Marketing Case Study

Question 1: Strategy to make the LVMH into luxury goods empire by number of acquisitions

Company has changed its philosophy by selling the luxury products to the middle class. The aim of LVMH has provide the products to both high and low income group at affordable prices (Sarno and Taylor, 2003). To make the company as a empire in luxury goods has several strategies are producing the diversify products so that firm can easily make the strong grip in the different markets as well as on different segments, decentralize the management of the company so that its sister concern companies take the decision easily without involving the parent company (Maurer and Valiani, 2007).

Another strategy which has adopted by the firm is cost cutting approach  in which the company can eliminate the redundancies in procurement of material and cost added in manufacturing (Wiedmann and Hennigs, 2012). The owner of LVMH thought that if the company used the portfolio approach than there is a chance of reducing the risk of failure in fashion industry. The logic behind this idea is if the market of jewellery or watches demand going down than there will no losses in selling the cloths and fashion accessories (ElMasry and AbdelSalam,  2007).

The strategy which made for the customers is offer them wide range of luxury items and if the tastes of consumers becomes change or any area of the market comes at the decline stage than their will not no chance of loosing money(Turunen and Laaksonen, P., 2011). To eliminate the high competition in fashion industry, LVMH does the various acquisitions and this strategy help the firm to recognize the brand in luxury goods (Xu and Guo, 2012). Another strategy that has followed by LVMH firm is getting the high bargaining position in the market in which manager can easily negotiated the prices of the leases of the retail space or for advertising.

Question 2: Possible risk at in first ever television advertising campaign of LVSM

In 2008, some of the companies think that television advertising were more expensive and there budget for all other advertising sources was limited. But the thinking of LVMH was different from the other companies (EMEA Equity Research , 2012). Company believes that TV advertising is a medium of mass marketing which can helps them to promote the luxury goods of the firm. At the time of advertising, LVMH face various problems and possible risk such as firm has no experienced in the field of TV advertising and they has no expertise person or guide who helped them for making the good TV advertising (Cavender and Kincade, 2014).

Another possible risk involved in the field of TV advertising is perceptions of the customers about the brand of LVSM. Company established the business at global level but they were no idea about customers perceptions and brand image in the market (MacDonald, R., 2007). If the advertising idea on TV becomes failed than it could affect the brand equity of LVMH so it was the major risk for the company. Another risk which was involved in the first ever television advertising campaign is selection of channels (Kapferer, J., 2012). Firm has no idea about the selection of the channels which had been seen by the people mostly and it was the first attempt in TV advertising. The bargaining power of the TV broadcasting was also high and it was vary country to country so this could be the possible risk for LVSM (Okonkwo, U., 2007).

Question 3: How will revenues of LVMH be affected when Dollar prices are converted to Euros

The currency value has changed country to country and it has also affected by economic condition of the country. So it is required for LVMH company to adjust the prices of the luxury goods according to change in economic conditions (Nobbs, Moore and Sheridan, 2012). In the addition to this, firm has to take several steps like raise the wholesale prices of the products in the different market of Asian country, advertising cost on the perfumes as well as on cosmetic should be reduced, drop the idea of opening the new stores in the poor economic country (Hanssens, N., 2008). Another steps can be raising the prices of the luxury goods at the time booming of tourism or on special occasions or festivals, for currency  devaluation raise the prices of the cosmetics, clothing etc (Maurer and Valiani, 2007).

According to question, in March 2008, the exchange rate of euro or dollar was €1= $1.50. At the end of the November 2008, the exchange rate of 1 euro becomes $1.25. If European luxury goods marketers cuts the prices of an $8000 tweed suit by 10% for maintaining holiday sales in December than it will affect the revenue of European marketers when dollar prices are converted into euros.

March, 2008: 1 euro = $1.50

November, 2008: 1 euro= $1.25

Price of $8000 tweed suit discounted by 10% than its value in terms of dollar is $7200. So the total discount is $800.

November exchange rate is $7200/1.25= €5760

March exchange rate is $7200/1.5= €4800

Loss due to change in is exchange rate €5760-€4800=€960

November exchange rate on total discount value is $800/1.25= €640

Revenue affected when dollar price are converting into euros= €640-€960= -€320.

So the revenue of European marketers becomes negative or reduced and this is due to fluctuation in exchange rate of the dollar.

Question 4: Demand curve of the typical Louis Vuitton costumers

In terms of economics, demand curve define the relationship between price and quantity of commodity or we can say price of a goods against purchasing power of the consumers (Turunen and Laaksonen, P., 2011). The demand curve shows the changes in the prices with respect to consumption of the goods. These changes are due to change is disposable incomes, preference and taste of the target groups, change in pricing of the commodities, frequency of composition and size of population etc (Nobbs, Moore and Sheridan, 2012). Demand characteristic of luxury goods have different from ordinary goods or consumers goods.

Luxury products comes in the category of superior craftsmanship. The pricing method of luxury goods are depends on brand image in customers mind and frequency of consumption (Sarno and Taylor, 2003). The confidence level of the customers raise and the economy of scale has also high so it show that they will want best luxury products.

The demand curve of Louis Vuitton customers is in nature of inelastic because the demand of the luxury products was increase from since 2008 and this were boost up the sales of the products (Okonkwo, U., 2007). Another reason of increase in demand of the products is status because luxury and branded products are related to prestige of the people and they increase their footfall in the direction of the brand. These type of things make them more brand addicts (Cavender and Kincade, 2014).

CONCLUSION

From the given case it can be conclude that marketing is a effective method which helps in marketing of ordinary as well as luxury goods. At the time first advertising of TV, there are several possible risk occurred which could affect the brand image of the LVMH. Company continuously increase the price of the products but the demand of the luxury products remain same. The exchange rate of the dollar in euro also affect the revenue of the European marketers.

REFERENCES

• Hanssens, N., 2008. Which International Marketing for Luxury Goods?: The Case of the Swiss Watch Industry in China. Université de Neuchâtel - Enterprise Institute.
• Kapferer, J., 2012. The Luxury Strategy: Break the Rules of Marketing to Build Luxury Brands. Kogan Page Publishers.
• MacDonald, R., 2007. Exchange Rate Economics: Theories and Evidence. Psychology Press.
• Okonkwo, U., 2007. Luxury Fashion Branding: Trends, Tactics, Techniques. Palgrave Macmillan.
• Sarno, L. and Taylor, M., 2003. The Economics of Exchange Rates. Cambridge University Press.
• Scholz, L., 2014. Brand Management and Marketing of Luxury Goods. Anchor Academic Publishing.
• Wiedmann, K. and Hennigs, N., 2012. Luxury Marketing: A Challenge for Theory and Practice. Springer Science & Business Media.
• Cavender, R. and Kincade, D., 2014. Management of a luxury brand: dimensions and sub-variables from a case study of LVMH. Journal of Fashion Marketing and Management.
• ElMasry, A. and AbdelSalam, O., 2007. Exchange rate exposure: do size and foreign operations matter?. Managerial Finance.
• Maurer, R. and Valiani, S., 2007. Hedging the exchange rate risk in international portfolio diversification: Currency forwards versus currency options. Managerial Finance.
• Nobbs, K., Moore, C. and Sheridan, M., 2012. The flagship format within the luxury fashion market. International Journal of Retail & Distribution Management.
• Turunen, L. and Laaksonen, P., 2011. Diffusing the boundaries between luxury and counterfeits. Journal of Product & Brand Management.
• Xu, X. and Guo, P., 2012. Exchange rate appreciation expectation, importer's behavior and choice of invoicing currency: A theoretical model and Yen's empirical evidence. China Finance Review International.

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