Top Countries For The Luxury Market example essay topic

Challenge statement:" Despite worldwide softness in the sale of luxury goods, LVMH has cemented its position as the world's largest and most profitable player in the category. To stay there it must keep its customers loyal and its brand strong and find new markets worldwide" (Hazlitt C. 2004). That is why in its mission they state to represent the most refined qualities of Western " art de viv re" all around the world. Their objective is to be the leader in the luxury market, continuing to transmit elegance and creativity. This poses some major challenges, the main one is to keep being the leader in the luxury market through a sustainable growth. The main problem to achieve it is the high dependency on three main countries, France, Japan and USA.

This becomes a threat because if there is an economic downturn in one country it affects LVMH directly that is why. ANALYSIS Financial analysis. LVMH founds itself in a stable financial situation. Being positioned as the market leader they have better financial results than the rest of the competitors. Although the sales results for 2004 were under the industry's average the overall performance over the last 5 years was 3% higher then the industry. It is important to note that the major owner of the company's capital is present CEO Bernard Arnauld with 47.52% of the control of the company with 64% of voting rights.

This may have an Important impact in the overall performance and operating decision taken in the company. Marketing system After a 4 P analysis of the company one found that it found itself in a luxury market where product quality and constant innovation are key points for the success. That is why the production process and its design can take even months. Product line is extensive however it is only conformed of high priced products.

Price in this case is a guarantee of the quality present in the product. Moreover, high pricing represent an element of differentiation that the customer appreciates. However this is not a setback, LVMH has managed to have world wide presence and success. To accomplish it its selective retailing division is of high importance. Nevertheless, promotion posses the major challenge since its through this that the image of the product its transmitted that is why the company poses a major part of its budget in this section.

It is Important to note that the percentage allocated is higher than those of most competitors. Core competenciesLVMH possesses an atypical structure: 60 brands with different professions, present all over the world with each a strong identity and an appropriate positioning for each. LVMH produces high quality goods. Their distinctive competence is that the range of product of LVMH is very large. It's of course a competitive advantage because if customers are satisfied by one brand they will trust the group and certainly buy another of their products. Customers LVMH's products are very expensive that is why buyers have a high purchasing power.

They buy LVMH's products for the quality and for brand's recognition. In conclusion we can say LVMH is the world's largest luxury products company with a very strong diversification strategy. The main strength of the company is strategic alliances and partnerships it performs with famous and quality brands. The biggest weakness is that LVMH is vulnerable to fluctuation of the economic environment. The main problems Declining demand for luxury goods The luxury sector is particularly sensitive to the fluctuation of the market linked to political events, economic situation and to social and technological trends. The luxury sector is actually linked to the economic context at the extent that luxury products are the first products eliminated in time of crisis by consumers.

For example, the effect of September 11th terrorist attacks had an important impact on the demand for luxury products and therefore on LVMH sales results. Major problem Fluctuation of the sales The sales of LVMH are unforeseeable; they strongly depend on the environment. Some of luxury products are easy to copy There are a lot of forgery products available in Europe that are mainly produced in China. It is an important problem as it is really easy to buy those forgery products in the street, at a cheaper price. Little strategic fits between businesses like radio stations and its luxury products There may be a problem in terms of strategic fits between the related and unrelated businesses LVMH is involved in.

The diversification strategy may be seen as dangerous for the strategy coherence. Distribution network They own their distribution network however focusing on selective retailing take time and money but it does not take part of their core competences. The problem is that they may not be expert in the area and make wrong strategic choices. They have only one retailing system. The unique retailing system may be a threat if it not adapted for all their products: it may be different to retail wine and cosmetics. The target is very large, that is why they have to keep classical models and an innovative and fashion line to satisfy the whole target.

Alternatives 1) To expand the current existing brands geographically. 2) Alliances with new creators 3) Acquisitions of luxury companies in foreign countries ANALYSIS OF THE ALTERNATIVES 1. To expand the exiting brands geographically This strategy aims at entering new countries in order to decrease the dependency for LVMH on the three countries which are France, the US and Japan. This expansion could be realized in developing countries where there is an increasing demand for luxury goods like Russia, China or India. It would be also a way to catch new customers and to extend the company's image all over the world. pros - be less dependent on specific countries' economy- attract new segments- enter new markets - increase profit and sales - profit from growth trends in some countries cons- costly - time consuming - there could be some barriers to enter markets - deal with new countries regulations 2.

Alliances with new creators To ally the company to new fashion creators would be a good alternative. Ask to new creator not already known to create new products as clothes and accessories, is a way to make evolve the company. Pros: New creator would be helped to be discovered. It would bring freshness and youth to the brand.

Cons': It only concerns the fashion sector, It doesn't concern an expansion toward other country, and doesn't solve the problem of dependence on the environment 3. Acquisitions of luxury companies in foreign countries. The goal of this alternative is to expand the brand LVMH abroad by acquiring existing brands. The main advantage is that existing brands know the market, consumer behavior, the cultural trends, and the customer already knows the brand. This will allow LVMH to avoid mistakes in its integration of the foreign market. Pros: Knowledge of the market Know consumer tastes and behavior Brand is already positioned in the market Use existing infrastructure, don't have to open new stores The company has a great innovation culture that could attract new potential customers Increase of market share Emphasize their leader position Increase their revenues Cons: Big investment to buy an existing brand Misunderstanding of the strategy between the two companies Desequilibirum not a good work No recognition of the new brands by current customers in France, Us, or Japan Recommendation DECISION GRID Weight in decision 0.4 0.3 0.1 0.2 0.3 Cost Risk Time Market Acceptance degree TOTAL SCORE Alternative 1 6 2.4 2 0.6 8 0.8 7 1.4 6 1.8 7 Alternative 2 2 0.8 5 1.5 4 0.4 3 0.6 2 0.6 3.9 Alternative 3 4 1.6 5 1.5 6 0.6 5 1 7 2.1 6.8 Scale: 1 = low 10 = high Chosen alternative: To expand the exiting brands geographically The first strategy seems to be really adapted to the strategic challenge.

Indeed, the luxury market is yet really dependent on the global economy; consequently LVMH should not emphasize this trend by focusing on three main countries. It has to extend and go to new markets in which there are huge possibilities of growth and development. Implementation How it will be accomplished? Four main countries have been chosen to develop the strategy based those who are considered to be among the top countries for the luxury market. Therefore the chosen countries are Russia, China, India and Brazil. The main objective is to start marketing the company's products intensively.

The process will be as follows: 1. Conduct market studies previous to entering the market completely, the most important ones are consumer behaviour and potential growth. 2. Intensive advertising camping, through bill posting, TV ads, and press releases. 3.

Opening retailing stores in specific locations. 4. Evaluate the obtained results. 5.

Modify strategy if the obtained results differ from those desired. When it will be accomplished? The strategy should be developed as follows. We consider this is a logical timing to enter a new market. One year and 5 months is a considerable time to enter new markets because if it is not done in a considerable short term basis then one can be beaten by competitors. We consider that the 2 months to develop the advertising campaign are important because each division has to take time to develop its own campaign since that is how the company has been working.

Moreover, it is also important to advertise before the stores are opened so we make the consumer aware and expectant of our products.