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Full Strategic Appraisal of Louis Vuitton

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Full Strategic Appraisal of Louis Vuitton

  1. 1.  1   Coursework Header Sheet 227988-30 Course BUSI1324: Managing Strategy Course School/Level B/UG Coursework Strategic Appraisal Assessment Weight 50.00% Tutor VJ Torlo Submission Deadline 15/01/2016 Coursework is receipted on the understanding that it is the student's own work and that it has not, in whole or part, been presented elsewhere for assessment. Where material has been used from other sources it has been properly acknowledged in accordance with the University's Regulations regarding Cheating and Plagiarism. 000767837 Tutor's comments Grade Awarded___________ For Office Use Only__________ Final Grade_________ Moderation required: yes/no Tutor______________________ Date _______________    
  2. 2.  2   Full  Strategic  Appraisal  of  Louis  Vuitton         Content  Page:         Page  3:  Introduction  &  Company  Background       Pages  4-­‐7:  External  Analysis:       PESTEL  Analysis   Porter’s  5  Forces   Opportunities  and  Threats     Pages  8-­‐12:  Internal  Analysis       Value  Chain   Competencies  Framework   VRIO  Framework   Strengths  and  Weaknesses   Ratio  Analysis     Pages  13-­‐14:  Corporate  &  Business  Strategy       Page  15:  Key  Issues  &  Challenges       Pages  16-­‐20:  Strategic  Growth  Options       Pages  21-­‐22:  Recommendations  &  Conclusion       Pages  23-­‐24:  References       Page  25:  Appendix  1      
  3. 3.  3   *  All  references  to  the  Louis  Vuitton  Case  Study  2013  written  by  Mahbubani,   M  will  be  referred  to  ‘the  case’  in  the  following  paper.  *     __________________________________     Introduction  &  Company  Background       The  purpose  of  this  report  is  to  draw  out  key  strategic  issues  and  challenges  of   the  Louis  Vuitton  Group  while  offering  sustainable  proposals  to  achieve   further  growth.  A  company  operating  based  on  over  150  years  of  rich  history   and  heritage  has  meant  they  have  been  able  to  dominate  the  ‘personal  luxury   goods  industry’  clearly  indicating  they  offer  a  focused  differentiated  service  to   their  3  main  consumer  segments,  which  include  the  absolute,  aspirational  and   accessible.  Louis  Vuitton  has  a  wide  product  portfolio  offered  to  both  genders   to  create  solid  customer  value  and  brand  appeal.       When  referring  to  the  case,  the  backbone  of  Louis  Vuitton’s  success  was  built   on  three  rules  including  savoir-­‐faire,  excellent  customer  service  and  constant   innovation.  Farfan  (2015)  highlights  these  values  are  still  used  today  as  she   quotes  Louis  Vuitton  mission  statement  is:       ‘LVMH  are  synonymous  with  both  elegance  and  creativity.  The  products,  and   values  they  embody,  blend  tradition  and  innovation’.       It’s  fundamental  to  note,  the  key  stakeholders  of  Louis  Vuitton  are  the   customers  themselves.  When  competing  in  such  a  dense  industry,  products,   and  the  services  provided  are  tailored  to  satisfy  the  needs  of  customers  with   extremely  high  disposable  incomes.                                  
  4. 4.  4   Part  I:  External  Analysis     PESTEL  Analysis       Beneath  is  an  analysis  of  the  macro  environment  when  referring  to  Louis   Vuitton  and  the  ‘personal  luxury  goods  industry’.  This  is  to  understand  how   these  factors  influence  the  industry.       Political       This  industry  faces  problems  regarding  import  duties  when  operating   internationally.  According  to  the  case,  it  is  highlighted  that  countries  that   suffer  from  high  import  duties  such  as  China,  is  causing  customers  to  purchase   luxury  items  overseas  to  take  advantage  of  the  huge  price  difference.  Also,   looking  further,  D’Arpizio  (2012)  cited  by  the  case  states  outside  Europe  and   America  there  are  33%  of  regions  involved  in  the  luxury  goods  market   meaning  government  stability  is  imperative  in  this  industry.  According  to   Cebreros  (2012),  this  industry  is  heavily  dependent  on  tourism  so  factors   involving  terrorism  is  essential  to  consider.       Economic       One  of  the  biggest  economic  factors  in  this  industry  is  the  tax  rates  being   placed  on  luxury  goods.  According  to  Chilkoti  &  Hidayat  (2015),  the  ‘luxury   goods  tax’  is  impacting  regions  without  a  luxurious  reputation  so  countries   such  as  Indonesia  have  scraped  this  taxation  policy  in  order  to  boost   consumption.  In  terms  of  Louis  Vuitton,  a  potential  price  gap  may  cause   uncontrollable  issues.       Social       As  referenced  by  the  case  study,  the  luxury  industry  has  diversified  to  services   that  include  luxury  travel  experiences  showing  one  of  the  most  contributing   social  factor  in  this  industry  is  the  shift  change  in  customer  preference.   Organisations  operating  in  the  ‘personal’  industry  face  issues  as  consumers   can  achieve  luxury  status  by  their  lifestyle  and  experiences  which  firms  such  as   Louis  Vuitton  cannot  offer.       Also  demographics  are  a  factor  to  consider.  A  big  difference  in  culture   highlighted  by  the  case  is  the  importance  of  logo  brands.  Where  in  China  logos   are  seen  as  less  exclusive,  in  Japan  it  doesn’t  dampen  the  brand  image  at  all.        
  5. 5.  5   Technological     According  to  the  case  the  revolution  of  the  Internet  has  meant  technology  has   had  a  massive  impact  on  this  industry.  In  order  to  gain  competitive  advantage,   firms  had  no  option  but  to  start  selling  products  online.  The  issue  with   operating  online  is  it  takes  away  an  aura  of  exclusivity,  which  potentially   reduces  market  share  from  the  ‘absolute’  target  segment.       Furthermore,  the  case  claims  customer  demands  in  this  industry  include  being   ‘unique  and  crafted  by  artisans.’  This  means  technology  involving   manufacturing  isn’t  a  major  factor.           Environmental       Protection  of  the  environment  is  a  huge  factor  to  consider  in  this  industry.  As   stated  in  the  case  many  firms  that  operate  sell  leather  goods,  which  have  a   huge  impact  on  the  environment.  According  to  PETA  (2015)  turning  skin  to   leather  involves  high-­‐energy  consumption  and  use  of  dangerous  chemicals.   This  is  why  organisations  should  consider  limiting  their  carbon  footprint  and   preserve  natural  resources  in  order  to  counteract  the  harm  they  are  inflicting.       Legal         Being  in  this  luxury  goods  industry,  there  are  many  laws  to  consider  with  the   biggest  legal  factor  to  consider  is  counterfeiting.  This  issue  is  uncontrollable  as   referenced  by  the  Anti-­‐Counterfeiting  Group  (2012)  10%  of  UK  sales  in  the   luxury  industry  is  lost  due  to  counterfeiting.  This  means  $37  billion  is  lost  in   sales  every  year.                                  
  6. 6.  6   Porter’s  5  Force’s  Analysis       The  luxury  goods  industry  means  Louis  Vuitton  face  a  variety  of  competition   that  is  easily  explained  using  Porter’s  5  forces  model.         Threat  of  New  Entrants  –  ‘Extremely  High’       In  this  industry,  it  is  considered  to  be  extremely  high  as  it  is  argued  the   industry  has  stagnated  relating  to  the  product  life  cycle.  As  referenced  by  the   case,  companies  fiercely  promote  the  history  and  heritage  of  their  brands;  so   in  order  for  new  entrants  to  build  a  reputation,  it  would  take  large  amounts  of   capital  to  build  a  marketing  platform  and  will  be  hard  to  convince  customers   to  switch  from  successful  brands  such  as  Louis  Vuitton.       Bargaining  Power  of  Suppliers    -­‐  ‘Low  /  Medium’     In  this  industry,  the  case  provides  evidence  that  methods  of  vertical   integration  have  been  extremely  successful.  With  these  firms  manufacturing   products  in  house  means  firms  only  have  to  source  minimal  materials,   therefore  reducing  supplier  power.  However,  the  reason  why  bargaining   power  of  suppliers  is  debatably  medium  is  due  to  the  high  quality  desired  of   raw  materials.  Such  as  Louis  Vuitton,  they  only  source  their  leather  from   North  Europe.  The  perfection  required  in  the  luxury  goods  industry  means   limited  suppliers  can  provide  it.         Threat  of  Substitute-­‐  ‘High’     When  referring  to  Blythe  (2012)  a  substitute  is  a  different  product  that   satisfies  the  needs  of  the  consumer.  As  mentioned  in  the  case,  the  threat  of   one  substitute  are  intangible  experiences  such  as  travelling  and  spas.  This  is   due  to  a  change  in  how  customers  express  their  social  status.  Furthermore,   with  research  one  new  player  that  is  a  huge  substitute  product  is  artificial   leather.  An  article  by  Kinge  et  al.  (2013)  states  this  material  is  preferred  by  the   younger  generations  and  vegans.  As  it  is  cheap  to  manufacture  it  would  be   hard  for  luxury  companies  to  promote  it  as  high  quality  material.                  
  7. 7.  7   Rivalry  Among  Existing  Competitors  –  ‘High’     When  referring  to  an  article  by  Deloitte  (2013)  there  are  over  100  different   players  in  this  industry,  with  the  top  15  being  extremely  consolidated.  For   example,  in  this  industry,  Moet  Hennessy-­‐Louis  Vuitton  (LVMH)  achieved  to   manage  $21,761  (million)  in  sales  in  2013  and  ranked  15  is  Prada  who  attained   $4,776  (million)  sales  revenue.  With  reference  from  the  case,  Chanel  has   mastered  it  strategy  and  puts  strains  on  all  competitors  by  increasing  brand   quality,  customer  experience  and  social  status.  This  shows  clear  evidence  this   industry  is  extremely  profitable.         Bargaining  Power  of  Buyers-­‐  ‘Medium’       With  this  sort  of  industry  where  price  isn’t  the  main  concern,  it  gives  a  clear   indication  that  customers  have  a  preference  and  loyalty  to  specific  brands.   Referring  back  to  Cebreros  (2012)  she  claims  customers  form  an  emotional   attachment  to  brands.  However,  referring  to  the  case,  customers  demand  unique   designs  and  a  brand  image  based  on  rich  heritage.  Therefore,  with  limited  brands   to  choose  from,  this  why  brand  loyalty  occurs.         __     Now  the  macro  environment  has  been  analysed,  opportunities  and  threats  of   Louis  Vuitton  from  a  traditional  SWOT  can  be  identified.  These  include,                             Opportunities   Threats   § Strong  growth  in  the  Asia-­‐ Pacific  region     § Tourism   § Experienced  workforce     § Counterfeiting     § Increase  in  environmental   awareness     § Substitute  products    
  8. 8.  8   Part  II:  Internal  Analysis                           Value  Chain  (Fig.3)  according  to  the  case   Activity     Relating  to  LV   Inbound  Logistics     • Raw  materials  (leather)     • Only  purchase  zips  clasps  from  external  suppliers     Operations     • Production  done  in  house   • Zips  and  leather  vigorously  tested     • Goods  hand  crafted  by  highly  skilled  people  with   expertise’s  but  now  also  use  machinery.     Outbound  Logistics     • Done  through  their  own  exclusive  shops     • Products  do  not  get  lost     • Decreased  grey  market   Marketing  &  Sales     • Heavy  Advertising  used  to  highlight:     -­‐ Product  design     -­‐ Buying  experience     -­‐ Brand  image     Service     • Goods  sold  in  company  owned  stores     • Intangible  Service  for  elites.  Includes:     -­‐ Butler  service     -­‐ Design  consultants     -­‐ Private  apartment  and  yachts     Infrastructure     • Based  on:     -­‐ Savoir  Faire     -­‐ Excellent  Customer  Service     -­‐ Innovation     HR  Management     • New  employees  trained  by  experienced  workers     • Creative  talent     Technology     • Used  for  innovation  /  creativity     • Used  in  manufacturing  process     Procurement     • Purchase  leather  from  North  Europe     • Equipment  not  often  used-­‐  (hand  crafted  materials)     (Fig.3-­‐  Value  Chain)    
  9. 9.  9   The  Key  Links     The  case  highlights  by  controlling  inbound  logistics  all  the  way  to  the  service   creates  value  in  the  value  chain  with  less  profits  going  out-­‐house  to   merchants.       The  biggest  link  in  the  value  chain  is  ‘inbound  logistics’  and  ‘operations’.  The   key  in  operation  is  to  make  superior  quality  products.  By  controlling  their   logistics,  they  know  the  raw  materials  they  bring  in  for  manufacturing  will   meet  the  quality  expectations.  The  making  of  unique  products  will  result  in   less  defaulted  products  therefore  decreasing  costs.         Competencies  Framework         Threshold  Resources       -­‐  By  vertical  integration  means  Louis   Vuitton’s  company  owned  stores  create   exclusively  and  value.       -­‐  Highly  trained  and  significantly  specialised   staff  is  required  for  the  crafting  of   handmade  leather  goods.         -­‐  The  vertical  integration  means  Louis   Vuitton  can  control  quality  and  image  of   their  expanding  number  of  factories.           Threshold  Competences     -­‐  Regards  to  distribution,  their  tight  control   means  stock  is  more  easily  managed   therefore,  increasing  the  speed  of  distribution.       -­‐  To  improve  customer  value,  experienced   sales  persons  are  with  customers  at  all  time  to   improve  the  quality  of  customer  service.         -­‐  With  less  specialized  employees,  this  allows   Louis  Vuitton  to  improve  flexibility  and  speed   of  response  by  shifting  employees  to   manufacture  different  products  in  response  to   a  change  in  demand.   Distinctive  Resources     -­‐  Operating  for  over  160  years  means  they   have  created  unique  heritage  and  evidence   of  beautiful  specimen  of  French   engineering.       -­‐  The  wide  range  of  experienced  workers  at   Louis  Vuitton  makes  it  easier  to  train  new   employees  to  become  exceptional  and   talented  individuals.     -­‐  Creative  workforce  to  display  savoir  faire   and  innovative  products  to  gain  competitive   advantage   Distinctive  Competences     -­‐  Distinctive  methods  to  deliver  excellent   customer  service  to  their  elite  target  markets.   Essential  for  the  service  they  provide.       -­‐The  brand  image  of  Louis  Vuitton  means   effective  sales  promotions  can  be  executed,   by  the  use  of  elegant  fashion  models.         -­‐  Operational  efficiency  means  new   production  systems  such  as  lean  production   reduce  employee  specialization  and  training.    
  10. 10.  10     VRIO  Framework         _   Valuable?   Rare?     Difficult   to   Imitate?     Exploitable  by   Organisation?     Competitive  Implications   R1-­‐  Company  owned  stores       YES   NO   NO   YES   Competitive  parity   R2-­‐  Superior  craftsmanship         YES   YES   YES   YES   Sustainable  competitive   advantage   R3-­‐  Utilisation  of  factories       YES   NO   NO   YES   Competitive  parity   R4-­‐  Unique  heritage  and   tradition  (brand)     YES   YES   YES   YES   Sustainable  competitive   advantage   R5-­‐  Experienced  workforce       YES   YES   NO     YES   Temporary  competitive   advantage   R6-­‐  Savoir  faire  &  innovation       YES   YES   YES   YES   Sustainable  competitive   advantage   -­‐   -­‐   -­‐   -­‐   -­‐   -­‐   C1-­‐  Speed  of  distribution   through  vertical  integration     YES   YES   YES   YES   Sustainable  competitive   advantage   C2-­‐  Quality  customer  service       YES   YES   NO     YES   Temporary  competitive   advantage   C3-­‐  Quick  adaption  to   demand  changes         YES   YES   YES   YES   Sustainable  competitive   advantage   C4-­‐  Excellent  Customer   Service       YES   NO   NO   YES   Competitive  parity   C5-­‐  Effective  marketing  using   elegant  models       YES   YES   NO   YES   Temporary  competitive   advantage   C6-­‐  Effective  production   system         YES   YES   NO     YES   Temporary  competitive   advantage                      
  11. 11.  11   From  the  ‘VRIO  Framework’  model,  one  of  the  biggest  resources  that  are   contributing  to  the  success  of  Louis  Vuitton  is  the  unique  heritage  and  French   tradition  of  the  brand  image.  (Hall  1993)  states  intangible  resources  such  as  ‘brand   image’  can  influence  customer’s  decision-­‐making  process  enabling  Louis  Vuitton  to   charge  premium  prices.  The  difficulty  in  creating  an  intangible  brand  image  is  it  takes   a  long  period  of  time  in  this  industry,  therefore  creates  sustainable  competitive   advantage.       Furthermore,  a  competency  that  Louis  Vuitton  has  mastered  to  create  sustainable   competitive  advantage  is,  the  ability  to  quickly  adapt  to  customer  demands.  In  this   sort  of  industry,  Bhardwaj  &  Fairhurst  (2009)  claims  there  is  a  constant  need  to   refresh  product  ranges.  Referring  to  the  case,  the  new  production  system  meant   workers  were  now  less  specialised  meaning  they  were  more  skilled  when  producing   products.  Responding  so  quickly  to  customer  demand  is  extremely  difficult  and   wouldn’t  be  possible  without  the  vertical  integration  model,  concluding  being  one  of   the  first  to  meet  new  customer  needs  creates  a  sustainable  competitive  advantage.               Ratio  Analysis  based  on  the  financial  report  in  the  case  study,  for  current  ratio   analysis  of  Louis  Vuitton;  please  refer  to  (Appendix  2-­‐  Fig.1)     *  Cost  of  Sales  calculated  =  (Total  Revenue  –  Gross  Profit   Strengths     Weaknesses     §  Vertical  integration     §  Savoir  faire  and  innovation       §  Distinctive  brand  image     § Meet  demand  quickly   §  Limited  customer  base     § Mostly  female  demographic     § Intense  competition    
  12. 12.  12     From  the  financial  documents  specified  in  the  case,  ratio  analysis  is  used  to   evaluate  aspects  of  a  company’s  performance.       Profitability:       In  terms  of  profitability,  the  reason  for  a  52.8%  gap  between  gross  and  net   profit  is  due  to  the  amount  Louis  Vuitton  spend  on  intangible  service  to  create   customer  service.  Furthermore,  as  the  case  states  they  destroy  old  stock   instead  of  discounting  shows  their  business  philosophy  isn’t  utilising  business   resources.         Liquidity:     The  liquidity  of  Louis  Vuitton  is  excellent.  With  a  current  ratio  of  1.38  and   $13,267,000  in  current  assets  gives  a  good  indication  that  Louis  Vuitton  can   sell  assets  to  solve  short-­‐term  debt.  As  mentioned  Louis  Vuitton’s  profitability   is  good  with  huge  profit  margins.  With  easy  assess  to  cash-­‐in-­‐bank  reduces   any  business  risk  significantly.         Activity:     Activity  is  one  of  Louis  Vuitton’s  worst  performance  areas,  but  there  is  a   reason  for  this.  According  to  Accounting  for  Management  (2016)  activity   evaluates  how  frequent  assets  are  turned  into  cash.  In  2011  a  0.50  asset   turnover  is  due  to  products  being  hand  crafted  by  artisans  to  meet  customers   needs.  It  is  hard  to  maintain  high  quality  and  make  assets  quickly.       Solvency:       In  terms  of  solvency,  a  debt/  equity  ratio  of  30%  shows  how  little  Louis   Vuitton  depend  on  creditors  for  money  to  help  continue  the  business.  A  30%   margin  is  extremely  low  and  shows  great  promise  that  they  have  the   resources  and  business  structure  to  thrive  and  continue  operating   successfully.                    
  13. 13.  13   Part  III:  Company’s  Corporate  &  Business  Strategy       3.1-­‐  Corporate  Strategy       Vertical  Scope       Looking  at  the  internal  activities,  Louis  Vuitton  (2013)  highlight  their  business   model  of  controlling  their  value  chain  has  anchored  their  vision  on  building  on   their  idiosyncratic  heritage.  As  stated  in  the  case,  controlling  their  factories  all   the  way  to  distribution  increases  quality  and  image.  This  shows  they  have  a   wide  vertical  scope.       Geographic  Scope       Louis  Vuitton  (2013)  proudly  states  they  operate  in  over  65  countries,  with   over  460  stores.  The  purpose  of  their  international  strategy  is  only  selling  their   products  and  services  in  prime  venues  in  major  cities  to  maintain  brand   exclusivity  when  making  reference  to  the  case.     Horizontal  Scope       When  making  reference  to  the  Ansoff  Matrix,  (Appendix  1-­‐Fig.  2)    ‘product   development’  has  been  a  successful  strategy.  The  case  highlights  a  range  of   products  offered  that  include,  leather  goods,  shoes,  jewelry  and  their  website   even  offers  luxury  notepads.  Louis  Vuitton  (2015).  With  a  wide  product   portfolio  offering  services  to  both  genders  highlights  evidence  of  a   diversification  strategy  in  use.         3.2-­‐  Business  Strategy       When  relating  to  Porter’s  generic  strategy,  (refer  to  appendix  1  –  fig.  1)  there   is  strong  evidence  from  the  case  that  Louis  Vuitton  operate  a  ‘focused   differentiation’  strategy.  According  to  Johnson  et  al.  (2012)  this  strategy   targets  a  narrow  segment  tailoring  products  or  services  to  specific  customers.   They  state  competitive  advantage  can  be  achieved  because  they  do  not  serve   a  broad  range  of  segments.  This  means  co-­‐ordination,  compromise  and   flexibility  are  easily  achieved.       Evidence  from  the  case  shows  the  target  market  Louis  Vuitton  are  targeting   customers  with  extreme  amounts  of  disposable  income.    But  the  uniqueness   is  more  based  on  the  service  rather  than  the  product.  For  example,  they  offer   amenities  such  as  design  consultants,  butler  service  and  shopping  in  privacy   on  yachts.    
  14. 14.  14     Relating  Louis  Vuitton’s  business  strategy  to  the  strategy  clock,  (appendix  1-­‐   fig.2)  the  focused  differentiation  strategy  shows  the  true  success  of  the   company  because  it  shows  high  perceived  value  to  the  consumers  which  is   why  the  price  is  so  high.                                                                                
  15. 15.  15   Part  IV:  Key  Issues  and  Challenges       Reviewing  the  internal  and  external  analysis,  it  is  essential  to  pinpoint  the   success  of  Louis  Vuitton  is  mainly  down  to  controlling  their  entire  value  chain   by  methods  of  vertical  integration.  By  keeping  all  profits  in  house  is  why  their   profitability  ratios  are  healthily  and  sustainable.  But  this  success  has  meant   the  pressure  to  grow  further  threatens  the  balance  of  the  values  and  heritage   of  Louis  Vuitton.  It  is  important  they  do  not  rely  too  much  on  automated   manufacturing  to  satisfy  this  growth.  In  order  for  Louis  Vuitton  to  remain   competitive,  there  needs  to  be  a  clearer  focus  on  customer  segments.   Involving  the  ‘absolute  segment’  they  need  to  ensure  exclusivity  by  tailoring   hand-­‐made  products  to  their  needs.  The  use  of  machinery  is  an  excellent  way   to  grow  but  heavy  reliance  isn’t  a  successful  sustainable  way  of  growing   without  undermining  the  values.       A  summary  of  the  external  analysis  shows  an  increase  in  environmental   concerns  is  Louis  Vuitton’s  biggest  threat.  There  is  evidence  that  Louis  Vuitton   has  managed  to  control  aspects  of  the  macro-­‐environment  such  as  adapting   prices  in  various  countries  to  deal  with  import  duties  and  their  ability  to   exploit  technological  advances  by  selling  to  the  ‘accessible  segment’  through   E-­‐Commerce.  But  operating  with  quality  leather  goods,  it’s  unmanageable  not   to  release  harmful  chemicals  while  treating  the  leather  so  it  doesn’t  rot.  In   order  to  gain  competitive  advantage,  Louis  Vuitton  could  partner  up  with   charitable  organisation  such  as  UNICEF  as  this  is  an  excellent  method  to  build   a  moral  reputation  against  the  harm  they  are  already  inflicting  on  the   environment.       With  this  evidence,  it  is  clear  that  Louis  Vuitton  and  the  luxury  goods  industry   is  beginning  to  stagnate  and  has  hit  maturity  on  the  product  life  cycle.  (Fig.4)   Although  the  industry  is  still  growing,  the  competition  has  become  fiercer   than  ever  before.                             (Fig.4)  –Product  Life  Cycle      
  16. 16.  16   Part  V:  Strategic  Options  for  Growth       To  create  appropriate  strategic  growth  strategies,  a  TOWS  Matrix  has  been   created  to  help  find  gaps  in  how  Louis  Vuitton  can  improve.                                                      TOWS   Opportunities     1)  Strong  growth  in  Asia-­‐  Pacific   region       2)  Tourism       3)  Experienced  workforce     Threats     1)  Counterfeiting       2)  Increase  in  environmental   awareness       3)  Substitute  products     Strengths   1)  Meet  demand  quickly     2)  Distinctive  brand  image       3)  Savoir  faire  &  innovation     SO     -­‐  Using  innovation  and  savior  faire   to  extend  Louis  Vuitton’s  product   portfolio  due  to  their  experienced   workforce.       -­‐  Their  ability  to  meet  demand   quickly  will  be  able  to  cope  with   the  increase  growth  in  the  Asia-­‐ Pacific.           ST     -­‐    Louis  Vuitton’s  distinctive  brand   image  will  be  enough  to  draw   customers  away  from  substitute   products.           -­‐  The  savior  faire  and  innovative   product  design  and  materials  will   make  it  difficult  to  copy   therefore,  reducing   counterfeiting.     Weaknesses     1)  Limited  customer  base       2)  Mostly  female   demographic       3)  Intense  competition     WO     -­‐    With  an  experienced  workforce   that  makes  unique  products,  they   can  make  a  wider  product   portfolio  that  will  appeal  to  more   males.         -­‐  With  many  customers  being   from  around  the  world,  creating   products  to  suit  their  cultures  will   help  eliminate  competition.           WT     -­‐  With  the  increase  of   environmental  awareness,  it  is   essential  to  use  better  raw   materials  to  create  a  competitive   advantage.         -­‐  With  the  threat  of  substitutes   and  limited  customer  base,  it  is   imperative  for  Louis  Vuitton  to   maintain  an  innovative  and  create   design  portfolio.    
  17. 17.  17   5.1     Option  One:       The  first  option  for  growth  that  Louis  Vuitton  can  clearly  exploit  is,  diversifying   their  product  range/portfolio  where  there  are  gaps  in  the  ‘personal  luxury   industry’  such  as  going  into  the  perfume.  According  to  the  case  in  2012  this   industry  is  estimated  to  reach  $19,950,000,000.  The  reason  why  this  was   chosen;  the  case  highlights  The  LVMH  Group  has  had  experience  in  this  field,   and  their  brand  image  is  likely  to  attract  all  three  customer  segments.       When  relating  this  to  the  ‘Ansoff  Matrix’  (Fig.5),  operating  this  growth   strategy  would  mean  ‘product  development’  has  been  initiated.  As  the  case   highlights  perfume  is  classed  as  a  luxury  good  and  Louis  Vuitton  expanding   their  product  range  has  huge  potential.                                   Option  Two:       The  second  growth  strategy  is  to  maintain  Louis  Vuitton’s  values  by  growing   through  acquisitions  and  organically.  Through  taking  over  smaller  businesses   in  the  luxury  goods  industry  is  an  excellent  way  to  retain  the  business  heritage   and  values  of  the  business.  The  reasoning  for  this  growth  strategy  is  to  retain   the  business  philosophy,  by  not  forcing  growth  by  using  additional  equipment   and  machinery  protects  their  brand  image.               (Fig.5)  –  Ansoff  Matrix    
  18. 18.  18   Option  Three:       The  third  option  is  to  have  more  stores  in  Asia-­‐Pacific  and  America  regions.   With  reference  to  the  case  estimated  growth  in  2012  is  18%  for  Asia-­‐Pacific,   and  13%  for  America.  Although  the  growth  is  higher  in  Asia-­‐Pacific,  more   American  stores  will  be  introduced  to  take  into  consider  the  external  factors   such  as  price  fluctuations  and  tourism.       5.2     SFA  Framework  Model           The  main  purpose  of  all  three  growth  strategies  was  to  find  methods  of  not   damaging  or  diluting  Louis  Vuitton’s  brand  image.         According  to  the  SFA  Framework,  option  one  was  considered  the  best  in  terms   of  suitability  regarding  the  brand  image,  company  values  and  profitability.  As   mentioned  previously  in  the  report,  the  luxury  goods  industry  is  at  a   stagnation  point.  Acquisitions  and  new  stores  will  create  more  customers,  but   the  methods  of  product  development  may  develop  to  be  an  excellent  way  to   bring  in  new  customers.  This  would  prove  to  be  successful  due  to  the   luxurious  brand  image  Louis  Vuitton  possesses.     Criteria     Option  One:     Expand  the  product   portfolio  to  the   perfume  industry   Option  Two:   Continue  growing   organically  through   acquisitions   Option  Three:     Open  more  stores  in   Asia-­‐Pacific  Regions     -­‐   (1-­‐5)   (1-­‐5)   (1-­‐5)   Suitability     14/15   12/15   10/15   Exploits  brand  image     5   4   3   Retains  company  values   4   5   4   Enhances  profitability     5   3   3   Feasibility     8/10   10/10   5/10   Achievable  in  12  months     4   5   2   Use  of  existing  skill  set     4   5   3   Acceptability   13/15   10/15   11/15   Positive  stakeholder   reaction   5   4   4   Increase  market  share     4   4   5   Expand  customer  base     4   2   2   Total:       35/40     32/40   26/40  
  19. 19.  19      In  terms  of  feasibility  of  these  three  options,  it  is  obvious  option  two   obtained  the  best  score  due  to  the  previous  success  of  acquisitions  in  the   past.  The  option  to  build  new  stores  was  just  not  feasible  in  a  12-­‐month   period,  but  creating  a  new  perfume  range  is.  Reference  to  the  case  states   Louis  Vuitton  has  ‘significant  experience’  in  this  field  so  they  will  know  how  to   market  and  distribute  a  perfume  product  under  their  brand  name.       Finally,  in  terms  of  acceptability,  option  one  again  highlights  positive  results.   The  most  important  aspect  of  acceptability  is  keeping  stakeholders  satisfied.   Earlier  introduced,  the  customers  are  the  most  important  stakeholder  in  this   industry.  Its  key  to  note  customers  that  are  loyal  to  brands  will  be  extremely   excited  to  find  Louis  Vuitton  has  launched  a  new  range  of  products  which  is   why  market  share  and  customer  base  are  expected  to  grow  better  than  the   other  two  options.         To  ensure  Option  one  is  the  best  strategy,  Barnett  &  Wilstead’s  5-­‐point  model   will  be  used.  (Information  required  from  the  case)           Barnett  &  Wilstead  5  Point  Model   Option  1:  Expand  the  product   portfolio  to  the  perfume  industry.     Reasoning   Competitive  response  analysis   The  case  shows  firms  such  as  Hermes  and   Gucci  have  already  released  fragrances.  But   due  to  customer  loyalty  and  Louis  Vuitton’s   market  leadership  means  a  competitive  war   will  not  be  created.     Risk     An  industry  worth  $19  billion  and  the   experience  Louis  Vuitton  has  in  this  field  means   the  risk  is  low.     Synergy     With  Louis  Vuitton’s  product  portfolio  being   based  on  savior  faire  and  innovation,  creating   an  elegant  fragrance  range  will  partner  well   with  the  existing  range.     Consistency     With  ‘product  development’  there  will  be  no   radical  change  to  the  existing  strategy.  It   involves  staying  in  the  luxury  industry,  but   targeting  new  markets.       Workability     Through  financial  resources,  Louis  Vuitton  has   the  assets  and  capital  to  fund  this  project.   Furthermore  with  expertise  in  this  field  shows   the  importance  of  human  resources.  
  20. 20.  20     5.3       4  Key  Resources  to  Implement  Option  One:     In  order  to  expand  Louis  Vuitton’s  existing  product  portfolio,  a  range  of   resources  and  competencies  are  required.       Human:       • Experienced  staff  that  understands  what  customers  require.     • With  expanding  product  range,  new  suppliers  will  need  to  be  sourced.       Financial:       • Cash  in  bank  for  marketing  and  development.     • Cash  is  needed  for  the  purchase  of  new  equipment  and  raw  materials.       Physical:       • Machinery  and  equipment  will  be  essential  to  create  fragrances.     • Distribute  and  sell  through  the  same  method  of  company  owned   stores.       Intangible:       • Maintain  brand  image  of  ‘savoir  faire  and  innovative’     • Distinguishing  scent  /  ‘brand  secret’  to  display  elegance.       A  distinctive  competency  that  is  required  is  brand  management  and  product   design  capabilities.  The  purpose  of  the  growth  strategy  is  to  maintain  the   business  philosophy  of  savior  faire  and  innovation  and  this  must  be  displayed   through  the  packaging,  the  design  of  fragrance  bottle  and  target  market.                      
  21. 21.  21   Part:  VI:  Recommendations  &  Conclusion       From  the  case,  it  is  evidential  the  heritage  and  traditions  of  Louis  Vuitton  are  a   key  reason  for  their  success.  With  over  160  years  of  heritage,  this  reputation   can  be  easily  ruined  if  Louis  Vuitton  is  to  heavy  reliant  on  machinery.  As   mentioned  in  the  ‘VRIO  Framework’  the  current  methods  how  Louis  Vuitton   create  sustainable  competitive  advantage  is  by:       • Superior  craftsmanship     • Savior  faire  and  innovation     • Quick  distribution  by  vertical  integration     • Quick  adaption  to  demand  changes.       From  these  results,  it  is  clear  Louis  Vuitton  has  their  biggest  resources  in   human  and  intangible  methods  so  to  maintain  competitive  advantage;  these   are  the  resources  that  need  to  be  exploited.       This  is  why  an  excellent  growth  opportunity  is  through  product  development   on  the  ‘Ansoff  Matrix’  because  through  acquisitions,  Louis  Vuitton  have   obtained  the  necessary  workforce  to  make  this  a  feasible  growth  strategy.   With  regards  to  the  ongoing  health  of  Louis  Vuitton,  the  ratio  analysis  proves   the  company  is  financially  sound  and  the  only  purpose  for  growth  is  to   maintain  a  market  leadership  strategy.                                         (Fig.6)  –  Extent  of  Change    
  22. 22.  22   In  terms  of  expanding  the  product  range,  when  relating  to  Bulogun  &  Hailey   (2008)  this  strategic  change  of  expanding  to  fragrances  would  be  categorised   as  an  ‘adaptation’  change  on  the  ‘extent  of  change  model.’  (Fig.6)  This  is   because  Louis  Vuitton  would  be  keeping  their  savior  faire  and  innovative   culture  while  making  small  changes  to  grow  the  business.  By  making  small   changes  means  Louis  Vuitton  still  keep  control  of  their  vertical  integration   which  is  a  key  factor  in  their  value  chain.       With  reference  to  the  case,  the  only  issue  Louis  Vuitton  face  with  this  strategic   recommendation  is  their  competition  such  as  Gucci  and  Hermes  already  has   experience  and  knowledge  in  this  chosen  field.  However,  by  eliminating  the   growth  prospect  of  using  additional  machinery  means  Louis  Vuitton’s   distinctive  brand  image  and  market  leadership  should  be  able  to  sustain  this   strategy  to  be  successful.                                                              
  23. 23.  23   References     Accounting  for  Management  (2016)  ‘Financial  Ratios’  Available  at:   http://www.accountingformanagement.org/  [Accessed  04/01/2016]       Anti-­‐Counterfeiting  Group  (2012)  ‘Impact  of  Counterfeits  to  UK  Luxury   Market’  Available  at:  http://www.havocscope.com/tag/fake-­‐handbags/   [Accessed  22/12/2015]       Blythe,  J  (2012)  ‘Essentials  of  Marketing’.  5th  edn.  United  Kingdom:  Financial   Times  Prentice  Hall       Balogun,  J  &  Hailey,  H  (2008)  ‘Exploring  Strategic  Change’  3rd  edn  Pearson   Education       Bhardwaj,  V  &  Fairhurst,  A  (2009)  ‘response  to  changes  in  the  fashion  industry’   The  International  Review  of  Retail,  Distribution  and  Consumer  Research  Vol.  20     Cebreros,  V  (2012)  Luxury  Leather  Goods  ‘industry  competitive  analysis’  IUM   International-­‐  University  of  Monaco       Chilkoti,  A  &  Hidayat  (2015)  ‘Indonesia  scraps  luxury  taxes  in  bid  to  boost  flagging   growth’  Available  at:  http://www.ft.com/cms/s/0/88970d74-­‐1026-­‐11e5-­‐bd70-­‐ 00144feabdc0.html#axzz3voEuMqVM  Financial  Times  Article  [Accessed   28/12/2015]       Deloitte.  (2015)  ‘Global  Powers  of  Luxury  Goods  2015’-­‐  Engaging  the  Future   luxury  consumer.’  [Deloitte  Touche  Tohmatsu  Limited.]  UK       Farfan,  B  (2015)  ‘Louis  Vuitton  Mission  Statement-­‐  Luxury,  Elegance,  Creativity  &   Art  de  vivre’.  Available  at:   http://retailindustry.about.com/od/retailbestpractices/ig/Company-­‐Mission-­‐ Statements/Louis-­‐Vuitton-­‐Mission-­‐Statement.htm  [Accessed  22/12/2015]       Hall,  R  (1993)  ‘A  Framework  Linking  Intangible  Resources  and  Capabilities  to   Sustainable  Competitive  Advantage’  [Strategic  Management  Journal]  Volume  14:   Issue  8     Johnson,  G,  Whittington,  R  Scholes,  K  (2011)  ‘Fundamentals  of  Strategy’  2nd  edn.   United  Kingdom:  Financial  Times  Prentice  Hall       Kinge,  P,  Landage  M  &  Wasif  I  (2013)  ‘Non-­‐Woven  for  Artificial  Leather’-­‐   International  Journal  of  Advanced  Research  in  Engireering  and  Applied  Sciences.   D.K.T.E.  Society’s,  Textile  &  Engineering  Institute,  Ichalkaranji,  India      
  24. 24.  24   Louis  Vuitton  (2014)  ‘The  LVMH  Model’-­‐  An  operational  and  functional  model   Available  at:  http://www.lvmh.com/group/about-­‐lvmh/the-­‐lvmh-­‐model/   [Accessed  04/01/2016]       Louis  Vuitton  (2014)  ‘HR  Values’  Available  at:  http://eu.louisvuitton.com/eng-­‐ e1/careers/homepage#/culture  [Accessed  12/01/2016]       Mahbubani,  M  (2013)  ‘Louis  Vuitton’  Richard  Ivey  School  of  Business  –  The   University  of  Western  Ontario  pg.  1-­‐19         PETA  (2015)  ‘Environmental  Hazards  of  Leather’-­‐  The  Leather  Industry.  Available   at:  http://www.peta.org/issues/animals-­‐used-­‐for-­‐clothing/leather-­‐ industry/leather-­‐environmental-­‐hazards/  [Accessed  03/01/2016]                                                                    
  25. 25.  25   Appendix  1:                                                           (Fig.1)  –Porter’s  Generic  Strategy     (Fig.2)  –Bowman’s  Strategy  Clock  

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