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Louis Vuitton Company’ Managerial Economic Research Paper


Introduction: Louis Vuitton

The history of Louis Vuitton Company (LV) belongs to the timeless legends that inspired numerous entrepreneurs to start their business from scratch. As a truck-maker, Louis Vuitton noticed that most bags, which were manufactured at the time, shared a common disadvantage of being bulky yet failing to hold a significant amount of luggage. At some point in his career, he decided to revolutionize the industry by improving the design of suitcases and making them more convenient. The new design was welcomed rather fast, and in 1854 Vuitton started a company of the same name to sell the trucks that were devoid of the flaw mentioned above (Kastanakis and Balabanis 1400).

The enterprise is located at 22, avenue Montaigne, Paris, Ile-de-France, 75008, France (“LVMH Moet Hennessy Louis Vuitton SA Company Overview” par. 1–9)

The company still prospers and even manages to retain its position at the top of the world’s charts of the most successful retailers. Among the key people in the organization, Mr. Bernard Amault, LV’s Chairman and CEO (“LVMH Moet Hennessy Louis Vuitton SA Key Employee Biographies” par. 1), and Antonio Belloni, its Managing Director (“LVMH Moet Hennessy Louis Vuitton SA Key Employees” par. 1–3) should be named. The firm has around 60 brands at present owing to branching out into five segments (“Fashion and Leather Goods, Selective Retailing, Wines and Spirits, Perfumes and Cosmetics, and Watches and Jewelry” (“LVMH Moet Hennessy Louis Vuitton SA Business Description” par. 2)). Twelve products and 18 brands, including Dom Perignon, Guerlain, and Moet & Chandon (“LVMH Moet Hennessy Louis Vuitton SA Major Products and Services” par. 2–19), are represented by the firm. The company also has 22 affiliates (“LVMH Moet Hennessy Louis Vuitton SA Head Office” par. 2). However, as LV started expanding into new markets in the environment of the global economy, new challenges appeared, demanding to be addressed. As the analysis of the company’s current position in the retail market and the strategies adopted by its leader show, LV will have to alter some of its marketing and leadership-related principles as well as shape its values to appeal to a new kind of customers and attract more clients.

Market Type: Imperfect Competition

By definition, imperfect competition presupposes that the market is dominated by several companies that set standards for the prices and, therefore, control the latter in the designated industry: “imperfect competition is a market situation where individual firms have a measure of control over the price of the commodity in an industry” (Dodd and Hasek 117). Indeed, while LV has a significant influence on the price rates in the retail industry, a range of other enterprises of a similar weight and power also have their fair share of value in the retail industry (notably, the brands such as Gucci, Prada, Jean-Paul Goutier, etc.). Hence, the retail market, in which LV operates, can be defined as imperfect competition.

A closer look at the market will reveal that it has unique characteristics that define the curse of actions that entrepreneurship leaders take to increase their companies’ revenues and stay afloat in the competitive environment. For instance, the 2010s global retail market can be characterized by the emergence of new and promising hubs, which are located in “Uruguay (3rd in the rankings), Mongolia (7th), Georgia (8th), and Armenia (10th)” (The 2013 Global Retail Development Index 1).

Price Elasticity of Demand

The Price Elasticity of Demand (PED) is rather low for the fashion retail industry, in general, and LV, in particular, mostly because the target customers are able to pay an impressive amount of money for the requested products without being affected by the change in LV’s pricing strategy. The small PED rates also point to the fact that the organization has already set rather rigid quality standards: “Maintaining our obsession with quality, the creation of desire, offering our customers an exceptional experience at our stores, and strengthening the influence of our brands remain the pillars of our strategy” (“LVMH Moet Hennessy Louis Vuitton SA Company Statement” par. 9), which do not need to be raised. It should be noted, though, that the ratio acquired in the course of calculations is not entirely low, either. Notably, the customers are obviously expecting that the firm will update its quality standards consistently in accordance with the alterations occurring in the industry in question. To be more exact, the use of the latest technological advances and the most efficient equipment to change the production process is clearly expected. Herein the delicate balance between the customers’ demands and the pricing strategy required from the company lies; although the current approach to quality management, which LV uses, is practically flawless, the customers will need special offers so that they could feel valued. In other words, demand for LV products is somewhat inelastic.

Income Elasticity

The income elasticity of LV can be described as rather high, as the goods produced by the company are the items of luxury and are by no means a necessity (Moore and Doyle 923). Although the product type (bags) belongs to important ones, the kind of product released by the company (i.e., luxurious bags) devalues the actual need for the merchandise. Hence, the income of the company is very elastic and can be altered easily as soon as the target population has to choose between the products that they cannot live without and the ones that belong to the luxury category.

Close Competitors

Despite offering products with a unique design, LV has a range of competitors in the retail industry. Its rivals are not numerous, yet very powerful as they have nearly the same amount of experience and set their quality standards just as high as LV does. Among the ones that stand out the most, Ralph Lauren Corporation, Hermes International SCA, Kering, The Estee Lauder Companies Inc., Chanel S.A., and Valentino Fashion Group S.p.A (“Key Competitors” par. 1) deserves to be brought up.

Competitive advantage

Increasing customer loyalty rates can be considered the crucial competitive advantage of LV. Indeed, the company’s clientele is very loyal to the firm. Much to its credit, LV is aware of this fact as well as the standards that the target denizens of the population set for the products of LV. The firm’s awareness of the above-mentioned fact manifests itself in the customer loyalty programs designed by LV for its target audience: “These events present current job openings, internships, and training programs” (Louis Vuitton par. 1). In addition, the promotion of a green approach towards the use of resources can be viewed as an essential part of the organization’s competitive advantage (“LVMH Moet Hennessy Louis Vuitton” par. 4).

Unlike its rivals, who do not concern themselves with a sustainable approach that will allow for adequate use of non-renewable resources, LV evidently tries to make a difference in the global economy, thus, encouraging other entrepreneurship to follow the idea of a sustainable economy. More importantly, LV focuses on innovations as the foundation for its corporate strategy, which creates premises for introducing sustainability to the organization on all its levels and allocate resources wisely in case of a possible economic crisis (“LVMH Moet Hennessy Louis Vuitton SA Corporate Strategy” par. 1).

Ralph Lauren (RL), on the other hand, has a slightly different competitive advantage, which is based on the efficacy of the organization’s logistics strategy. To be more exact, it is the strength of the brand image and the branding approach adopted by the organization that makes it so competitive in the environment of the global economy (Kapferer 60). RL manages to make its customers forget the fact that the firm’s experience is far from being as impressive as that of LV or other companies with a long history.

Hermes’s competitive advantage concerns primarily business diversification and brand acquisition. Traditionally referred to as an attempt at entering new markets and promote its products to new target customers (Knecht 47), diversification presupposes that an enterprise should evolve and gain more customers. In other words, the current competitive advantage of Gucci may have more potential than that one of LV.

Chanel’s competitive advantage concerns its brand products, as well. Seeing that the perfume produced by the enterprise has already become a household name, one must give Chanel credit for its competitive strategy. The same can be said about Estee Lauder, while Kering uses sustainability as its key asset.

Finally, speaking of Valentino’s competitive advantage, one must mention that the entrepreneurship focuses on innovation for the most part. To be more exact, the leaders of JPG track down the slightest changes in the designated industry and address them correspondingly by introducing new concepts in the operational design of the organization. The specified approach can be deemed as especially productive, as it allows for keeping the product quality consistent, at the same time, retaining customer satisfaction and, therefore, customer loyalty rates very high.

Target market

The key competitors of LV operate in the same market for the most part. Despite the fact that all three rivals listed above also work in the apparel industry, they also manufacture bags for their target audience. Moreover, much like LV, Ralph Lauren, Hermes, Kering, Estee Lauder, Chanel, and Valentino are aimed at the people belonging to the upper-class society and have a high income.

It should be borne in mind, though, that LV is aimed primarily at women, thus, designing the products in a corresponding manner. The rest of the companies mentioned above, in their turn, embrace a vast category of clients, including men and young people: “Couture is not typically profitable for fashion corporations as there are remarkably few customers in their target market; haute couture functions as a marketing tool in the current industry” (Lambert 24). Although the companies in question manage to satisfy a larger amount of clients, the fact that they have to address the needs of a vast number of customer groups means that they cannot take full control of customer behavior – unlike LV, which focuses on women for the most part.

Market share

According to a recent study, LV remains a leader in the target market, as the company dominates the target market based on its market share. To be more exact, the market share of the organization made 9.2% in 2014 (“Luxury Buyers Demand a Cross-Channel Shopping Experience” par. 5). Ralph Lauren, in its turn, decreased by 0.33, which means that the firm is explicitly inferior to LV (“Reasons Why Ralph Lauren Has Done Well Enough in the Past” par. 1). Hermes is 0.81% down, Keling’s shares have dropped by 2.79%, Estee Lauder’s shares cost 50% more, while Chanel still dominates the industry, taking nearly 100 % of it.

Marketing strategies

Despite selling similar products, catering to the needs of the same target audience, and working in basically the same environment, the companies mentioned above deploy entirely different marketing strategies to promote their goods. While there are certain similarities predetermined by the fact that entrepreneurship operates in the same industry, the tools are chosen to attract the target denizens of the population are strikingly different. For instance, LV patently focuses on raising its brand value; as a result, the customers remain excited about the opportunities that the company has to offer and, therefore, choose the goods manufactured by the firm.

Hermes, Kering, and Chanel, instead, resort to using celebrities as the secondary tool for attracting target customers. The eccentric choices, which the entrepreneurship makes in terms of the design of its brand products, is obviously the critical strategy used for attracting more customers and retaining loyal ones. One must admit that the specified approach does not work well with all customers and is aimed at driving the attention of odd ones to the organization’s products. As a result, the target audience reduces, being restricted to the people who are not afraid of shocking people into paying attention. Consequently, JPG may have a weaker marketing strategy than the one of LV.

Estee Lauder, Valentino, and Ralph Lauren, in their turn, market their product in a straightforward manner, putting a very strong emphasis on the connection between the customers’ gender roles and the products offered by the company. Indeed, a closer look at the ways in which their products are promoted will reveal that the firms use gender stereotypes, including the exploitation of the concept of sexuality, as the means of promoting its goods. While the specified approach is rather dubious from a moral perspective, it clearly works with the target audiences.

Revenue
Marketing strategies

As the chart provided above displays, the marketing strategies adopted by the organizations in question are quite viable. Moreover, the key competitors of LV may pose a significant threat to the wellbeing of the company; thus, the competitiveness rates of LV need to be increased so that the organization could survive in the realm of the global economy and attract more customers without suffering significant losses.

Summary

Based on the information provided above, LV is patently the superior company in the target market. Its leaders know exactly what their company needs, which the customers want, and how to satisfy the requirements of both. Consequently, it can be assumed that LV’s competitive advantage is much higher than those of its closest rivals. Nevertheless, one must admit that the organization has several dents in its marketing approach, such as leaving an impressive part of the target population (men, teenagers, and parents with young children) out of the picture. Hence, it is desirable that the company should focus on developing the approach that will help meet the needs of the aforementioned groups as well.

Substitutes/Complements

As the analysis of Porter’s Five Forces introduced below shows, the threat of the emergence of new substitutes is rather low for LV. The chances for the development of new alternatives are comparatively small in the designated area since LV has a consistent presence in the target markets, and since its brand has a very long history that new entrants cannot possibly compete with.

Porter’s Five Forces Analysis

Table 1. Porter’s Five Forces Analysis for LV

Threat of new entrants Low Very few entrants may create a brand as strong as the one of LV within a relatively short time period
Threat of substitutes Low Given the heritage and the history of the company along with the power of its brand, the possibility of new entrants attracting LV’s customers is low.
Bargaining power of suppliers Low Seeing that LV acquires its suppliers, the bargaining power of each is being reduced consistently.
Bargaining power of buyers Low Since the enterprise already has a strong presence in the target market, the customers already know what to expect from the organization.

As the table above shows, LV is barely affected by the threat of substitutes due to the weakness of the latter. The fact that the products supplied by LV and similar organizations are transferred to the end customers through retailers makes the existing alternatives not as attractive. For instance, buying directly from LV and other organizations hardly seems a possibility for the target audiences; therefore, the threat of substitutes is feeble in the designated area. Likewise, the organization does not have to watch out for the new entrants, which may become increasingly successful and finally oust the company from the target market, making the target customers shift from using the LV brands to purchasing alternative products. Instead, the firm should clearly focus on attracting new customers, including men and parents, so that LV could expand.

Substitute Types

Despite the fact that the threat of new substitutes, which may oust LV from the market, is comparatively low, it is best that the company should not take any chances and reinforce its competitive advantage. To be more precise, the firm needs to make sure that the following substitute specimens should not impede its sales: shopper totes, leather totes, hobo bags, and clutches.

The fact that the company’s target audience (i.e., first-class representatives) may switch to a different brand once the quality of LV’s products ceases to satisfy their demands as far as the quality standards are concerned. As has been explained above, consistently high quality can be viewed as one of the factors defining the competitive advantage of the enterprise. Hence, once losing it, LV is likely to cease to be attractive to its target customers.

Demand Tendency: Analysis

Despite minor discrepancies in the organization’s strategy regarding the use of resources, the overall evolution process can be defined as positive. According to the recent information issued by the organization, LV’s sales have increased by 7% (“LVMH Upbeat About Cognac, Sales Improve at Louis Vuitton” par. 3). Hence, it can be assumed that demand rates are growing increasingly prominent for LV’s products. The expansion of the firm and the promotion of new products, such as wine, can be considered primary reasons for consistent growth in demand. Therefore, the overall prognosis for further sales rates in the company can be deemed somewhat positive.

Labor Force, Productivity and Production Cost

A significant boost in the company’s profits can be achieved by introducing the staff members to a set of training sessions, which will help them acquire new skills and master the old ones entirely within a relatively short time period. For instance, the training process will have to include training of the abilities such as information management (e.g., faster information acquisition, processing, and transfer), promotion of leadership skills among managers as well as the improvement of manufacturing skills among the workers. Thus, the production process can be sped up, and customer satisfaction rates may rise significantly (Lambert 4). Likewise, the production costs can drop as soon as the number of errors made while manufacturing is reduced. Although the training program in question may require large funding, it is bound to lead to tremendous improvements in the overall workflow.

Business Profitability

By the current standards of profitability, LV can be viewed as a corporate giant, with its products being represented in all major cities of the world and especially in Europe. The enterprise has a long experience of working in the retail market and producing luxurious bags and other products.

SWOT Analysis

Table 2. SWOT Analysis for LV

Strengths
  • Availability: the products can only be purchased in the company’s stores;
  • Exclusiveness: the products can be customized according to the clients’ requests;
  • The enterprise has a long history of operating in the target market (since 1950s) (Kastanakis and Balabanis 1400);
  • The firm has an easily recognizable logo that appears on every item of its production;
  • The company’s brand has a very strong presence all over the world with rare exceptions;
  • The firm is represented by a range of celebrities purchasing LV’s products;
  • The channels that the organization sells its products through are very diversified;
  • The company’s brand is very memorable and easily recognizable;
  • The organization has a specific target audience, whose needs it caters to;
  • LV delivers a consistently good performance (“LVMH Moet Hennessy Louis Vuitton SA Strengths” par. 1–3).
Weaknesses
  • The enterprise does not embrace a range of denizens of the population, e.g., men, teenagers, etc., focusing mostly on women;
  • The firm’s products can only be purchased in specific stores;
  • The recent increase in the trade receivables and the following threat of clients defaulting on their payments;
  • Cost efficacy of the firm affected by the trade receivables issue (“LVMH Moet Hennessy Louis Vuitton SA Weaknesses” par. 1–2).
Opportunities
  • The entrepreneurship has to adopt an innovative approach to tracking down the current trends and offer customers unique products;
  • A flexible pricing policy, including discounts and special offers, will set LV aside from similar enterprises;
  • Strategic acquisitions, mergers and initiatives, such as the acquisition of 50% of La Tour du Pin’s shares (“LVMH Moet Hennessy Louis Vuitton SA History” par. 21);
  • Alterations in the designated market’s dynamics (“LVMH Moet Hennessy Louis Vuitton SA SWOT Analysis” par. 1–2).
Threats
  • The company may be affected negatively by an economic crisis;
  • A range of organizations counterfeit LV’s products, thus, giving LV a bad name.

As the table above shows, each of the factors that contribute to a change in an organization and define its performance in the target market is rather low. For instance, the firm does not need to be concerned about the threat of substitute products. Instead, the organization should watch out for the new entrants, which may become increasingly successful and finally oust the company from the target market, making the target customers shift from using the LV brands to purchasing alternative products.

The issues regarding a large number of counterfeits, however, need to be adequately addressed. Seeing that tracing every source of a potential forgery is barely possible, the firm may need to consider improving its brand security. Notably, the means of proving the genuineness of a product will have to be updated; for instance, a hologram with the firm’s logo on it may be viewed as an opportunity.

As far as the possible crisis is concerned, the tools such as a cost-efficient strategy aimed at reducing expenses and, therefore, creating the reserve financial resources required in case of an emergency have to be included in the array of LV’s strategies.

It should be noted that the strengths of the company are very numerous and impressive; moreover, most of them can be used to expand the current opportunities and make the company’s presence in the target market even stronger. Therefore, the emphasis should lie on attracting new clientele, including men and parents; thus, LV will be able to expand even further, evolving into a household name.

PESTEL Analysis

Political The firm needs to coordinate the firm’s action with the requirements and regulations set by the state government of the target countries.
Economic Possible economic crises may affect the organization’s wellbeing.
Social LV may consider the need to cater to the needs of the middle-class population as well.
Technological LV uses only advanced technology.
Environmental The company has been praised as environmentally aware.
Legal Possible issues with local legislation can be expected.

As the analysis provided above shows, LV is unlikely to be affected by economic, political, or environmental issues. Instead, the current position that the enterprise takes in Europe allows the firm to expand further in the U.S. market, therefore, acquiring more customers. The company, in fact, has a range of assets in several domains, such as the environmental and the technological one. Hence, making sure that the quality standards are complied with, and the customers are satisfied with the properties of the end product is essential for the performance of the organization is crucial.

Profit Growth

A closer look at the current state of affairs in the organization will reveal that LV may need to redefine its strategy and consider the use of a different marketing and branding approach. The idea of targeting a new audience (e.g., m idle-class people) and promoting the products to them may also be viewed as a possibility. Last but not least, the use of a more rigid set of quality standards is likely to help address the problem. Indeed, the profit growth of LV turns out to be negative as far as the sales in 2013 and 2014 are concerned. Based on the following formula:

formula 1

or

formula 2

, where P1 is the 2015 profit, and P2 is the 2014 profit, the firm’s profit growth has been estimated; the calculations returned the following results:

formula 3

, or –8.9%. Thus, it is safe to assume that calculated is in desperate need of changes.

Other Relevant Factors

LV is one of the companies that seem to have reached the level of sustainability at which they may feel rather secure in the global environment. As the analysis carried out above has shown, there are very few factors that may cause any hiccups in the corporate mechanism. Nevertheless, there are unique conditions that, once being exposed to, LV may become excessively dependent on. For instance, financial support, which the firm will require as it enters the U.S. market fully, may come from a business partner. Hence, the possibility of an acquisition or even a merger may be viewed as an opportunity. However, the change mentioned above involves sharing responsibilities and, thus, may trigger unwelcome alterations in the leadership approach adopted by the organization. Seeing that the current leadership strategy used at LV works rather well in the designated setting, switching to an entirely new one that presupposes looser supervision of the corporate processes does not seem safe from the organizational perspective. The problem can be solved with the help of the factor known as Corporate Social Responsibility (CSR), Typically defined as “a way of creating higher and higher standards of living, while preserving the profitability of the corporation, for peoples both within and outside the corporation” (Hack, Kenyon, and Wood 51), the specified phenomenon will help foster the required qualities in the employees.

Conclusion

Louis Vuitton is known as a world-renowned retail company catering to the needs of the first class. However, the recent changes in the global economy compel the organization to introduce an improvement to its design and production processes so that the firm’s performance could be spurred. The organization leader might want to reconsider the current branding approach, as a new segment of the population might need to be marketed to. Additionally, alterations in the leadership style may be required once the organization starts conquering the American retail market.

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