One way to maintain exclusivity for a brand is to raise its price. That's what luxury fashion and leather goods maker Louis Vuitton did. The company did not want the brand to become overexposed and too common, so it raised prices 25 percent and is slowing its expansion in China. The Louis Vuitton brand is the largest contributor to the company's $13.3 billion revenue from its fashion and leather division, accounting for $8 billion of those sales. It might seem counterintuitive to want to encourage fewer customers to purchase a company's products, but when price increases, so does the product's contribution margin, making each sale more profitable. Thus, sales can drop and the company can still maintain the same profitability as before the price hike. Determine by how much sales can drop and let the company still maintain the total contribution it had when the contribution margin was 40 percent. The new contribution margin is 52.00% . The total contribution is $3.2 billion. (Round to two decimal places.) The new sales level is $ billion. (Round to two decimal places.)
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How Louis Vuitton Maintained Exclusivity and Profitability by Raising Prices
1. One way to maintain exclusivity for a brand is to raise its price. That's what luxury fashion and
leather goods maker Louis Vuitton did. The company did not want the brand to become
overexposed and too common, so it raised prices 25 percent and is slowing its expansion in
China. The Louis Vuitton brand is the largest contributor to the company's $13.3 billion revenue
from its fashion and leather division, accounting for $8 billion of those sales. It might seem
counterintuitive to want to encourage fewer customers to purchase a company's products, but
when price increases, so does the product's contribution margin, making each sale more
profitable. Thus, sales can drop and the company can still maintain the same profitability as
before the price hike. Determine by how much sales can drop and let the company still maintain
the total contribution it had when the contribution margin was 40 percent. The new contribution
margin is 52.00% . The total contribution is $3.2 billion. (Round to two decimal places.) The
new sales level is $ billion. (Round to two decimal places.)
