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  • 1. HMU KHANT HTWAY TP021928 UC3F1201BM BM014-3.5-3-DMKG SUERAYA BINTI MOHAMAD ALWIE 16TH AUGUST 2012 28TH SEPTEMBER 20122390 words excluding tables in part 2, table of contents and references
  • 2. Decision Making AssignmentContentsIntroduction ..................................................................................................................................... 41. Demographic and social Trends .............................................................................................. 42. Counterfeit Issues .................................................................................................................... 5 2.1 Hands-on Actions ............................................................................................................. 5 2.2 Authorized Actions .......................................................................................................... 63. Competition ............................................................................................................................. 7 3.1 Threats of new entry......................................................................................................... 7 3.2 Bargaining Power of Buyers ............................................................................................ 8 3.3 Bargaining Power of Suppliers ........................................................................................ 8 3.4 Threats of Substitutes ....................................................................................................... 9 3.5 Rivalry among Competitors ............................................................................................. 94. Marketing............................................................................................................................... 10 4.1 Product ........................................................................................................................... 10 4.2 Place ............................................................................................................................... 10 4.3 Price................................................................................................................................ 11 4.4 Promotion ....................................................................................................................... 115. Environmental Issues ............................................................................................................. 116. Conclusion ............................................................................................................................. 13Part B: Financial Plan ................................................................................................................... 14 Plan 1 ......................................................................................................................................... 14 Maximax ................................................................................................................................ 14 Maximin................................................................................................................................. 14 Minimax Regret Approach .................................................................................................... 15 Hurwicz @ Criterion of Realism ........................................................................................... 15Louis Vuitton Page 2
  • 3. Decision Making Assignment Expected Opportunity Loss Approach .................................................................................. 15 Expected Value Approach ..................................................................................................... 16 Expected value of perfect Information .................................................................................. 16 Plan 2 ......................................................................................................................................... 17References ..................................................................................................................................... 18 Websites .................................................................................................................................... 18Louis Vuitton Page 3
  • 4. Decision Making AssignmentIntroductionLouis Vuitton Malletier, commonly referred to as Louis or shortened to LV, is a French fashionhouse founded in 1854 by Louis Vuitton. According to fundinguniverse (2000), LVMH MoëtHennessy Louis Vuitton SA, created through a $4 billion merger in 1987, is the worlds leadingluxury goods vendor, providing products –perfumes, designer handbags, jewelry, accessories,sunglasses and books.The mission of LVMH group is to represent around the world with the most refined qualities ofWestern `Art de Vivre’. LVMH must continue to be synonymous with both elegance andcreativity. 1. Demographic and social TrendsUnderstanding demographic and social trends is vital in the luxury industry because it assists inidentifying target market especially in the apparel segment. The demographic developmentacross many states reveals itself in terms of rising ageing population, powerful generation Y andX consumers, slightly less powerful but still significant baby boomers and greater spendingpower of consumers in the evolving economies (China, India, Brazil, etc). As a result, this hascontributed enormously to a rapid rise of luxury brands’ profits especially in Asia (China andJapan).In order to respond to demographic and social trends effectively LV should alter some of theirstrategies to design goods made-to-order for specific demographic groups. Such degree wouldallow the brand to correctly identify the needs of the target market(s) and ensure long termprofitability.Initially, LV should consider scheming products to gratify the necessities of the women’s plus-size and men’s big and tall markets. Such quantity is essential chiefly because of the American’ssnowballing average weight and the fact that they characterise one of the well-off civilisations inthe world (Nguyen, 2004). In addition, these two buyer groups have been branded as the wildestupward industry sectors.Louis Vuitton Page 4
  • 5. Decision Making AssignmentFurthermore, the mounting petition for luxury goods among fresher age group of China, theworld’s largest realm, requires LV to respond consequently. For illustration, LV can exerciseadapting the enterprises of some of their products (bags, clothing) to the ethnic requirements inthis unindustrialized market. Such measure can significantly help in accomplishing extensivetenure effectiveness since no other nation has so many impoverished or well-heeled clientsyelling for stuff. Later, retorting to these demographic/social trends can assuage some of thetopics for LV in the extensive run and consequence in competitive advantage. 2. Counterfeit IssuesCounterfeit issues have beleaguered extravagance brands including LV for years and thecompany spends massive amount of possessions to contest this problem. To crack this problem,LV should commence both hands-on and authorized actions to contest the counterfeit issues in amethodical way. 2.1 Hands-on ActionsExpressive your producers denote to occupy only with reliable manufacturers that take loyalactions and ladders to secure LV’s engineering know-how and registered evidence (Anderson,2012). In other words, LV should join forces with producers that are enthusiastic to shield thecompany’s trade know-how to contest the counterfeiting issues over the extensive period.Adjusting the circulation cable implies LV should have a more national scattering of the goods.Such quantity can edge the total of counterfeit goods being distributed and traded in numerousjourneys’ end. For illustration, distribution goods to wholesalers from single opinion or in receiptof them at one address can back in sensing counterfeit goods more effectually.Speculation in anti-counterfeiting machineries recommends LV should spend more properties onspecial fibres and holograms that allow wholesalers, clients and duties representatives to ensurethe legitimacy of the goods (Anderson, 2012). This can simplify the lessening of counterfeitingin the global marketplace regardless of high cost. However, the assistances of these technologiesbring in contesting counterfeiting far compensate the costs of executing them in the lengthy term.Louis Vuitton Page 5
  • 6. Decision Making AssignmentAt that point, this portion along can hypothetically lessen the undesirable outcome of counterfeitgoods on LVMH’s revenues, brand image and sales bulk. 2.2 Authorized ActionsIntended for the determination of diminishing the negative effect of counterfeit goods, LV mightcommence several legal actions with the most vivacious actuality: recordkeeping fundamentalbrands, soundtrack emblem processes and specialist care online mart websites (Anderson, 2012).Record-keeping essential brands provide significant recompenses predominantly by insertion theparticipants or possible fraudsters on announcement of the company’s rights. It is vital tocatalogue the core brands both locally and out of the country with the reverential powers that be.Record -keeping can assistance LV in terms of “establishing of nationwide priority of rights as ofthe application’s filing date” (Anderson, 2012). Therefore, it is vigorous for LV to contemplaterecord-keeping its essential brands in the following types of countries: Countries where the company manufactures the products Countries where the company currently distributes goods or is planning on distributing Countries where suppliers or vendors are located Countries that are well-known for manufacturing counterfeits in the company’s product category (e.g. Morocco, China, Turkey) Countries which are major transhipments points for fake and original (authentic) goods in the company’s product categorySource: Anderson.A., 2012The second measure LV might take to contest counterfeiting is recording the emblemregistrations with duties. This means the possessors (LV) of registered emblems could get somehelp from duties authorities in battling counterfeiting (Anderson, 2012). Since duties authoritiesscrutinize products on a regular basis that flow between the countries, LV can work together withthem to avert fake goods from entering the markets. Furthermore, in most countries dutiesauthorities have anauthorization to abolish or dispose of counterfeit products immediately uponLouis Vuitton Page 6
  • 7. Decision Making Assignmentnoticing them. Nevertheless, this system is not without its defects as in most cases only a smallportion of goods are inspected for imitations (OECD, 2007). 3. CompetitionIn order to appraise the competition in the luxury goods industry from LV’s standpoint, it iscompulsory to apply the Porter’s Five Forces model. So LVMH’s competitive position can beinvestigated from the following approaches: risk of new entrants, bargaining power of buyers,bargaining power of suppliers, rivalry among established firms and the threat of substitutes. 3.1 Threats of new entryPotential competitors (new entrants) are basically companies that currently do not contend in theindustry; however they have the competence to do so if they choose (Hill and Jones, 2010). Toevaluate how much of a threat of new entrants are for LVMH it is critical to scrutinise theblockades of entry into the business.The major barrier of entry into the industry for potential competitors is brand loyalty. This pointtoward LV has fashioned and continuous a deep-rooted customer favourite which makes ittremendouslyproblematic for new entrants to take market share away from LVMH and othersignificant brands (Gucci, YSL, Chanel and others). Besides, the amassedpractice of functioningin the luxury goods market that LV has assimilated since its inception in 19th centuryrecommendscomplete cost advantage in production (high quality) or key businessdevelopmentsabsolute to new entrants. In addition, possible competitors do not have the benefitof lower monetaryjeopardies in contrast to LV. However, other barricades such as substitutingcosts for buyers, administration regulation are not as high which is good for possiblecontestants.Bearing in mind that financial prudence of scale in this particular industry is not really clear thethreat of new entrants for LV is relatively low.Louis Vuitton Page 7
  • 8. Decision Making Assignment 3.2 Bargaining Power of BuyersThe buyer power in this industry is relatively low. Originally, the substituting costs for buyers orend-users are low which means they do not sustain any supplementary costs if they were no needto doadjustment to another seller (Gucci, Cartier, etc) or they can even purchase products fromseveral companies at once. Furthermore, the manufacturing as a whole is in need of on buyers inanintellect that they buying a large proportion of companies’ total orders.However, the buyer power is to a great amount limited chiefly because buyers are not large andfew in numbers. In other words, they are not overriding and mostly do not purchase LV’sproducts in large measures, thus abolishing leverage for price bargains. In addition, there is littleto no hazard of buyers toward the inside the industry themselves and manufacturing luxurygoods. 3.3 Bargaining Power of SuppliersThe supplier power comparative to LV is at a sensible level as suppliers provide vigorousproducts to the industry that have few alternatives. Also the substituting costs for luxury brandsincluding LV can be noteworthy, therefore limiting the capability to play suppliers contrary toeach other.Conversely, there are influences which reduce the supplier power. Primarily, suppliers cannotcertainly threaten to enter the luxury industry and strive with recognised brands. Moreover, theindustry itself is vigorous customers for suppliers point toward those suppliers is greatlyexaggerated by customer’s (LVMH) petition. Furthermore, companies in the industry havecompetences to precipitously fit in and enter suppliers’ industry.Louis Vuitton Page 8
  • 9. Decision Making Assignment 3.4 Threats of SubstitutesSubstitute products are fundamentally goods from other industries or business that can mollifysimilar needs of the customers. In this case, LVMH faces a low threat of substitutes largelybecause industry’s products have a rare adjacent substitute which empowers firms to increaseprices (charge first-class) and earn additional profit. This is primarilysince only few if anyproducts have the same petition as LV’s in terms of quality,statusallied with retaining them andvalue. 3.5 Rivalry among CompetitorsCompetitive competition refers to the scuffle between firms in the same industry in order toacquire greater market share (Hill and Jones, 2010). According to the case study, the competitionis very powerful in this industry as LVMH’s principally contends with Pinault-Printems-Redoute(Gucci and Yves Saint Laurent) and CompagnieFinanciereRichemont (Cartier and Montblanc).The competition between LV and its competitors is strong because the modest assembly of theindustry includes reasonably high number of firms which are more or less equal in their size.Additionally, there is no clear and overriding leader making it a split industry, thus escalatingrace. Furthermore, the petition and cost conditions have a tendency to stimulus the concentrationof competition in any industry and in this case, they create a very strong race. Also the stature ofexit barricadesis high which avoids companies leaving the industry.Louis Vuitton Page 9
  • 10. Decision Making Assignment 4. MarketingLVMH applies noteworthy resources on publicity its brands and the entire marketing strategy ofthe company can be appraised by spread over the marketing mix analysis (product, place, price,promotion). 4.1 ProductIn terms of product, LV dissimilar overall consumer goods stresses the notion of completesuperiority whereby it situations of the goods as actuality of top indentation quality and withsuper attention to good performance.Regardless of LV’s good performance in the luxury goods industry, there are still zones which itcan progress upon. For instance, the speedily mounting demand for luxury products in Chinagives LV a chance to alter the designs of their bags, watches, clothes and other goods to uniformthe needs of Chinese customers. This will undeniably demand to potential buyers and help toincrease brand’s profits. Furthermore, it wills additional separate LV’s products from thecompetitors’ and intensification barriers of entry to the industry over higher customer loyalty in abig market. 4.2 PlaceSince LV is a luxury brand it does not essentially apply wide range of spreading channels(retailers, non-department stores) to distribute the goods to end customers but relatively offers itsproducts over and done with limited distribution channels. Put alternative way, LV’s placestrategy is based national control of distribution channels.To additional strengthening for spreading of LV’s products the company should consideropening up more than existing four stores in India (Louis Vuitton, 2012) since it is one of theworld’s fastest growing economies and population’s income is rising. Furthermore, LV shouldopen up at least one store in Central Asia because currently there are no official branches in there(Louis Vuitton, 2012). This will coagulate company’s position in a highly modest industry evenextra.Louis Vuitton Page 10
  • 11. Decision Making Assignment 4.3 PriceLV proposals its products at a remarkably high price contrast with the general marketing strategyprimarily because it is a luxury brand and it accentuates the concept of providing the highestvalue. 4.4 PromotionThe promotion tools utilised by LV are not based on the concept of mass advertising andpromotion. Regardless of having relatively successful promotion strategy LV can furtherimprove it by using other superstars depending on the geographic region. For example, in Asianregion LV can work with Michelle Yeoh or Ken Watanabe to promote products. This forceassists in having greater inspiration of attracting and retentivecustomers thus make best use ofprofits. 5. Environmental IssuesAchieving environmental objectives as well as profit associated goals has become very importantfor organisations. According to Waller and Hingorani, 2012, LVMH is the world’s largest luxurygoods corporation which means the company is predictable to subsidize to the improvement ofsocial welfare and environment. In other words, LVMH is predictable to manner CSR activities.Though originally costly to gadget, operative CSR programme can result in competitiveadvantage in the long term and further strengthen LV’s position as one of the world’s top brands.Currently LVMH has several initiatives that focus on “Protecting the environment”. Theactivities related to this programme are shown in below. It should be distinguished theseactivities are industry detailed and explain the environmental impact of the organisation.Louis Vuitton Page 11
  • 12. Decision Making AssignmentSource: Waller and Hingorani, 2012One of the replacements that LVcould use to achieve environmental objectives is to bestow 5 –10% from every sale of all or select few perfumes to the protection of clean water systems insome third-world countries. This quantity would resemble well with the company’s protection ofbiodiversity agenda and assist in fascinating potential customers by gesticulating that theirpurchases will have an immediate impact on protecting the environment and helping others.Besides, if successful this measure can then be merged into the company’s business model.LVMH ought to consider applying CSR programmes on a global scale which willunquestionably backing in achieving the company’s environmental objectives while alsosimplifying the achievement of business – related goals (e.g. boosting brand image, greater sales,lowering pressure from government and non-profit organisations, etc).Louis Vuitton Page 12
  • 13. Decision Making Assignment 6. ConclusionIn conclusion, effectively responding to various challenges related to social/demographic trends,competition, marketing, counterfeiting and environmental issues is very important for LVMH toaccomplish because it significantly assists in achieving and sustaining profitability over the longterm. However, further analysis and additional recommendations regarding the issues discussedabove are necessary to come up with more effective and efficient solutions.Louis Vuitton Page 13
  • 14. Decision Making AssignmentPart B: Financial PlanPlan 1 State of NatureDecision Competitive Foreign Conditions Poor Competitive ($) Conditions ($)Expand 800,000 500,000Maintain status quo 1,300,000 -150,000Sell now 320,000 320,000Maximax State of Nature Competitive Poor Competitive MaximaxDecision Foreign Conditions ConditionsExpand $800,000 $500,000 800,000Maintain status quo 1,300,000 -150,000 1,300,000Sell now 320,000 320,000 320000According to Maximax, the decision maker should make a decision on maintain status quo.Maximin State of Nature Competitive Foreign Poor Competitive MaximinDecision Conditions ConditionsExpand $800,000 $500,000 500000Maintain status 1,3000,00 -150,000 -150000quoSell now 320,000 320,000 320000According to Maximin, the decision maker should make a decision on expand the market.Louis Vuitton Page 14
  • 15. Decision Making AssignmentMinimax Regret Approach State of Nature Competitive Poor MinimaxDecision Foreign Competitive regret Conditions ConditionsExpand $800,000 500000 $500,000 0 500000Maintain status 1,3000,00 0 -150,000 650000 650000quoSell now 320,000 980000 320,000 180000 980000According to Minimax regret approach, the decision maker should make a decision to expandtheir market.Hurwicz @ Criterion of RealismAlternatives Competitive Poor Criterion of realism Foreign Competitive Conditions ConditionsD1 500000 0 (0.3)(500000)+(0.7)(0)=150000D2 0 650000 (0.3)(650000)+(0.7)(0)=195000D3 980000 180000 (0.3)(980000)+(0.7)(180000)=420000According to Hurwicz, the decision maker should make a decision of selling the business.Expected Opportunity Loss ApproachAlternatives CFC (0.7) PCC (0.3) EOLD1 500000 0 (500000)(0.7)+(0)(0.3)= 350000D2 0 650000 (0)(0.7)+(650000)(0.3)=195000D3 980000 180000 (980000)(0.7)+(180000)(0.3)=740000According to expected opportunity loss approach, the decision maker should make a decisionupon maintain status quo for the business.Louis Vuitton Page 15
  • 16. Decision Making AssignmentExpected Value ApproachAlternatives CFC(0.7) PCC(0.3) EVD1 $800,000 $500,000 (800000)(0.7)+(500000)(0.3)=710000D2 1,3000,00 -150,000 (1300000)(0.7)+(- 150000)(0.3)=865000D3 320,000 320,000 (320000)(0.7)+(320000)(0.3)=320000According to Expected Value approach, the decision maker should make a decision uponmaintain status quo for the company.Expected value of perfect InformationEVwPI= (1300000)(0.7)+(500000)(0.3)= 1060000 EVPI = EVwPI – EVwoPI EVPI = 1060000- 865000 = 195000Louis Vuitton Page 16
  • 17. Decision Making AssignmentPlan 2Stock Price Change Probability Cumulative Interval of random($) Probability number -2 0.05 0.05 0-5 -1 0.10 0.15 6-15 0 0.25 0.40 16-40 +1 0.20 0.60 41-60 +2 0.20 0.80 61-80 +3 0.10 0.90 81-90 +4 0.10 1.00 91-100Random 0.1091 0.9407 0.1941 0.8083numbersPrice Per share -1 +4 0 +3Average stimulated price per share= 6/3= 2Random 0.2540 0.7144 0.0563 0.0125numbersPrice Per share 0 +2 -1 -2Average stimulated price per share = -1/3 = -0.33Louis Vuitton Page 17
  • 18. Decision Making AssignmentReferencesANDERSON, A., 2012, Combating Counterfeiting: Simple Steps You Can Take Now to ProtectYour Brand from Piracy, Holland and Harts. [Accessed: 26th August 2012]BERAD, N.R., 2011, Corporate Social Responsibility – Issues and Challenges in India,International Conference on Technology and Business Management. [Accessed: 5th September2012]HILL, C., W., JONES, G., R., Strategic Management Theory: An Integrated Approach, 9thEdition, South-Western, Cengage Learning. [Accessed: 13th September 2012]NGUYEN, V., 2004, Analysis of the Luxury Goods & Apparel and Footwear Industries.[Accessed: 15th September 2012]OECD, 2007, Organisation for Economic Co-operation and Development, The Economic impactof counterfeiting and piracy: Executive Summary. [Accessed: 19th September 2012]WALLER, D., S., HINGORANI, A., G., 2011, Luxury Brands: What Are They Doing AboutSocial Responsibility, University of Technology Sydney. [Accessed: 21st September 2012]WebsitesHistory of Louis Vuitton, (2000), (online), Available at:http://www.fundinguniverse.com/company-histories/lvmh-mo%C3%ABt-hennessy-louis-vuitton-sa-history/ [Accessed: 26th August 2012]LOUIS VUITTON, 2012 (Online), Louis Vuitton Store Locator, Available at:http://www.louisvuitton.com/front/#/eng_US/Homepage [Accessed: 21st September 2012]Louis Vuitton Page 18