Strategic And Operations Management
LVMH Moët Hennessy – Louis Vuitton is considered to be a world leader in luxury possessing a unique portfolio of over 60 extremely prestigious brands including names like Dom Perignon, Christian Dior, Donna Karan and Louis Vuitton.. The various sectors in which the group is active include Fashion and Leather Products, Watches and Jewelry, Perfumes and Cosmetics, Wines and Spirits and Selective Retailing. Since its creation in 1987, due to its expansion of international retail network and brand development strategy, LVMH had a strong growth dynamic with over 3000 stores worldwide. In the current day, almost 100,000 employees share the group’s value. LVMH carries out numerous initiatives for protecting the environment and community action for human development such as LVMH-ESSEC Chair and LVMH House. The group is also involved in the support of designers and young artists, humanitarian action, heritage, culture, and education.
Purpose of LVMH Group:
Mission: The mission of the LVMH group is to represent the most refined qualities of Western “Art de Vivre” around the world. LVMH must continue to be synonymous with both elegance and creativity. Our products, and the cultural values they embody, blend tradition and innovation and kindle dream and fantasy.
Vision: LVMH pursues authentic quality and uniqueness in their products. The company persists to strive for global growth to remain prominent in the future. They want to maintain their ground to be a pioneer and leader in the luxury industry. Through this, the company will increase the share price with their excellent performance to bolster investor’s confidence.
Political: A competitive, transparent, and modern economy with vibrant and updated information and communication technology sector.
Environmental: World leader in business freedom, property rights, and trade freedom, a high level of economic freedom available with a sound banking system and taxes being moderate with a high level of overall taxation.
Social: Scenario of a shrinking workforce and a catapulting population.
Technology: Existence of cutting edge expertise in high tech clusters, availability of wireless solutions, adaptation to the emerging technologies.
1. Portfolio Strategy:
The potential for the use of synergies between the different businesses has been observed from the corporate value chain. The synergies that can be identified from the value chain analysis of LVMH include the following.
Technology: The development in technology can be utilized across businesses. E-procurement, Intranet aid in the exchange of technology across businesses.
CRM, Sales, Marketing, Distribution, and Service: In case the target market is common, the different businesses tend to overlap each other for the route to market.
Operations: Since the trend of the products falls in the category of luxury, they tend to cater to the same market segments who are the consumer of premium price tagged products, hence the various businesses trade in similar markets. Except for Wine and Spirits, there is a tendency for different businesses to overlap.
The implication of the resource fit was that the current portfolio of LVMH was well balanced and taking into consideration the nature of the business, it would stay in that way. The portfolios of the businesses were nicely balanced. Due to the timelessness of the products of LVMH, the possibility of the cash cows converting to poor dogs was unlikely. The portfolio of stars was reasonably diversified within the company and such positioned that capitalization on potential industry growth was possible. In the case of the poor dogs, some products had the opportunity to move up while others had to be divested, which the company did in the year 2002.
Strategic Business Units are a division of an organization that has unique business missions, competitors, markets, and products line relative to other SBU’s in the same corporation, (Hunger, J. and Wheelen, T. 1996). The corporate strategy is the pattern of discussions that determine and reveal the purposes, goals. Objectives etc and also determine the principle policies and plans to achieve the set goals. It also decided the range of business that is to be pursued, the kind of human and economic organization one should be, and the type of economic and non-economic contribution that is to be made to the various stakeholders.
From the above, it can be understood that the LVMH Group adheres to the portfolio approaches. They have to acquire new businesses on a constant basis with new profitable businesses, invest with specific duration views be it medium-term or long term, develop diversity, try and strengthen the flow of cash and maintain a balanced portfolio in terms of the risks involved.
2. Evaluation of divisional strategy of LVMH Group:
Consistency: The goals and policies are consistent in nature. The philosophy of creativity and autonomous disciplines creates loyalty towards LVMH. The people involved in the group tend to have a feeling of ownership and a sense of contribution towards the development of the company.
Feasibility: Strategies implemented should be such that they do not give rise to subproblems or overtax the available resources. They should be feasible while considering factors likes resources, the capital. Management, money, time span, etc. If the tasks undertaken can be achieved at the group level, there would be no requirement to approach the headquarters. The problem-solving ability and empowerment of the companies are enhanced by means of shared and synergistic group resources.
Advantage: As opined by David, F. (1993), Strategies should be such that competitive advantage is obtained in the area of activity. This is obtained by means of superior resources, skills, positions, etc. Most customers of high-end products do not purchase products for their functionality, but for the image, intangible value, and life style that is associated with it. The employees of the group feel a sense of pride and prestige in being associated with such a brand name.
Consonance: Through the strategies implemented, an adaptive response is represented towards the external environment and also towards the critical changes that take place. Before conservative traditional businesses became profitable, LVMH had the vision to hire new designers to run them. People who are passionate about doing something extraordinary are also provided adequate opportunities.
2.1 GENERIC POSTURE:
When buying any product in the market, there are multiple choices to select from. This is so because each player in the market has a different approach to gain a competitive edge over its rivals, (Arkebauer, J. and Miller, J. 1999.). While a certain section of the market players lower the frills attached and hence makes the products available at a lower price, there is another section who are smaller in size but due to extensive knowledge in just a few areas provide tough competition to the bigger players in the market and there is a third section who are of the elite class like LVMH who focus on creating wonderful products and the higher price they chare make up for the higher costs they incur. These three examples can help in understanding the Generic Strategies as they are applicable to different organization sizes and to products and services across industries, Michael Porter (1985).
2.2 PRODUCT MARKET STRATEGY AND MARKET SEGMENTATION:
A world leader in luxury goods, LVMH has adopted a global product structure where the business’s diverse product categories are separately managed. Since LVMH is a highly economically integrated multi-national, this structure is suitable for them. LVMH believes that due to their standardized designs and highly recognizable motifs, their global brands unite the elite consumers worldwide. The economies of scale are benefited by this. As a retails brand, LVMH can expect to save a percentage of the commercial costs such as shop assistants, rents, advertising each time it doubles in size. To suit their existing offers, LVMH uses marketing to change the customer tastes. Simultaneously, the structure aids LVMH to build and maintain a link between product development, customers, personnel, etc. Due to this, LVMH has proactively kept up with the global market trends.
They cater to the high-end customers with a larger pocket size mainly. Their customers are pf the elite segment of society.
2.3 Directional Strategy:
The Directional Strategy of LVMH is simple. They intended to cater to the clientele who have a larger pocket size that is to the elite market essentially. They would create products that signify the lifestyle and standard of living and hence would be a prized possession. The higher pricing would entitle them to recover the higher costs that were incurred in the process.
Due to the vastness of the establishment, they would believe in using resources collectively but the different categories would be managed separately. Their brand would have such a face value that it would be more of a necessary purchase for the elite rather than a luxury.
3. SWOT analysis:
- Huge experience pool due to long time existence in the market.
- Leading position in the industry.
- Brand value.
- Tremendous reputation.
- Strong public relations.
- Distribution networks.
- High R & D and Innovation.
- Loyal customer base.
- Unique products.
- Conflict of interest within the company due to diversification of resources.
- Luxury goods are sensitive to economic fluctuations.
- Diversification could pose to be a drawback.
- Since a major part of the client base is fixed, the market is somewhat restricted..
- High-cost structure.
- Limitations in the production ability.
- The smaller companies get aid from the more affluent ones as the brand name itself is one.
- The rise in demand for luxury products occurs due to the snob effect.
- New buying potential due to new consumer trends, increase in wealth, evolving market trends.
- Newer distribution channels help in improving the sale of the large product line.
- Expansion across the world.
- Changes in trends influence customer preferences and tastes.
- Existence of competitors like Gucci, etc.
- Fluctuations in an economy like Recession, etc.
- Fluctuations in the exchange rates.
- Dependence on the suppliers.
TYPES OF STRATEGIC OPTIONS:
Status Quo: A significant justification is involved for maintaining the status quo of the current resource allocations. The anticipation of unknown and unspecified changes in the economy, the market, consumer preferences, etc can be of great consequences for the integrity and stability of LVMH. Occasional recalculations, innovations, and required alterations will help in sustaining the current market and also create opportunities for growth. Since LVMH has already established a market for itself, to not tamper with its settings would be best advisable as consumers do not prefer change. They like things to be as it is because they are aware of the details. Once a change is implemented, it takes time for people to adjust to it, which again might affect the market for the products.
Expansion: Expansion is always a feasible option for any type of business (Sadler, P. 2003) and especially with the brand backing that LVMH has, it would be highly advisable. The lesser-known or newer names could receive the shielding effect from the better-known names till they establish themselves. Since they already follow diversified management of the product categories, the operations would be easier.
With ever-evolving dynamic market trends, maintaining a status quo would be more advisable for a high-end brand like LVMH. This is so because they have a much-selected clientele and expanding would mean compromising on various factors to make the products within the pocket reach of more people. Through the higher pricing structure, they tend to match the higher costs that are involved in the entire process. These higher costs would not be feasible for the masses and the quality too cannot be compromised because that would ruin the brand name and also antagonize the existing client base. It is always best to maintain their current status and innovate and improve to serve their existing clients better. They could try introducing a more affordable range of products to appeal to the masses but that would compromise on the brand name overall which again would be suicide when they are already the market leaders. The current dynamics of the establishment suit their client base. They are aware of what they pay for what product and are happy with the transaction. Thus suitability, feasibility, and acceptability factors are already catered to.
Since 2003, the OREE association brings together local governments, companies, and associations to work in coordination and create methods of improving environmental awareness. The Moët & Chandon and LVMH Fragrance Brands have set up awareness rasing and training programs for the disabled. In 2007, the ‘LVMH Handicap Mission’ was established. Maintaining jobs for senior people and a no-discrimination work ethic. The permanent policy of LVMH is to hire people and provide them with extensive training regarding processes and techniques used in manufacturing products. LVMH is involved in social and cultural activities also. Several companies of the LVMH group have implemented supplier compliance programs and codes of conduct. Audits of the suppliers are also carried out occasionally. LVMH believes in active community involvement by ongoing support to major public health and humanitarian causes as well as to medical research. Regular meeting reports to the shareholders provide the shareholders an opportunity to be aware of what is happening.
The groups’ core competencies can be explained through the four elements of price, products, distribution, and communication. The pricing is such that it compensates for the high costs involved. The products are of very high class and define the lifestyle of the consumers. Since the target market share is very niche, the distribution process is structured. Communication is sound as the resources are managed separately. The network within the companies is extremely strong.