Louis Vuitton Case 1. According to HSBC in February 2009, Japan was the final destination of 45 percent of luxury goods sold worldwide. According to Claudia D’Arpizio, Japan is the world’s largest market, consisting of the highest per capita spending for luxury goods. Japan is known for a group-oriented culture, which creates pressure for its citizens to possess luxury, status-driven products such as Louis Vuitton (LV). This makes the Japanese luxury market easily penetrated by new and innovative fashions.
According to Davide Sesia, president of Prada Japan, Japanese Women, to a much greater extent than Europeans have a “psychological need to own something considered to be beautiful”1. In the late 1990’s, LV created limited- edition collections to claim a prestigious role. This was their marketing strategy to gain the attention of their upper class customers which reinvigorated the brand identity as well as earning them market share. In addition, Japanese people are considered to spend more time out of their residences than any other culture.
In Japan, looks are a direct correlation to a person’s social position, which persuades Japanese to shop for luxury items. Quality is a key factor for successful brands in Japan. LV has a focus on constant improvement of quality and offer lifetime repair guarantees for its products. In 1996, Azzedine Alaia, Manolo Blahnik, Romeo Gigli, Helmut Lang, Isaac Mizrahi, Syvilla and Vivienne Westwood were hired to create a limited edition series featuring the Louis Vuitton monogram.
Also, in 1998, designer Marc Jacobs, a successful American international designer was hired to be their new art director to insure their shoes and ready-to-wear collections were desirable to consumers. Its loyalty based strategy provides customers with maximum quality, creating an endless desire in LV products. Due to the desire for high end products, LV never planned to manufacture products in countries that produced goods for cheaper labor. Eleven out of thirteen LV factories are located in France; quality control in France is very high, as are the expectations of LV customers.
All products were tested on mechanical arm hoists, zippers were tested 5,000 times, and other products such as jewelry were tested by being strongly shaken to insure charms would not fall off. 2. LV faced many opportunities and challenges within the Japanese market, the most challenging being the down turn in the economy do to the 2008 global recession. In addition to the slowed economy, LV faced challenges from competitors entering the Japanese market, counterfeiting, brand dilution and the changing attitudes towards luxury brands such as LV.
LV also had opportunities presented to them within the Japanese market, being one of the oldest luxury brands LV needed to keep reinventing itself in order to hold on to its market share. This reinvention was met through offering new products such as ready to wear pieces and limited editions. One of the major challenges within the Japanese market was dealing with increased competition. Since LV was the first luxury brand to open its own store in Japan and be successful at it, many other luxury brands soon followed. These luxury brands included such companies as H&M, Gucci and Burberry.
Smaller brands such as the Swedish company H & M were able to offer high quality items at competitive prices. The business models that these smaller companies followed allowed them to compete with the larger luxury brands much more quickly. One way LV has dealt with this competition is by introducing less expensive accessories such as; wallets, clutches and travelers. Another challenge that LV has faced in the Japan market is the counterfeiting of their bags. Many of these bags flooded the Japanese market from such cities as Los Angeles, Hong Kong and Seoul.
The counterfeits were successful within the Japanese market because they provided a less expensive alternative to the real product. Many of the counterfeits possessed superior quality making it hard to tell which products were real. Japanese consumers were willing to sacrifice authenticity for less expensive products, but in most cases consumers owned both authentic and counterfeit bags. Brand dilution was another challenge LV was facing within the Japanese market. According to the journalist Dana Thomas, in 2007 40% of all Japanese owned a Louis Vuitton monogrammed item.
At this point, LV’s monogram was being compared to McDonald’s golden arches causing the brand to lose some of its luster. This loss of luster played against the brand’s quintessence of tradition and longevity. LV also diluted itself by over using its marketing strategy of limited editions. Limited edition sales dropped off because consumers were not sure whether the product was a real limited edition or if it was another marketing ploy to sell more bags. LV would also have to deal with the changing attitudes towards luxury brands. In the past the Japanese market had been tolerant of paying premium prices to own top of the line bags.
The market was willing to pay more for LV bags, in order to socially express themselves. Times had begun to change and the Japanese consumer has become more aware of the value of money. At this point, customers were looking to purchase the less expensive items that were mentioned above. An opportunity that had presented itself to LV was the chance to broaden the products it offered. This move was made in order to keep up with the ever changing market in Japan. As mentioned before the market had become less willing to pay high prices for the larger bags that LV was offering.
In order to keep up with the changing attitudes, LV had decided to offer smaller accessories. The smaller accessories are less expensive and time consuming for the company to produce which lead to different price points for the consumer. These new offerings eventually increased LV’s overall sales. 3. The Japanese market had started off as a culture where luxury items were a must have. These highly desirable luxury items were considered to be status symbols. In addition to desiring these status symbols, Japanese women were more beauty conscious compared to women in other developed cities.
This increased beauty consciousness over women from other cultures, would lead to a large market for luxury items. Another factor contributing to Japan’s large luxury market was Japan’s sizeable population living in a very small country compared to the US. The confined space of living areas have lead to the Japanese population having to me more social and spending more time in public areas. The Japanese social culture has directed consumers to purchase products based on their social position within society. In the last ten years the luxury market in Japan has begun to change due to the luxury brands not being purchased to show social status.
According to Davide Sesia, this change was due to “the increased attitude of Japanese women in their 20s and 30s understanding themselves much better than in the past…”2. 4. LV first entered into the Japanese market by use of the trade related (export/import) mode of entry. LV was the first luxury brand to export goods into the Japanese markets. The company continued to manufacture their goods (handbags, totes, leather goods, etc. ) in France and exported their goods to Japan rather than set up licensing agreements (transfer related mode of entry) like many of LV competitors were doing.
In addition, LV was the only luxury goods company to set up shop in shops in larger department stores. Keeping manufacturing at home and having LV shop in shops in Japan allowed the company to maintain control of manufacturing practices, products, prices, sales methods, advertising, management, and numerous other facets of the business. As mentioned earlier, other luxury companies did not go this route. Instead these companies licensed out their products which opened up the door for future competitors and forced the companies to be reliant on the licensee to maintain the quality of the products as well as make sales.
In addition, licensing could lead to possible conflicts amongst the company and its licensees. In other words, many of these other companies entered into situations where they may lose some control of sales and distribution operations; whereas, LV used a method in which control was maintained. In addition, by use of export and local, company owned, sales shops; LV could gradually learn about the Japanese market which, in turn, helped build a strategic orientation that provided the development, flexibility, and global learning that would allow the company to respond to the changing demands of the Japanese market.
Quality luxury items were popular among Japanese consumers. The high quality product demand led to a price inelastic market. LV had figured this out and was selling items based on quality and high cost as they knew the consumer would buy at (almost) any price because the products were so well made. As LV grew in Japan, the company began to change their distribution methods from having shop in shops to having their own shops (no reliance on big box stores). The company opened a network of 250 stores, some of which were franchises. By franchising, the company could force the franchisee to keep the same sales strategies the company was using.
In this way LV could maintain control of its business plan/model. In addition, they could reap the benefits of learning from the franchisees’ local market knowledge. From initial inception into the Japanese market, LV was riding the brand leader trend. However, the September 11th attacks brought about the decrease of demand for luxury items in Japan and around the globe. The crisis forced LV to use other entry strategies to again increase demand for LV goods in Japan. The company began to really focus in on the needs of the local Japanese market as opposed to focusing in on tourists.
The company knew that future sales growth was reliant on the local population and needed to figure out a strategy to target this market. To achieve this goal the company hired famous Japanese artist Takashi Murakami to work side by side with current employee Marc Jacobs to design luxury handbags. This move was a huge success as the company introduced various limited edition series of bags. This “limited edition concept” played right into the Japanese culture where luxury goods symbolized membership in the culture; as well as the mentality that, to fit in, you needed to own “exclusive items” such as the LV limited edition bags.
However, as the company continued to grow it was beginning to experience dilution of its products. This point was proven as three quarters of Japanese women owned some sort of LV item. So the company yet again morphed itself and began to offer goods made for children, as well as jewelry and eyeglasses (both were markets LV was formerly not a part of). This expansion increased the LV brand name and allowed the company to expand from the big cities into mid size and smaller cities. All of this helped the brand avoid over further dilution of certain items in certain markets. 5.
Yes, we do believe that Louis Vuitton will experience various challenges due to the global financial crisis. Firstly, the demand for luxury goods has fallen, therefore, putting LV in a similar situation as in 2001. To handle this drop in demand LV could continue to produce quality products, but could decrease the size of the items leading to lower supply costs. Because supply costs are less, the company could charge slightly less and still maintain the same profit margin. Another way to handle this situation would be for LV to stick to its marketing and advertising methods of the company producing quality items that last a lifetime.
In this way LV items would be considered a “treat” for consumers and could lead to the company being seen as the most sought after by consumers, even in hard times. Prior to, and following, the global financial crisis there is the trend of the growing middle class in the emerging markets. In order to take advantage of this LV should begin to expand its focus on countries such as China, India, and Russia. This could lead to future growth as all of the aforementioned markets have huge untapped markets, and all show positive growth potential3.
Finally, there may be one positive that has come out of the global financial crisis and that is the rebound after the crisis. As people have been saving and spending wisely over the past two plus years, and as the job markets continue to grow, consumers may look to begin buying the luxury goods that they gave up during the crisis. This could mean an increase in profits for luxury companies such as LV. Works Cited 1. Louis Vuitton in Japan Case, pg. 8 2. Louis Vuitton in Japan Case, pg. 9 3. http://www. nytimes. com/2011/02/05/business/global/05lvmh. html? _r=1&scp=1&sq=LVMH&st=cse