Description
documentation is about cross cultural marketing report on LVMH.
Cross Cultural Marketing – Report on LVMH
Contents
Moet Hennessy. Louis Vuitton ............................................................................................................... 3 Introduction ......................................................................................................................................... 3 Current Progress of the Company ........................................................................................................... 4 2009 revenue highlights ...................................................................................................................... 4 Revenue By Region ................................................................................................................................ 4 Impact on LVMH due to cross cultural dimensions ............................................................................... 5 Hofstede?s dimensions of national culture ...................................................................................... 5 Other theories significant to LVMH ................................................................................................... 6 Hierarchy of Needs: Esteem ........................................................................................................... 6 Country of Origin ............................................................................................................................ 7 Marketing Mix of LVMH ................................................................................................................... 7 Questions of the Case.............................................................................................................................. 8 Q1. Bernard Arnault has built LVMH into a luxury goods empire by making numerous acquisitions. What strategy is evident here? ....................................................................................... 8 Q2. How do LVMH executives adjust prices in response to changing economic conditions? ........... 8 Q3. Do you think that high retail prices are worth paying? ................................................................ 9 Q 4. How will luxury goods marketers be affected by slow down in tourism post 9/11? .................. 9 Learning through class discussions ....................................................................................................... 11
LVMH and Luxury Goods Marketing
Page 2
Moet Hennessy. Louis Vuitton
Introduction
LVMH Moët Hennessy • Louis Vuitton S.A. (Euronext: MC), usually shortened to LVMH, is a French holding company and one of the world's largest luxury goods conglomerate. It possesses a unique portfolio of over 60 prestigious brands. The Group is active in five different sectors: Wines & Spirits Fashion & Leather Goods Perfumes & Cosmetics Watches & Jewellery Selective retailing Thanks to its brand development strategy, and the expansion of its international retail network (more than 2,400 stores worldwide), LVMH has had a strong growth dynamic since its creation in 1987. Christian Dior, the luxury goods group, is the main holding company of LVMH, owning 42.4% of its shares, and 58.2% of its voting rights. Bernard Arnault, majority shareholder of Dior, is Chairman of both companies and CEO of LVMH. His successful integration of various famous aspirational brands into the group has inspired other luxury companies into doing the same. Thus Gucci (now part of the French conglomerate PPR) and Richemont have also created extended portfolios of luxury brands. The oldest of the LVMH brands is wine producer Château d'Yquem, which dates its origins back to 1593.
LVMH and Luxury Goods Marketing
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Current Progress of the Company
2009 revenue highlights
? ? ? Improved trends There was a continued strong performance of Louis Vuitton. LVMH managed a Solid momentum in Asia and good resilience in Europe.
Revenue By Region
The revenues in the US has dipped slightly by a 12% margin but the drop has been higher in Japan at 19%. But as far as Asia is concerned, there has been a considerable growth in the revenues i.e. 5% in 2009.
Wines & Spirits
•2009 highlights •Improved organic revenue in Q3 (-11%) •Single-digit decline in US, growth in Asia •Champagne and Wines •Champagne volumes show better resilience in Q3, down 16% down 23% in the first 9 months •Good performance of still and sparkling wines in the US •Cognac •Hennessy volume trend improving, •Successful introduction of Hennessy Black in the US
Fashion & Leather Goods
•2009 highlights •By region (in local currencies): +19% in Asia and +5% in Europe; US and Japan down •Louis Vuitton: double-digit revenue growth over the first 9 months • All regions recorded increases in Euros •Continued good performance in Europe and Asia • Chinese clientele show strong demand • 439 stores at end of September 2009 (14 net openings since beginning of the year) •Fashion brands impacted by reduced wholesale and postponed orders, notably from department stores
LVMH and Luxury Goods Marketing
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Impact on LVMH due to cross cultural dimensions
Hofstede’s dimensions of national culture Differences pertaining to cultural factors like attitudes, values, religion, dietary customs and communication can affect local reaction to a company?s brand or products as well as the ability of company personnel to function effectively in different cultures. Hofstede?s model helps to explain basic value differences between different cultures. The model distinguishes culture according to five dimensions: 1. Power distance: Extent to which less powerful members of a society accept and expect hat power is distributed unequally. In large power distance cultures, people are well groomed, in particular when going out in the streets as your position in the social hierarchy is defined by the clothes you wear, your shoes, your posture and your make-up. The „rightful-place? concept implies that in high power distance cultures, being the number one brand and utilizing the number one brand is very important. 2. Individualism/Collectivism: People looking after themselves and their immediate family only, versus people belonging to in-groups that look after them in exchange for loyalty. In collectivistic cultures, the identity of people is based on the social system they belong to, and avoiding „loss of face? is important. They draw sharp distinctions between members of ingroups and out-groups. 3. Masculinity/Femininity: The dominant values in a masculine society are achievement and success; the dominant values in a feminine society are caring for others and quality of life. In masculine cultures, children learn to admire the strong; in feminine cultures, children learn sympathy for the loser. Since, in masculine societies, performance and achievement are important and must be demonstrated, so status brands are important to show one?s success. 4. Uncertainty Avoidance: The extent to which people feel threatened by uncertainty and ambiguity and try to avoid these situations. 5. Long-/Short-term orientation: Long term orientation is the extent to which a society exhibits a pragmatic future-oriented perspective rather than a conventional historic or shortterm point of view. However, countries can be described, not according to a single factor but, through a number of characteristics combined together. For example, Country/ Characteristic United States Japan Power Distance Below average High Power Distance Individualism/ Collectivism High Individualism High Collectivistic Masculinity/ Femininity High Masculinity Masculine Uncertainty Avoidance Long-/shortterm Orientation Weak Uncertainty Short Term Avoidance Strong Uncertainty Long Term Avoidance Orientation
Thus, since in the United States, winning, power, success and status are important (high masculinity) and there is high degree of independence, it proved to be a major customer of LVMH products. Also, below average power distance combined with weak uncertainty avoidance allows people to dream of new and better things each day. This allows them to innovate with the products they use and aspire for more. Thus LVMH finds a lot of new customers in United States, who dream of owning products LVMH and Luxury Goods Marketing Page 5
symbolic of high achievement, however for retaining those customers LVMH needs to constantly innovate and maintain the perception of achievement on buying an LVMH product. On the other hand, in Japan, there is high power distance where a person?s social position is defined by the outer appearance and public wear, thus, there is significant correlation between luxury brands and one?s social status. Also the collectivist culture relates to brand loyalty, which is further reinforced by a strong uncertainty avoidance tendency. Purchasing products that are well known to the in-group may help decrease uncertainty about in-group approval of the purchase. Choosing another brand than the group members or changing brands distinguishes a person from the group, therefore to avoid that, it is preferable to choose the popular or perceived popular brands. This was reflected in the case, where a Tokyo based flight attendant stated “One friend of mine has 10 Louis Vuitton bags. In Japan, it’s a status symbol. It’s very important to have European luxury goods.” Therefore LVMH found a huge and loyal market in Japan as well.
Other theories significant to LVMH
Hierarchy of Needs: Esteem LVMH is a global luxurious brand. Luxury goods marketers are especially skilled at catering to esteem needs in a global basis. LVMH, Rolex and Dom Perignon are just a few of the global brands that consumers buy in effort to satisfy their esteem needs. Some consumers flaunt their wealth by buying expensive products and brands that others will notice. Such behavior is referred to as Conspicuous Consumption or luxury badging. The above concept can be explained by the needs based approach or Maslow?s hierarchy of needs.
LVMH and Luxury Goods Marketing
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Self esteem is very high in the hierarchy. The products here are not „needs? but? wants?. LVMH basically caters to the self esteem of the person. People either use LVMH products to raise their self esteems or to flaunt their wealth to others. Either way LVMH gains. Country of Origin LVMH uses France as a Brand Element. France is positioned as a fashion capital and a fashion product from France will definitely be seen as high class fashion product. This effect is known as country-of-origin effect. The country becomes part of brand?s image and contributes to brand equity. It has both positive as well as negative effects.e.g. Germany is related to engineering excellence so a car from Germany would be considered better. Similar way Italy with style and France with Chic. It can also have a negative effect in some cases. For LVMH, France has been an added advantage.
Marketing Mix of LVMH
The parameter on which the case is related to the Marketing Mix is: ? Price – the price of the product is not defined only in terms of the financial value of a product but also in relation to the Status value and the utility value. The status value is what the consumer actually paying for LVMH products. Product – the product is defined by the functional features that it provides to the customers, in case of LVMH products in addition to the functional features the utility value and the satisfaction derived is more important. Place – the place where the LVMH stores are located are such that they get a lot of travelers. Thus they target location like airports and high society malls. The ambience and the atmosphere maintained at these places are to give a complete shopping experience to the customer. Promotion/Publicity – the promotion strategy used by LVMH is to get add spaces in fashion magazines and associate themselves with celebrities who are considered fashionable.
?
?
?
LVMH and Luxury Goods Marketing
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Questions of the Case
Q1. Bernard Arnault has built LVMH into a luxury goods empire by making numerous acquisitions. What strategy is evident here?
The strategy they adopted was to follow inorganic growth aided by a few distinct features: • Acquisitions centered around brands which gel with the existing Louis Vuitton heritage. They wanted to focus on the image of the acquiring brand and the niche segment they catered to as well as the markets they were in rather than the product line. This also lead to unique diversification of their product portfolio, while continuing to remain in the super niche luxury segment. Think global, act local : The other point worth noting is that they did adapt to the local markets, if not with respect to the product, the with respect to location of the shop, cost effectiveness, etc. Economic conditions of the region where the brand is predominantly present as well as the market of that product as a whole is also given due consideration. For Eg. If the aspirational value of a particular product is reducing LVMH is more of a professional organization than one which is more caught up in its prestige and exclusivity than profits Once the brand is acquired, the LV stamp becomes evident: • Focus on distribution, cost savings, maintaining the exclusivity of the brand are few of the measures taken to improve the brand perception as well as economic viability of the brand acquired.
•
•
• •
•
Irrespective of the strategy followed originally, a pull strategy is bought into place by spending on advertising, opening exclusive boutiques, etc. due consideration
Q2. How do LVMH executives adjust prices in response to changing economic conditions?
There are two sides to this coin as well. It is clear from the examples mentioned in the case, that they do not believe in slashing prices. To maintain its position as a super luxury brand, they even seem to go to the extent of destroying products that remain unsold at the end of the season rather than selling them at a discount. Other drastic steps include obtaining supreme court rulings against mass retailers selling their products. The logic behind these seems to be twofold. Firstly, LVMH aims to cater only to the extremely rich segment of society. And, secondly it?s another way for them to justify the pricing of their products But having said these, the markets cannot be ignored as well. Hence steps like raising wholesale prices, reduction in advertising, raising of prices to offset devaluation were also taken by LVMH based on the economic condition and region at hand. Also, control of their own distribution gave them LVMH and Luxury Goods Marketing Page 8
a cost advantage, whereby they were able to negotiate longer lease terms etc. Also they were very agile in identifying opportunities for cost reduction and were quick to take steps like moving production to a more cost effective and labour intensive place. All in all no decrease in prices but competitive cost of manufacturing and delivery were the key strategy with respect to pricing being followed by LVMH.
Q3. Do you think that high retail prices are worth paying?
When a person purchases a Louis Vuitton there are 2 things that he is actually purchasing ? ? The product The brand
As far the product is concerned it is no doubt designed by the high profile designers but there is no specific monetary value associated to each design. When this design comes to manufacturing, it is manufactured at the lowest possible cost or even possibly at a very low cost in one of the „developing? nations through sweat shops. This total low cost gives rise to high operating margins with the company. These margins are also passed on to subsequent supply chain partners. If we were to buy an identical product without a LV stamp, it would possibly cost less than half the price. So we look at the product as such, it is definitely no value for money. But when bring in the brand aspect; a customer is buying a lot more than just the name of Louis vuitton and the product itself. The case mentions “The trick is to sell perception of luxury” and “We are here to sell dreams”. There is a mental satisfaction in the purchasers mind that the design has been meticulously crafted for the aristocracy. He is buying confidence, pride and a symbol of prosperity. As a part of this discussion, one should also look at the efforts of LVMH to create the brand and in maintaining the image it has created. The case mentions that the company incurs • • • • High expenses associated with operating elegant stores High cost of purchasing ad space in upscale magazines Millions of dollars spent annually to combat counterfeit products and gray market selling Destruction of unsold finished products or canvas to ensure no brand dilution happens
Keeping all of these factors in mind, probably the high price that the customer pays may be rationalized on the basis of the brand. Moreover, LVMH has a very specific TG and very rigid boundaries around this TG. It is not trying to entice people who have to compromise on other expenditures for buying their products. It is catering to the crème-de-la- crème of the society. “If you have it then flaunt it”. Hence the price may be justified for the brand alone.
Q 4. How will luxury goods marketers be affected by slow down in tourism post 9/11?
Let us look at the Typical Customer of LVMH. She is very brand conscious and style conscious. She frequently travels abroad and prefers to shop abroad instead of home country. It also might be said that in monetary terms, she makes more purchases out of her home nation. LVMH and Luxury Goods Marketing Page 9
Now if this customer starts travelling abroad less often, one can ask the following questions. – – Will he stop shopping from home country? Will he start stocking?
The answer to the first question is probably not. The quantity purchased may be less and the amount spent may be more to get the right exclusivity but this international customer will definitely purchase more now, from his own nation. Further now on, whenever he goes abroad, probably he will buy more to stock for till the next visit. In light of the above let us now see what implications this might have on the business strategy of LVMH. 1. LVMH might now, need to look at having stores in more nations than before. This increased market presence globally shall ensure that the customer has somewhere to go and make a purchase. 2. The fashion house might also look at carrying more items in a season. Assuming that the customer would now want to purchase more in a single visit, LVMH has to make sure it gives its? customers enough options and that they buy maximum. 3. Look at alternative methods of sales to patrons like getting into sending catalogues to loyal purchasers. This would ensure continued brand exposure and keep the customer attached to the brand. 4. To further re-inforce patronization (as the number of store visits have now decreased) LVMH can look at launching exclusive season magazines. It can also send invitation to Fashion Weeks within home country. There can also be options to purchase online by selecting based on the catalogues. LVMH should also promote Patron clubs to promote exchange of ideas and information between loyal customers
LVMH and Luxury Goods Marketing
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Learning through class discussions
? Dynamic changes done by LVMH as per the geography in which it was setting up. These changes/adaptations were done by LVMH keeping in mind the cultural traditions and beliefs of the local people. The idea of luxury in different cultures and how the people looked at luxury goods differed in different regions. How LVMH catered to the consumers in Japan was different from how they catered to consumers in Europe or America. In Japan they studied the visitor travel patterns to set their prices whereas in markets like US they marketed their luxury products as „Made in Italy? to give an appeal of quality at the same time to bring down their cost of production. Dreams necessarily may not be associated with luxury in all cultures; in some countries dreams are associated with success and luxury which might not be true in other cultures. Also since the „value of money? viewed is different for different cultures, the sense of luxury also varies. Adoption of different strategies for different products. LVMH on one hand to maintain its luxury status and the brand image associated with it does not mark down its stuff and instead prefers to destroy them so that they do not become common. Also it prefers to have its own chains to sell its products to maintain the aura associated with the products. However, LVMH also sells some its products in duty free shops where other items are being sold alongside. This strategy is followed for items like perfumes. These duty free shops were to cater to the class of consumers like frequent travellers who were aware of the brand and would be willing to buy the LVMH for its brand and quality. Price and Quality are concepts which are different for different people. People might get value for money in a cheap product and be satisfied with it. However for a certain set of consumer the same product might not meet the required needs in terms of satisfaction and quality. The definition of value for money would depend on the target consumer. So a “Black dress is not necessarily just a Black dress for every consumer”. The dress meets different needs of every customer in terms of type of material, fitting, texture, etc. The $10million that LVMH spent annually to combat counterfeits was very important to the company since it affects the customers in two ways: o If a new customer makes his first purchase of LVMH from gray market, without knowing about its origin, then that customer will get a low perception of the brand and the luxury associated with it. The customer might be lost forever. o If an existing customer goes to another country and finds LVMH products being sold through another local channel (gray market) eg. LVMH products being sold at roadside stalls at colaba, then he can assume it to be the regular supply channel of LVMH products in that country. This might degrade the luxury value associated with the product and then the customer might not even buy the product back in his home country. Concept of country branding: LVMH had its headquarters in Paris, France. Through their products and marketing efforts they were selling a part of France to the customers. This shows the importance of utilizing the brand value of a country in the company?s strategy to build a brand value of the company eg. Fashion products company setting up headquarters in Paris, the city of fashion. This concept can also be extended to a country like India where goods like traditional handicrafts or saree can be used to brand the entire country and utilize that to sell other allied products suited to various markets? needs.
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LVMH and Luxury Goods Marketing
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doc_585380175.docx
documentation is about cross cultural marketing report on LVMH.
Cross Cultural Marketing – Report on LVMH
Contents
Moet Hennessy. Louis Vuitton ............................................................................................................... 3 Introduction ......................................................................................................................................... 3 Current Progress of the Company ........................................................................................................... 4 2009 revenue highlights ...................................................................................................................... 4 Revenue By Region ................................................................................................................................ 4 Impact on LVMH due to cross cultural dimensions ............................................................................... 5 Hofstede?s dimensions of national culture ...................................................................................... 5 Other theories significant to LVMH ................................................................................................... 6 Hierarchy of Needs: Esteem ........................................................................................................... 6 Country of Origin ............................................................................................................................ 7 Marketing Mix of LVMH ................................................................................................................... 7 Questions of the Case.............................................................................................................................. 8 Q1. Bernard Arnault has built LVMH into a luxury goods empire by making numerous acquisitions. What strategy is evident here? ....................................................................................... 8 Q2. How do LVMH executives adjust prices in response to changing economic conditions? ........... 8 Q3. Do you think that high retail prices are worth paying? ................................................................ 9 Q 4. How will luxury goods marketers be affected by slow down in tourism post 9/11? .................. 9 Learning through class discussions ....................................................................................................... 11
LVMH and Luxury Goods Marketing
Page 2
Moet Hennessy. Louis Vuitton
Introduction
LVMH Moët Hennessy • Louis Vuitton S.A. (Euronext: MC), usually shortened to LVMH, is a French holding company and one of the world's largest luxury goods conglomerate. It possesses a unique portfolio of over 60 prestigious brands. The Group is active in five different sectors: Wines & Spirits Fashion & Leather Goods Perfumes & Cosmetics Watches & Jewellery Selective retailing Thanks to its brand development strategy, and the expansion of its international retail network (more than 2,400 stores worldwide), LVMH has had a strong growth dynamic since its creation in 1987. Christian Dior, the luxury goods group, is the main holding company of LVMH, owning 42.4% of its shares, and 58.2% of its voting rights. Bernard Arnault, majority shareholder of Dior, is Chairman of both companies and CEO of LVMH. His successful integration of various famous aspirational brands into the group has inspired other luxury companies into doing the same. Thus Gucci (now part of the French conglomerate PPR) and Richemont have also created extended portfolios of luxury brands. The oldest of the LVMH brands is wine producer Château d'Yquem, which dates its origins back to 1593.
LVMH and Luxury Goods Marketing
Page 3
Current Progress of the Company
2009 revenue highlights
? ? ? Improved trends There was a continued strong performance of Louis Vuitton. LVMH managed a Solid momentum in Asia and good resilience in Europe.
Revenue By Region
The revenues in the US has dipped slightly by a 12% margin but the drop has been higher in Japan at 19%. But as far as Asia is concerned, there has been a considerable growth in the revenues i.e. 5% in 2009.
Wines & Spirits
•2009 highlights •Improved organic revenue in Q3 (-11%) •Single-digit decline in US, growth in Asia •Champagne and Wines •Champagne volumes show better resilience in Q3, down 16% down 23% in the first 9 months •Good performance of still and sparkling wines in the US •Cognac •Hennessy volume trend improving, •Successful introduction of Hennessy Black in the US
Fashion & Leather Goods
•2009 highlights •By region (in local currencies): +19% in Asia and +5% in Europe; US and Japan down •Louis Vuitton: double-digit revenue growth over the first 9 months • All regions recorded increases in Euros •Continued good performance in Europe and Asia • Chinese clientele show strong demand • 439 stores at end of September 2009 (14 net openings since beginning of the year) •Fashion brands impacted by reduced wholesale and postponed orders, notably from department stores
LVMH and Luxury Goods Marketing
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Impact on LVMH due to cross cultural dimensions
Hofstede’s dimensions of national culture Differences pertaining to cultural factors like attitudes, values, religion, dietary customs and communication can affect local reaction to a company?s brand or products as well as the ability of company personnel to function effectively in different cultures. Hofstede?s model helps to explain basic value differences between different cultures. The model distinguishes culture according to five dimensions: 1. Power distance: Extent to which less powerful members of a society accept and expect hat power is distributed unequally. In large power distance cultures, people are well groomed, in particular when going out in the streets as your position in the social hierarchy is defined by the clothes you wear, your shoes, your posture and your make-up. The „rightful-place? concept implies that in high power distance cultures, being the number one brand and utilizing the number one brand is very important. 2. Individualism/Collectivism: People looking after themselves and their immediate family only, versus people belonging to in-groups that look after them in exchange for loyalty. In collectivistic cultures, the identity of people is based on the social system they belong to, and avoiding „loss of face? is important. They draw sharp distinctions between members of ingroups and out-groups. 3. Masculinity/Femininity: The dominant values in a masculine society are achievement and success; the dominant values in a feminine society are caring for others and quality of life. In masculine cultures, children learn to admire the strong; in feminine cultures, children learn sympathy for the loser. Since, in masculine societies, performance and achievement are important and must be demonstrated, so status brands are important to show one?s success. 4. Uncertainty Avoidance: The extent to which people feel threatened by uncertainty and ambiguity and try to avoid these situations. 5. Long-/Short-term orientation: Long term orientation is the extent to which a society exhibits a pragmatic future-oriented perspective rather than a conventional historic or shortterm point of view. However, countries can be described, not according to a single factor but, through a number of characteristics combined together. For example, Country/ Characteristic United States Japan Power Distance Below average High Power Distance Individualism/ Collectivism High Individualism High Collectivistic Masculinity/ Femininity High Masculinity Masculine Uncertainty Avoidance Long-/shortterm Orientation Weak Uncertainty Short Term Avoidance Strong Uncertainty Long Term Avoidance Orientation
Thus, since in the United States, winning, power, success and status are important (high masculinity) and there is high degree of independence, it proved to be a major customer of LVMH products. Also, below average power distance combined with weak uncertainty avoidance allows people to dream of new and better things each day. This allows them to innovate with the products they use and aspire for more. Thus LVMH finds a lot of new customers in United States, who dream of owning products LVMH and Luxury Goods Marketing Page 5
symbolic of high achievement, however for retaining those customers LVMH needs to constantly innovate and maintain the perception of achievement on buying an LVMH product. On the other hand, in Japan, there is high power distance where a person?s social position is defined by the outer appearance and public wear, thus, there is significant correlation between luxury brands and one?s social status. Also the collectivist culture relates to brand loyalty, which is further reinforced by a strong uncertainty avoidance tendency. Purchasing products that are well known to the in-group may help decrease uncertainty about in-group approval of the purchase. Choosing another brand than the group members or changing brands distinguishes a person from the group, therefore to avoid that, it is preferable to choose the popular or perceived popular brands. This was reflected in the case, where a Tokyo based flight attendant stated “One friend of mine has 10 Louis Vuitton bags. In Japan, it’s a status symbol. It’s very important to have European luxury goods.” Therefore LVMH found a huge and loyal market in Japan as well.
Other theories significant to LVMH
Hierarchy of Needs: Esteem LVMH is a global luxurious brand. Luxury goods marketers are especially skilled at catering to esteem needs in a global basis. LVMH, Rolex and Dom Perignon are just a few of the global brands that consumers buy in effort to satisfy their esteem needs. Some consumers flaunt their wealth by buying expensive products and brands that others will notice. Such behavior is referred to as Conspicuous Consumption or luxury badging. The above concept can be explained by the needs based approach or Maslow?s hierarchy of needs.
LVMH and Luxury Goods Marketing
Page 6
Self esteem is very high in the hierarchy. The products here are not „needs? but? wants?. LVMH basically caters to the self esteem of the person. People either use LVMH products to raise their self esteems or to flaunt their wealth to others. Either way LVMH gains. Country of Origin LVMH uses France as a Brand Element. France is positioned as a fashion capital and a fashion product from France will definitely be seen as high class fashion product. This effect is known as country-of-origin effect. The country becomes part of brand?s image and contributes to brand equity. It has both positive as well as negative effects.e.g. Germany is related to engineering excellence so a car from Germany would be considered better. Similar way Italy with style and France with Chic. It can also have a negative effect in some cases. For LVMH, France has been an added advantage.
Marketing Mix of LVMH
The parameter on which the case is related to the Marketing Mix is: ? Price – the price of the product is not defined only in terms of the financial value of a product but also in relation to the Status value and the utility value. The status value is what the consumer actually paying for LVMH products. Product – the product is defined by the functional features that it provides to the customers, in case of LVMH products in addition to the functional features the utility value and the satisfaction derived is more important. Place – the place where the LVMH stores are located are such that they get a lot of travelers. Thus they target location like airports and high society malls. The ambience and the atmosphere maintained at these places are to give a complete shopping experience to the customer. Promotion/Publicity – the promotion strategy used by LVMH is to get add spaces in fashion magazines and associate themselves with celebrities who are considered fashionable.
?
?
?
LVMH and Luxury Goods Marketing
Page 7
Questions of the Case
Q1. Bernard Arnault has built LVMH into a luxury goods empire by making numerous acquisitions. What strategy is evident here?
The strategy they adopted was to follow inorganic growth aided by a few distinct features: • Acquisitions centered around brands which gel with the existing Louis Vuitton heritage. They wanted to focus on the image of the acquiring brand and the niche segment they catered to as well as the markets they were in rather than the product line. This also lead to unique diversification of their product portfolio, while continuing to remain in the super niche luxury segment. Think global, act local : The other point worth noting is that they did adapt to the local markets, if not with respect to the product, the with respect to location of the shop, cost effectiveness, etc. Economic conditions of the region where the brand is predominantly present as well as the market of that product as a whole is also given due consideration. For Eg. If the aspirational value of a particular product is reducing LVMH is more of a professional organization than one which is more caught up in its prestige and exclusivity than profits Once the brand is acquired, the LV stamp becomes evident: • Focus on distribution, cost savings, maintaining the exclusivity of the brand are few of the measures taken to improve the brand perception as well as economic viability of the brand acquired.
•
•
• •
•
Irrespective of the strategy followed originally, a pull strategy is bought into place by spending on advertising, opening exclusive boutiques, etc. due consideration
Q2. How do LVMH executives adjust prices in response to changing economic conditions?
There are two sides to this coin as well. It is clear from the examples mentioned in the case, that they do not believe in slashing prices. To maintain its position as a super luxury brand, they even seem to go to the extent of destroying products that remain unsold at the end of the season rather than selling them at a discount. Other drastic steps include obtaining supreme court rulings against mass retailers selling their products. The logic behind these seems to be twofold. Firstly, LVMH aims to cater only to the extremely rich segment of society. And, secondly it?s another way for them to justify the pricing of their products But having said these, the markets cannot be ignored as well. Hence steps like raising wholesale prices, reduction in advertising, raising of prices to offset devaluation were also taken by LVMH based on the economic condition and region at hand. Also, control of their own distribution gave them LVMH and Luxury Goods Marketing Page 8
a cost advantage, whereby they were able to negotiate longer lease terms etc. Also they were very agile in identifying opportunities for cost reduction and were quick to take steps like moving production to a more cost effective and labour intensive place. All in all no decrease in prices but competitive cost of manufacturing and delivery were the key strategy with respect to pricing being followed by LVMH.
Q3. Do you think that high retail prices are worth paying?
When a person purchases a Louis Vuitton there are 2 things that he is actually purchasing ? ? The product The brand
As far the product is concerned it is no doubt designed by the high profile designers but there is no specific monetary value associated to each design. When this design comes to manufacturing, it is manufactured at the lowest possible cost or even possibly at a very low cost in one of the „developing? nations through sweat shops. This total low cost gives rise to high operating margins with the company. These margins are also passed on to subsequent supply chain partners. If we were to buy an identical product without a LV stamp, it would possibly cost less than half the price. So we look at the product as such, it is definitely no value for money. But when bring in the brand aspect; a customer is buying a lot more than just the name of Louis vuitton and the product itself. The case mentions “The trick is to sell perception of luxury” and “We are here to sell dreams”. There is a mental satisfaction in the purchasers mind that the design has been meticulously crafted for the aristocracy. He is buying confidence, pride and a symbol of prosperity. As a part of this discussion, one should also look at the efforts of LVMH to create the brand and in maintaining the image it has created. The case mentions that the company incurs • • • • High expenses associated with operating elegant stores High cost of purchasing ad space in upscale magazines Millions of dollars spent annually to combat counterfeit products and gray market selling Destruction of unsold finished products or canvas to ensure no brand dilution happens
Keeping all of these factors in mind, probably the high price that the customer pays may be rationalized on the basis of the brand. Moreover, LVMH has a very specific TG and very rigid boundaries around this TG. It is not trying to entice people who have to compromise on other expenditures for buying their products. It is catering to the crème-de-la- crème of the society. “If you have it then flaunt it”. Hence the price may be justified for the brand alone.
Q 4. How will luxury goods marketers be affected by slow down in tourism post 9/11?
Let us look at the Typical Customer of LVMH. She is very brand conscious and style conscious. She frequently travels abroad and prefers to shop abroad instead of home country. It also might be said that in monetary terms, she makes more purchases out of her home nation. LVMH and Luxury Goods Marketing Page 9
Now if this customer starts travelling abroad less often, one can ask the following questions. – – Will he stop shopping from home country? Will he start stocking?
The answer to the first question is probably not. The quantity purchased may be less and the amount spent may be more to get the right exclusivity but this international customer will definitely purchase more now, from his own nation. Further now on, whenever he goes abroad, probably he will buy more to stock for till the next visit. In light of the above let us now see what implications this might have on the business strategy of LVMH. 1. LVMH might now, need to look at having stores in more nations than before. This increased market presence globally shall ensure that the customer has somewhere to go and make a purchase. 2. The fashion house might also look at carrying more items in a season. Assuming that the customer would now want to purchase more in a single visit, LVMH has to make sure it gives its? customers enough options and that they buy maximum. 3. Look at alternative methods of sales to patrons like getting into sending catalogues to loyal purchasers. This would ensure continued brand exposure and keep the customer attached to the brand. 4. To further re-inforce patronization (as the number of store visits have now decreased) LVMH can look at launching exclusive season magazines. It can also send invitation to Fashion Weeks within home country. There can also be options to purchase online by selecting based on the catalogues. LVMH should also promote Patron clubs to promote exchange of ideas and information between loyal customers
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Learning through class discussions
? Dynamic changes done by LVMH as per the geography in which it was setting up. These changes/adaptations were done by LVMH keeping in mind the cultural traditions and beliefs of the local people. The idea of luxury in different cultures and how the people looked at luxury goods differed in different regions. How LVMH catered to the consumers in Japan was different from how they catered to consumers in Europe or America. In Japan they studied the visitor travel patterns to set their prices whereas in markets like US they marketed their luxury products as „Made in Italy? to give an appeal of quality at the same time to bring down their cost of production. Dreams necessarily may not be associated with luxury in all cultures; in some countries dreams are associated with success and luxury which might not be true in other cultures. Also since the „value of money? viewed is different for different cultures, the sense of luxury also varies. Adoption of different strategies for different products. LVMH on one hand to maintain its luxury status and the brand image associated with it does not mark down its stuff and instead prefers to destroy them so that they do not become common. Also it prefers to have its own chains to sell its products to maintain the aura associated with the products. However, LVMH also sells some its products in duty free shops where other items are being sold alongside. This strategy is followed for items like perfumes. These duty free shops were to cater to the class of consumers like frequent travellers who were aware of the brand and would be willing to buy the LVMH for its brand and quality. Price and Quality are concepts which are different for different people. People might get value for money in a cheap product and be satisfied with it. However for a certain set of consumer the same product might not meet the required needs in terms of satisfaction and quality. The definition of value for money would depend on the target consumer. So a “Black dress is not necessarily just a Black dress for every consumer”. The dress meets different needs of every customer in terms of type of material, fitting, texture, etc. The $10million that LVMH spent annually to combat counterfeits was very important to the company since it affects the customers in two ways: o If a new customer makes his first purchase of LVMH from gray market, without knowing about its origin, then that customer will get a low perception of the brand and the luxury associated with it. The customer might be lost forever. o If an existing customer goes to another country and finds LVMH products being sold through another local channel (gray market) eg. LVMH products being sold at roadside stalls at colaba, then he can assume it to be the regular supply channel of LVMH products in that country. This might degrade the luxury value associated with the product and then the customer might not even buy the product back in his home country. Concept of country branding: LVMH had its headquarters in Paris, France. Through their products and marketing efforts they were selling a part of France to the customers. This shows the importance of utilizing the brand value of a country in the company?s strategy to build a brand value of the company eg. Fashion products company setting up headquarters in Paris, the city of fashion. This concept can also be extended to a country like India where goods like traditional handicrafts or saree can be used to brand the entire country and utilize that to sell other allied products suited to various markets? needs.
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