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An Analysis of Competitive Strategies of LVMH
Table of contents
Contents Pages
1.0 Introduction: 2
2.0 Market Positionin...
2
1.0 Introduction:
LVMH is considered the King of the luxury jungle as it is the strongest player in the luxury
industry ...
3
Porter’s four generic strategies are cost leadership, differentiation, focus- cost leadership;
focus differentiation (Po...
4
Porter’s five forces and generic strategies prove that luxury good industry is a unique sector
with global capabilities ...
5
In a fast changing environment, dynamic capability of an organization is to combine,
construct, and reconfigure its exte...
6
is now becoming more selective in acquisitions as it experienced tough financial situation due
to recent high price purc...
7
In the case, when the luxury market is in Red ocean then the innovation of LVMH in its
products has brought it in Blue o...
8
LVMH research try to understand the emerging aspirations in various areas to discover new
growth patterns and blend trad...
9
transaction costs with greater control. Core operations of LVMH are concentrated in their
home market but still they hav...
10
operations as well as it has its offices in different regions. The Firm applies the combination
of multinational and gl...
11
(Hoskisson, et al., 2012). It uses horizontal integration for building a brand portfolio and the
vertical integration s...
12
significant role in driving growth. Moreover, the dynamic capabilities comparisons have
successfully combined and integ...
13
Appendix A
Table 1: Porter’s 5 Forces Analyses
Barriers to Entry : High
Barriers to Exit : Low to
moderate
 In Luxury ...
14
have preference to go for established name and perception (Jeantel, 2012).
3)Bargaining power of
buyer: Low
 Market Si...
15
Appendix B: LVMH Differentiation Strategies
Source: Adapted from (Gerawal, et al., 2014)
Appendix C: Life Cycle Positio...
16
Reallocation.
 Revenue of $30.6 billion and Net Profit of $5.6 Billion reported in 2014.
Organisational
Resources
 Ef...
17
Intangible Resources  Recognised and well known designers
 High experience and capabilities craftsmen and other emplo...
18
Appendix I: Financial Assets
Appendix E: VRIN Framwork Brand, Innovation and Quality
Table 1:
VRIN – Brand
Value:  The...
19
craftsmanship.
Inimitability:  The brand is difficult to imitate.
 The brand is based on a tradition of heritage and ...
20
Value:  Quality of LV’s product does create value for the consumers as well as for the
company.
Rarity:  Quality of L...
21
Source: Adapted from (Nagasawa, 2008)
Appendix H: Exploring and Exploiting Nature of LVMH
Adapted from (Penker, 2012)
A...
22
Product Innovation  LVMH Recherche Founded in 1981, Appx 250
researchers, new research and development center -
Hélios...
23
Source: Adapted from (Alqararah, 2014)
Appendix K: Comparison of LVMH strategies with Competitors
Source: Adapted from ...
24
Appendix L: Value Chain Analysis of LVMH
Source: Adapted from (Guan, 2012)
Works Cited
Afuah, A., 2009. Strategic Innov...
25
Bruce, M. & Hines, T., 2007. Fashion Marketing. s.l.:Routledge.
David J. Teece, G. P. a. A. S., 997. Dynamic Capabiliti...
26
Mauborgne, W. C. K., 2015. Red Ocean Traps. [Online]
Available at: https://hbr.org/2015/03/red-ocean-traps
[Accessed 20...
27
RUGMAN, A. M. & VERBEKE, A., 2002. EDITH PENROSE’S CONTRIBUTION TO THE RESOURCE-BASED
VIEW OF STRATEGIC MANAGEMENT. Str...
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Competitive Stategies of LVMH

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Competitive Stategies of LVMH

  1. 1. 1 An Analysis of Competitive Strategies of LVMH Table of contents Contents Pages 1.0 Introduction: 2 2.0 Market Positioning strategies of LVMH : 2 2.1 Porter Five forces analysis of LVMH : 2 2.2 Porter Generic Strategies comparisons: 2 2.3 Resources based view of LVMH: 5 2.4 Core competencies of LVMH: 5 2.5 Dynamic capabilities of LVMH: 5-7 2.6 Organizations’ ambidexterity of LVMH: 7 2.7 Innovation Approach and Strategy: 8 3.0 Internationalisation Process: 9 3.1 Organisational Structure: 4.0 Conclusion: 13 5.0 References: Appendices 10
  2. 2. 2 1.0 Introduction: LVMH is considered the King of the luxury jungle as it is the strongest player in the luxury industry where fixed cost makes scale supreme; the company continues to dominate in both brand image and high performance. The brand marketing and strategy, business models of luxury brands generally differs from the regular consumer goods. The current brand image of LVMH is not a coincidence but is something which is achieved by following a unique strategy, which is an essential factor in a sustainable growth of any organization (Nagasawa, 2008). A variety of models, theories and strategies have been developed which firm apply for market positioning’s such as porter five force model, Porter generic Strategies , Resource base view of firms ,The dynamic capability Concepts, ambidexterity and various innovation approaches, organizational structure and internationalization process also plays a significant importance in attaining a competitive advantage. So, in this report, we will evaluate the nature of the above mentioned strategic approaches to explore the LVMH’s competitiveness. 2.0 Market Positioning strategies of LVMH: Market positioning is one of the most important theories to achieve a competitive advantage as organisation needs to put or “position” itself in the best available place in the external environment, which can be a specific market or segment of the market (Hooley, 2008). To identify and analyse the market position of LVMH we will use two models which are Porter’s five forces and Porter’s generic strategies. 2.1 Porter Five forces analysis of LVMH: Porter’s five forces is an important analytical tool which is used to analysis the nature and degree of competition in the industry. To form a strategy to manage these forces, to achieve competitive advantage, a company must understand how these 5 forces work in the industry and how are they affecting it (Porter, 1986). Please refer to Appendix A, Table 1 for Porter’s five forces analyses. 2.2 Porter Generic Strategies comparisons: According to Porter, an organization has to position itself in the best position in the external environment by putting itself in a specific market or segment of a market. Porter conducted a study on various industries and found some generic behaviour with respect to how the companies do position which he termed generic strategies to achieve competitiveness.
  3. 3. 3 Porter’s four generic strategies are cost leadership, differentiation, focus- cost leadership; focus differentiation (Porter, 1980). Figure-2: Porter generic strategies of Competition Source: (Porter, 1980) LVMH is a hybrid generic strategic competitor as it follows differentiation and focused differentiation market positioning strategy by differentiating and continuously innovating its products, services and channels by making them unique to fulfil the objective of a company to be a leader in the luxury market and to continue to transmit elegance and creativity (Hooley, 2013). The focused Differentiation strategy is applied to serve the narrow group of the consumers by securing a niche to outperform competitors. Niche brands can serve the needs of the smaller audience in emerging markets. LVMH has the highest number of Non- Mega Brands as compared to its competitors (Duane & Hoskisson, 2012). If a company offers a unique quality of product and services the customers are willing to pay the premium price. To achieve differentiation LVMH has strong marketing and social media presence to educate the potential customers about the USP of the products, controlling the creativity, manufacturing and design process to achieve high status and sales. It is important to put control on the retail channels to achieve significant customer service. LMVH has achieved progress in adapting differentiation strategy in Price, Product, Support, Service, Delivery, Channel, Quality and Design (Mintzberg, 2003). Please refer appendix B. Porter argued that the Company can choose one of the four market positioning strategies. Porter points out that being in two categories at the same time is not a good idea. Porters were a reasonable argument as everything is to be managed in a proper way and if firms are hybrid they have a chance of losing their identity where they can get stuck in the middle of the performance decline for e.g. Aer Lingus, Tesco’s (Porter, 1986).
  4. 4. 4 Porter’s five forces and generic strategies prove that luxury good industry is a unique sector with global capabilities and as LVMH being an old player using differentiation in product lines is able to achieve a strategic position in the industry. The high entry barriers and low exit barriers bring high returns for the industry and LVMH continues to excel from its rivals (Jeantel, 2012). Further analysis will reveal the company’s core competencies and dynamic capabilities. 2.3 Resources Based View of LVMH Barney (1991) argues that competitive advantage can be achieved from collective and effective use of various resources of a company that competitors cannot imitate. Edith Penrose In ‘ Theory of the growth of the firms’ states that Firms are composed of various tangible, intangible resources and human capabilities, which need to be identified and developed to foster the growth , for diversification purpose or for value creation purposes (RUGMAN & VERBEKE, 2002). Refer to appendix C, Table 1 and 2 and 3, and Appendix D. 2.4 Core competencies of LVMH: The main core competencies of LVMH are potential leadership, unique and quality product, distribution channels, communication and price. LVMH maintains innovation and the creativity by retaining the best talent and top designers in the industry. The company has design skills and talent, and each design unit is independent and run by its own creative designer. LVMH has manufacturing efficiency as it maintains and controls the cost and helps in efficient management of the brands that people believe are better that the competitors. LVMH creates value for the customers, though the products are expensive. Customers look at the products as if they are buying into a dream. (Duane & Hoskisson, 2012). The above core competencies help LVMH to raise the operating margins and are critical in the firm’s use of focussed differentiation strategy. However the core competencies are not fully utilised as the company emphasis on creative freedom but this freedom is only enjoyed by star brands and less focus is given to the small brands, as a consequence there are chances that creative talent leaves, but the Firm is well equipped with crises management when it comes to retaining talent. Refer to Appendix E, Table 1, 2 and 3. 2.5 Dynamic capabilities of LVMH:
  5. 5. 5 In a fast changing environment, dynamic capability of an organization is to combine, construct, and reconfigure its external and internal competences (David J. Teece, 997). This approach emphasize on the dynamic nature of resource improvement and regeneration. The dynamic capabilities are mainly focused on three key activities such as learning, re-integrate existing assets, acquire and integrate new asset which also create innovation (Teece, 2009). Table 1: LVMH has various management processes in place to maintain brands capability:- Strategic and Financial  Figure out the position of each brand and where it fits.  Shifting cash from one brand to another to foster development. Talent Management  Worldwide managing talent in various businesses. Creativity and Culture  Managing 65+ brands presence in different cultures and countries.  Each brand keep safe its own culture and uniqueness.  Creativity an essential element in company’s growth. Adaptability and Responsiveness  Adapting with the latest trends, demands and constant changing fashion industry. Diversification  Ensuring high level of diversification in the brand portfolios. Source: Adapted from: (LVMH in 2011: Sustaining Leadership in the Global Luxury Goods Industry, 2011) The company has a philosophy of Innovation, creativity, and the nurturing of creative talents is practiced in all of its businesses. Firm hires best talent in the industry with diverse backgrounds and these new hires are given job training. For e.g. Company appoints a new board of directors in 2014, in 2012, LV came up with a new collection of bags by Japanese artist Yayoi Kusama. Intercompany seminars happen on the regular basis which develops communication and leadership skills and perfect management skills, for e.g. LVMH’s Global Leadership program. Employees are also given opportunities for transfer to the global headquarters (Duane & Hoskisson, 2012). The company also have conducted mergers and acquisitions to expand its brand portfolio to reduce risk, and to acquire a new profitable business with an aim to increase cash flow, and to maintain the diversity. Till date group have acquired 70 Luxury brands (Sehl & Goldberg, 2012). LVMH has evolved in the past one decade; brands grew from 24 to 63. The Company
  6. 6. 6 is now becoming more selective in acquisitions as it experienced tough financial situation due to recent high price purchases. Refer to Appendix F The core businesses of LVMH like fashion, leather goods, watches and jewellery have the highest attractiveness and competitiveness (Research, 2009). LVMH has the two strong categories which are Leather goods and premium wines and spirits, which brings the company around 80% of the net operating profit. Leather goods and handbags will continue to be the primary category in the luxury market as handbags act as ‘image anchors’ to the women and this brings a unique opportunity to the brands to differentiate their products from the competitors, and this brand does with the change in logo, shape and size, texture, style and metal components, where LVMH is successful (Nagasawa, 2008). LVMH champagne division ‘Moet et Chandon’ is the Industry leader in champagne and is the world’s finest champagne priced above the existing wines as it is been perfected by the technique of double- fermenting (Research, 2009). LV maintains fine leather in their products by using technological innovation to ensure the zero- defect policy. According to Mr. Carcelle CEO and president, LV is focused on geographical expansion in the emerging markets while maintaining the brand exclusiveness. LVMH should build new competencies by using new materials and customer expectations with who they have traditionally worked with. LV has tried to keep their innovation sustained throughout time But they can face counterfeiting hence anti-counterfeiting procedures are required. Recently Google joined LVMH to fight counterfeit issues online (Bhavana, et al., 2008). Refer Appendix G 2.6 Organizations’ ambidexterity of LVMH: Organization should have both Blue and Red Ocean Strategies and the concept of balancing the two is termed as ambidexterity. Organisation should exploit their existing strategy (Red Ocean) as well as should explore the new strategy (Blue Ocean). Such kinds of organization are unique as they practice both incremental and disruptive practice to achieve competitiveness (O'Reilly, 2013).
  7. 7. 7 In the case, when the luxury market is in Red ocean then the innovation of LVMH in its products has brought it in Blue ocean. Though, in the market such type of luxury products are available but the unique feature of LVMH products has shaken the market as the special feature has been continuously added (Matthew, 2010). LMVH has gained an opportunity to be a first- mover in Blue Ocean by pioneering the cost, quality and innovation. The company has the superior strategy to charge a premier price for its superior product differentiation. For LVMH, it follows differentiation strategy to enhance profit and market share in luxury segment but other brands such as PPR also follows the same strategy to dominate the market (Tran, 2007). LVMH should keep its price high else other rivals can enhance the red ocean competition for LVMH (O’Gorman, 2008). LVMH has very well balanced Red and Blue Ocean strategy to compete in the existing market. LVMH continues to exploits old (Red ocean) strategy (Barlett & Ghoshal, 1989)and enter into Blue ocean because it is risky to make changes to old strategies as it creates structural disturbances, and if the organization fails to gain success in a new Blue Ocean strategy then the firm might not compete again in the existing market (Mauborgne, 2015). So, the organization needs to keep its innovation continue to compete over its rival. Refer to Appendix H 2.7 Innovation Approach and Strategy As a long term vision of LVMH, it believes in innovation by acquiring the successful brands and in this process, the firm acquires the key attributes of the already prospering brand which builds a heritage of the acquired brand and stimulates creativity and excellence. For e.g.:- The acquisition of Sephora the France leading chain of fragrance and cosmetic store. In 2002, LV expanded its network through seven new shops and four new global stores which totaled to around total network of 40 global stores. To acquire retail units to spread the luxury value and innovation to the product as well as to the purchase and post-sale process is the idea of CEO Bernard Arnault (Afuah, 2009). Innovation is the pillar of the LVMH Business model and when the innovation is about to reach its limit or maturity level, LVMH comes up with a new innovation to enrich the experience beyond the maximum and in order to go beyond incremental innovation the
  8. 8. 8 LVMH research try to understand the emerging aspirations in various areas to discover new growth patterns and blend tradition and modernity to create products. Involving ethnographic approach with In process capitalization and its methods open a further way to investigation and research to serve the customers better. Refer Appendix for Product and Process Innovation. LVMH has a portfolio of 60 brands with different patents and product lines, identity and positioning which are present worldwide (Afuah, 2009). 3.0 Internationalization Process In the luxury market, LVMH has gained the opportunity to be first- mover in Blue Ocean to be pioneering the cost in the luxury products. It has the most diverse international process in all the operations. Company is not limiting itself, as a result, they are Introducing new products, mergers and acquisitions, entering in emerging markets for e.g. geographical expansion to China and other Asian countries also helps the organization to enter into Blue ocean due to unique features (Roy, 2014)Refer to Appendix The core businesses of LVMH like fashion, leather goods, watches and jewellery have the highest industrial attractiveness and competitive Strength and being a first mover the company has increased the barriers to entry by capturing key assets in target markets as a market entry strategy. Market selection plays a major role as the company focus on the market where the demand for the luxury product is increasing so they look for customers preferences in different regions. However the market of LVMH is limited to the specific companies with strong economies like japan from where company generates 20% of its profits and the second biggest market is US but as the revenue got reduced during the time of crises from the major market and such issue it was the only luxury company to survive recent financial crises as per the reports. LVMH keeps the reputation of its origin as well as adapt the products to the local needs of the people by keeping tight and lose control over SBU’s (Research, 2009). Local First or Global First A study conducted by Rugman and Girod, 2003 on 49 retail MNE’s from which the only LVMH was found out to be global retail MNE (Schröder, 2014). LVMH is a company with the global strategic vision which provides broadly distributed products which brings lots of benefits to the group as it does so with the lower level of investment in R&D and cheaper
  9. 9. 9 transaction costs with greater control. Core operations of LVMH are concentrated in their home market but still they have a global presence and broad access to the markets. LVMH as a global offeror has an advantage of arbitrage, more expansion and market opportunities where the company pre - analyse the risks before making an entry in a new market. The main disadvantage which, being global brings to the firm is of a distance which can damage the capabilities and the image of the brand and there is less possibility of being emergent (Dewhurst & Heywood, 2012). Reducing the operational risk is the brands motivation to apply horizontal integration which helps in generating economies of scope and reducing operation cost. By this integration company is able to sell more products worldwide and share resources. LVMH has a strategy of MnA to increase its market power As acquiring another brand is more expensive than setting a new brand but the advantages and long term benefits derived are more as existing brand has its own identity and novelty (LVMH, 2014). Product Strategy of LVMH at maturity stage brings style improvement. Refer appendix C for the LVMH position on the life cycle. According to their place strategy, LVMH has a passion of shaping each store into a unique architectural design. As per the pricing strategy they use premium price and market skimming pricing strategy to reach the market segment which is willing to pay for a unique product. The company keeps high prices, never cut down the prices and allows no bargaining (Nagasawa, 2008). LVMH follows network internationalization process as the brand continues to expand in the promising geographical markets and is getting selective in choosing multi – brand retail network. The company has a powerful international distribution network of the brand and the network of local managers at group level leads this approach by abiding by LVMH code of conduct. The product portfolio and the distribution network wrapped in the commitment of the brand to its customers in major markets and new markets are the strength of the group. It can be argued that there is much to be globalised other than just the sales operations, as the company doesn’t globalize its manufacturing activities (LVMH in 2011: Sustaining Leadership in the Global Luxury Goods Industry, 2011). 4.1 Bartlett and Goshala’s internationalisation configurations According to Bartlett and Ghoshal, there are two strategic drivers. They are local responsiveness and global co-ordination (Barlett & Ghoshal, 1989). LVMH has global
  10. 10. 10 operations as well as it has its offices in different regions. The Firm applies the combination of multinational and global as it provides better inner control and responsiveness. LVMH provides local responsiveness in product lines like wine and spirits as per the local regulations and to adjust with the environment. In contrary, some product lines need more integration rather than local responsiveness like fashion and leather products, because the worldwide need for the kind of fashion and leather goods is almost same (Nagasawa, 2008). Transnational structure depends on networking of worldwide branches to unite capacity and territory structure. This methodology has helped firms to exploit assets in the nearby environment to perform operations. Assume, if LVMH moves its assembling unit to Asian nations to access to cheap labour and embraces this framework then there might be a possibility of creating lower quality items and harm to the brand character. However, the purpose of LVMH is to provide quality extravagance items and the brand image plays a foremost part in accomplishing high edges. Consequently, a transnational network structure is not helpful on account of LVMH to attain worldwide economies of scale and in the meantime to keep up high calibre and status, however, the group has an agreement to move towards applying this structure in future (henleybusinessreview, 2013). Appendix Organizational Structure LVMH’s global product business model places brand experts at the helm and that is useful in maintaining the strong link between the customers and product development expert. Different products are managed separately hence the company is successful in keeping pace with global trends which help in innovation. Each company is free to adapt to the marketing and retail strategies suited to the need and demand. LVMH provides autonomous management to each brand and employee which enhance the creativity and the results in providing adaptability management in different regions (henleybusinessreview, 2013). Adopting synergy approach among the companies has created strength for different branches and subsidiaries. LVMH has a decentralized model and allows different branches to share the departmental units which helped every company to benefit from LVMH’s resources and created value by adding parental skills. This result in more independence and autonomy to the unit as well as maintains the portfolio, visibility, transparency and expertise development, scalability and have life cycle benefits. LVMH apply their knowledge of the fashion industry and continues expanding. Knowledge sharing between the parent and subsidiary continues
  11. 11. 11 (Hoskisson, et al., 2012). It uses horizontal integration for building a brand portfolio and the vertical integration strategy in manufacturing to put more control on production and value chain rather than outsourcing to the suppliers. The integration strategy of LVMH in its production and value chain is unique and this is also one of the reasons of the organization has achieved differentiation (Hooley, 2013). The model of LVMH doesn’t exist without the defects; the model conveys excess and duplication to the expense and effort, which increases operational cost when products classifications are overseen independently. It will require some more investment for the LVMH to meet the criteria for the worldwide organizational structure to comprehend the nearby and universal market well. As the way of each local market and segment varies, matrix structure can be suitable for adjusting item and worldwide area technique to penetrate the business in every district and to develop the creativity of each brand, and to exploit creation, manufacturing and distribution. However, in the long haul, it will be extreme for the firm to incorporate recently procured brands in the present structure (henleybusinessreview, 2013). Conclusion From the above discussion, it can be concluded that LVMH has the best strategy for market positioning and it is able to manage porter’s five forces better. Secondly, the generic strategies analysis shows that LVMH follows differentiation strategies in an effective manner than its competitors by utilising this strategy company is trying to stick to the full price, Hiring Experts, Expanding in different markets, Controlling various operations and Inventory. LVMH has high resources capabilities (Physical, Financial, Intellectual and Human) to achieve competitiveness. LVMH has focussed on the core competencies of Product, Distribution and Communication that the customers are ready to pay the premium price. According to corporate level strategy, LVMH focuses on corporate value and culture to bring creative design and quality to the products. However in Future, we can see a challenge in how to deploy various brands strategically and it can result in brand war and competition at the corporate level. LVMH’s international strategy is to enter a foreign market is by conducting merger or acquisition of traditional brands which also helps in bringing innovative ideas to the firm. Besides these strategies, innovation of product and process, and entrepreneurship plays a
  12. 12. 12 significant role in driving growth. Moreover, the dynamic capabilities comparisons have successfully combined and integrated its resources to effectively achieve competitive advantages. Moreover, the Red and Blue Ocean strategy analysis also has proved that LVMH has a possible future to lead the luxury industry. Firms have direct control over the internal environment and each firm has its own strategic leader who makes the choices about the resource and capability required by the firm. Louis Vuitton is the only star brand of the group which brought 60% of the annual growth and analyst critic that this can bring potential risk to the group as LV has a chance of losing appeal to the customers one day. However based on the analysis, some percentage of the revenue is been utilized in uplifting other smaller brands which can grow like LV in future. There are many opportunities present for LVMH to acquire new businesses in the international market in different product lines and to give creative freedom to the small brands in the group rather than only on the star brands.
  13. 13. 13 Appendix A Table 1: Porter’s 5 Forces Analyses Barriers to Entry : High Barriers to Exit : Low to moderate  In Luxury goods industry, four barriers of industry are present :- 1)economies of scale 2)differentiation 3)unrecoverable expenses 4)unique factors  Other Factors: - total capital requirements, patents, and learning curves , niche and sustained brand loyalty within their target market, sophisticated research and development and marketing, Management commitments are relatively high  Assets can be sold to competitors  no fixed costs of exit  contractual commitment is relative to the company 1)Industry rivalry: Low Barriers to Entry: High  The competition is on the realised quality, extravagance, Royalty, Stylishness and intangible image of the products instead of the price, Differentiation and growth rate high.  Presence of best talent in the industry and top notch designers like Marc Jacobs for Louis Vuitton.  Barriers to entry are kept high in order to continuously sustain and enhance the brand image, maintaining the perception of the customers and to respond to the needs of them (Alqararah, 2014). 2)Threat of new entrants: Relatively High  New luxury product brands like Prada, Hermes etc.  The new brands are successful in the market and can be acquired by the competitors and if they remain nuclear they can bring threat and risk.  As the barriers to entry are high so the new brands won’t be able to attain customer loyalty which LVMH has attained throughout its lifetime continuously for its product services and quality as customers always
  14. 14. 14 have preference to go for established name and perception (Jeantel, 2012). 3)Bargaining power of buyer: Low  Market Size in respect to targeted customers is small. Main focus in on the high class of the society, people with high income.  LVMH has two types of customers 1) High Net worth customers who are quite loyal and are growing 2) Middle market customers who are more volatile and change the preferences. 3) vertical integration  The problem for the company is to deal with the trade – off in weather to satisfy high new worth customers or middle market customers (Alqararah, 2014). 4)Bargaining Power of Suppliers: Low  LVMH deal directly with the suppliers in low price to keep the product quality high.  Follows supplier consignment method which has helped in reducing the loss and risk increase the economies of scale.  LVMH acquires main suppliers, recent take-over of leather supplier Les Tanneries Roux, it not only helps company to lower down the bargaining power and also help company to save storage space cost and delivery of the quality products supplied is promised (Jeantel, 2012). 5)Threat of Substitutes: Relatively High  Other luxury brands like Prada and main competitors like Kering.  There exist various counterfeit issues as LVMH has to focus on core competency, products and services uniqueness, retaining employee to create better supply chain and distribution to the final customers (Jeantel, 2012). Source: Adapted from (Alqararah, 2014), (Jeantel, 2012), (Bruce & Hines, 2007)
  15. 15. 15 Appendix B: LVMH Differentiation Strategies Source: Adapted from (Gerawal, et al., 2014) Appendix C: Life Cycle Position of LVMH Source: Adapted from (Alqararah, 2014) Appendix D: Tangible and intangible resource base of LVMH Table 1: Tangible Resources Financial Resources  LVMH has large financial capabilities, profit comes from various brands.  Funds helped in developing and expanding in different regions, MnA’s, Fund
  16. 16. 16 Reallocation.  Revenue of $30.6 billion and Net Profit of $5.6 Billion reported in 2014. Organisational Resources  Effective Planning and Control on Production, Advertising, Distribution, Sales and Manufacturing process.  Best fashion magazines, such as Vogue, Vanity Fair, and Elle to advertise their products, Social Media.  Collaborated with famous supermodels, actresses and singers Physical Resources  Numerous plants in France, Spain and Italy, Supply chain co-ordination  High Tech Machinery and Equipment’s.  70 Houses, 3700 Stores, 120,000 Employees.  New Outlets in Ho Chi Minh City, Vietnam; Phnom Penh, Cambodia; Yekaterinburg, Russia; Macao; and Abu Dhabi, Presence in Asia.  Various own offices, Industrial Buildings, Wineries, Production and Manufacturing centres, Public Relation Centres, Distilleries, in France, California, Argentina, Australia, Brazil, New Zealand, and Spain, linked to the main brand. Approximately 773,000 square meters of property in France and 137,000 square meters outside of France. Technological Resources  Advanced E-commerce, Own Websites  Artistic Creativity and Innovation  Trademarks, Patents like LVMH Recherche  Vuitton's test laboratory  Computer Program to Identify the flaws In the leather  Ensure the durability of the bags by using a robot  machine that tests bags for fading by shooting ultraviolet rays at the bag  machine that opens and closes a zipper 5,000 times, a mechanized mannequin hand Table 2: Intangible Resources
  17. 17. 17 Intangible Resources  Recognised and well known designers  High experience and capabilities craftsmen and other employees  High managerial skills and know-how.  LVMH recherché: innovation capabilities and scientific expertise.  Brand image, goodwill and reputation.  Creative team and management team of acquired brand is preserved.  Knowledge is shared between the parent and the subsidiary and in the case of newly acquired the culture of the company is maintained. Source: Adapted (Bruce & Hines, 2007), (Jeantel, 2012) Table 3: Human Capabilities: Four HR processes performed in the organization :-  Selection of matching people to the requirement of job  Performance Appraisals  Rewards: real importance of pay and compensation in achieving results  Development of skilled individuals Learning and development in LVMH LVMH's is committed to provide training and development for all staff  Staff are equipped with appropriate skills, experience and support required to provide high quality care and services  Make sure that the processes are in place for employees to achieve their potential and that individual contributions are valued and recognized.  Ensure that staff undertake training as required by their role and training needs are identified at an individual, team and organizational level  Making sure of the high quality training and development is commissioned.  Effective learning and development processes and systems are in places that are accessible and clear.  Develop first class leaders and managers within the Provider and Commissioning arms of the LVMH  Develop a Quality Assurance framework for Learning and Development  Continuous consultation with the staff and higher mgmt.  Timely Evaluation of feedback
  18. 18. 18 Appendix I: Financial Assets Appendix E: VRIN Framwork Brand, Innovation and Quality Table 1: VRIN – Brand Value:  The brand is valuable.  Value to the consumers.  The brand contributes highly to the company’s profit. Rarity:  The brand is rare.  No other company possesses same brand perception of quality and
  19. 19. 19 craftsmanship. Inimitability:  The brand is difficult to imitate.  The brand is based on a tradition of heritage and quality craftsmanship.  It is hard to know exactly what contributes to the success of the brand. Non-substitutability:  LV’s brand is at risk from substitution.  Brand can be substituted to some extent by less loyal customers. Table 2: VRIN – Innovation and savoir-faire Value:  innovativeness and savoir-faire.  created value to the company.  The brand contributes highly to the company’s profit. Rarity:  companies do innovate and adapt to the environment, but not in the way that LV did it. Inimitability:  Ability to adapt to environmental circumstances is hard to imitate.  LV has managed to innovate in a way that adapts to the environmental trends. Non-substitutability:  Innovativeness and savoir-faire is difficult to substitute. No other such substitutes providing the same output. Table 3: VRIN - Quality
  20. 20. 20 Value:  Quality of LV’s product does create value for the consumers as well as for the company. Rarity:  Quality of LV’s products is rare, very selective about the raw materials, pick out their suppliers carefully. Inimitability:  LV’s products go through rough testing to ensure the quality and durability.  Lifelong guarantee on the products, co-workers expertice and experience in crafting the products. Non- substitutability:  Quality of LV’s product is not at risk of being substituted, no direct substitute for quality. Adapted from (Gerawal, et al., 2014) Appendix F: Parameters taken into consideration before performing an Acquisition Source: Adapted from (Alqararah, 2014) Appendix G: Comparison Between the principles of general marketing and LVMH principles
  21. 21. 21 Source: Adapted from (Nagasawa, 2008) Appendix H: Exploring and Exploiting Nature of LVMH Adapted from (Penker, 2012) Appendix : Product and Process Innovation
  22. 22. 22 Product Innovation  LVMH Recherche Founded in 1981, Appx 250 researchers, new research and development center - Hélios.  Research Areas: Biology, Chemist, Pharma, physicists.  Latest scientific discoveries create innovative cosmetics.  Collaborative study with major research centers and universities.  Expertise of the researchers Know- How applied in future development.  Discovery of new ingredients, and testing and evaluation methods of various cosmetic products.  French label Christian Dior generated interest in its One Essential skin care line through its Beauty Chronicles campaign that highlighted the product line’s Nobel Prize winning ingredient (McCarthy, 2013). Process Innovation  Innovative creativity of the designers, hiring the best talent.  Giving complete independence to designer by decentralization.  Each brand is run by its own designer.  Picking the best talent, training them and maintain them.  Thorough testing of all the products in comparison to the competitors. Adapted from : (Sudarsanam, 2003), (Alqararah, 2014), (Afuah, 2009), (Bruce & Hines, 2007) Appendix J: Bartlett and Ghoshal’s International Strategy Configurations
  23. 23. 23 Source: Adapted from (Alqararah, 2014) Appendix K: Comparison of LVMH strategies with Competitors Source: Adapted from (Alqararah, 2014)
  24. 24. 24 Appendix L: Value Chain Analysis of LVMH Source: Adapted from (Guan, 2012) Works Cited Afuah, A., 2009. Strategic Innovation: New Game Strategies for Competitive Advantage. s.l.:Routledge, 2009. Alqararah, K., 2014. LVMH Strategic Analysis, s.l.: Linkedin. Bamey, J., 1991. Firm resources and sustained competitive advanatge. Journal of Managment , 17(101), pp. 100-1002. Barlett, C. A. & Ghoshal, S., 1989. Managing Across Borders: The Transnational Solution, s.l.: Harvard Business School Press. Bhavana, S., Castillo, R. & Das, S., 2008. Time For Louis Vuitoon to Come Home, Glendale: Thunderbird.
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