Louis Vuitton Case
Louis Vuitton
Overview: As of 2012, the luxury goods market was a €212B market dominated by competing conglomerate firms like Louis Vuitton Moet Hennessy (LVMH), PPR Richemont; and other non-conglomerated luxury brand corporations like Chanel and Prada. LVMH commands well over 10-15% share of this market. LVMH engages in a related diversification strategy by employing five luxury goods businesses: wines and spirits; cosmetics; jewelry; selective retailing; and fashion/leather goods. LV merged with Moet Hennessy to form LVMH. It is the premier company within LVMH and provides leather products and other fashion items. These luxury fashion items target affluent customers within three tiered segments of accessible luxury, aspirational luxury and absolute luxury – prices for goods in these segments increases respectively. LV was built on three principles of: savoir-faire, (ability to take appropriate and civilized action), service, and innovation. These principles allowed LV to ascend. From humble beginnings it endured as a small company until the late 1970s when it grown rapidly by capitalizing on labor overhead via manpower reduction, economies of scope via selective expansion of profitable brands, and vertical integration via tighter control of the production, sourcing, and distribution channels.
Strategic Issues: The source of competitive advantage is superior quality and price. The high quality of products targets a customer that removes the requirement for creating scarcity – replacing it with exclusivity. However, even LVs lowest tier products are exclusive, and are thus aimed at affluent consumers. The exclusivity of the brand creates a desire amongst those who cannot access/afford even the lowest tier of LV products to rely on counterfeit producers. These counterfeiters represent an opportunity cost. LV must mitigate this issue without watering down its brands reputation for superior quality.
External Analysis: The luxury goods market is an oligopoly with a small number of major competitors. Multipoint competition exists between competing firms is prevalent as evidenced by the variety of similar products the industrys firms produce – in both corporate and conglomerate firms. Exorbitant prices for products result in healthy profit margins as evidenced by the combined 13.8% margin LVMH attained in 2010 and 2011. These prices point towards tacit collusion between these firms as prices are increasing, rather than decreasing as would be the case between firms competing for volume by lowering prices. Such a landscape affects the threats to the industrys firms.
Threat of Suppliers is low. The options for potential customers that the suppliers in this industry can court are especially limited given the concentration of firms and tendency to integrate most production in-house.
Threat of powerful buyers