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Louis Vuitton’s (LV) current market positioning portrays an image of quality products at reduced prices. Market positioning is the image that a brand portrays to the customer. A customer may consider LV products’ prices to have been reduced rather than achieving affordability.
The company reduced the price of its products by 7% as a response to the lower priced counterfeits and new entrants such as H&M and Zara (Paul & Feroul 9). The company may market the reduced prices as ‘affordability’ but a stronger impression observable with customers may be ‘reduced prices’. The reason is that 7% reduction of an expensive price does not make the price affordable.
The brand’s response to reduce prices was a strategy to benefit from the appreciation of the Japanese Yen against the Euro (Paul & Feroul 9). In that case, it does not lose much if the revenue passes through the exchange rate system. On the other hand, it benefits by creating an image of affordability. The Japanese are likely to increase purchase of LV products because of the reduced prices. Customer sophistication has made highly priced luxury products be considered unsustainable after the global economic crisis.
Marketing positioning through quality is one of the images portrayed by the company’s tradition. The company’s traditional brand image is offering high quality products at high prices (Paul & Feroul 5). The company is trying to change the image of high prices to affordability while retaining its high quality image.
High quality may not be a unique positioning because the big-sized competitors are also offering high quality products. The only differences are prices and brand loyalty. Competitors are positioning their products as high quality at competitive prices. LV has been forced to lower prices or lose customers to competitors.
In addition to quality and reduced prices, the company has chosen new market positioning as a trend setter. The brand’s strategy is to combine Japanese tradition with artistic designs. The Murakami handbags are derived from the Japanese tradition making it popular in Japan (Paul & Feroul 11). It also involves using Japanese artists and managers who have an understanding of the Japanese tradition and culture.
Limited editions have the ability to increase sales by a large percentage. When they are launched frequently, the customer may perceive it as a scheme to increase sales (Paul & Feroul 12). The customer may feel that the time used to develop the products is inadequate to develop genuinely unique products. Frequent use of limited editions has resulted in market dilution. The customer may no longer rush to buy the products because there will be another limited edition.
Market mix is a term used to analyze the various choices that a company has taken to place its product in the market successfully. The market is usually analyzed with the 4Ps (Gitman & McDaniel 295). These include product, price, place, and promotion.
The current LV’s market mix includes an extension to all products that can be made of leather. It has sought to intensify production of small-sized products. The quality of products has to be maintained or be improved. The sale of handbags is the main source for its success (Paul & Feroul 11).
LV also has decided to lower prices to create an image of affordability. It has reduced prices to countermand the effect of low-priced products from competitors and counterfeits. Customer sophistication has resulted in questioning of high prices when competitors offer lower prices.
The entry of H&M targeted mid-sized cities and lower social classes. It came up with the concept of affordability (Paul & Feroul 8). LV had to respond by reducing prices or risk losing customers. Brand loyalty is no longer strong after the global economic recession. Customers are willing to save some money even if it means buying counterfeits.
The company had to increase its promotional expenditure when other companies were reducing advertising expenses. The decision of the company was supported by the fact that increasing advertizing by 20% only results in a total advertising cost which is about 5% of the revenues(Paul & Feroul 6). It generates more on incremental sales as a result of increased advertising. Advertizing also covers the gap that could have been taken by competitors if they had strongly marketed themselves.
Another strategic decision made on promotions is the shift from using traditional music and movie celebrities to sports celebrities (Paul & Feroul 6). The company appears to have recognized that sports have a strong following today similar to music. It is a strategy to reach out to the reserved market, those customers who have sports celebrities as their models. Using this strategy, the company adds a new group of customers to those it had before.
LV has extended location of its stores to mid-sized and smaller cities to capture the groups in the middle social class and the lower class (Paul & Feroul 14). It has a wide range of products that are affordable to almost all social classes. The entry of new competitors makes it necessary to fill all gaps in the market. LV has relied on the Japanese luxury market because of their willingness to purchase high priced products and their purchasing power.
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Customer’s decision process
A customer purchasing a LV product might have seen it on the street from a high social class member. It might also be from advertisement. A customer may also see a product at the store and it captures his/her interest. Japan is the major market of LV products.
There is collective thinking in Japan when choosing luxury goods. Customers want to own at least something considered expensive and beautiful by their peers. Customers from lower social classes may save money for some period just to purchase a unique item. The higher social classes want to carry or wear products that match their social classes. Some customers purchase products as a symbol of trying to fit in a higher social class (Paul & Feroul 8).
A customer will walk into the shop with a particular product in mind. He/she may only change this decision when something exclusive and unique captures his/her attention. A customer who has saved money for some period may choose that product she/he had in mind. For those with a higher purchasing power, additional purchases may include what captures attention. LV products are recognized for color, graffiti and engravings that add aesthetic value.
Once the customer has bought an LV product or products, they may feel interested to look at what competitors offer. The customer’s concept is to at least have a product from LV. LV had to reduce prices to encourage the customers to purchase more than once from their stores.
The customer may consider other brands only because of lower prices (Paul & Feroul 8). However, first they have to own at least a product from the leading brands. LV’s strategy to capture small-sized products in its brand is good enough to ensure that almost everyone has something to purchase.
The customer may compare the competitors’ lower prices to LV’s quality products and brand image. The customer may also consider quality counterfeits from South Korea (Paul & Feroul 13). A customer may consider buying from competitors if the price of a product appears to have a big difference from competitors. The free lifetime repairs may appeal to the customer to accept LV’s high prices. It is likely that they will not need repairs because of the high quality.
The customer will purchase a few products from LV and some from other low priced brands. The LV products may be reserved for special occasions while other products, including counterfeits, may be used frequently.
LV should continue to produce unique and exclusive products because every customer wants to own at least a product that is expensive and beautiful. LV does not need to reduce the price of the unique and exclusive products. This is because they are more valuable to customers when their purchase is restricted by a higher price. It means there will be fewer similarities on the streets.
If LV launches lower-priced products, they may become too common that customers from the higher social class may not prefer them anymore. It may lose the luxury brand image.
Customers want products that correspond to their social class. LV is doing well by keeping the traditional luxurious items and using limited editions to capture all social classes (Paul & Feroul 12). LV can market the traditional luxurious products as items for the wealthy knowing that even the customers in the middle social class will buy them to improve their social class appearance.
The BCG model is a growth matrix model that analyzes products using four categories. The four categories of products are the stars, cash cows, problem child, and dogs (Pride & Ferrell 33). The stars in the LV brand may be products such as small-sized products that are experiencing large profits because of a fast growing market.
Marketing small-sized products has captured the affordability mindset. Small-sized products have the ability of capturing a larger market share because they are inclusive of the middle and lower social classes. They are located in a competitive market where customers are used to buying products from other brands. The extension to small-sized leather products will bring the experience of prestige to a larger group.
The limited editions involve one or a few products at a time. They appear as cash cows because of their ability to create a mindset of “rushing to buy before stocks run out”. The company is able to generate high income for a short period of time. LV has used limited editions frequently and they may soon turn out to be stars or problematic children. Customer sophistication in Japan is catching up with those in the Western world.
Some of the problem children in the LV brand are traditional luxury products that are highly priced. The customer is considering lower prices from competitors offering products of similar quality. Lowering prices reduce revenues. A further lowering of prices to make them affordable will make the brand lose its image as a luxury brand. High prices make the brand maintain its positioning but it risks losing a portion of the market share to low priced products from competitors.
Most of the products launched by LV are done after good market assessment. As a result of this, there seems to lack products that can be categorized as dogs. These are products that have no growth prospects or are currently generating losses.
The PLC model
The product life cycle (PLC) model describes the four stages that most products undergo after they have been placed in the market. The stages are introduction, growth, maturity and decline (Sandhusen 385). LV has many products in the market such that decline in one product is offset by growth in another product.
The introduction of luxury products appears to reach the growth stage earlier than other products. The introduction of the Marakami line of handbags in 2003 was able to increase LV’s profits by 10% (Paul & Feroul 11). The handbags could face a decline if they are note modified regularly by new designs or improvements.
LV traditional luxury products experienced a period of growth in the 1990s when there was an economic growth in its target market and a culture to own high priced luxury products. The maturity stage occurred when most of the people had owned LV products. It is also followed by introduction of similar products by new entrants at lower prices and the ability to produce high quality counterfeits.
The decline of the LV traditional luxury products was occasioned by the global recession in the period between 2008/09 (Paul & Feroul 9). The company responded by reducing prices of its products. It also shifted from being only a luxury brand to a fashion brand where new products are launched frequently through the limited editions.
The decline in traditional luxury products has been partly replaced by growth in fashionable products. Limited editions require large promotions. Fashionable products may justify the companies need to increase advertizing.
The small-sized leather products have been introduced. The products may undergo through a process of fast growing sales as they are being accepted and recognized by the market. With increasing demand, the company produces more using the same fixed capital resulting in economies of scale. The products are likely to generate high profits in the next period. A characteristic of the growth period for the small-sized products is the extension of distribution outlets to mid-sized and smaller cities.
Some strategies that show maturity of a market are competitor pricing, attracting new users, and product improvement. LV has responded to the lower prices set by competitors and the change in consumer attitude towards highly priced goods. It is using competitor based pricing to remain attractive to customers.
It is also reaching out to new users using differentiated products. It is trying to reach new users through its advertising strategies where it has shifted to a new line of celebrities such as sports personalities as models. There is clear customer segmentation. There are those who are middle-aged or older and wealthy. The other group is the youthful who are in their 20s and 30s (Paul & Feroul 9 & 12). They have a preference to fashionable trends fitting LV’s limited editions marketing strategy.
The traditional luxury goods have not experienced a decline stage because LV is using product life extension strategies such as product modification and lowering prices. As a result of this, LV does not show decline in profit or sales. Instead of reducing outlets, LV is increasing the number of outlets.
Suitability of LV’s marketing efforts
LV’s strategy to act like a fashion brand rather than a luxury brand has made it to remain dominant despite changes in consumer sophistication. Consumers have become sensitive to prices. Fashion is bought because of appearance. Price may not have a stronger influence over the trend in a group-oriented culture.
LV markets itself as a trend setter. Large groups of young people would like to be associated with LV to appear in touch with changing trends. The strategy may yield more revenues than traditional luxury products because of the ability to launch new products regularly. In the past a higher price would give customers the sense of prestige through limited access of luxury products. LV’s positioning as offering quality products at affordable prices appears to withstand the competitive forces in the market.
The company uses its distribution channel to market its products by having them designed to specific standards. Its strategic decision to open outlets is mid-sized and small cities have located the products in its new market segment. Reaching out to the middle and lower social classes through differentiated products appears to have increased its market share.
Its strategy to increase marketing in other countries may reduce reliance on the Japanese market for profits. Japan accounted for about 55% of its revenues (Paul & Feroul 6). LV would like to globalize its presence to reduce impact of risk.
Plan for LV to follow
Most of the LV’s marketing strategies are effective and should continue. The company should continue to use the strategy of capturing a larger market share through multiple products. High prices had become the main incentive for counterfeits. Its strategy to use limited editions may reduce the impact of counterfeits because of limited time to develop counterfeits. Using its own outlets to sell products also reduces the entry of counterfeits.
A stronger Yen against the Euro discourages the purchase of LV products by tourists who possess Euros. Tourists may find it more affordable if the prices are lowered to match the weaker Euro against Yen. Tourist possessing their money in Euros might have felt as if prices were increased if LV’s had not responded to the exchange rate.
Sales from tourist who originate from Europe could have declined. Tourists contribute a significant percentage of the revenues. In Europe, foreign tourists are reported to account for 60% of the purchases in the luxury market (Paul & Feroul 11). LV should target foreign tourists to Japan and other countries as a new market segment.
LV should think about reinventing the ‘unique and exclusive’ traditional brand through separation of brand to retain the luxury market. It should not completely change the brand name but a slight distinction. For example, the trendy designs could sell under ‘LV’ trademark and the new luxury product under ‘LV-me’. This will allow the company to charge ‘LV-me’ products higher prices than ‘LV’ without responding to competitive prices. ‘LV-me’ will stand out as a brand for the middle-aged/old and wealthy.
On the other hand, LV will stand out as a trend setter. It will retain customers with the traditional mindset. It may also benefit from the cyclical consumer expenditure on luxury products before competitors become aware of the changes in consumer preference.
Gitman, Lawrence and C. McDaniel. The Future of Business: The Essentials. Mason: South-Western Cengage Learning, 2009. Print.
Paul, Justin and C. Feroul. Louis Vuitton in Japan. London: Richard Ivey School of Business Foundation, 2010. Print.
Pride, William, and O. Ferell. Foundations of Marketing. Boston: Houghton Mifflin, 2007. Print.
Sandhusen, Richard. Marketing. New York: Barron’s Educational Series, 2008. Print.