1. 1
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Course BUSI1324: Managing Strategy Course School/Level B/UG
Coursework Strategic Appraisal Assessment Weight 50.00%
Tutor VJ Torlo Submission Deadline 15/01/2016
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2. 2
Full
Strategic
Appraisal
of
Louis
Vuitton
Content
Page:
Page
3:
Introduction
&
Company
Background
Pages
4-‐7:
External
Analysis:
PESTEL
Analysis
Porter’s
5
Forces
Opportunities
and
Threats
Pages
8-‐12:
Internal
Analysis
Value
Chain
Competencies
Framework
VRIO
Framework
Strengths
and
Weaknesses
Ratio
Analysis
Pages
13-‐14:
Corporate
&
Business
Strategy
Page
15:
Key
Issues
&
Challenges
Pages
16-‐20:
Strategic
Growth
Options
Pages
21-‐22:
Recommendations
&
Conclusion
Pages
23-‐24:
References
Page
25:
Appendix
1
3. 3
*
All
references
to
the
Louis
Vuitton
Case
Study
2013
written
by
Mahbubani,
M
will
be
referred
to
‘the
case’
in
the
following
paper.
*
__________________________________
Introduction
&
Company
Background
The
purpose
of
this
report
is
to
draw
out
key
strategic
issues
and
challenges
of
the
Louis
Vuitton
Group
while
offering
sustainable
proposals
to
achieve
further
growth.
A
company
operating
based
on
over
150
years
of
rich
history
and
heritage
has
meant
they
have
been
able
to
dominate
the
‘personal
luxury
goods
industry’
clearly
indicating
they
offer
a
focused
differentiated
service
to
their
3
main
consumer
segments,
which
include
the
absolute,
aspirational
and
accessible.
Louis
Vuitton
has
a
wide
product
portfolio
offered
to
both
genders
to
create
solid
customer
value
and
brand
appeal.
When
referring
to
the
case,
the
backbone
of
Louis
Vuitton’s
success
was
built
on
three
rules
including
savoir-‐faire,
excellent
customer
service
and
constant
innovation.
Farfan
(2015)
highlights
these
values
are
still
used
today
as
she
quotes
Louis
Vuitton
mission
statement
is:
‘LVMH
are
synonymous
with
both
elegance
and
creativity.
The
products,
and
values
they
embody,
blend
tradition
and
innovation’.
It’s
fundamental
to
note,
the
key
stakeholders
of
Louis
Vuitton
are
the
customers
themselves.
When
competing
in
such
a
dense
industry,
products,
and
the
services
provided
are
tailored
to
satisfy
the
needs
of
customers
with
extremely
high
disposable
incomes.
4. 4
Part
I:
External
Analysis
PESTEL
Analysis
Beneath
is
an
analysis
of
the
macro
environment
when
referring
to
Louis
Vuitton
and
the
‘personal
luxury
goods
industry’.
This
is
to
understand
how
these
factors
influence
the
industry.
Political
This
industry
faces
problems
regarding
import
duties
when
operating
internationally.
According
to
the
case,
it
is
highlighted
that
countries
that
suffer
from
high
import
duties
such
as
China,
is
causing
customers
to
purchase
luxury
items
overseas
to
take
advantage
of
the
huge
price
difference.
Also,
looking
further,
D’Arpizio
(2012)
cited
by
the
case
states
outside
Europe
and
America
there
are
33%
of
regions
involved
in
the
luxury
goods
market
meaning
government
stability
is
imperative
in
this
industry.
According
to
Cebreros
(2012),
this
industry
is
heavily
dependent
on
tourism
so
factors
involving
terrorism
is
essential
to
consider.
Economic
One
of
the
biggest
economic
factors
in
this
industry
is
the
tax
rates
being
placed
on
luxury
goods.
According
to
Chilkoti
&
Hidayat
(2015),
the
‘luxury
goods
tax’
is
impacting
regions
without
a
luxurious
reputation
so
countries
such
as
Indonesia
have
scraped
this
taxation
policy
in
order
to
boost
consumption.
In
terms
of
Louis
Vuitton,
a
potential
price
gap
may
cause
uncontrollable
issues.
Social
As
referenced
by
the
case
study,
the
luxury
industry
has
diversified
to
services
that
include
luxury
travel
experiences
showing
one
of
the
most
contributing
social
factor
in
this
industry
is
the
shift
change
in
customer
preference.
Organisations
operating
in
the
‘personal’
industry
face
issues
as
consumers
can
achieve
luxury
status
by
their
lifestyle
and
experiences
which
firms
such
as
Louis
Vuitton
cannot
offer.
Also
demographics
are
a
factor
to
consider.
A
big
difference
in
culture
highlighted
by
the
case
is
the
importance
of
logo
brands.
Where
in
China
logos
are
seen
as
less
exclusive,
in
Japan
it
doesn’t
dampen
the
brand
image
at
all.
5. 5
Technological
According
to
the
case
the
revolution
of
the
Internet
has
meant
technology
has
had
a
massive
impact
on
this
industry.
In
order
to
gain
competitive
advantage,
firms
had
no
option
but
to
start
selling
products
online.
The
issue
with
operating
online
is
it
takes
away
an
aura
of
exclusivity,
which
potentially
reduces
market
share
from
the
‘absolute’
target
segment.
Furthermore,
the
case
claims
customer
demands
in
this
industry
include
being
‘unique
and
crafted
by
artisans.’
This
means
technology
involving
manufacturing
isn’t
a
major
factor.
Environmental
Protection
of
the
environment
is
a
huge
factor
to
consider
in
this
industry.
As
stated
in
the
case
many
firms
that
operate
sell
leather
goods,
which
have
a
huge
impact
on
the
environment.
According
to
PETA
(2015)
turning
skin
to
leather
involves
high-‐energy
consumption
and
use
of
dangerous
chemicals.
This
is
why
organisations
should
consider
limiting
their
carbon
footprint
and
preserve
natural
resources
in
order
to
counteract
the
harm
they
are
inflicting.
Legal
Being
in
this
luxury
goods
industry,
there
are
many
laws
to
consider
with
the
biggest
legal
factor
to
consider
is
counterfeiting.
This
issue
is
uncontrollable
as
referenced
by
the
Anti-‐Counterfeiting
Group
(2012)
10%
of
UK
sales
in
the
luxury
industry
is
lost
due
to
counterfeiting.
This
means
$37
billion
is
lost
in
sales
every
year.
6. 6
Porter’s
5
Force’s
Analysis
The
luxury
goods
industry
means
Louis
Vuitton
face
a
variety
of
competition
that
is
easily
explained
using
Porter’s
5
forces
model.
Threat
of
New
Entrants
–
‘Extremely
High’
In
this
industry,
it
is
considered
to
be
extremely
high
as
it
is
argued
the
industry
has
stagnated
relating
to
the
product
life
cycle.
As
referenced
by
the
case,
companies
fiercely
promote
the
history
and
heritage
of
their
brands;
so
in
order
for
new
entrants
to
build
a
reputation,
it
would
take
large
amounts
of
capital
to
build
a
marketing
platform
and
will
be
hard
to
convince
customers
to
switch
from
successful
brands
such
as
Louis
Vuitton.
Bargaining
Power
of
Suppliers
-‐
‘Low
/
Medium’
In
this
industry,
the
case
provides
evidence
that
methods
of
vertical
integration
have
been
extremely
successful.
With
these
firms
manufacturing
products
in
house
means
firms
only
have
to
source
minimal
materials,
therefore
reducing
supplier
power.
However,
the
reason
why
bargaining
power
of
suppliers
is
debatably
medium
is
due
to
the
high
quality
desired
of
raw
materials.
Such
as
Louis
Vuitton,
they
only
source
their
leather
from
North
Europe.
The
perfection
required
in
the
luxury
goods
industry
means
limited
suppliers
can
provide
it.
Threat
of
Substitute-‐
‘High’
When
referring
to
Blythe
(2012)
a
substitute
is
a
different
product
that
satisfies
the
needs
of
the
consumer.
As
mentioned
in
the
case,
the
threat
of
one
substitute
are
intangible
experiences
such
as
travelling
and
spas.
This
is
due
to
a
change
in
how
customers
express
their
social
status.
Furthermore,
with
research
one
new
player
that
is
a
huge
substitute
product
is
artificial
leather.
An
article
by
Kinge
et
al.
(2013)
states
this
material
is
preferred
by
the
younger
generations
and
vegans.
As
it
is
cheap
to
manufacture
it
would
be
hard
for
luxury
companies
to
promote
it
as
high
quality
material.
7. 7
Rivalry
Among
Existing
Competitors
–
‘High’
When
referring
to
an
article
by
Deloitte
(2013)
there
are
over
100
different
players
in
this
industry,
with
the
top
15
being
extremely
consolidated.
For
example,
in
this
industry,
Moet
Hennessy-‐Louis
Vuitton
(LVMH)
achieved
to
manage
$21,761
(million)
in
sales
in
2013
and
ranked
15
is
Prada
who
attained
$4,776
(million)
sales
revenue.
With
reference
from
the
case,
Chanel
has
mastered
it
strategy
and
puts
strains
on
all
competitors
by
increasing
brand
quality,
customer
experience
and
social
status.
This
shows
clear
evidence
this
industry
is
extremely
profitable.
Bargaining
Power
of
Buyers-‐
‘Medium’
With
this
sort
of
industry
where
price
isn’t
the
main
concern,
it
gives
a
clear
indication
that
customers
have
a
preference
and
loyalty
to
specific
brands.
Referring
back
to
Cebreros
(2012)
she
claims
customers
form
an
emotional
attachment
to
brands.
However,
referring
to
the
case,
customers
demand
unique
designs
and
a
brand
image
based
on
rich
heritage.
Therefore,
with
limited
brands
to
choose
from,
this
why
brand
loyalty
occurs.
__
Now
the
macro
environment
has
been
analysed,
opportunities
and
threats
of
Louis
Vuitton
from
a
traditional
SWOT
can
be
identified.
These
include,
Opportunities
Threats
§ Strong
growth
in
the
Asia-‐
Pacific
region
§ Tourism
§ Experienced
workforce
§ Counterfeiting
§ Increase
in
environmental
awareness
§ Substitute
products
8. 8
Part
II:
Internal
Analysis
Value
Chain
(Fig.3)
according
to
the
case
Activity
Relating
to
LV
Inbound
Logistics
• Raw
materials
(leather)
• Only
purchase
zips
clasps
from
external
suppliers
Operations
• Production
done
in
house
• Zips
and
leather
vigorously
tested
• Goods
hand
crafted
by
highly
skilled
people
with
expertise’s
but
now
also
use
machinery.
Outbound
Logistics
• Done
through
their
own
exclusive
shops
• Products
do
not
get
lost
• Decreased
grey
market
Marketing
&
Sales
• Heavy
Advertising
used
to
highlight:
-‐ Product
design
-‐ Buying
experience
-‐ Brand
image
Service
• Goods
sold
in
company
owned
stores
• Intangible
Service
for
elites.
Includes:
-‐ Butler
service
-‐ Design
consultants
-‐ Private
apartment
and
yachts
Infrastructure
• Based
on:
-‐ Savoir
Faire
-‐ Excellent
Customer
Service
-‐ Innovation
HR
Management
• New
employees
trained
by
experienced
workers
• Creative
talent
Technology
• Used
for
innovation
/
creativity
• Used
in
manufacturing
process
Procurement
• Purchase
leather
from
North
Europe
• Equipment
not
often
used-‐
(hand
crafted
materials)
(Fig.3-‐
Value
Chain)
9. 9
The
Key
Links
The
case
highlights
by
controlling
inbound
logistics
all
the
way
to
the
service
creates
value
in
the
value
chain
with
less
profits
going
out-‐house
to
merchants.
The
biggest
link
in
the
value
chain
is
‘inbound
logistics’
and
‘operations’.
The
key
in
operation
is
to
make
superior
quality
products.
By
controlling
their
logistics,
they
know
the
raw
materials
they
bring
in
for
manufacturing
will
meet
the
quality
expectations.
The
making
of
unique
products
will
result
in
less
defaulted
products
therefore
decreasing
costs.
Competencies
Framework
Threshold
Resources
-‐
By
vertical
integration
means
Louis
Vuitton’s
company
owned
stores
create
exclusively
and
value.
-‐
Highly
trained
and
significantly
specialised
staff
is
required
for
the
crafting
of
handmade
leather
goods.
-‐
The
vertical
integration
means
Louis
Vuitton
can
control
quality
and
image
of
their
expanding
number
of
factories.
Threshold
Competences
-‐
Regards
to
distribution,
their
tight
control
means
stock
is
more
easily
managed
therefore,
increasing
the
speed
of
distribution.
-‐
To
improve
customer
value,
experienced
sales
persons
are
with
customers
at
all
time
to
improve
the
quality
of
customer
service.
-‐
With
less
specialized
employees,
this
allows
Louis
Vuitton
to
improve
flexibility
and
speed
of
response
by
shifting
employees
to
manufacture
different
products
in
response
to
a
change
in
demand.
Distinctive
Resources
-‐
Operating
for
over
160
years
means
they
have
created
unique
heritage
and
evidence
of
beautiful
specimen
of
French
engineering.
-‐
The
wide
range
of
experienced
workers
at
Louis
Vuitton
makes
it
easier
to
train
new
employees
to
become
exceptional
and
talented
individuals.
-‐
Creative
workforce
to
display
savoir
faire
and
innovative
products
to
gain
competitive
advantage
Distinctive
Competences
-‐
Distinctive
methods
to
deliver
excellent
customer
service
to
their
elite
target
markets.
Essential
for
the
service
they
provide.
-‐The
brand
image
of
Louis
Vuitton
means
effective
sales
promotions
can
be
executed,
by
the
use
of
elegant
fashion
models.
-‐
Operational
efficiency
means
new
production
systems
such
as
lean
production
reduce
employee
specialization
and
training.
10. 10
VRIO
Framework
_
Valuable?
Rare?
Difficult
to
Imitate?
Exploitable
by
Organisation?
Competitive
Implications
R1-‐
Company
owned
stores
YES
NO
NO
YES
Competitive
parity
R2-‐
Superior
craftsmanship
YES
YES
YES
YES
Sustainable
competitive
advantage
R3-‐
Utilisation
of
factories
YES
NO
NO
YES
Competitive
parity
R4-‐
Unique
heritage
and
tradition
(brand)
YES
YES
YES
YES
Sustainable
competitive
advantage
R5-‐
Experienced
workforce
YES
YES
NO
YES
Temporary
competitive
advantage
R6-‐
Savoir
faire
&
innovation
YES
YES
YES
YES
Sustainable
competitive
advantage
-‐
-‐
-‐
-‐
-‐
-‐
C1-‐
Speed
of
distribution
through
vertical
integration
YES
YES
YES
YES
Sustainable
competitive
advantage
C2-‐
Quality
customer
service
YES
YES
NO
YES
Temporary
competitive
advantage
C3-‐
Quick
adaption
to
demand
changes
YES
YES
YES
YES
Sustainable
competitive
advantage
C4-‐
Excellent
Customer
Service
YES
NO
NO
YES
Competitive
parity
C5-‐
Effective
marketing
using
elegant
models
YES
YES
NO
YES
Temporary
competitive
advantage
C6-‐
Effective
production
system
YES
YES
NO
YES
Temporary
competitive
advantage
11. 11
From
the
‘VRIO
Framework’
model,
one
of
the
biggest
resources
that
are
contributing
to
the
success
of
Louis
Vuitton
is
the
unique
heritage
and
French
tradition
of
the
brand
image.
(Hall
1993)
states
intangible
resources
such
as
‘brand
image’
can
influence
customer’s
decision-‐making
process
enabling
Louis
Vuitton
to
charge
premium
prices.
The
difficulty
in
creating
an
intangible
brand
image
is
it
takes
a
long
period
of
time
in
this
industry,
therefore
creates
sustainable
competitive
advantage.
Furthermore,
a
competency
that
Louis
Vuitton
has
mastered
to
create
sustainable
competitive
advantage
is,
the
ability
to
quickly
adapt
to
customer
demands.
In
this
sort
of
industry,
Bhardwaj
&
Fairhurst
(2009)
claims
there
is
a
constant
need
to
refresh
product
ranges.
Referring
to
the
case,
the
new
production
system
meant
workers
were
now
less
specialised
meaning
they
were
more
skilled
when
producing
products.
Responding
so
quickly
to
customer
demand
is
extremely
difficult
and
wouldn’t
be
possible
without
the
vertical
integration
model,
concluding
being
one
of
the
first
to
meet
new
customer
needs
creates
a
sustainable
competitive
advantage.
Ratio
Analysis
based
on
the
financial
report
in
the
case
study,
for
current
ratio
analysis
of
Louis
Vuitton;
please
refer
to
(Appendix
2-‐
Fig.1)
*
Cost
of
Sales
calculated
=
(Total
Revenue
–
Gross
Profit
Strengths
Weaknesses
§
Vertical
integration
§
Savoir
faire
and
innovation
§
Distinctive
brand
image
§ Meet
demand
quickly
§
Limited
customer
base
§ Mostly
female
demographic
§ Intense
competition
12. 12
From
the
financial
documents
specified
in
the
case,
ratio
analysis
is
used
to
evaluate
aspects
of
a
company’s
performance.
Profitability:
In
terms
of
profitability,
the
reason
for
a
52.8%
gap
between
gross
and
net
profit
is
due
to
the
amount
Louis
Vuitton
spend
on
intangible
service
to
create
customer
service.
Furthermore,
as
the
case
states
they
destroy
old
stock
instead
of
discounting
shows
their
business
philosophy
isn’t
utilising
business
resources.
Liquidity:
The
liquidity
of
Louis
Vuitton
is
excellent.
With
a
current
ratio
of
1.38
and
$13,267,000
in
current
assets
gives
a
good
indication
that
Louis
Vuitton
can
sell
assets
to
solve
short-‐term
debt.
As
mentioned
Louis
Vuitton’s
profitability
is
good
with
huge
profit
margins.
With
easy
assess
to
cash-‐in-‐bank
reduces
any
business
risk
significantly.
Activity:
Activity
is
one
of
Louis
Vuitton’s
worst
performance
areas,
but
there
is
a
reason
for
this.
According
to
Accounting
for
Management
(2016)
activity
evaluates
how
frequent
assets
are
turned
into
cash.
In
2011
a
0.50
asset
turnover
is
due
to
products
being
hand
crafted
by
artisans
to
meet
customers
needs.
It
is
hard
to
maintain
high
quality
and
make
assets
quickly.
Solvency:
In
terms
of
solvency,
a
debt/
equity
ratio
of
30%
shows
how
little
Louis
Vuitton
depend
on
creditors
for
money
to
help
continue
the
business.
A
30%
margin
is
extremely
low
and
shows
great
promise
that
they
have
the
resources
and
business
structure
to
thrive
and
continue
operating
successfully.
13. 13
Part
III:
Company’s
Corporate
&
Business
Strategy
3.1-‐
Corporate
Strategy
Vertical
Scope
Looking
at
the
internal
activities,
Louis
Vuitton
(2013)
highlight
their
business
model
of
controlling
their
value
chain
has
anchored
their
vision
on
building
on
their
idiosyncratic
heritage.
As
stated
in
the
case,
controlling
their
factories
all
the
way
to
distribution
increases
quality
and
image.
This
shows
they
have
a
wide
vertical
scope.
Geographic
Scope
Louis
Vuitton
(2013)
proudly
states
they
operate
in
over
65
countries,
with
over
460
stores.
The
purpose
of
their
international
strategy
is
only
selling
their
products
and
services
in
prime
venues
in
major
cities
to
maintain
brand
exclusivity
when
making
reference
to
the
case.
Horizontal
Scope
When
making
reference
to
the
Ansoff
Matrix,
(Appendix
1-‐Fig.
2)
‘product
development’
has
been
a
successful
strategy.
The
case
highlights
a
range
of
products
offered
that
include,
leather
goods,
shoes,
jewelry
and
their
website
even
offers
luxury
notepads.
Louis
Vuitton
(2015).
With
a
wide
product
portfolio
offering
services
to
both
genders
highlights
evidence
of
a
diversification
strategy
in
use.
3.2-‐
Business
Strategy
When
relating
to
Porter’s
generic
strategy,
(refer
to
appendix
1
–
fig.
1)
there
is
strong
evidence
from
the
case
that
Louis
Vuitton
operate
a
‘focused
differentiation’
strategy.
According
to
Johnson
et
al.
(2012)
this
strategy
targets
a
narrow
segment
tailoring
products
or
services
to
specific
customers.
They
state
competitive
advantage
can
be
achieved
because
they
do
not
serve
a
broad
range
of
segments.
This
means
co-‐ordination,
compromise
and
flexibility
are
easily
achieved.
Evidence
from
the
case
shows
the
target
market
Louis
Vuitton
are
targeting
customers
with
extreme
amounts
of
disposable
income.
But
the
uniqueness
is
more
based
on
the
service
rather
than
the
product.
For
example,
they
offer
amenities
such
as
design
consultants,
butler
service
and
shopping
in
privacy
on
yachts.
14. 14
Relating
Louis
Vuitton’s
business
strategy
to
the
strategy
clock,
(appendix
1-‐
fig.2)
the
focused
differentiation
strategy
shows
the
true
success
of
the
company
because
it
shows
high
perceived
value
to
the
consumers
which
is
why
the
price
is
so
high.
15. 15
Part
IV:
Key
Issues
and
Challenges
Reviewing
the
internal
and
external
analysis,
it
is
essential
to
pinpoint
the
success
of
Louis
Vuitton
is
mainly
down
to
controlling
their
entire
value
chain
by
methods
of
vertical
integration.
By
keeping
all
profits
in
house
is
why
their
profitability
ratios
are
healthily
and
sustainable.
But
this
success
has
meant
the
pressure
to
grow
further
threatens
the
balance
of
the
values
and
heritage
of
Louis
Vuitton.
It
is
important
they
do
not
rely
too
much
on
automated
manufacturing
to
satisfy
this
growth.
In
order
for
Louis
Vuitton
to
remain
competitive,
there
needs
to
be
a
clearer
focus
on
customer
segments.
Involving
the
‘absolute
segment’
they
need
to
ensure
exclusivity
by
tailoring
hand-‐made
products
to
their
needs.
The
use
of
machinery
is
an
excellent
way
to
grow
but
heavy
reliance
isn’t
a
successful
sustainable
way
of
growing
without
undermining
the
values.
A
summary
of
the
external
analysis
shows
an
increase
in
environmental
concerns
is
Louis
Vuitton’s
biggest
threat.
There
is
evidence
that
Louis
Vuitton
has
managed
to
control
aspects
of
the
macro-‐environment
such
as
adapting
prices
in
various
countries
to
deal
with
import
duties
and
their
ability
to
exploit
technological
advances
by
selling
to
the
‘accessible
segment’
through
E-‐Commerce.
But
operating
with
quality
leather
goods,
it’s
unmanageable
not
to
release
harmful
chemicals
while
treating
the
leather
so
it
doesn’t
rot.
In
order
to
gain
competitive
advantage,
Louis
Vuitton
could
partner
up
with
charitable
organisation
such
as
UNICEF
as
this
is
an
excellent
method
to
build
a
moral
reputation
against
the
harm
they
are
already
inflicting
on
the
environment.
With
this
evidence,
it
is
clear
that
Louis
Vuitton
and
the
luxury
goods
industry
is
beginning
to
stagnate
and
has
hit
maturity
on
the
product
life
cycle.
(Fig.4)
Although
the
industry
is
still
growing,
the
competition
has
become
fiercer
than
ever
before.
(Fig.4)
–Product
Life
Cycle
16. 16
Part
V:
Strategic
Options
for
Growth
To
create
appropriate
strategic
growth
strategies,
a
TOWS
Matrix
has
been
created
to
help
find
gaps
in
how
Louis
Vuitton
can
improve.
TOWS
Opportunities
1)
Strong
growth
in
Asia-‐
Pacific
region
2)
Tourism
3)
Experienced
workforce
Threats
1)
Counterfeiting
2)
Increase
in
environmental
awareness
3)
Substitute
products
Strengths
1)
Meet
demand
quickly
2)
Distinctive
brand
image
3)
Savoir
faire
&
innovation
SO
-‐
Using
innovation
and
savior
faire
to
extend
Louis
Vuitton’s
product
portfolio
due
to
their
experienced
workforce.
-‐
Their
ability
to
meet
demand
quickly
will
be
able
to
cope
with
the
increase
growth
in
the
Asia-‐
Pacific.
ST
-‐
Louis
Vuitton’s
distinctive
brand
image
will
be
enough
to
draw
customers
away
from
substitute
products.
-‐
The
savior
faire
and
innovative
product
design
and
materials
will
make
it
difficult
to
copy
therefore,
reducing
counterfeiting.
Weaknesses
1)
Limited
customer
base
2)
Mostly
female
demographic
3)
Intense
competition
WO
-‐
With
an
experienced
workforce
that
makes
unique
products,
they
can
make
a
wider
product
portfolio
that
will
appeal
to
more
males.
-‐
With
many
customers
being
from
around
the
world,
creating
products
to
suit
their
cultures
will
help
eliminate
competition.
WT
-‐
With
the
increase
of
environmental
awareness,
it
is
essential
to
use
better
raw
materials
to
create
a
competitive
advantage.
-‐
With
the
threat
of
substitutes
and
limited
customer
base,
it
is
imperative
for
Louis
Vuitton
to
maintain
an
innovative
and
create
design
portfolio.
17. 17
5.1
Option
One:
The
first
option
for
growth
that
Louis
Vuitton
can
clearly
exploit
is,
diversifying
their
product
range/portfolio
where
there
are
gaps
in
the
‘personal
luxury
industry’
such
as
going
into
the
perfume.
According
to
the
case
in
2012
this
industry
is
estimated
to
reach
$19,950,000,000.
The
reason
why
this
was
chosen;
the
case
highlights
The
LVMH
Group
has
had
experience
in
this
field,
and
their
brand
image
is
likely
to
attract
all
three
customer
segments.
When
relating
this
to
the
‘Ansoff
Matrix’
(Fig.5),
operating
this
growth
strategy
would
mean
‘product
development’
has
been
initiated.
As
the
case
highlights
perfume
is
classed
as
a
luxury
good
and
Louis
Vuitton
expanding
their
product
range
has
huge
potential.
Option
Two:
The
second
growth
strategy
is
to
maintain
Louis
Vuitton’s
values
by
growing
through
acquisitions
and
organically.
Through
taking
over
smaller
businesses
in
the
luxury
goods
industry
is
an
excellent
way
to
retain
the
business
heritage
and
values
of
the
business.
The
reasoning
for
this
growth
strategy
is
to
retain
the
business
philosophy,
by
not
forcing
growth
by
using
additional
equipment
and
machinery
protects
their
brand
image.
(Fig.5)
–
Ansoff
Matrix
18. 18
Option
Three:
The
third
option
is
to
have
more
stores
in
Asia-‐Pacific
and
America
regions.
With
reference
to
the
case
estimated
growth
in
2012
is
18%
for
Asia-‐Pacific,
and
13%
for
America.
Although
the
growth
is
higher
in
Asia-‐Pacific,
more
American
stores
will
be
introduced
to
take
into
consider
the
external
factors
such
as
price
fluctuations
and
tourism.
5.2
SFA
Framework
Model
The
main
purpose
of
all
three
growth
strategies
was
to
find
methods
of
not
damaging
or
diluting
Louis
Vuitton’s
brand
image.
According
to
the
SFA
Framework,
option
one
was
considered
the
best
in
terms
of
suitability
regarding
the
brand
image,
company
values
and
profitability.
As
mentioned
previously
in
the
report,
the
luxury
goods
industry
is
at
a
stagnation
point.
Acquisitions
and
new
stores
will
create
more
customers,
but
the
methods
of
product
development
may
develop
to
be
an
excellent
way
to
bring
in
new
customers.
This
would
prove
to
be
successful
due
to
the
luxurious
brand
image
Louis
Vuitton
possesses.
Criteria
Option
One:
Expand
the
product
portfolio
to
the
perfume
industry
Option
Two:
Continue
growing
organically
through
acquisitions
Option
Three:
Open
more
stores
in
Asia-‐Pacific
Regions
-‐
(1-‐5)
(1-‐5)
(1-‐5)
Suitability
14/15
12/15
10/15
Exploits
brand
image
5
4
3
Retains
company
values
4
5
4
Enhances
profitability
5
3
3
Feasibility
8/10
10/10
5/10
Achievable
in
12
months
4
5
2
Use
of
existing
skill
set
4
5
3
Acceptability
13/15
10/15
11/15
Positive
stakeholder
reaction
5
4
4
Increase
market
share
4
4
5
Expand
customer
base
4
2
2
Total:
35/40
32/40
26/40
19. 19
In
terms
of
feasibility
of
these
three
options,
it
is
obvious
option
two
obtained
the
best
score
due
to
the
previous
success
of
acquisitions
in
the
past.
The
option
to
build
new
stores
was
just
not
feasible
in
a
12-‐month
period,
but
creating
a
new
perfume
range
is.
Reference
to
the
case
states
Louis
Vuitton
has
‘significant
experience’
in
this
field
so
they
will
know
how
to
market
and
distribute
a
perfume
product
under
their
brand
name.
Finally,
in
terms
of
acceptability,
option
one
again
highlights
positive
results.
The
most
important
aspect
of
acceptability
is
keeping
stakeholders
satisfied.
Earlier
introduced,
the
customers
are
the
most
important
stakeholder
in
this
industry.
Its
key
to
note
customers
that
are
loyal
to
brands
will
be
extremely
excited
to
find
Louis
Vuitton
has
launched
a
new
range
of
products
which
is
why
market
share
and
customer
base
are
expected
to
grow
better
than
the
other
two
options.
To
ensure
Option
one
is
the
best
strategy,
Barnett
&
Wilstead’s
5-‐point
model
will
be
used.
(Information
required
from
the
case)
Barnett
&
Wilstead
5
Point
Model
Option
1:
Expand
the
product
portfolio
to
the
perfume
industry.
Reasoning
Competitive
response
analysis
The
case
shows
firms
such
as
Hermes
and
Gucci
have
already
released
fragrances.
But
due
to
customer
loyalty
and
Louis
Vuitton’s
market
leadership
means
a
competitive
war
will
not
be
created.
Risk
An
industry
worth
$19
billion
and
the
experience
Louis
Vuitton
has
in
this
field
means
the
risk
is
low.
Synergy
With
Louis
Vuitton’s
product
portfolio
being
based
on
savior
faire
and
innovation,
creating
an
elegant
fragrance
range
will
partner
well
with
the
existing
range.
Consistency
With
‘product
development’
there
will
be
no
radical
change
to
the
existing
strategy.
It
involves
staying
in
the
luxury
industry,
but
targeting
new
markets.
Workability
Through
financial
resources,
Louis
Vuitton
has
the
assets
and
capital
to
fund
this
project.
Furthermore
with
expertise
in
this
field
shows
the
importance
of
human
resources.
20. 20
5.3
4
Key
Resources
to
Implement
Option
One:
In
order
to
expand
Louis
Vuitton’s
existing
product
portfolio,
a
range
of
resources
and
competencies
are
required.
Human:
• Experienced
staff
that
understands
what
customers
require.
• With
expanding
product
range,
new
suppliers
will
need
to
be
sourced.
Financial:
• Cash
in
bank
for
marketing
and
development.
• Cash
is
needed
for
the
purchase
of
new
equipment
and
raw
materials.
Physical:
• Machinery
and
equipment
will
be
essential
to
create
fragrances.
• Distribute
and
sell
through
the
same
method
of
company
owned
stores.
Intangible:
• Maintain
brand
image
of
‘savoir
faire
and
innovative’
• Distinguishing
scent
/
‘brand
secret’
to
display
elegance.
A
distinctive
competency
that
is
required
is
brand
management
and
product
design
capabilities.
The
purpose
of
the
growth
strategy
is
to
maintain
the
business
philosophy
of
savior
faire
and
innovation
and
this
must
be
displayed
through
the
packaging,
the
design
of
fragrance
bottle
and
target
market.
21. 21
Part:
VI:
Recommendations
&
Conclusion
From
the
case,
it
is
evidential
the
heritage
and
traditions
of
Louis
Vuitton
are
a
key
reason
for
their
success.
With
over
160
years
of
heritage,
this
reputation
can
be
easily
ruined
if
Louis
Vuitton
is
to
heavy
reliant
on
machinery.
As
mentioned
in
the
‘VRIO
Framework’
the
current
methods
how
Louis
Vuitton
create
sustainable
competitive
advantage
is
by:
• Superior
craftsmanship
• Savior
faire
and
innovation
• Quick
distribution
by
vertical
integration
• Quick
adaption
to
demand
changes.
From
these
results,
it
is
clear
Louis
Vuitton
has
their
biggest
resources
in
human
and
intangible
methods
so
to
maintain
competitive
advantage;
these
are
the
resources
that
need
to
be
exploited.
This
is
why
an
excellent
growth
opportunity
is
through
product
development
on
the
‘Ansoff
Matrix’
because
through
acquisitions,
Louis
Vuitton
have
obtained
the
necessary
workforce
to
make
this
a
feasible
growth
strategy.
With
regards
to
the
ongoing
health
of
Louis
Vuitton,
the
ratio
analysis
proves
the
company
is
financially
sound
and
the
only
purpose
for
growth
is
to
maintain
a
market
leadership
strategy.
(Fig.6)
–
Extent
of
Change
22. 22
In
terms
of
expanding
the
product
range,
when
relating
to
Bulogun
&
Hailey
(2008)
this
strategic
change
of
expanding
to
fragrances
would
be
categorised
as
an
‘adaptation’
change
on
the
‘extent
of
change
model.’
(Fig.6)
This
is
because
Louis
Vuitton
would
be
keeping
their
savior
faire
and
innovative
culture
while
making
small
changes
to
grow
the
business.
By
making
small
changes
means
Louis
Vuitton
still
keep
control
of
their
vertical
integration
which
is
a
key
factor
in
their
value
chain.
With
reference
to
the
case,
the
only
issue
Louis
Vuitton
face
with
this
strategic
recommendation
is
their
competition
such
as
Gucci
and
Hermes
already
has
experience
and
knowledge
in
this
chosen
field.
However,
by
eliminating
the
growth
prospect
of
using
additional
machinery
means
Louis
Vuitton’s
distinctive
brand
image
and
market
leadership
should
be
able
to
sustain
this
strategy
to
be
successful.
23. 23
References
Accounting
for
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