Full strategic appraisal of a given company
18Full Strategic Appraisal of a Given Company
Full Strategic Appraisal of a Given Company
Introduction and company background
The main purpose of this report is to undertake a full strategic appraisal of Louis Vuitton which has culminated in the generation. This will be done by undertaking an external analysis this will be entail a PESTLE analysis as well as the Porters Five Forces of the company. This section will be followed by an internal analysis and this will be undertaken through the use of value chain model, competency framework and the VRIO framework. The other section will deal with the company’s corporate and business strategy, an outline of the issues and challenges that are facing a company as well as the identification and evaluation of the main strategic options for growth. The report will then offer a list of recommendations and conclusion. Louis Vuitton which is normally shortened as LV is a French Fashion house that was founded back in 1854 and it founder was Louis Vuitton. Most of the company products have the label LV monogram and their products include luxury trunks, leather goods, ready-to-wear, watches, shoes, accessories, jewelry, books and sunglasses (Thomas 2007). Most of the products are sold through the company standalone boutiques, e-commerce section of their website as well as through lease departments in the high end department’s stores. The major geographical markets for the company products are in Europe, United States, Japan and China. The mission of LV is to create products that symbolize unique savoir-faire, a carefully preserved heritage combined with a dynamic engagement with modernity. The company vision is the quest for excellence as well as creative momentum. LV also has a number of values and they include being creative and innovative, product excellence, bolstering the image of the brands with passionate determination. Based on the porters generic strategies LV seems to be making use of the differentiation strategy. Based on this LV distinguishes their products from others with the aim of making them more attractive to their target market (Mahubani 2013).
2.0 External analysis
2. 1 Macro analysis (PESTLE)
The international luxury products market can be separated based in the locations may it be in Europe, America, Asia-pacific and Japan. In general, the major countries that consume the luxury product can be said to have a relative and stable political environment. However, in geographical areas such as in southern Europe, the financial turmoil as well as the austerity measures implemented y the government led to a weakening demand for the luxury goods and mostly among the local people (Oxford University Press 2007). But the travelers who made visit to the country filled the existing gap. Import duty in countries also tends to be a major factor that is mainly considered in the luxury product market all over the globe. An increase in import duty will lead to an increase of price among various countries. As a matter of fact, the grey market can be developed in countries that depict high price differences.
Based on the fact that most industries in the luxury market are based in Europe, the exchange rate of the euro will be an essential aspect in the industry. The consumption of luxury products in countries such as China is bound to increase and this will e as a result of the first growth being experienced in the country and most especially in China, Macau and in Hong King. Additionally, it would be crucial to note that the luxury market is not adversely affected by crisis.
The social factors encompasses of cultural and religious norms, practices, demographic population as well as the trend within the society (Oxford University Press 2007). LV is extremely related to the various social factors since there are various kind of people from different backgrounds living in the society and this people tend o have different preferences and opinions. LV has responded this by targeting all the various groups and the consumers in the industry have been split into three major customer segment that is the absolute, accessible and aspirational (LVHM 2014c).
A great number of companies are currently making use of online advertisements in a great way and this is mainly as a result of the growing popularity and use of social networking sites as a means of advertising. This is mainly due to the fact that a great number of people are making use of the internet and thus through online advertisement companies can have a great reach to a greater number of consumers irrespective of their geographic location (Keshia 2012). LV also gathers various kinds of information, attitudes, and opinions of individuals through the use of the internet. There has also being a growing trend in that a great number of people are purchasing products online.
There has been a growing call for testing and this may in a way thwart novelty and creativity. This ensures that the company does not face law suits due to privacy.
In relation to environmental trend, green business is a trend that has over time increased in popularity (Oxford University Press 2007). Consumers tend to spend more of green products and companies taking up such approaches have in a way increased their profits and this is mainly as a result of increased sales. For LV to be competitive in the luxury industry they need to adopt green way in their manufacturing of its products and they need to make use of technologic support and in such instances the customers would be more willing to purchase their products. This will in a way increase the sales made by the company in each of their market segments and it will also create a good image for the company in the eyes of the society at large (LVHM 2014a). To ascertain high level of environmental performance, LV believes that it is of great importance for companies to come up with a precise list of the environmental targets and later implement the management systems that is entirely dedicated to the process. As a matter of fact LV seems to be offering and ensuring that their business activities are at the best level and mostly when it comes to environmental protection all over the globe. LV also needs to manage their environmental impacts and these impacts should be positive.
2.2 Industry Analysis
2.2.1 Porter’s five forces of competition
22.214.171.124 Competitive Rivalry
The competitiveness in the luxury industry that LV can be termed as being relatively high, but with the given the high margins as well as the customers perception in relation to price (Mahubani 2013). The competition between the players in the industry is not related to price but the competitors compete in relation to image perception and quality, in addition to their ability of attracting the right designers who have the right abilities. LV has a great number of competitors in the luxury industry with the major ones being Prada, Burberry, Hermed, Versace, Chanel and Gucci just to mention a few of them. The rivalry in the industry is further augmented by the increase of private label offerings by the wholesale customers.
126.96.36.199 Bargaining power of the customers
LV sells their products through their website, direct to the consumers and also through wholesale channel. The wholesale channel accounts for 10% of the sales made and this in a way limits the bargaining power. Since LV has positioned itself as an exclusive luxury rand and it also enjoys strong brand recognition due to the high quality of their products. The bargaining of the consumers will continue to be low as LV efforts to refresh the appeal of their brand and this will go a long way in offsetting the rising competition in the market (Mahubani 2013).
188.8.131.52 Threat of New Entrants
The starting up of a new and calls for significant capital expenditure to enhance the brand marketing as well as to pay for facilities to conduct the business (Tatjana 2012). Loyalty and rand recognition are seen as the major factors that compel the middle and high income earners to purchase luxury products from companies such as LV. A new player in this industry is likely to find tasking to achieve the position since it calls for high level of investment. In the online sector, there are very low barriers of entry and new players who may be selling accessories, apparel and footwear are likely to emerge and operate online.
184.108.40.206 Bargaining power of the suppliers
The bargaining power of the suppliers can be said to be low. LV do not manufacture most of their products and relies greatly on manufactures located in various countries such as in India, Philippines, Vietnam, china, Italy, united states and Thailand (LVHM 2014b). LV has also acquired some suppliers such as the Les Tanneries Roux and this move is likely to reduce the bargaining power of the suppliers and also limit the capability of playing the supplies contrary to each other. By doing so LV can save costs related to the storage space and also in ascertaining that the products supplied are of high quality. This will make the bargaining power of the suppliers to e relatively low.
Threat of substitute products
LV products are mainly purchased by individuals in the middle and high income group. Consumers in this group like to purchase high end luxury brands that display affluence and based on these the demand for LV will continue. However, the brand faces threat from counterfeit products and most especially in the emerging markets, for example in China. As the counterfeit products continues to improve the quality of products, LV will face a major challenge in that this will have a potential to dilute the brand value of LV and thus it should be a major area of concern for the company (LVHM Press releases 2014).
3.1 Value Chain Model
When evaluating a company value chain model one considers both the support activities and the primary activities.
3.1.1 Support activities
220.127.116.11 Firm infrastructure
A major aspect that is considered when discussing the firm infrastructure is the general management of the firm. LVMH have a strategic advantage in that it has strong leadership and this is evident in the case of LVMH chairman Bernard Arnault who led the company and helped it on achieving the development plan and this turned the company into one of the largest luxury companies all over the globe (Mahubani 2013). LVMH can also be termed as an organic company which operates under a decentralized organizational structure and focuses more on the creativity, efficiency, productivity as well as dynamic motivation. LVMH has adopted a structure which ensures that the various product categories of the company are managed separate from each other. By making use of this kind of structure the rand experts are places at the helm and this plays an essential role in that LVMH is able to maintain and build links between the product development personnel and their customers (LVHM 2014c).
18.104.22.168 Human resource management
Efficient human resource management in a way contribute to a company success in their respective market. A main strategy that a the company adopts is that of trusting their creators and at the same time striking a balance between the classical and the new and innovative products, as a matter of fact 15% of the company profits were derived from sales of their new products (Carol Matlack (2004), p.100). The other percentages of the profits are derived from the company traditional products. The number of employees have being on the rise over the years and this increase is attributed to the fact that the company was opening up new stores (Mahubani 2013).
LVMH manufactures and designs a great number of their products in-house and they mainly do so to have a full control of the limit dependency and the production (LVHM 2014b). The company also makes use of third parties in order to supplement their manufacturing and also achieve production flexibility. There suppliers are based all over the globe. LVHM also make deals with the leading fashion magazine for example the Vanity Fair, Vogue and Elle and they make use of these magazines to advertise their products to their prospective customers. Additionally, between the year 2001 and 2009, the company made collaborations with famous actresses, supermodels and singers.
22.214.171.124 Technology development
LV has their test laboratory which is a high tech torture chamber. In the laboratory the products are tested rigorously. The techniques that the bag are tested using are aimed at ensuring that the bags are durable. Furthermore, the company has a computer program that help the leather cutters in identification the flaws that may be present in the skins that they receive from the suppliers (Matlack 2004). The program also assist in that it help the leather cutters in determining the exact place to cut so as avoid wastage and this increases efficiency. The company also has an online ordering system which makes the sales of the products more convenient.
3.1.2 Primary activities
126.96.36.199 Inbound Logistics
LV makes use of high quality materials and they are also very selective in the materials so as to ensure that they live up to the quality that the customers expect from them. They source the zippers, clasps and leather from external suppliers. The expensive products make use of high quality leather sourced from Northern Europe (LVMH case, page 6.).
LV designs their bags in their factories. As of 2011, the company owned 17 stories and they have also been expanding over the years. LV has invented a new system and in the system the teams have been reorganized. Through the new system the assembling of the bags consumes less amount of time since the workers do not waste time for goods to be moved from one station to the other. This ensures that the company ships their products every six weeks and this is a great improvement from the past (Passariello 2006).
188.8.131.52 Outbound logistics
LV has a number of stores and this enables them to control their image and distribution. LV makes use of a number of FedEx transportation services. The fast selling products are sold through FedEx Express, the rush orders are sent through the FedEx International priority, while the individual shops make use FedEx Insight. By making use of FedEx there is a reduction in lead time (FedEx Annual report 2005). By outsourcing a number of their outbound logistics they are able to focus on their core competencies (Mahubani 2013). They also hold their transaction costs down and this is done y making use of one supplier instead of many.
184.108.40.206 Marketing & Sales
Most of the campaigns carried out by LV are done in collaboration with celebrities with the aim of reaching a wider segment. All the efforts of LV are targeted towards three major customer segments but with time great emphasis has been made to the absolute segment (Mahubani 2013). LV also relies greatly on the well established heritage of the brand and this is mainly targeted to the lower segments while at the same time putting great emphasis on the two upper segments.
LV offers excellent services for the consumers of their products. The company also has a department that deals with after-sale issues to manage the repair of their products. At the same time LV also ensures that they cater for consumers who want specialized products.
3.2 Competency Framework
LV has a number of competencies that they should focus on this competencies includes an improvement of the quality of their products as well as the holding down of transaction costs and they can effectively achieve this by relying on a single supplier. At the same time they need to apply their wide knowledge in the industry so as to expand their clothing lines as they grow (Mahubani 2013).
3.3 VRIO Framework
Value- LV brand is valuable and this is anchored in the notion it offers value to the consumers and it contributes to the profits made by the profit.
Rarity- the brand is rare in that very few companies are based on quality and heritage but the other companies lack the same brand perception when it comes to craftsmanship.
Inimitability- the brand proves to be difficult to imitate since it is mainly based on tradition of heritage as well as quality craftsmanship and this dates back to when the company was started.
Organization- the organization is very organized and this enhances their efficiency in that they can exploit their capability.
4.0 Company’s corporate and Business strategy
LV adopts a corporate strategy is aimed at holding a portfolio of the cherished, coveted luxury brands and also add value through the use of its specialized resources. LV makes use of the growth strategy in that it keeps on introducing new products and at time adds new features to the already existing products (Henley Business Review 2013).
5.0 Issues and challenges facing the company
LV faces a number of issues with the major ones being the changing demographics as well as the global economic challenges and this has led to the change in the buying behavior of the consumers. In this regard the consumers for the higher demand market have changed and placed more value on the luxury experiences. Another major challenge was stiff competition and the existence of counterfeit goods that were lowly priced. This meant that a number of consumers opted for the cheaper products (Mahubani 2013).
6.0 Identification and evaluation of the main strategic options for growth
6.1 Main strategic options for growth (TOWS matrix)
In regard to strategies mentioned above LV needs to apply in solving the already existing problem in the company are ‘
coming up with new and advanced products
Gather information of the changing trends and preferences
Counter competition by coping with the dynamic nature of the industry (LVHM Press releases 2014).
These options have been selected since they offer direct solution to the challenges being experienced LV.
6.2 SFA Framework
In implementing the selected option, this will be done in two stages that are the 1st and the 3rd year. In the 1st years the company needs to gather information of the changing trends and preferences of the consumers. This ensures that they come up with new and advanced products to meet the ever changing needs. By doing so the company will counter the competition and thus will ensure that they cope with the dynamic nature of the luxury industry (LVHM Press releases 2014).
7.0 Recommendation and conclusion
Based on the above analysis, I would highly recommend that to gather information of the changing trends and preferences of the consumers. This ensures that they come up with new and advanced products to meet the ever changing needs. By doing so the company will counter the competition and thus will ensure that they cope with the dynamic nature of the luxury industry.
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