International marketing – Louis Vuitton case study
International marketing - Louis Vuitton case study
1. Examine the environmental factors that are important for the LVMH operations in Asia. Critically evaluate the expansion strategy of LVMH in Asia referring to the country and entrance manner for each one separately.
MACRO ENVIRONMENT AFFECTING LMVH:
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LMVH while entering Asia faced with a lot of external environmental challenges and therefore adjusted its entrance strategy to deal with these challenges in the most optimal way.
SOCIO-CULTURAL FACTORS:
Firstly the culture that prevails in Asia is very different from LMVH home country-France. In Asia, most of the regions still have a conservative mentality and collectivism is preferred over individualism. This also means that luxury goods are purchased which appeal not only to one self esteem but also the approval of other groups in the society are of particular importance. This is especially true in the societies of China and India.
TECHNOLOGICAL FACTORS:
Technology is on a boom particularly in china and India. People are adapting top the new ways of technology very rapidly. In Japan however, there is technological advancement to the highest level. This means that this factor favors LMVH as such advancement makes communication to the potential target market much easier and the task of selecting communication medium more efficient. For example, through internet and mass media like global TV channels and travelling abroad, product awareness increases and hence this familiarity increases sales in the targeted country like Japan.
However, North Korea still hasn’t reached the technological advancement as the other three countries and sites such as lack of internet connection still prevail, which makes communication and product awareness for LMVH more difficult.
ECONOMIC FACTORS:
Economy is booming for china and India, Japan already is a developed country with high economic performance. North Korea due to its inclination towards communism and strict policies is a behind these countries in terms of economic performance.
LMVH has great potential in these countries particularly the developing ones, as the rich are getting richer and getting more confident in flaunting their wealth.
POLITICAL AND LEGAL FACTORS:
The main hindrance that LMVH faced in china, India, Japan and North Korea is the problem of counterfeiting. LMVH has me too products selling in the local market of these countries with a much lower price and poor quality. This affects the brand image of LMVH as it caters to a niche market which does not appreciate mass availability of the luxury product and also its profits.
PEST ANALYSIS:
CHINA:
SOCIO-CULTURAL FACTORS:
China has a booming economy. The rich are getting richer. The women are at good positions and earning money. They are getting independent and want to flaunt their wealth. Even the white collar men are spending on luxury goods. Also learn which political factors affecting hotel industry
As far as the culture is concerned, it has a conservative culture where the face value of goods is considered very important.
TECHNOLOGICAL FACTORS:
China is very rapidly adapting to modern technology.
ECONOMIC FACTORS:
The income distribution is not even. The gap between the haves and the have-nots is increasing. There are also high import duties.
POLITICAL AND LEGAL FACTORS:
Counterfeiting is a major problem prevailing in china.
INDIA:
SOCIO-CULTURAL FACTORS:
India has a collectivistic culture. Group norms and approval are of great importance.
TECHNOLOGICAL FACTORS:
Like china, India is also very rapidly adapting to modern technology.
POLITICAL AND LEGAL FACTORS:
Counterfeiting also prevails here.
JAPAN:
SOCIO-CULTURAL FACTORS:
The culture of Japan is such that the buyers are very quality conscious.
TECHNOLOGICAL FACTORS:
Japan is technologically very advanced.
ECONOMIC FACTORS:
Japan is a developed country with high economic growth.
POLITICAL AND LEGAL FACTORS:
Counterfeiting also prevails in Japan.
NORTH KOREA:
SOCIO-CULTURAL FACTORS:
Individualism and self expression are curtailed.
TECHNOLOGICAL FACTORS:
North Korea is technologically backward.
ECONOMIC FACTORS:
The economy is not booming due to minimum external trade relations.
POLITICAL AND LEGAL FACTORS:
It is still following the communist regime. Hence a lot of political restrictions prevail here.
ENTERANCE STRATEGIES:
LMVH in Asia faced a lot of challenges for example transfer of tacit knowledge , cross border resource transfer, lack of cultural understanding, environmental factors. Hence, in order to deal with such a situation in a volatile but booming Asian economy, LMVH adopted a flagship strategy for expansion rather than direct foreign investment.
FLAGSHIP STRATEGY:
This strategy involves creating partnerships or a network with the domestic or regional constituents. It can be defined as
“The rationale for the MNE to develop a flagship strategy is to reduce uncertainty while internationalizing and increasing learning. The first member is the network’s strategic centre, i.e. the MNE which acts as a flagship in terms of strategic control and direction for the entire network. The MNE relies on four types of cross-border partners to increase its international expansion rather than on bureaucratic vertical integration.
Key suppliers are those whose inputs are critical to the development of the flagship’s competitive advantage. The flagship recognizes in them the ability to produce value added inputs and services in an efficient manner.
Key customers are businesses specializing in distribution and intermediation with final consumers.
The non-business infrastructure (NBI) is made up of non-profit organizations that are relevant to the flagship firm’s competitiveness across borders. These partners can be government agencies, universities, research centers or trade associations.
Finally, key competitors are those firms that the flagship may select to form alliances of joint ventures in the cases where the economic risks to be borne are greater than one party alone can support”. (Rugman & D’Cruz, Multinationals as Flagship Firms, 2000, Oxford University Press)
What LMVH actually did while entering these Asian markets is that it does not standardize its products across the globe but follows a differentiated strategy.
In CHINA, LMVH through its flagship strategy has created alliances with locals of the country to understand the culture better. In china luxury market its all about the face value with less emphasis on quality. It is western image of the product. Hence LMVH avoided made in china labels on it products.
"There's a lot of prestige buying in China now .People who buy luxury brands see the products as extensions of themselves everywhere, but in China this is taken very seriously”.
( Edward Bell, director of planning in Beijing for the Ogilvy advertising firm, The Boston Globe.)
“Chinese buyers are particularly welcoming to foreign brands and portraying a Western quality is necessary for luxury brands to succeed. Never dilute [your brand’s] Westerness”. (Brian Schwarz, Insight magazine, December 2006, 29-33).
In Japan however, more emphasis is on quality rather than face value. The buyers are more stringent. Another aspect that LMVH considered while entering this market was the predominance of departmental stores and the reliance of customers on them even for luxury items. Hence, in Japan, LMVH made alliances with departmental stores to satisfy customers other that their own flagship stores.
“To reach customers it cannot access through its own stores, LVMH adapts to local retail structures, relying extensively on department-store concessions in North America and Japan, where markets are highly department-store driven, in contrast to LVMH’s home-region markets”
(Ste´phane J. G. Girod and Alan M. Rugman, 2005, regional business network and the multinational retail sector, long range planning journal, 38, 335-357)
In India, the situation is similar to that of china. A lot of emphasis is on the face value of clothes and its appeal to other groups of the society for approval. Previously India had a lot of trade restrictions to boost its internal sectors for high end value added products, but now they are eased to allow foreign investors to fulfill the huger of India which is getting westernized by the day. There is great opportunity in India as it develops it party culture particularly the rich and the affluent.
“While it is true that many Indians still wear traditional garments, you would be hard put to find a sari at a Bombay nightclub like Fire and Ice” said Mr. Yves Carcelle, President of the LVMH Fashion Group (Guy Trebay, Beyond the Bangles, Fashion from India, New York Times, May 13, 2003)
In North Korea, penetration is rather hard due to strict rules and regulations, lack of exposure to the western world. Political scene also is very different for Louis Vuitton. For example due to nuclear test by North Korea, the United States had put sanctions on its luxury goods directly affecting Louis Vuitton.
COUNTERFEITING:
This is one of the major concerns of LMVH in Asia. Its products are counterfeited and made available in the local markets of Asia at very cheap price which affects the basis of its existence- that is luxury brand available only to the elitist of the society.
To deal with this, LMVH has partnered with some of its direct competitors in countries like Japan crack down on those producing “me-too” products.
Also in china, it filed a case against such activity and the government took action favoring LMVH by cutting the supply of counterfeited products in that particular region.
“What makes the luxury market in China even more fragile is the fact that you can buy your Louis Vuitton bag for a cheap price on each street corner. Rip-offs of course. The biggest problem for famous brands is the lack of an intellectual property rights system in China”. (China’s love affair with luxury goods, www.footnote.com)
2. Study the adjustment of LVMH to the cultural diversities in Asia. Will LVMH have to adopt a more standardized Pan-Asian strategy? Justify your answer.
Today, the luxury market in Asia is booming as more and more people are interested in possessing brand name shoes, apparel, watches etc. this because of the great importance given to brand names and how it relates to belonging to a particular social class.
“In today’s Asia, you are what you wear. Due to rapid social and economic changes, your place in society … now depends only on how much money you have.” (Brian Schwarz, Money Talks, Insight, December 2006).
The Asian culture has many similarities; the cultures of the countries it constitutes vary to a great extent. India is a culture where colors are the core, women wear bright colors, heavy makeup and heavy gold and silver work dresses. In china however, women are independent but like to be a little as far as colors are concerned.
These differences were taken into account by LVMH and hence standardized products across Asia are not at the basis of its expansion strategy in Asia. There is a difference in how consumers perceive products.
“Consumers tend to search for real value before they make a final purchase decision and Japanese luxury goods buyers are more discrete in their purchases, Chinese consumers usually buy luxury items without much research and view the purchase as a symbol of their high social status and financial success. Chinese luxury buyers do not mind paying higher prices for brands that their friends and family believe are top quality. While consumers here lean towards finding good value-for-money, they adopt a different mindset when buying luxury goods, which is used as a show of face”. (Brian Schwarz, Money Talks, Insight, December 2006).
Differences in cultures are also prevalent between china and India. In India vibrant colors are welcomed. Women and people in general like to stand out but in china however, such is not the case. Women in china like to keep it subtle and do not want to stand out so much.
The culture of North Korea is very unique. North Korea is still under the communist regime and to a great extent has closed itself from the outside world particularly the west. Even between North Korea and South Korea, there has not been much cultural exchange. In North Korea there isn’t much individual expression. People who do not belong to the elitist class do not have much self expression powers. As far as preference of style and colors is concerned, bright bold colors are welcomed and widely accepted. Again, the approval of the society is the priority.
"In North Korea, there is no individual expression. There is no such thing as private words or emotion” (Greg Constantine, Singing for Korean unification, Friday 27 June 2003, bbc.co.uk)
Hence by looking at all these cultural differences, it is evident that LMVH should not adopt a standardized pan-Asian strategy. LMVH should and has been adjusting to the cultural differences. For example it Japan it caters customers to departmental stores in addition to their own stores because of their inclination towards bid departmental stores. In china, the product line of LMVH is more subtle as compared to that on sale in India and North Korea.
3. Critically evaluate the basic elements of the LVHM strategic marketing in Asia.
LMVH adjusted its strategic marketing in Asia with respect to respective culture prevailing in china, India, North Korea and Japan. The adjustment of the four Ps, price, product, promotion and place, is as follows:
PRICE:
In China the Louis Vuitton products are high priced. This is because of two reasons:
The Chinese have little concern for money while buying luxury products
The import duty in china is high. It is 12.5% from December 2006. Previously it was as high as 28%.
“Wealthy consumers that enjoy personalized services and visit luxury shops without concern for price”. (Brian Schwarz, Money Talks, Insight, December 2006).
The Louis Vuitton goods in Japan are also high priced. This is due to the rental costs, import duties and lack of storage places in Japan. But high demand allows the LMVH products to be sold in markets like Japan.
With all these facts being true, the high prices in china and in Japan have led to parallel trading. Chinese and Japanese tourists in Europe tend to buy LMVH products in bulk to take them home. This affects sales in the respective home countries of the tourists. To deal with this situation LMVH put a restriction of two items per person in its European stores. This helped but did not solve the problem completely as the tourists would as somebody else to make the purchase for them.
“Passing tourists are stopped a few meters down the street. If they are prepared to purchase an item, they are given Euros in cash and sent into the store while the buyers wait eagerly outside. In return for their time the tourists that ask are given twenty Euros for a coffee. Mostly, though, they seem to treat the deal as simply a favor”. ( Mandeep Rai, Tight times for Champ Elysees luxury, Tuesday, 30 December, 2003, bbc.co.uk).
Prices in North Korea tend to be higher due to import duties and regulations which have to be followed. In India also the prices are high.
PROMOTION:
In China, it is very important that whatever you buy is approved by the social class you belong to in order to fit in and get accepted. The promotion however depicts this sanction of purchase.
“Chinese luxury buyers do not mind paying higher prices for brands that their friends and family believe are top quality.” (Brian Schwarz, Money Talks, Insight, December 2006).
In Japan, while promoting its products, LMVH basically focuses on the high quality the brand is offering and hence charging a high price for it.
“Japanese luxury goods buyers are more discrete in their purchases”. (Brian Schwarz, Money Talks, Insight, December 2006).
In India and in North Korea, the promotion is done promoting the brand image.
PRODUCT:
As mentioned earlier. The product range is not standardized across Asia it varies according to the different cultures.
In China, a more subtle product line is made available in china. In India and North Korea, bold colors and products are sold. In Japan, the main focus for products is high quality.
PLACE:
In china, LMVH has its own big stores. In Japan however, LMVH has a different strategy. It has partnered with big departmental stores where LMVH products are available in addition to their own stores. In India, the LMVH stores are in posh location such as Oberoi hotel etc. In North Korea, LMVH has its own stores.
4. Develop a brief marketing plan in order to ensure the constant success of LVMH in the Asian market.
MARKETING PLAN:
First of all in order to develop a marketing plan, an environmental analysis is essential. Based on that, segmentation, targeting, positioning is done and finally the marketing mix is developed.
ENVIROMENTAL ANALYSIS:
As mentioned earlier, the external environment is still volatile in Asia. There are import duties in countries like china, storage and rental problems in Japan and political instability in North Korea.
SEGMENTATION:
Potential customers for the luxury brand LMVH vary across Asia. The rich who have buying power should be identified. That is the customers in the elitist class who form the niche of that country should be segmented.
TARGETING:
From the segmented customers, that is most elitist class in Asia, the most profitable segment should be targeted.
In china there are the in all age brackets but the 20-40 age bracket is the most booming segment as far as luxury brands are concerned. In India there are rich people in society capable of buying luxury brands but the youth is the most westernized segment. Similarly in Japan and North Korea, those with buying power and attracted towards western brands should be targeted.
POSITIONING:
Positioning means creating an image of the brand in the minds of consumers. Since LMVH is a luxury brand it should go for image positioning rather than focusing on attributes.
MARKETING MIX:
PRODUCT:
The product line that should be made available in Asia should be a reflection of the culture and preferred taste of the particular country.
A more subtle range in china, more quality controlled range in Japan, and a more bold range in India and North Korea.
PRICE:
LMVH is a luxury brand. Hence the best strategy it can adopt for pricing is the premium pricing strategy. This should focus on high quality for high price in Japan and high brand image and social acceptance for a premium price in India, China and North Korea.
PROMOTION:
LMVH is a luxury brand; hence a good promotional approach should be hedonism-appealing through the senses. The cultural aspect of culture should also be taken into consideration. The models of the advertisement or promotional material should be local to the particular country so as to have a greater appeal. The target market will be able to relate to it more.
Also in Asia, social acceptance holds great value. Hence promotions should depict such approvals.
PLACE:
Place should be depict the most visited buying places or stores of the target market. This can vary between countries. LMVH should have its own stores in all the posh areas of the Asian countries LMVH is targeting. Other than that, affiliations with departmental stores in Japan and outlets in posh hotels in India will also contribute to success.
PEOPLE:
The people factor should also be taken into consideration. The sales people should show highest amount of courtesy to the customers. In addition to that the customer service should be LMVH’s priority. This is because the target market comprises of the elitist and hence they expect the best.
PROCESSES:
Although LMVH is not a service organization, but the nature of the target market is such that it is important train employees how to deal with customers. What information should be given to them? Once they arrive where should they be taken in the store etc.
PHYSICAL ENVIRONMENT:
LMVH is targeting the rich and the elite of Asia hence the physical environment should depict class and sophistication. It should be reflective of the social class of the customers.
Hence, these things should be kept in mind by LMVH to assure them success in the Asian market. The market for luxury brands in Asia is booming and there are a lot of opportunities for Louis Vuitton.
“The culture of luxury brands is a phenomenon so powerful that Asians now account for half of the US$ 80 billion luxury brand business” (Radha Chadha and Paul Husband, The cult of luxury Brand, 2007, Nicholas Brealey)
REFERENCES:
Brian Schwarz, Money Talks, Insight, December 2006
Mandeep Rai, Tight times for Champ Elysees luxury, Tuesday, 30 December, 2003
www. bbc.co.uk
www.nytimes.com
Greg Constantine, Singing for Korean unification, Friday 27 June 2003
Guy Trebay, Beyond the Bangles, Fashion from India, New York Times, May 13, 2003
Rugman & D’Cruz, Multinationals as Flagship Firms, 2000, Oxford University Press
Edward Bell, director of planning in Beijing for the Ogilvy advertising firm, The Boston Globe.
China’s love affair with luxury goods, www.footnote.com
Radha Chadha and Paul Husband, The cult of luxury Brand, 2007, Nicholas Brealey
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