Strategic Management Final


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  • Strategic Management Final

    1. 1. Strategic Management Group Project President Group
    2. 2. Introduction <ul><li>LVMH: Leader in the luxury industry </li></ul><ul><li>Created in 1987 in Paris, France through the merger of Louis Vuitton and Moet Hennessy. </li></ul>
    3. 3. History <ul><li>1987 Marry Well </li></ul><ul><li>1988-1997 Building the Portfolio </li></ul><ul><li>1997-2001 Transformation Years </li></ul><ul><li>2001-2003 A Sour Start for the New </li></ul><ul><li>Millennium </li></ul><ul><li>2004-present The Challenges of Strategic </li></ul><ul><li>Integration </li></ul>
    4. 4. Organizational Chart 2002
    5. 5. 2007 Financial Highlight by business group (EUR millions) Data source: LVMH2007 Annual Report Revenue by business group Profit from recurring operations by business group
    6. 6. Luxury Lifestyle in China
    7. 7. Trends in China <ul><li>Disposable income continues to rise </li></ul><ul><ul><li>18% within urban households </li></ul></ul><ul><li>Consumer tastes are changing </li></ul><ul><ul><li>41% Shanghai travel overseas once or more a year </li></ul></ul><ul><ul><li>90% buy luxury goods </li></ul></ul><ul><ul><li>50%+ planning purchase / saving purchase </li></ul></ul>
    8. 8. Why should I buy luxury goods?
    9. 9. 5 (+1) Forces Analysis of Luxury in China Threat of Substitutes Trends Impacting industry (Bargaining?) Power of Customers Bargaining Power of Suppiers Threat of New Entrants Rivalry among Existing Competitors
    10. 10. Competitive Rivalry: High <ul><li>2006: PE invested in $7.9B among 143 luxury companies in the Asia-Pacific </li></ul><ul><li>Competition for Brand Recognition fierce </li></ul><ul><li>LVMH claims to be the ONLY luxury brand to be making money in China. </li></ul>
    11. 11. Threats of New Entrants <ul><li>New Entrants: High </li></ul><ul><ul><li>2004, China removes restrictions on foreign companies on retail & distribution businesses </li></ul></ul><ul><ul><li>Existing European & US brands are opening up their own boutique throughout China </li></ul></ul>
    12. 12. Threats of Substitutes <ul><li>Substitutes: Medium-High </li></ul>
    13. 13. Bargaining Power <ul><li>Suppliers: Medium </li></ul><ul><ul><li>2004, China repeals law  no need for JV’s </li></ul></ul><ul><ul><li>Raw materials continue to increase, including diamonds </li></ul></ul><ul><li>Customers: High </li></ul><ul><ul><li>Is it Bargaining Power ? </li></ul></ul><ul><ul><ul><li>Price Inelastic industry vs. FMCG, construction, etc. </li></ul></ul></ul><ul><ul><li>Abundance of Choice for consumers ranging from European, North American, & Asian brands. </li></ul></ul>
    14. 14. 5 (+1) Forces Analysis of Luxury in China Threat of Substitutes Trends Impacting industry (Bargaining?) Power of Customers Bargaining Power of Suppiers Threat of New Entrants Rivalry among Existing Competitors
    15. 15. Perfumes & Cosmetics Competitor <ul><li>Muiltiband Players: </li></ul><ul><li>L’Oreal </li></ul><ul><li>Estée Lauder </li></ul><ul><li>Gucci Group </li></ul><ul><li>Single brand: </li></ul><ul><li>Chanel </li></ul><ul><li>Hermes </li></ul>
    16. 16. LVMH Perfumes & Cosmetics Sustain a consistent brand positioning
    17. 17. L’Oreal Luxury products Italian French French U.S U.S Japanese French U.S Italian Netherlands <ul><li>Completeness: differ in size, cross classes, ethnicities, and all channels of distribution. </li></ul><ul><li>globalization </li></ul>
    18. 18. 2007 Financial Highlight in LVMH Perfumes & Cosmetics revenue growth of 12% profit increase of 15%
    19. 19. Financial Highlights Comparison Data source: LVMH/ L'Oreal/ P&G 2007 Annual Report 15% 3,492 22,981 P&G Beauty Division (US millions) 21% 843.8 3,928 L'Oreal Luxury Products (EUR millions) 9% 256 2,731 LVMH Perfumes & Cosmetics (EUR millions) Operating margin (%) Operating Profit Sales  
    20. 20. L’Oreal Strategy <ul><li>Strength: Focused on internal growth, disciplined global marketing, continuous product innovation and creating a strong presence in every distribution channel of each product division. </li></ul><ul><li>Weakness: Too much local adaptation. Maintaining the same brand message in every country is the most difficult problem </li></ul>
    21. 21. Issues and Challenges in the Asian Market <ul><li>Opposition by some activist groups against the popularization of the luxury market, </li></ul><ul><li>A special consumption tax on luxury goods, </li></ul><ul><li>Political uncertainties and cultural differences. </li></ul><ul><li>Distribution and pricing in Asia </li></ul><ul><li>Brand management within LVMH </li></ul>
    22. 22. Recommendation <ul><li>Cost Efficiency strategy </li></ul><ul><li>Sustaining it organic growth strategy </li></ul><ul><li>Distribution strategy </li></ul><ul><li>Managing multi-brand strategy with star brands </li></ul><ul><li>Competition strategy </li></ul>
    23. 23. Cost Efficiency strategy <ul><li>Continue to improve market share gains and operating margin </li></ul><ul><li>Strategic integration of the affiliates </li></ul><ul><ul><li>R&D expense </li></ul></ul><ul><ul><li>Purchase of supplies </li></ul></ul><ul><ul><li>Critical services such as legal support for intellectual property and finance </li></ul></ul>
    24. 24. Sustaining it organic growth strategy <ul><li>Prioritizing internal growth </li></ul><ul><ul><li>Innovation </li></ul></ul><ul><ul><li>Strong support of brand image </li></ul></ul><ul><ul><li>Control over production and increasing capacity </li></ul></ul><ul><ul><li>Synergies </li></ul></ul><ul><li>A selective acquisition strategy </li></ul><ul><ul><li>Very selective external growth </li></ul></ul><ul><ul><li>Strengthen strategic activities </li></ul></ul>
    25. 25. Distribution strategy <ul><li>Expand retail networks </li></ul><ul><li>Control over distribution </li></ul>Geographical breakdown of retail networks
    26. 26. Managing multi-brand strategy with star brands <ul><li>􀂃 Christian Dior: further growth of star brand </li></ul><ul><ul><li>Reinforce star lines </li></ul></ul><ul><ul><li>Innovation inspired by Couture </li></ul></ul><ul><ul><li>Consolidate European leadership and continue development in Asia and the US </li></ul></ul><ul><li>􀂃 Profitable growth of other brands </li></ul><ul><ul><li>New high-end products for Guerlain which celebrates its 180th anniversary </li></ul></ul><ul><ul><li>Enhancement of women’s star lines at Givenchy and Kenzo </li></ul></ul><ul><ul><li>Launch of new men’s fragrances </li></ul></ul><ul><ul><li>Parfums Givenchy: accelerated development in Asia </li></ul></ul>
    27. 27. Creating a Star Brand Product Design Involves radical innovation --Artists must be completely unfettered by financial and commercial concerns, to do their best work. Manufacturing imposes strict discipline on its manufacturing processes. Through near-draconian manufacturing disciplines, the Company is able to achieve exceptionally high productivity. Star brand
    28. 28. If you are Chanel, your Perfumes’ package can be all the same Because this is Chanel!
    29. 29. But if you are not Chanel, you’d better change!
    30. 30. Luxury and Film
    31. 31. Competition strategy <ul><li>Expanding brand dominance in Asia </li></ul><ul><li>Expanding clientele base in China </li></ul><ul><li>Continue to evolve to include and reflect emerging cultural and lifestyle values of new buyers as well as existing buyers </li></ul>
    32. 32. Future Prospects of the Industry <ul><li>Urban Residents (2 major target customer groups): </li></ul><ul><ul><li>high-income earners in large and medium-sized cities constituted the major portion of customers of well-known, up-market brands imported from Europe, the US and Japan </li></ul></ul><ul><ul><li>those in the middle income group exhibited a marketed preference for established brands </li></ul></ul><ul><ul><li>Continue to focus on existing customers! </li></ul></ul>
    33. 33. Future Prospects of the Industry <ul><li>Potential Consumers in Underdeveloped Regions (72% of Chinese population): </li></ul><ul><ul><li>Throughout 1980s and 1990s, cosmetics manufactures had largely ignored the underdeveloped small cities and towns at or below country level, despite their immerse potential </li></ul></ul><ul><ul><li>The Chinese government had adopted series of policies like the Great Western Development Policy and Urbanization Policy to develop the rural areas, which contributed to the growth of disposable income there </li></ul></ul><ul><ul><li>Explore new opportunities on rural areas! </li></ul></ul>
    34. 34. Future Prospects of the Industry <ul><li>Brand Management </li></ul><ul><ul><li>Management of its “star brands” paired with product quality and a culture of innovation </li></ul></ul><ul><ul><li>Star brand is a brand that is “timeless, modern, fast-growing, and highly profitable” </li></ul></ul><ul><li>Strength in Product Research and Development </li></ul><ul><ul><li>Build an environment what supported creativity while at the same time enforcing strict business discipline </li></ul></ul>
    35. 35. Future Prospects of the Industry <ul><li>Advanced Marketing Strategies </li></ul><ul><ul><li>conveys all the values of the brand: elegance, femininity, dare and modernity </li></ul></ul><ul><ul><li>crafty packaging to build this identity </li></ul></ul><ul><ul><li>to be a premium brand in the competitive cosmetics market </li></ul></ul><ul><ul><li>choose the &quot;right&quot; identity for the &quot;right&quot; crowd </li></ul></ul><ul><ul><li>strategies for retaining and further gaining market share </li></ul></ul>
    36. 36. Future Prospects of the Industry <ul><li>Long-term Commitment to the China Markets </li></ul><ul><ul><li>Chinese consumers exhibited a marked preference for well-established brands </li></ul></ul>