Louis Vuitton Moët Hennessy (LVMH) is the world’s largest luxury products conglo
ID: 423995 • Letter: L
Question
Louis Vuitton Moët Hennessy (LVMH) is the world’s largest luxury products conglomerate with a business portfolio that includes some of the most prestigious brand names in wines, spirits, and champagnes, fashion, watches and jewelry, and perfumes and cosmetics. The company began as Moët & Chandon, a French champagne producer, in 1743. As of 2016, the French conglomerate’s business portfolio also includes a luxury yacht producer, a 19th-century-styled French amusement park, two prestigious Parisian department stores, duty-free stores, a retail cosmetics chain, high-end luxury hotels, and a variety of French media properties.
What are the major elements of LVMH’s competitive strategy in the branded luxury products industry?
How is diversification part of LVMH’s competitive strategy?
Explanation / Answer
LVMH is a diversified conglomerate owning a number of luxury brands including Louis Vuitton (fashion and leather goods), Bulgari and Tag Heuer (watches and jewelry), Moet et Chandon and Dom Perignon (wines and spirits), and Dior (fashion, perfumes, and cosmetics).
Identify core competencies
LVMH's core competency lies with the market share it controls in the luxury market, thanks to the 60 subsidiaries it controls. Together these subsidiaries control a vast portion of the luxury market. This effectively shields LVMH from price , demand and market fluctuation. Having multiple sources of income from a diversified set of brands allows LVMH to be a price setter or a price maker and not a price follower. While free markets and perfect competition still define demand supply and price, LVMH still has monopolistic competitive advantages due to the 60 subsidiaries it controls.
economies of scale
Luxury brand's had one major disadvantage, they rely of margins and not volumes.A large portion of their their revenue on advertising. For example Louis Vuitton spends $4.4bn on advertising every year, even though its revenue is $
10 billion USD. Which 40 % of its cost is just spent of advertising , not accounting for real estate, employee, manufacturing costs. So as a stand alone brand it may not benefit from economies of scale but if it started streamlining its manufacturing units and then distributing all its products to their respective brands, it could greatly leverage economies of scale.
and economies of scope that would allow LVMH to create value as a diversified conglomerate ("diversification premium").
Economies of scope is similar to economies of scale in principle. While economies of scale focuses purely on volume or increasing the production of one single product or a service, Economies of scope focuses on increasing scale by diversifying its offerings or by diversifying its products. LVMH can leverage Economies of scope only if it chooses to consolidate its manufacturing.
What factors could lead LVMH to destroy value as a diversified conglomerate ("diversification premium")? Explain.
Answer :
Traditionally luxury brands never really incorporated technology as a part of their business strategy. It's business strategy depended more on leveraging brand value over technology. LVMH needs to adapt to changing consumer trends.
Changing Consumer Trends and Behaviours
There have been both recent as well as expected changes in my behaviour as a customer and my traits, reference groups and core values . I've completely transitioned to e commerce over brick and mortar stores to meet my demand for high quality, variety, accessibility. ease and price for shopping.
Competitive pricing and excessive discounts have made my choices and preferences of products and services more fluid i and are more I am more likely to spend on experiences over products and merchandise. There has also been a significant shift in my purchase preferences. I prefer brands endorsed by major everyday real life influencers through social media platforms like Instagram over celebrity influencers.
LVMH will have to diversify its distribution channel by leveraging e commerce capabilities over retail strategy.
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