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Project no.2 Project title: Louis Vuitton Class and group/team number:Marketing Management Group 2.Amandip Singh GrewalAdrián Ra?ekMartina MichalíkováSandra Beenfeldt-HansenGroup members: 4Date: 7/10-2014Number of characters (including spaces, footnotes, end notes and text boxes): 30.308Signatures of all the participating group/team members:_____________________________ __________________________________________________________ _____________________________Table of Contents TOC \o "1-3" \h \z \u Value Chain analysis of LV PAGEREF _Toc274243026 \h 3 Support activities3Firm infrastructure PAGEREF _Toc274243027 \h 3 Human Resource Management PAGEREF _Toc274243028 \h 4Procurement PAGEREF _Toc274243029 \h 4Technology development PAGEREF _Toc274243030 \h 5 Primary activities PAGEREF _Toc274243031 \h 6Inbound Logistics PAGEREF _Toc274243032 \h 6Operations PAGEREF _Toc274243033 \h 6Outbound logistics PAGEREF _Toc274243034 \h 7Marketing & Sales PAGEREF _Toc274243035 \h 8Service PAGEREF _Toc274243036 \h 9Strengths PAGEREF _Toc274243037 \h 10Weaknesses PAGEREF _Toc274243038 \h 10Strengths long term11Weaknesses long term PAGEREF _Toc274243039 \h 11VRIN – Innovation and savoir-faire PAGEREF _Toc274243040 \h 12Sustainable competitive advantages PAGEREF _Toc274243041 \h 13Business Law questions PAGEREF _Toc274243042 \h 14Value Chain analysis of LVIn the following, a?value chain analysis of LV (LV) will be made to find where in the value chain the company creates value for consumers and the company. Furthermore, the competitive position of LV will be determined using the VRIN framework. Support activitiesFirm infrastructure If we look at the firm infrastructure, we should mention general management. One of LVMH’s key strategic advantages is its strong leadership – LVMH’s chairman Bernard Arnault (controls a total of 43.5% of LVMH and 35% of voting rights) led the company through a great development plan, turning it into one of the largest luxury companies in the world. His is hISstyle of management focuses on the radical innovation and limitless. LVHM is an organic company with a decentralized organizational structure with focus on efficiency, productivity, creativity, and dynamic motivation. Since A.B. became CEO of the company, LVMH’s value has been multiplied by fifteen.LVMH has adopted a global product structure where the business’s different product categories are managed separately. This structure places brand experts at the helm, and that helps LVMH build and maintain the link between product development personnel and customers. Because of this, the firm has been successful in keeping up with global trends. The structure has also been a disadvantage as LVMH’s product categories are independently managed (pricing, location and decisions) – there is for ex. a duplication of employees and facilities which adds to LVMH’s operating costs and it takes longer to train professional managers to meet the criterion for global product structure, which also means to understand local and foreign markets well. For example if the company would move its manufacturing to Asia to take the advantage of cheap labour, this would not match the purpose of LVMH – to provide high- quality luxury products, and could damage the brand image, which is the most important part to gain high profits.Human Resource ManagementThe efficient human resource management also contribute to the corporation’s success in the market. Vuitton's manufacturing is labour-intensive, with a team of 20-30 workers producing about 120 handbags a day. Each team works on one product and team members are not only encouraged to suggest improvements in manufacturing but also briefed on details about the product, like its retail price and how well the product is selling. "Our goal is to make everyone as multi-skilled and autonomous as possible," says Thierry Nogues (a team leader in one of the Vuitton?s factories).Andrew Gowen, a?London analyst says: "They've achieved pretty close to the perfect balance between mechanization and handmade." The company?s main strategy is to trust their creators and to strike a balance between the classics and the new and innovative, in fact, only 15% of profits come from new products, most of it comes from the traditional products consumers have grown to love.The total amount of employees increased 8% compared to year 2012. From these, 103,447 employees worked under permanent contracts and 11,188 worked under fixed-term contracts. Employees who work part-time represented around 18% of the total workforce. Outside France, the amount of staff increased by 2.5% to 81% of the workforce worldwide. The main changes are due to the fact that LVMV was opening new stores, mainly in Asia, the Middle East and Latin America.For LVMH the recruitment of talents is a?key management task and the most important element for the success. For businesses like this where creativity is the key factor, it is clearly essential to be able to have most appropriate and promising talent. As there is a?lot of competition in businesses like this, the quality of teams and of each of their members make the difference.ProcurementLVHM design and manufacture their products in-house so as to have full control of production and to limit dependency on suppliers. Seventeen leather goods manufacturing shops of LouisVuitton (twelve in France, three in Spain and two in the United States) provide most of the brand’s production. The company uses third parties only to supplement its manufacturing and achieve production flexibility in terms of volumes. LV purchases its materials from suppliers located around the world.For example LV made an agreement with Tannerie Masure which is exclusively supplying LV with hides, which are being tanned in Tanneries de la Comète. Another example would be Tanneries Roux, a French supplier, who helped LV to access strategic supplies. For LV, the leading supplier of hides and leather represents about 16% of its total supplies of these products. Overall, the use of subcontractors for Fashion and Leather Goods operations represented about 41% of the cost of sales in 2013.LVHM make deals with the best fashion magazines, such as Vogue, Vanity Fair, and Elle to advertise their products. From 2001 till 2009 LVHM preferably collaborated with famous supermodels, actresses and singers. Technology developmentLV has its own Vuitton's test laboratory, a high-tech “torture chamber“ for its luxury goods. In this laboratory LV put their products through rigorous testing. Some of the techniques that LV practices are to ensure the durability of the bags is the use of a robot that continuously drops a bag containing a 3.5 kilogram weight, a machine that tests bags for fading by shooting ultraviolet rays at the bag, and machine that opens and closes a zipper 5,000 times. There's even a mechanized mannequin hand, with a Vuitton charm bracelet around its wrist, being shaken vigorously to make sure none of the charms fall off.Moreover, LV has developed a computer program to help leather cutters identify the flaws in the skins they receive. The program is also useful in another sense, since it determines where exactly to cut the bags to avoiding waste, leading to drastically increased efficiency. A very important part of LV’s technology is the online ordering system. Besides direct owned stores they also send their products online in order to make it more convenient. As it is never possible to get a discount on a product or buy an outlet bag, it is still keeping its luxury inside. LV is trying to find a balance between maximum of sold products with saving its value and that is what makes it really hard to implement new technologies and not break the “craftsmen” story.Primary activitiesInbound LogisticsLV uses high quality materials and are very selective about their materials to ensure that the quality lives up to the expectations of their costomers. Leather, zippers and clasps are sourced from external suppliers. The more expensive products uses high quality leather from Northern Europe, as there are less visible insect bites on the skin of the animals. OperationsLV is designing their bags in their own factories. In 2011 LV owned 17 factories, and they are still planning on expanding. LV used to have employees rather specialized in their own individual tasks. However, recently LV invented a?new factory system. In this new system LV reorganised its teams, so now they consist of about 10 workers. By doing this, LV made it possible to free up 10 % more floor space in its factories, resulting in the hiring of 300 new employees without adding a single factory. In the new factory system, assembling bags takes less time, since factory workers do not have to wait for goods to be moved from one workstation to another. This makes it possible for the company to ship collections to its boutiques every six weeks, which is more than twice as frequent as in the past. The employees in the factories consist of a?team of craftsmen, designers, and artists. Ever since the company was founded in 1854, LV has been innovative in its production. Although competitors have been copying LVs design, the company held on to its innovativeness and it’s savoir faire (being adaptable in any situation), which LV has certainly been. Alone in 2012, LV initiated 13.800 raids and 33 258 anti-counterfeiting procedures worldwide. The passion of the employes in LVs factories can be seen as one of LV’s strenghts and is illustrated in the following saying of some of the employees: ?It’s the heart of the business, it’s the image of the business — leather goods are the core of the company. Working on the fashion leather goods was amazing training and experience....” and “,,.It’s about how to release things, how things are evolving creatively and implementing that within the business. If the bags are getting more sophisticated how do you speak about that? How do you treat the bags? So there’s lots going on there.” The employees recognize how important it is to create value through the whole chain, and this is one of the things that are crucial to the company’s success.LV has put a lot focus on saving costs in their operations division. By reorganising their teams in a more efficient matter they are able to save costs, which contribute to the profit of the firm.Outbound logisticsLV owns its own stores (DOS stores) In this way the company can control its distribution and image. Excess stock was destroyed rather than discounted, and products were not sold through outlet stores.LV uses a?combination of FedEx‘ tranportation services. The most popular, fast-selling products are shipped directly from the factories to LV stores worldwide by FedEx Express. Rush orders are sent by FedEx International Priority. For restocking it’s classic stock, LV uses FedEx Express from its international logistics and information processing center located in Vergy, France. The individual shops uses FedEx Insight, which is a?web-based application used to recieve information about critical shipments and view the status of the shipment without having to type in a?tracking number. Accodring to Vincent Barale, director og Logistics and Transportation for LV One of LV’s main aims is to be more responsive to its logistic operations. He expresses the following: ?The services provided by FedEx enable us to reduce lead times while optimizing stock levels within our retail network. FedEx is an integral part of our remarkable, ongoing story of innovative luxury.”By using a combination of transportation services, LV is saving costs on activities that don’t contribute much value to the consumer, which in effect contribute to the company’s profit. Also LV manages the stocks of their goods in a more cost-efficient way. By outsourcing part of the company’s outbound logistics to a transportation firm as FedEx, LV can focus on its core competencies of proving quality, handcrafted luxury leather goods and At the same time, LV holds down transactions costs by relying on one supplier instead of various suppliers.Marketing & SalesLV does a lot of campaigns containing celebrities. The last few years they have used several celebrities in efforts to reach a wide consumer segment. Through these campaigns, LV wishes to drag you into the world of luxury in the way that LV sees it. In this way, they try to give you an insight of their universe. LV wants to show your life is a?journey. They do this by using different personalities from different worlds, for example actors, film stars, rappers, supermodels, and even austrounts. One of the campaings LV has done is the Spring/Summer 2014 campaign, where their focus is the young generation who likes to travel and discover the world. The photosection takes place in South Africa and the campaings main purpose is to show how practical and easy travelling is, when you are in possesion in one of LV‘s bags. LV is aiming towards all three consumer segments in the luxury goods industry, but according to the company’s new strategy LV is trying to move more towards the absolute segment. The main reason for this is that the sales in the luxury goods industry has been increasing in Asia-pacific. In doing this the company has introduced new more subtle, less logo flashing bags, the so-called Cappucine bags, with higher price tags, reflecting the preferences of the absolute consumer segment. At the same time the price of the classical Monogram and Damier range will increase a?fair amount. With the introduction of the new strategy, LV hopes to loose just enough of the accesible consumers, yet not withdrawing these consumers entirely, since afterall these consumers could end up buying the company’s more expensive bags later in life through loyalty to the brand. LV’s goal is to their image a?bit and thereby improve their profit. Their move is going in the same direction as their main competitors Bottega Veneta, Hermes and Chanel, who have their main focus on the two upper segments. Looking into LV’s marketing campaigns gives a clear indication of what they are trying to do. By relying on their well-established heritage brand they are trying to keep consumers in the lower segment, while putting more focus on the two upper segments. Through clever marketing LV has managed to target all three consumer segments. LVs‘ offering already corresponds well with what the aspirational consumer segment expects, namely high quality goods, an exclusive buying experience and brands based on tradition and heritage. The absolute segment is to be reached through the introduction of the new capucines and lockit bags, respetively sold at $4,850.00 and $5,600.00. LV underlines their focus on ?savoir-faire“ by describing the making of each bag. A?click at their webpage is revealing the company’s changed focus from their well-known, traditonal Monogram and Damier handbags towards more subtle, soft leather bags Going with the accesible segment, consumers of this segment hopefully will stay loyal to the company despite the price increases. By changing their focus more towards the two upper segments, LV wants to stay a brand of luxury and exclusivity and not to be associated with mass-market consumerism and at the same time regenerate more profit from by relying on the upper segments.Although LV is a?strong well-established brand, the company has to adapt to the trends going on. In 2013 LV’s sales growth was reduced by 50 % as it failed to anticipate consumers' move away from logo-branded luxury goods. This resulted in the Chinese demand to fall and it put a stopper to the expansion of more shops. If LV doesn’t adapt to the consumer trends of the absolute consumer segment, and especially the Chinese, the company’s position in the market may be at risk. ServiceLV is known for their excellent service for their customers. The company has invested in having an asssistent to bring the bag from the backroom for the sales person, so the consumer isn't alone at anytime. LV has an after-sales department that manages repairs of the bags. LV offers a?lifetime guarantee. This means that the consumer can get goods repaired for free. If you wish to personalize your bag and thereby making it more unique, LV offers a?number of different services. For example you can get your product stamped with your personal initials. For the absolute segment LV furthermore offers a designing consultation on a yacht with a private butler and specific areas in the store – services specifically made for this consumer segment.StrengthsTheir size: LV has the most stores worldwide compared to other brands in the industry. The company has about 440 stores worldwide and compared to most their competitors, LV already has expanded to China. The size of LV gives the company a?strong position in the luxury goods industry. Innovation and savoir-faire: LV has managed to keep up their innovation throughout time. Although they are an easy target for counterfeiting they have through their innovation and raids and anti counterfeiting-procedures managed to thrive their business. High quality materials: As mentioned, LV use high quality materials and very selective about the materials they use. Their brand: The brand is based on a tradition of heritage and quality craftsmanship that dates back to year 1854. People still think of LV as a company producing a high quality craftsmanship. Strong leadership (Bernard Arnault): Bernard Arnault (Arnault) reorganized the structure of the firm and made the decision to enter the Asian market, which was a clever move that benefited the company profits. Arnault has transformed a LVMH into a conglomerate that controls more than 60 luxury brands. Arnault is driven by the belief that he can take any luxury brand and make it bigger and more profitable, and his record is pretty good. The factory system and the teams: Each team works on one product and team members are not encouraged to suggest improvements in manufacturing, but also briefed in details about the product like its retail price and how well the product is. Also, the modernized factory techniques have improved the company’s efficiency, leading to higher profits. Their marketing: LV is doing very clever marketing and is good at adapting to the market. As mentioned, they have been using several different celebrities in their campaigns. LV’s marketing is aimed at different consumer segments, and their innovativeness and savoir-faire is reflected in their marketing.WeaknessesThe modernized factory techniques: LV’s consumers pay hundreds of dollars for its logo canvas bags, because they have bought into the notion that skilled craftsmen make them the old-fashioned way. Although the company has been modernizing gradually for some time, that reputation is still vital to the company's success. LV is trying to improve their logistics by mechanizing the process of making their leather good. However, they have to be careful not doing this too much, since they are known for their quality handcrafted leather goods. LV ran into a problem in regards to their consumer perceived image of making all their leather goods by handcraft, when in fact this was not the fact. This created a structural problem in the communication. Price sensitive in slumps: LV’s products are in the expensive end, and since they are positioned in the luxury goods industry, many consumers will not buy the products, when there is a slump in the economy. Strengths long termCould be that already are well established with many shops worldwide. Therefore the growing Chinese market wouldn’t be a market LV would have to go into, since they are already there with several shops compared to their competitors.Weaknesses long term The Image: LV wants to reach the absolute segment even more than they already do. Even though they have a wide selection of different products, when consumers think of LV, their traditional Monogram bags and to some extent their Damier bags immediately comes to the minds of the consumers. This implies a problem for LV, since their other product lines such as clothing, accessories like sunglasses, wallets, and jewelry, do not get as much attention. LV is trying to be more efficient by reacting more quickly to orders on their classical range made by their consumers, as mentioned before. By doing this, LV is trying to be more profitable and thereby increasing their margin. However, LV still has to protect their image towards their brand. By producing too many bags they risk damaging their brand, which will then be perceived as a mass-market brand. In the following the VRIN framework will be applied to LV’s strategic capabilities that that give LV their sustainable competitive advantages.VRIN – BrandValue: The brand is valuable, since it does provide value to the consumers and at the same time the brand contributes highly to the company’s profit. Rarity: The brand is rare. Few other companies are based on heritage and quality, but no other company posses the same brand perception of quality craftsmanship. Inimitability: The brand is difficult to imitate, since the brand is based on a tradition of heritage and quality craftsmanship that dates back to year 1854. It is hard to know exactly what contributes to the success of the brand. Non-substitutability: LV’s brand is at risk from substitution. Some consumers that are less loyal to the brand will be inclined to buy from other brands in the luxury goods industry. In this aspect the brand can be substituted to some extent.VRIN – Innovation and savoir-faireValue: LV’s innovativeness and savoir-faire has definetely created value to the company. If the company didn’t innovate and adapt to the environment, today the company wouldn’t be alive. Rarity: Other companies do innovate and adapt to the environment, but not in the way that LV did it. Inimitability: The innovation and savoir-faire (ability to adapt to environmental circumstances) is hard to imitate. Whilst staying true to their brand LV has managed to innovate in a?way that adapts to the environmental trends. By doing this LV will maintain its credibility of their brand, instead of just moving away from what the brands stands for. Non-substitutability: The risk of subtitituon is low. Innovativeness and savoir-faire is difficult to substitute. Since there is no such substitutes providing the same output. VRIN – QualityValue: The quality of LV’s product does create value for the consumers as well as for the company. Rarity: The quality of LV’s products is rare, since they are very selective about the use of their raw materials and do pick out their suppliers carefully. Inimitability: LV’s products go through a?lot of testing to ensure the quality and durability of the products. There is a?lifetime guarantee on the products, and the co-workers in the factories posses a?lot of expertice and experience in crafting the products. Non-substitutability: The quality of LV’s bag is not at risk of being substituted. There is no direct substitute for quality.In the following a?description of LV’s sustainable competitive advantages will follow. The purpose of the section is to explain how these correlate and together form LV’s sustainable competitive advantages. Sustainable competitive advantagesWith use of the VRIN framework it is evident that all LV’s strategic capabilities are fullfilling all 4 criteria in the VRIN framework to a?high extent. These strategic capabilies are very interraleted. LV’s brand is based on heritage and history of their high quality craftsmannship. The brand is one of the cornerstones of LV’s succes and together with the company’s innovativenes and savoir-faire it is contributing highly to the overall succes of LV. At the same time the quality of LV’s goods is especially related to their brand, and the quality of their goods are never comprimesed on. So whilst LV is introducing new products in their already exsisting range, they do this slowly to ensure the quality of their goods are living up to the expectations of their consumers and especially that it lives up to what their brand stands for: high quality craftsmanship. Business Law questions A driver delivered LV bags to a store. He was carrying three packages and accidently walked into a glass door, which broke. At the same time a costumer’s dog was in the store, and it got injured. Who can claim damages from whom?In Tort law there are 2 people involved: The tortfeasor and the injured. The tortfeasor is the one that can be claimed from the damage. The injured is the one that gets injured. In order for the injured to being able to claim loss, the loss must be of financial value. Losses of sentimental value cannot be claimed. In general there are 4 rules that have to be fulfilled if a loss is to be claimed. The purpose of these rules is to be aware of the basis of liability. Therefore these 4 rules go under the basis of liability: Culpa: First of all culpa has to be committed. In order to incur liability for damages when the basis for liability is culpa, a negligent action must have been present. When determining whether a person has acted negligently – and thereby differently from what is considered a normal and recognized pattern of behavior in the area concerned, the courts will look at how dangerous the act was. For this a scale is used in which 5 actions can be arranged:Fortuitous accident: A fortuitous accident is, when the person could not expect the act to happen. This will not be perceived as a negligent act.Simple negligence: Simple negligence refers to when a person has acted fairly negligent, thus it will be perceived as a negligent act. Gross negligence: Gross negligence refers to when a person has acted highly negligent, this it will be perceived as a negligent act.With intent (a deliberate act): A deliberate act refers to when a person has done the act on purpose, thus it will be perceived as e negligent act. Strict liability: In the case of strict liability, the tortfeasor is responsible no matter what. This is for example the case for the employer. Economic loss: An economic loss must be suffered. The economic loss must be of financial value. Losses of sentimental value cannot be claimed (see above).Causality: Why did it happen?Ability to foresee: What you could expect to happenAnswer: “If a master gives his servant, or another, authority to perform a duty on his behalf, then the master shall answer for whatever offence may be given by the man he has given authority, and then seek repayment from him.” If an employee acts in the working time, the employer will be responsible for the employees act. Therefore, according to the law, employers are carrying the responsibility for the act of the employee. In this case, it is therefore not necessary to look at the degree of culpa. However, if the employee acted outside his working hours, you could look at the degree of culpa committed. In this case, the employee would have committed simple negligence and would thus carry the liability. In the case it is not clear, whether the dog is in a leach or not. Let's assume the dog is not in a leach. According to the dog Act (section 8 of the dog Act), strict liability also applies to those of possession of a dog. It is the dog owner’s own responsibility and fault, since he decides to take the dog into the store. The act of the dog would be consequence of the delivery man’s act, at it would be seen as a fortuitous accident. Therefore neither the deliveryman nor the deliveryman’s employer is to blame. A dog doesn’t really belong in the shop. However, let’s assume the shop had a section for dogs. Then the case would be different. In this case it would be the responsibility of LV that the dog didn’t ran out to the broken glass. 2) Answer: The consultant of LV (LV), who has the responsibility for the purchase of company cars, was interested in car an offer, which was sent to the company on 29th of November. A letter of acceptance for this offer was sent on 5th of December and it arrived on 8th of December, although the deadline was the day before (7th of December). As there was a fixed time for acceptance, the answer must had appeared before the deadline to be accepted (§ 2 Danish Contracts Act). In accordance to §4,1, an accepting answer arriving after time shall be considered as a new offer. However LV thought that the letter had arrived in due time, so the previous section cannot be applied. The car company gave a notice to LV that their offer was no longer valid. If the car company did not send the notice, the contract would be considered as being concluded. The notice was sent, however it did not reach other party, but the car company followed the law – it shall not suffer as it is not responsible for delays or delivery.The car company acted in accordance with law, as they gave a notice to LV and they expected them to be aware of contract being invalid. The fault is neither on the side of LV or the car company, so the car company is not bound to LV’s acceptance, and LV cannot claim any refunds.3) Explain briefly the various grounds of invalidity.Answer: An agreement is binding if there has been given a binding offer, which has been read. Nevertheless, an agreement can be cancelled if certain circumstances are at place.When speaking of invalidity, one distinguishes between strong invalidating factors and potentially invalidating factors. Also, one is distinguishing between good and bad faith. If we start with the potentially invalidating factors, the one of the parties must have acted in bad faith. This means that if a person knows that he is doing something wrong, he is acting in bad faith. For example if a man were threatening a woman to sign an agreement, it would be a potentially invalidating factor, since the man who is threatening the woman is acting in bad faith. When speaking of strong invalidating factors it is about factors that a person cannot protect himself against. For example if one is using another man’s name when signing an agreement, the agreement can be cancelled and is thus not binding. Also if you are forced to sign a contract, it can be cancelled. The same is the case if the content of an agreement is changed after the agreement has already been signed. If an error has occurred in the agreement, the agreement can be cancelled. Also if another person is making an unconscious person sign the agreement, it can be cancelled.SourcesThe Richest (2013) "Regaining Exclusivity: LV To Become More Expensive", Andrea DiVirgilio ()Reuters (2013) "Analysis: Brand-hungry LVMH seeks new niche as Vuitton flags", 3rd October 2014, Astrid Wendlandt & Pascale Denis () Matlack, C. (2004): “The Vuitton Machine“, 21. March 2004, BusinessWeek, (1).pdfPassariello, Ch. (2011), “At Vuitton, Growth in Small Batches“, 27. June 2011, The Wall Street Journal (2012), Fashion marketing secrets,“ The many faces of LV“ Mae Jeantel (2012), LV Mo?t Hennessy Company Analysis & Investment Recommendation Press releases (2014), “LVMH and Google join forces to fight fakes and commit to innovate for a more engaging Internet“, 4.September 2014 Business Review (2013), “LVMH: the strategy of?style“, 22. January 2013, (2014), LHVM website: Design- Involving suppliers (2014), LHVM website: Manufacturing (2014) LVHM website: LockIt: LVHM (2014) LVHM website: The Spirit of travel Campaign: HYPERLINK "" (2014) LVHM website: Capcuines: HYPERLINK "" \l "/knowhow"), Fedex Annualreport (2005) () LVHM (2014), LHVM website: LVHM Group (2014), “LVHM“, 2. October 2014, (2014), “Bernard Arnault“, 29. September 2014 Annual Report (2012), 31. December 2012LVHM Reference Document (2013), 31. December 2013Mahbubani, M. (2013), “LV“ case, Richard Ivey School of Business, 4. April 2013 ................
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