity because Luis Vuitton meets somewhat few problems to match perfectly fast-growing demand for its products around the world, myth of traditional know- how/craftsmanship) - Great customer relationship management worldwide (each outlet traced back information to headquarter in Paris)63 - New advertisement campaigns and products less flashy (only a small hint of brand : simplicity) to avoid counterfeits WEAKNESSES - Even though willing to become a distinguished actor of e-commerce, Poor online experience especially for purchasing items on LVMH website (http://www.louisvuitton.com/front/#/dispatch; heavy website, very slow and not fully translated in Russian language) - No particular effort on understanding local market leading to misunderstand local culture and to sales loss (LVMH asked to remove its big trunk on Red Square at Moscow64 , poor media communication in Russian whereas only 5% of Russian people can speak English65 ) - Rich Russian people prefer go shopping directly in Paris instead of shopping in Russia : no risk of counterfeits, poor in-door shopping experience in Russia, travelling abroad at the same time) 62 Julie de La Brosse, July 3rd 2013 : « Secrets of successful story for French luxury brands” http://lexpansion.lexpress.fr/entreprises/les-secrets-de-la-reussite-du-luxe-a-la-francaise_1426433.html 63 http://veronique.estienne.free.fr/doc/SLIDE.htm 64 Isabel Gorst, November 28th 2013; “Case closed : Louis Vuitton sent packing from Red Square” http://www.irishtimes.com/news/world/europe/case-closed-louis-vuitton-sent-packing-from-red-square- 1.1609847 / http://www.themoscowtimes.com/news/article/shameful-louis-vuitton-trunk-to-be-removed- from-red-square/490409.html 65 http://www.thehistoryofenglish.com/history_today.html
  • 16. LVMH –Marketing Analysis for Russian Market Page 16 OPPORTUNITIES - Rapid development of online market: Shopping online via smartphone or tablets (+28% of annual growth in late 2013 reaching 10billion€, 5% of total luxury revenues, largest online marketing media cluster in Europe : 53 million people66 ) - Luxury market worldwide progression by 4 to 6% annually up to 2015 - Fast-development cities and new demand for luxury products (New stores opened in Ekaterinburg and in Sochi in the wake of 2014 Olympic Games, Krasnodar, Kazan, Kaliningrad all those cities record a current growth of 5% for luxury products67 ) - Development emotional, experiential and symbolic needs for Russian consumers (65% of consider their purchasing experience as a routine)  Luxury consumption must become more funny, convenient and unforgettable (53% Russian shops for family)68 : Adapt communication & products merchandising in-door experience : challenge to appeal international Russian luxury shoppers back to Russia = limited editions THREATS - Competitors like Richemont (Cartier, Dunhill, Montblanc), Kering (Gucci, Yves Saint Laurent), Hermès, Prada, Versace buying stores in Russia New promising Qatari competitors (Qela 69 first opening in Paris, Avenue Montaigne and willing to expend quickly) - Counterfeits (Certain products like leather bags are easy to copy however consumers know they are buying fake goods since LVMH only offers its products in its own shops, counterfeits exist from 1870 according to Antoine Arnault, Communication Executive Director at LVMH70 ) - Luxury market is subject to political fluctuations, not specially by economic ones as sales kept growing during world crisis in 2008 (eg: sales dropped after September 11th in USA, Crisis between Russian Government and Ukrainian may result on the same if tensions do not tone down) 66 http://www.forbes.com/sites/christinemoorman/2014/02/18/the-riddle-of-marketing-in-russia/ 67 Sophie Doran: “Luxury society market guides : Brazil, Russia, India & China”; March 20 th 2012 http://luxurysociety.com/articles/2012/03/luxury-society-market-guides-brazil-russia-india-china 68 http://www.nielsen.com/us/en/newswire/2013/how-to-win-with-the-russian-shopper.html 69 http://www.uxusdesign.com/work/qela 70 https://www.strategies.fr/actualites/marques/119111W/louis-vuitton-total-controle.html
  • 17. LVMH –Marketing Analysis for Russian Market Page 17 B. Positioning71 of Louis Vuitton in Russia Brand Mantra & Brand Equity So as to analyze best Louis Vuitton’s positioning, we can unveiled its brand mantra (short message describing precisely a brand in consumer’s mind). Overall Louis Vuitton’s brand mantra consists of three main characteristics: Prestige (Self recognition, higher status, and high price), Travelling (convenient and solid handbags/accessories easy to wear and carry while going on a business/vacation trip) and Craftsmanship/Excellence (handmade leather goods, top-notch raw materials while reinforcing French know-how of good quality products). As part of overall brand equity of the French leather-goods manufacturer, the positioning of Louis Vuitton is quite clear worldwide: Number 1 in luxury products Indeed, Louis Vuitton is commonly used to have a GCCP approach when entering a foreign market as the brand promote itself as being the “Westerner art-de-vivre Ambassador”. This strategy permitted the brand to be well-known globally and to insist on its core values (brand mantra). However, regarding the Russian Market, Louis Vuitton faced some issues because many Russian people go shopping directly in French outlets in Paris. Why did they consume French excellent-quality goods while going on a trip to France instead of buying in their home country? This is a key-point for Louis Vuitton strategy in Russia to be considered. Solution is to reinforce brand affirmation and especially through Russian recognition. An alternative of complete GCCP (Global Consumer culture Positioning) strategy must be found (GCCP approach while using different promotion and communication campaigns closer to Russian consumers’ expectations: limited editions launched only in Russia). As a result, Louis Vuitton brand mantra for Russian market should differ a little bit from home market as following: Prestige (Louis Vuitton should emphasize on Self recognition of Russian consumers as they do not currently feel cherished as much as any other European consumers; higher status and high price remind the same as global positioning), “Supreme” Elegance while understated (No more flashy big logos on products as it referred to past gangster-oriented products during USSR period) and Craftsmanship72 /Traditional know-how (handmade leather goods, top- notch raw materials while reinforcing heritage of French know-how of good quality products through the centuries since the company has been created in 1854). Louis Vuitton tends also to be modern and to attract rich young consumers who perceive the brand as hype and fashion (thanks to Marc Jacobs Artistic Director’s nomination and to 2009). We will see a further detailed in the Marketing Mix analysis of Promotion (4 Ps) what sort of changeovers Louis Vuitton could be involved in. Competitive brands and their customer’s perceptions Most of main Louis Vuitton’s competitors in Russia are top-notch luxury quality products manufacturers (most are French or Italian) such as Hermès, Emporio Armani Gucci, Prada or Chanel. In Russia, rich people afford luxury products because of high quality, robustness and 71 Chapter 7 “Segmentation and Positioning” p.224/225/243, Kotabe, Ang, Griffiths, Marshall, Voola and Helsen, International Marketing, 3 rd Asia-Pacific Edition © Wiley 2011 72 http://www.escp- eap.net/conferences/marketing/2006_cp/Materiali/Paper/Fr/DeBarnier_Rodina_ValetteFlorence.pdf
  • 18. LVMH –Marketing Analysis for Russian Market Page 18 overall usefulness of the chosen product. Design and beauty are less important than long- history know-how heritage because it confirms first high prices. In Russian people’s mind, Chanel bags reflect long-history know-how of the brand thanks to their straps (id Reference 10th below). Gucci is more considered as top-quality accessory brand. When a young Russian student is asked to describe Louis Vuitton, he first thinks about bags73 : that is the brand reputation of Louis Vuitton worldwide, being known for a specific reason. Wealthy Russian people prefer buying foreign luxury product than local Russian fashion designer because they are more appealing insofar as they have a higher quality perception. LV has an advantage by being Number 1 on the luxury sector (brand recognition). VI- Entry strategy/ies recommended Is Russia a promising market in terms of luxury products consumption? Winston Churchill used to say, “Russia is a riddle wrapped in a mystery inside an enigma.” This quote shows how complex but attractive the Russian market. From our STEPLE analysis, the answer to this question is then yes because there is a growing demand in Russian cities (not only in Moscow which collect more than 70% of total luxury consumption but also in fast-growing cities as Sochi or Kaliningrad, the latter being selected to become the next Russian Hong Kong within few newt years). Which strategy is recommended for Louis Vuitton? For what reasons should Louis Vuitton enter Russia to establish new 100%-owned shops?? Thus, this part is dedicated to understand how to select the best entry strategies for Louis Vuitton in Russia. As a result, what could be the best suitable strategy for Louis Vuitton in order to enter the Russian Market? First, we may notice that Louis Vuitton do not ever use licensing. Even though this strategy garners many different benefits (lower exposure to 73 Russian consumers’ perception about Luxury brands http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2387825
  • 19. LVMH –Marketing Analysis for Russian Market Page 19 economic fluctuation, government support, lower barriers to entry…), it still reminds hazardous in some cases. Indeed, wrong selection of local licensee might lead to many legal and economic issues for the main company. For example, Disney suffers from stolen licenses and illegal use of property rights (eg: Shijingshan park in China claimed to sell Disney’s fake products just because bodily speaking Disney was far from their location74 …). Nevertheless, the well-known French luxury brand faces non-conventional use of intellectual property rights, trademarks and logo such as counterfeits since its foundation in 1854, victim of its own success. Louis Vuitton extents its activities in Russia by its main entry strategies: Wholly owned subsidiaries through Acquisitions and Greenfields operations. As the brand image of the company is truly important, Louis Vuitton’s headquarters in Paris made the decision to monitor all operations around the world (Louis Vuitton is part of LVMH Holding). As a result, the company only hires salesperson issued from their specific Louis Vuitton training program in Paris and works with only one communication agency (Ogilvy Paris)75 . This strategy comprises however drawbacks since Louis Vuitton did not succeed in avoiding Russian shoppers to buy directly from French point-of-sales. Investing in online marketing media and Russian language communication campaign is going to bring back Russian consumers home. Indeed, they will get the feeling to be part of the “luxury family” and “considered as any other European consumers, in other words unique”. For example, Louis Vuitton acquired majority stakes in the Russian retailer “Ile de Beauté”, it permitted Louis Vuitton to better control imports of its commodities on Russian soil (supply chain management logistics improved by monitoring directly suppliers and selected only the best). By acquiring ideal location in high streets or big luxury shopping mall, the French brand keeps growing internationally (2 stores in Moscow, 1 shop in St Petersburg, 1 store in Sochi). Even though acquisition strategy is not the most profitable one in the short term, over the long term this strategy is truly worth it.76 A. Strategy to improve sales in big cities: Moscow, St Petersburg… Russia is culturally not that close from France (language, orthodox religion, values such as family, honor, collectivism), as a result, this country is not so easy to enter (lots of brands just focus on Moscow and do not make effort to steep in Russian market). However growth potential in Russian market is significant insofar as buyers are looking for consideration and recognition. Thanks to the graphic below, we can see that in new markets (BRICS, including Russia), 9 out of 10 people browse internet before purchasing goods (reminder: Russia has become the biggest online cluster in Europe with 53 million users). 74 http://metro.co.uk/2007/05/10/fake-disney-park-faces-closure-349016/ 75 Id, https://www.strategies.fr/actualites/marques/119111W/louis-vuitton-total-controle.html 76 http://www.businessoffashion.com/2013/02/as-sales-slow-will-lvmh-go-on-a-buying-spree.html
  • 20. LVMH –Marketing Analysis for Russian Market Page 20 B. Become pioneer in the settlement of store in smaller cities: Krasnodar, Kaliningrad?77 As smaller cities are promising in terms of fast-growing demand for luxury products, Louis Vuitton might be attracted by acquiring new businesses. But, CEO of the company stated that it was not one the company objectives from now on. The current strategy is to focus on high-end outlets, no more acquisition for now78 . However, since Kaliningrad might be very interesting in some years (objective to become the Russian Hong Kong), but as Louis Vuitton implement equity mode of entry, it might be risky to enter too early this market (Louis Vuitton has got important liquidity so as to allow this type of investment and could afford to open a store there if they wanted to) and it is not considered at the moment according to the CEO sayings anyway. But as Russia is a big market and lacks some infrastructures, developing online shopping in the future for these potential consumers will be interesting (because Russians like to save time when they go shopping in general). Thus, time of entry must be tightly adjusted according to entry strategy (depend on fixed cost rate engaged following of variable costs). In the case of Louis Vuitton, costs are high in the short- term because the company wants to supervise all different operations in the world from its Headquarter in Paris (France). C. Exit market strategy Louis Vuitton had never retired from a country the company set business in. Using standardization approach and thanks to high volume of liquidity garnered by the company, Louis Vuitton is used to conduct strong market research before entering a new country. Exit entry strategy will be to assess all different exit costs (high since Louis Vuitton practice wholly owned subsidiaries entry market strategy). 77 Willingness to turn Kalinigrad into “Russian Hong Kong” in few years (Cadillac, Hummer, BMW are already implanted there http://en.wikipedia.org/wiki/Kaliningrad#Economy 78 http://www.theglobeandmail.com/report-on-business/international-business/european-business/louis- vuitton-slows-expansion-to-protect-image/article8069266/
  • 21. LVMH –Marketing Analysis for Russian Market Page 21 VII- Marketing mix recommendations Marketing mix is a key-issue for marketers in order to establish a concrete strategy in foreign market entry. Therefore, we are about to discuss what are the different characteristics of 4ps for Louis Vuitton in order to perform best in Russia. A. Product Components of Product 79 79 Chapter 10 “Marketing goods and services” p.330/331, Kotabe, Ang, Griffiths, Marshall, Voola and Helsen, International Marketing, 3 rd Asia-Pacific Edition © Wiley 2011
  • 22. LVMH –Marketing Analysis for Russian Market Page 22 As a well-known global brand, Louis Vuitton is engaged in an overall standardization approach. No specific adaptation to the product is required, but some exceptions can be noticed (price, communication strategy, emphasis on a certain point for positioning compared to home country and so on). As we saw previously, Russian people expect luxury product to be as perfectly design as useful and it is worth to purchase (value-for-money because of high price in other words; product needs to be designed for the long-term and quality of leather must be irreproachable as weather conditions are extreme in this country). Little adaptation can be made and has to be made in order to bring international Russian consumers (who go shopping in France, UK but not in Russia) home. For example, by developing limited editions of Louis Vuitton bags can differ from its competitors since, according to this graphic (cf: 10th reference), Russian people grant much importance to uniqueness because they want to feel unique, not to buy luxury product by “routine”. Purchasing experience must be unforgettable and to procure pleasure, but the most important thing is that Russian buyer must get ROI (Return on investment) from luxury product (long-term and usefulness because of Russian cold weather for example). A new idea for Louis Vuitton would be to develop specific limited editions of handbags80 for young Russian girl (between 14 and 20years old), only a hint of Louis Vuitton because old-flashy luxury products are not anymore considered as attractive. As 55% of Russian like shopping with family, promoting this type of offer could be really interesting (while having a specific communication strategy for this limited edition). Russian consumers do not care about packaging so it could be the same as everywhere else. If Louis Vuitton would consider going to Kaliningrad in some years, having a strategy like Zara could be interesting because collections available would change every months and consumers would be either to wait for the product to return on shelves or to go to another the capital for example to shop. Perfect strategy for Louis Vuitton should as a result be “Option 2: Product extension through limited editions and communication adaptations”. Indeed, around 40% of overall luxury products limited editions are sold in Russia. 80 http://www.louisvuitton.com/front/#/eng_US/Collections/Women/Handbags
  • 23. LVMH –Marketing Analysis for Russian Market Page 23 81 B. Price Setting international price is definitely not easy especially when it comes to deal with luxury products. Indeed in the case of Louis Vuitton, the company charge high price in Russia from 20 to 30% more expensive than in UK and 35 to 40% more expensive than in France82 , where wealthy Russians are used to go shopping. This situation explains partly this exodus. By bearing high customs charges and VAT around 15 or 18%, Louis Vuitton got over the past year 200 to 300% operational margin. For Russian shoppers, it was too much. But now for example 19900 rubble are worth 565$ (only 15$ more than in US in 201483 ). The home currency of Louis Vuitton in France is euro ( € ) while in Russia it is Ruble (Current exchange rate on May 10th 2014 is 1€ = 48,57rub84 . C. Place Louis Vuitton is already based in some famous cities in Russia such as Moscow, St Petersburg, Ekaterinburg and Sochi (thanks to the Olympic Games at the end of 2014). The French company makes local distribution by acquiring majority stakes in local retailer (eg: Ile de Beauté) so as to keep control over 100% of transportation, customs charges, transportation and follow-up of commodities. All logistics process is therefore monitored by the company itself. Experiment exclusive distribution channel is really convenient in Russia because 3rd 81 Chapter 9 “Developing new goods and services for international marketers” p.300/301/305, Kotabe, Ang, Griffiths, Marshall, Voola and Helsen, International Marketing, 3 rd Asia-Pacific Edition © Wiley 2011 82 http://www.lecourrierderussie.com/2013/11/luxe-la-russe/ 83 http://forum.purseblog.com/louis-vuitton-shopping/most-expensive-country-to-buy-lv-561664.html 84 http://www.x-rates.com/graph/?from=EUR&to=RUB&amount=1.00 Chapter 14 “International Pricing”, Kotabe, Ang, Griffiths, Marshall, Voola and Helsen, International Marketing, 3 rd Asia-Pacific Edition © Wiley 2011
  • 24. LVMH –Marketing Analysis for Russian Market Page 24 part logistic company such as DHL are not so well represented and efficient in every location of Russia (due to poor infrastructures or simply because of the size of the land). Having exclusive distribution channels also reminds extremely decisive in order to get more attention from consumers. Point-of-sales are established in big cities’ high streets. The reason is that high traffic rate of shoppers are recorded and shopping activities are concentrated. Another distribution channel consists of online marketing media. This latter needs some improvements because the Russian language website experience is not currently so worthy according to Russian consumers. The interface is poor and most of advertising are in English, remember that only 5% of Russian people can speak English. When a company like Louis Vuitton argues that most of its promotion comes from advertising campaigns and not events, we can understand why Russian consumers tend to go shopping abroad. By having more CRM (customer relation management) and interactive marketing policies, Louis Vuitton should be able to leverage even more profit thanks to online pre-shopping or online apps (tablets, smartphones). Indeed because of the “luxury sector”, we do not reckon that Louis Vuitton should engage totally in developing online shopping but rather online interface that helps consumer to get information about products easily. As Russian consumers remind a little conservative regarding luxury products purchase, they might be more interesting in having the right product fitting exactly their need at the right place (closest to their home). That is what we are going to discuss in the last “P”. D. Promotion Young rich people are increasingly keen on LV brands in emerging markets so it could be interesting to promote young well-known celebrity through advertising campaign (limited editions). Bernard Arnault, CEO of LVMH Holding, personally said that “Louis Vuitton is looking for worldwide well-known celebrities that has written or marked history”.85 By changing a little bit the communication about “travelling” original positioning (and by communicating through every communication displays in Russian), marketers from Louis Vuitton could pinpoint on travelling within Russia, to discover Russian culture and local patrimony (try to have an advertising campaign to bring Russian back from France to Russia by describing how beautiful is their country and what they could miss by going to France buying exactly the same product). For example, promoting a bag that could support any kind of weather conditions even extreme is relevant because, in Russia, when businesspersons have to travel from A to B, temperatures are more than often below 0°. Louis Vuitton should also consider historical background of Russian places. Do not ever reproduce a promotion campaign by installing a giant trunk in the middle of the Red Square (polemic among consumers and Kremlin finally made the decision to order Louis Vuitton to dismantle its trunk) 86 . In the wake of the brand new advertising campaign featuring businessman and successful men from around the world (see picture below) and not only 85 Id2, https://www.strategies.fr/actualites/marques/119111W/2-10-2702/louis-vuitton-total-controle.html 86 http://www.ibtimes.com/giant-louis-vuitton-bag-ordered-out-moscows-red-square-obscuring-views-lenins- tomb-1489010
  • 25. LVMH –Marketing Analysis for Russian Market Page 25 artists, actors, former politicians, Louis Vuitton broadens its original target spectrum. Message stays clear all the same: top-notch luxury fashion and accessories issued from long- history know-how. As Russians are no longer fond of big and flashy brands logos on manufactured products, this strategy becomes increasingly effective (as only 110 people control over more than 35% of total wealth of Russia…). When tradition meets modernity is the motto of the brand. In Russia, successful women could also be really promising in endorsement campaign such as Maria Sharapova (Famous Russian Tennis Player, former World N°1), and pop music Russian artists (to appeal young target). Investing in the organization or participating in local Russian events could gather big consumer and create a positive feeling about Louis Vuitton (As Louis Vuitton participates in Art Exhibition in Paris for instance). As 65% of Russian consumers consider the “luxury buying experience” as “routine”, strong efforts on quality services offered by the brand have to be made (emotional and experiential marketing through original services tailored for Russian market). Customer Relation Management is therefore the key-success factor in order to perform where competitors failed. As brand image of number 1 in luxury, Louis Vuitton is to plug the lack of consideration concerning Russian consumers. The brand should give them the possibility to be as “European” as other shoppers (same product available as everywhere with few limited editions to attract young people). The development of in-door displays connected in Bluetooth/Wi-Fi to mobile app could garner information about consumers, giving them punctual promotional information about certain products in stores, information that could be further dispatched to headquarter afterwards. Louis Vuitton could collect accurate information about its Russian consumers quickly and to make improvements in its future advertising campaigns. As Russian consumers are more concerned by quality of services than high price, Louis Vuitton is to offer top-notch services while overcoming competitors (Hermès for example).
  • 26. LVMH –Marketing Analysis for Russian Market Page 26 87 VIII- Conclusion: To go ahead or not The study that we conducted, by analyzing the macro-environment, segments target, the 4P’s, leads us to confirm our decision to enter the Russian market. Across this study’s analysis, we first discovered that Russia is a very complex country. Doing business here can be difficult if proper market researches haven’t been carried out previously. Corruption is also part of the business here. Also, even if IPR legislations exist, there are not always implemented that is why we will need to protect our trademarks and patents before entering the market to avoid any potential risks. Understanding Russian culture is determinant and truly essential, not only to launch proper campaign but also to do advertisings that are meaningful for Russia regarding the history and the dominant values in the society. Besides, even if Russian have a high certainty avoidance and tend to prefer local products, that is not true for luxury products. Western luxury companies have indeed a high perceived value and many Russian companies tend to sound “more western”. But except the negative points mentioned above, Russia offers promising opportunity for our company. Russia is indeed the world’s 6th largest economy, a member of G8, is identified among the BRIC economies and it is a recent entrant to the WTO. The SWOT analysis has permitted to highlight the tremendous opportunities that offer the Russian market. For instance, luxury market is expected to grow significantly in Russia as more people are getting richer or want to buy luxury products because of the image of excellence and prestige they embody. Another key aspect to take into account is the growing internet community that shop daily online; it is currently the largest cluster in Europe. Thanks to this rapid development (+28% of annual growth) thus we could target our segments also through smartphones and tablets. Also, there are several cities that could offer promising opportunities because of their fast development (new stores opened in Sochi, Kaliningrad and Krasnodar) and the high demand for luxury products (current growth of 5%). 87 http://www.strategies.fr/actualites/marques/128014W/les-campagnes-mythiques-mikhail-gorbatchev-pour- louis-vuitton.html
  • 27. LVMH –Marketing Analysis for Russian Market Page 27 IX- References Textbook  Chapter 7 “Segmentation and Positioning” p.224/225/243, Kotabe, Ang, Griffiths, Marshall, Voola and Helsen, International Marketing, 3 rd Asia-Pacific Edition © Wiley 2011  Chapter 8 “Market Selection and Entry Strategy” p258 /277/278/279, Kotabe, Ang, Griffiths, Marshall, Voola and Helsen, International Marketing, 3 rd Asia-Pacific Edition © Wiley 2011  Chapter 9 “Developing new goods and services for international marketers” p.300/301/305, Kotabe, Ang, Griffiths, Marshall, Voola and Helsen, International Marketing, 3 rd Asia-Pacific Edition © Wiley 2011  Chapter 10 “Marketing goods and services” p.330/331, Kotabe, Ang, Griffiths, Marshall, Voola and Helsen, International Marketing, 3 rd Asia-Pacific Edition © Wiley 2011  Chapter 14 “International Pricing”, Kotabe, Ang, Griffiths, Marshall, Voola and Helsen, International Marketing, 3 rd Asia-Pacific Edition © Wiley 2011 Business & Journal Articles  http://www.bbc.co.uk/news/world-europe-24992076  http://www.themoscowtimes.com/news/article/russia-leads-the-world-in-protectionist-trade-measures- study-says/492368.html  http://www.ibtimes.com/giant-louis-vuitton-bag-ordered-out-moscows-red-square-obscuring-views- lenins-tomb-1489010  https://www.strategies.fr/actualites/marques/119111W/louis-vuitton-total-controle.html  http://www.businessoffashion.com/2013/02/as-sales-slow-will-lvmh-go-on-a-buying-spree.html  http://www.theglobeandmail.com/report-on-business/international-business/european- business/louis-vuitton-slows-expansion-to-protect-image/article8069266/  http://metro.co.uk/2007/05/10/fake-disney-park-faces-closure-349016/  http://www.lecourrierderussie.com/2013/11/luxe-la-russe/  http://www.x-rates.com/graph/?from=EUR&to=RUB&amount=1.00  https://www.strategies.fr/actualites/marques/119111W/2-10-2702/louis-vuitton-total-controle.html  http://www.indexmundi.com/russia/age_structure.html  Julie de La Brosse, July 3rd 2013 : « Secrets of successful story for French luxury brands” http://lexpansion.lexpress.fr/entreprises/les-secrets-de-la-reussite-du-luxe-a-la- francaise_1426433.html  http://veronique.estienne.free.fr/doc/SLIDE.htm  Isabel Gorst, November 28th 2013; “Case closed : Louis Vuitton sent packing from Red Square” http://www.irishtimes.com/news/world/europe/case-closed-louis-vuitton-sent-packing-from-red- square-1.1609847 / http://www.themoscowtimes.com/news/article/shameful-louis-vuitton-trunk-to- be-removed-from-red-square/490409.html  http://www.thehistoryofenglish.com/history_today.html  1 http://www.forbes.com/sites/christinemoorman/2014/02/18/the-riddle-of-marketing-in-russia/  Sophie Doran: “Luxury society market guides : Brazil, Russia, India & China”; March 20 th 2012 http://luxurysociety.com/articles/2012/03/luxury-society-market-guides-brazil-russia-india-china  http://www.nielsen.com/us/en/newswire/2013/how-to-win-with-the-russian-shopper.html  http://www.uxusdesign.com/work/qela  http://www.escp- eap.net/conferences/marketing/2006_cp/Materiali/Paper/Fr/DeBarnier_Rodina_ValetteFlorence.pdf  Russian consumers’ perception about Luxury brands http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2387825  http://www.oecdbetterlifeindex.org/countries/russian-federation/
  • 28. LVMH –Marketing Analysis for Russian Market Page 28  http://en.ria.ru/world/20140128/186998455/Russia-Wants-Free-Trade-Zone-Linking-EU-Moscow-Led- Customs-Union.html  http://www.worldtradelaw.net/fta/agreements/cisfta.pdf  http://www.state.gov/e/eb/rls/othr/ics/2012/191223.htm  http://country.eiu.com/russia  http://www.atlascorps.org/blog/?p=4437  http://www.reuters.com/article/2014/03/03/russia-markets-cbank-idUSL6N0M00BK20140303  http://www.digitalintheround.com/ecommerce-russia-trends-players/  http://www.borderfree.com/global-insights/ecommerce-in-russia-borderfree-country-report  http://www.forbes.com/sites/christinemoorman/2014/02/18/the-riddle-of-marketing-in-russia/  http://iab.worldbank.org/Data/Explore%20Economies/Russia  http://www.cnbc.com/id/100805382  http://www.indexmundi.com/russia/age_structure.html  http://www.forbes.com/sites/christinemoorman/2014/02/18/the-riddle-of-marketing-in-russia/  http://www.wintershall.com/en/partnership-instead-of-protectionism-why-russia-and-the-eu-have-to- budge.html  http://rbth.com/opinion/2014/04/08/political_instability_affecting_russias_investment_climate_35745.h tml)  http://www.berjournal.com/russia-in-period-of-transition-from-socialism-to-capitalism-what-sort-a- capitalism  http://www.bu.edu/iscip/vol8/Sossinsky.html  http://www.fas.org/sgp/crs/row/RL33407.pdf  http://www.euractiv.com/global-europe/russian-embargo-european-pork-ca-news-534308 Miscellaneous Websites  Willingness to turn Kaliningrad into “Russian Hong Kong” in few years (Cadillac, Hummer, BMW are already implanted there http://en.wikipedia.org/wiki/Kaliningrad#Economy  http://www.louisvuitton.com/front/#/eng_US/Collections/Women/Handbags  http://forum.purseblog.com/louis-vuitton-shopping/most-expensive-country-to-buy-lv-561664.html  http://en.wikipedia.org/wiki/Demographics_of_Russia#Population_density  http://www.tradingeconomics.com/russia/population  http://www.worldpopulationstatistics.com/russia-population-2013/  http://www.statista.com/statistics/271344/age-distribution-in-russia/  http://rbth.com/opinion/2014/04/08/political_instability_affecting_russias_investment_climate_35745.h tml)  http://www.worldpopulationstatistics.com/russia-population-2013/  http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD  http://www.coface.com/fr/Etudes-economiques-et-risque-pays/Russie