Louis Vuitton in Japan, Essay Example

Louis Vuitton’s success in Japan has been due to both the company’s successful competitive and marketing strategy as well as Japan’s economic, social, and cultural characteristics. Japan has a strong middle class and one of the highest per capita income rates in the world. Thus, a significant proportion of Japanese consumers can afford even high-priced Louis Vuitton’s products. In addition, Japan is a group-oriented culture, thus, there is a pressure to follow the trend among peers. Thus, if majority of them have branded products, an individual feels pressured to buy one, too in order to fit in the group. Louis Vuitton is perceived to be the ultimate luxury brand and, thus, naturally benefits from the crowd behavior of buying luxury products.

Louis Vuitton has also been successful because it has tried to understand its Japanese customers. Japanese prefer quality and Louis Vuitton has maintained the highest quality standards by choosing to keep most of its production facilities in France and preserving labor-intensive production methods that add prestige to the products. In addition, it offers lifetime repair guarantees that also boost Japanese consumers’ confidence in Louis Vuitton’s products. Moreover, Louis Vuitton has also collaborated with celebrated local artists such as Takashi Murakami and Jun Aoki to incorporate local elements into its products. Louis Vuitton even chose a local executive as CEO of Louis Vuitton Japan because it wanted an executive that both understands local culture and trends as well as the brand’s vision and tradition.

The global financial crisis has created several opportunities and challenges for the company. First of all, the company has realized the pitfalls of heavy reliance on few individual markets such as Japan whose market characteristics had a great influence on the overall global strategy. As evident from Exhibit 7, Japan accounts for 30 percent of Louis Vuitton’s overall global revenues. Similarly, Exhibit 3 shows that Japan’s contribution to parent company LVMH’s Fashion & Leather Goods Division declined from 26 percent in 2006 to only 20 percent just two years later in 2008. One of the greatest opportunities for the company is to diversify its global operations to not only minimize risk that comes from reliance on few major markets but also increase overall revenues and profits.

The second opportunity is to move quickly into new international markets, learn about local market characteristics, and establish brand loyalty to gain advantage over the competition. When a company enjoys strong brand loyalty and pricing power, it can mitigate the adverse impact of difficult economic conditions to some extent Another opportunity is to research manufacturing’s best practices in industries other than automobile because globalization will force companies to further improve productivity without sacrificing quality standards. Productive efficiencies will result in further cost savings which will give the company some room to reduce prices during struggling economic conditions while still enjoying attractive profit margins. One of the challenges due to the financial crisis may be that consumers will increasingly become price-sensitive and demand better value from companies. Thus, Louis Vuitton may not be able to rely on brand prestige as much as it has in the past. Another challenge may be greater competition since competitors may try to lure Louis Vuitton’s customers through good quality products at reasonable prices as consumers become more price-sensitive during struggling economic conditions.

Louis Vuitton can pursue several strategic options to maintain or even expand its customer base. The first is to develop brand extensions aimed at consumers who admire the brand but would like lower-priced options. Such a strategy should ensure that brand extensions will not jeopardize the prestige of the signature brand and will be distinctive enough to avoid confusion in consumers’ mind. A good example is Giorgio Armani that has created several more affordable brand extensions such as Emporio Armani and Armani Exchange. The extended brands are more affordable and aimed at different consumer market segments. This will allow the company to target a greater number of market segments while preserving the prestige and pricing power of the signature Giorgio Armani brand. Another strategic option is to export Japanese experiment of collaborating with celebrated local artists to other countries. Globalization will force companies to be more sensitive to local market conditions and consumer preferences, a strategy quite similar to mass-customization. Exporting Japanese experiment to other international markets will help Louis Vuitton develop brand goodwill as well as quickly build loyal customer base. A third strategic option may be to offer greater variety of products, depending upon local consumer preferences. This will help diversify revenue stream by reducing reliance on few products and also increase brand exposure, providing effective and inexpensive marketing. The products could be offered under brand extensions to preserve the prestige of the signature brand.

The company could develop several criteria to assess the attractiveness of strategic options. The first may be the average income levels of the targeted market segments in international markets the company is already operating in or plans to enter. The second criterion may be the local consumers’ preferences, lifestyles, and consumption patterns. The third criterion may be the state of competition as well as available options to consumers.

In order to create an effective competitive strategy, it pays to do a comprehensive analysis of external factors that may influence the outcome of Louis Vuitton’s strategic initiatives. Porter’s Five Forces analysis is a good starting point in this regard. First of all, buyers’ power will increase due to globalization as they have more choices in terms of both prices and products. Suppliers’ power will also increase because they will have higher number of potential consumers as more and more companies outsource production to countries with low labor costs. This may only affect Louis Vuitton if it chooses to outsource production of products for extended brands. Competitive rivalry will also increase as more competitors target international markets due to lower entry barriers as a result of globalization. Globalization will also lower entry barriers and finally, threat of substitution will also increase due to greater number of companies offering similar products though brand prestige may offset some of the competitive pressures.

It is clear through Porter’s Five Forces analysis that Louis Vuitton will have to seek ways to capture consumers in international markets having quite different consumer and market characteristics. Emerging economies such as India and China offer huge growth potential yet consumers may be more price-sensitive due to average income levels that are quite lower as compared to Japanese. This is why Louis Vuitton should develop brand extensions as well as expand product offerings under brand extensions which will help it preserve the prestige of its signature brand while significantly expanding its market reach in fast-growing international economies. Similarly, it should also pursue collaboration with local celebrated artists that will enable it to obtain the best compromise between the brand’s hallmark characteristics and unique local tastes. The main lessons from company’s success in Japan are that it pays to understand consumers’ characteristics, incorporate local elements into product designs, and offer products that may not be part of the company’s primary product line but, nonetheless, desired by local consumers. Similarly, the company should hire local executives who understand company’s values and core competencies but are also in touch with local tastes and trends. This will enable the regional executives to cater to local tastes while preserving the company’s core design characteristics that define the brand and differentiate it from the competition.

First of all, I will create brand extensions with individual logos so that they are not confused with signature brand offerings. Potential brand extensions have been presented in the Exhibit A. I will also direct regional executives to arrange for comprehensive research into local artists that enjoy high recognition among targeted market segments and whose skills are transferable to company’s products. The company will enter into exclusive agreements with local artists who will agree not to collaborate with any other brand for a particular period of time and will also give Louis Vuitton, right of first refusal upon contract expiration. Louis Vuitton will also set up production facilities outside France to support extended brands while manufacturing of signature products will remain in France. The production facilities will be company-owned to ensure highest quality standards, even for machine-produced mass-market products. The lower production costs will allow the company to offer more affordable products though still more expensive than similar offerings by the competitors. The management is optimistic the higher quality of its products as well as brand prestige will help it enjoy higher pricing power than the competition. The company hopes to redefine consumers’ perceptions of mass-customized premium products just as it has defined the market for uber luxurious products.

Louis Vuitton is the world’s most valuable luxury brand but globalization means the company has to adapt to opportunities and challenges being created by globalization. Louis Vuitton can export both its own lessons from Japan to other international markets with largely unexplored luxury sectors as well as learn lessons from competitors such as Giorgio Armani as to how one can preserve brand prestige while target greater number of market segments at the same time.