Lvmh Strategic Analysis

Challenge statement:

"Despite worldwide softness in the sale of luxury goods, LVMH has cemented its position as the world's largest and most profitable player in the category. To stay there it must keep its customers loyal and its brand strong and find new markets worldwide" (Hazlett C. 2004). That is why in its mission they state to represent the most refined qualities of Western " art de vivre" all around the world. Their objective is to be the leader in the luxury market, continuing to transmit elegance and creativity. This poses some major challenges, the main one is to keep being the leader in the luxury market through a sustainable growth. The main problem to achieve it is the high dependency on three main countries, France, Japan and USA. This becomes a threat because if there is an economic downturn in one country it affects LVMH directly that is why.

ANALYSIS

Financial analysis.

LVMH founds itself in a stable financial situation. Being positioned as the market leader they have better financial results than the rest of the competitors. Although the sales results for 2004 were under the industry's average the overall performance over the last 5 years was 3% higher then the industry. It is important to note that the major owner of the company's capital is present CEO Bernard Arnault with 47.52% of the control of the company with 64% of voting rights. This may have an Important impact in the overall performance and operating decision taken in the company.

Marketing system

After a 4 P analysis of the company one found that it found itself in a luxury market where product quality and constant innovation are key points for the success. That is why the production process and its design can take even months. Product line is extensive however it is only conformed of high priced products. Price in this case is a guarantee of the quality present in the product. Moreover, high pricing represent an element of differentiation that the customer appreciates. However this is not a setback, LVMH has managed to have world wide presence and success. To accomplish it its selective retailing division is of high importance. Nevertheless, promotion posses the major challenge since its through this that the image of the product its transmitted that is why the company poses a major part of its budget in this section. It is Important to note that the percentage allocated is higher than those of most competitors.

Core competencies

LVMH possesses an atypical structure: 60 brands with different professions, present all over the world with each a strong identity and an appropriate positioning for each. LVMH produces high quality goods. Their distinctive competence is that the range of product of LVMH is very large. It's of course a competitive advantage because if customers are satisfied by one brand they will trust the group and certainly buy another of their products.

Customers

LVMH's products are very expensive that is why buyers have a high purchasing power. They buy LVMH's products for the quality and for brand's recognition.

In conclusion we can say LVMH is the world's largest luxury products company with a very strong diversification strategy. The main strength of the company is strategic alliances and partnerships it performs with famous and quality brands. The biggest weakness is that LVMH is vulnerable to fluctuation of the economic environment.

The main problems

 Declining demand for luxury goods

The luxury sector is particularly sensitive to the fluctuation of the market linked to political events, economic situation and to social and technological trends. The luxury sector is actually linked to the economic context at the extent that luxury products are the first products eliminated in time of crisis by consumers. For example, the effect of September 11th terrorist attacks had an important impact on the demand for luxury products and therefore on LVMH sales results.

Major problem

 Fluctuation of the sales

The sales of LVMH are unforeseeable; they strongly depend on the environment.

 Some of luxury products are easy to copy

There are a lot of forgery products available in Europe that are mainly produced in China. It is an important problem as it is really easy to buy those forgery products in the street, at a cheaper price.

 Little strategic fits between businesses like radio stations and its luxury products

There may be a problem in terms of strategic fits between the related and unrelated businesses LVMH is involved in. The diversification strategy may be seen as dangerous for the strategy coherence.

 Distribution network

They own their distribution network however focusing on selective retailing take time and money but it does not take part of their core competences. The problem is that they may not be expert in the area and make wrong strategic choices.

 They have only one retailing system.

The unique retailing system may be a threat if it not adapted for all their products: it may be different to retail wine and cosmetics.

 The target is very large , that is why they have to keep classical models and an innovative and fashion line to satisfy the whole target.

Alternatives

1) To expand the current existing brands geographically.

2) Alliances with new creators

3) Acquisitions of luxury companies in foreign countries

ANALYSIS OF THE ALTERNATIVES

1. To expand the exiting brands geographically

This strategy aims at entering new countries in order to decrease the dependency for LVMH on the three countries which are France, the US and Japan. This expansion could be realized in developing countries where there is an increasing demand for luxury goods like Russia, China or India. It would be also a way to catch new customers and to extend the company's