The success of louis vuitton LV in Japan

()+ ,.Executive SummaryThe purpose of this individual paper is to examine the success of Louis Vuitton (LV) in Japan, and identify the current phenomena in the market. Luxury is a business model of LV in accelerating Japanese consumers. It is followed by great execution of marketing principles in term of Product, Distribution, Promotion, and Price. However, the modern life of consumers has created change in their behavior. It has become a serious issue that challenges LV’s success in the future. In constructing this paper, a review of relevant journal, newspaper, academic publications, and online resources were used. Consumer behavior change is identified as a significant influence that challenges future performance of LV in the market. LV must seriously think on how to strategically maintain its competitive advantages in the market. This paper recommends LV to enhance its luxury existence in the heart of potential customers. It can be done through extensively enhancing customer relationship, and the main concept that should be implement is strategic alignment between its current marketing programs and Research Design functions to support high quality production, which accommodate consumers’ expectations

Executive Summary

The purpose of this individual paper is to examine the success of Louis Vuitton (LV)

in Japan, and identify the current phenomena in the market Luxury is a business model of LV in accelerating Japanese consumers It is followed by great execution of marketing principles in term of Product, Distribution, Promotion, and Price However, the modern life of consumers has created change in their behavior It has become a serious issue that challenges LV’s success in the future In constructing this paper, a review of relevant journal, newspaper, academic publications, and online resources were used Consumer behavior change is identified as a significant influence that challenges future performance of LV in the market LV must seriously think on how

to strategically maintain its competitive advantages in the market This paper recommends LV to enhance its luxury existence in the heart of potential customers It can be done through extensively enhancing customer relationship, and the main concept that should be implement is strategic alignment between its current marketing programs and Research & Design functions to support high quality production, which accommodate consumers’ expectations

Table of Contents

EXECUTIVE SUMMARY

4.1 Economic Crisis 5

4.3 Individuality factor 6

5.1 The expected characteristic of luxury brands 8

5.2 Enhancing Customer satisfaction 8

1.Introduction

Louis Vuitton Malletier, often referred as Louis Vuitton (LV) is a French fashion house founded in 1854 by Louis Vuitton LV mostly famous for its craftwork leather bags and trunks It also known as Louis Vuitton Moet Hennessy (LVMH) after merger with leading manufacturers of champagne and brandy Moet et Chandon and Hennessy in 1987 LV is one of the world most valuable luxury brands for a seventh consecutive year, which worth $25.9 billion, and quality craftsmanship, heritage, and history are key factors of success for luxury brand The LV brand and the famous LV monogram are also among the most valuable brand that creates competitive advantages

Japanese consumers are among the world’s biggest consumers of luxury product (Salsberg 2009) LV is extremely popular brand with fashion conscious Japanese consumers Japan Market Resource Network (2007) in its consumer survey has stated

LV in the first place among the Top 10 luxury brand popular in Japan In central Tokyo areas like Omotesando, Shibuya, and Shinjuku is very easy to find several girls carrying the LV bags, wallets, and others accessories Moreover, 44% of Japanese women own LV bag (Howard et al 2007) It shows the huge market share of LV in Japanese market Japan is the most essential market for LV and had become the most concentrated source of revenue for luxury brands

The rise of LV in Japan is not a coincidence but rather it is achieved through extensive strategic approaches LV has successfully grasped their potential consumers

in term of attitude, mindset, and behavior Respectively, well managed business model, brand image, and marketing strategy has profoundly influenced the success of

LV in Japan However, there is no conformity for business to success in today fierce competition Especially, when it deals with consumer dynamism, where their attitude and mindset is changing Luxury business must realize how this current phenomenon drives change for luxury product demand Dependence on traditional luxury strategy has worked well in the past, but it will challenge long-term success of luxury manufacturer (Salsberg 2009) Thus, LV must be able to use its existing marketing strategy approach to accommodate dynamic consumer and maintain competitive advantages It can be done trough sophisticatedly aligning its marketing program with Research & Design department This tactic is expected to maintain LV competitive

advantages and long run sustainability in Japanese market as well as to compete with other competitors in the market

2.Business model strategy: Luxury as a business model

Accelerating globalization has created fast changing retail environment, increasing global competition, and higher consumer expectation It is a good signal for businesses to internationally expand their products Japanese people attitude toward foreign product is very different They normally expect European product to be exclusive, luxurious, and prestigious According to Nagashima (1970) in his research, Japanese people are characterizing “made in France” product as exclusive, hand made, and luxurious

Japanese consumers are very concern to the uniqueness of the product The uniqueness of the product that they seek must avoid similarity (Knight & Kim 2005) Japanese consumers expect European luxurious image and lifestyle from purchasing LV’s product Japanese fashion market has very unique features compare to other countries Japanese are very sensitive to trend cycles in the international fashion market Social function of self-expression and self-presentation also become main consideration for choosing luxury brands due to hedonic rewards given by a luxury product (Ko & Megehee 2012) In short, Japanese consumers are very luxury, and this is the reason why luxury product is highly demanded in the market

As a pillar of its strength and profitability, LV has chosen luxury as its business model in Japan expansion Luxury is a business model that basically implemented by luxury brands that dominate worldwide such as Louis Vuitton, Gucci, Channel, Hermes, and Rolex (Kapferer 2012) The luxury business model of LV in japan is reflected by its strict principles in maintaining the uniqueness of its product Bernard Arnault, the CEO of LVMH said, “luxury is the only sector that can provide luxurious margins” (Kapferer & Tabatoni, 2011, p 1) Luxury is significantly directed all their strategies in gaining high market share in Japanese market It plays such an important role as a key word in marketing products To deliberately transmitting the idea of Luxury product, LV has constructed sophisticated strategy in order to gain competitive advantages in the Japanese market Marketing principles implemented by

LV is the essential factor that contributes to LV success in japan

3 Marketing Principles of Louis Vuitton: A luxury brand strategy

Marketing principles adopted by LV is an important part to analyze in order to understand their success in Japanese market Louis Vuitton is different because LV consistently focuses on product, distribution, communication, and pricing Through its marketing efforts, LV has successfully delivered uncompromising quality, operational excellence, and continuous innovation of its products The marketing principles implemented by LV known as typical luxury brand marketing, which are quite distinctive from conventional marketing principles (Nagasawa 2009) LV realized that the brand and its image are the key competitive advantages that create great value for organization Therefore, the ultimate goal of marketing approaches is to develop strong brand and images as a luxury product The principle of marketing strategy of

LV can be evaluated via its Product, Price, Place, and Promotion analysis, commonly known as Four Ps analysis

In term of product offered, LV mainly focuses on distinguished quality High quality product is extremely a must factor for LV It is very different to usual marketing strategy where implementation of adequate product quality is commonly practiced For LV the concept of absolute quality is more important, rather than just provide the customers with relative quality (Nagasawa 2008) Moreover, Nagasawa (2009) in another journal highlighted several principles for LV’s product, which some of them are principle of eliminating counterfeiting, principle of ignoring the demand of majority, and principle of prohibiting licensing This absolute quality of product is the main reason for LV to set up premium price of the product Also, to maintain their image, product quality is a basic requirement for consumer to recognize their brand value Therefore, LV maintains their high quality product and most of them were manufactured in France to maintain its value and quality

Second evaluation is according to the price Generally, market demand of the product

is low price, which can be achieved by reducing cost of production or off shoring to potential places As discussed early, the principle of LV product is absolute quality, not price, thus the effort to create this absolute value is very crucial Prohibiting bargaining sales, giving prestige price, and avoid to give discount are the principles implemented by LV in Japan (Nagasawa 2009) As a luxury brand, LV realized that

they must engage in premium pricing strategy with uncompromising quality, and few discounts and mark down (Keller 2008)

Third is the place, also known as distribution strategy Control over their product is the key for LV in maintaining high quality product as well as service By only selling their product in a few original stores, LV easily control their marketing process Choosing the right distribution channel is essential for luxury brands like LV Keller (2009) insisted that for luxury carefully control distribution via selective channel strategy is an obligation Therefore, limited distribution channel is implemented in Japan to easily control the overall processes The strategic stores located in the prestigious sites are part of the globalization process, and how to internationalize brand and image of the product (Fernie et al 1997) In fact, in September 2002, LV opened it first integrated building named largest flagship store in the world in Ometesando

And lastly is promotion strategy of LV It is not common to see LV advertisement on

TV or another mass media channel The reason behind this is according to LV philosophy that information in detail to customer is main consideration Thus, the most common advertising medium used by LV is print mass media like fashion magazines and catalogue

The appropriate business model as well as incredible marketing strategy of LV has resulted in its massive success toward Japanese market LV has successfully attracted Japanese consumers’ heart This success has created such a powerful brand and image

of the company, and developed strong competitive advantages in the market However, there is no guarantee for any well-established brand to maintain its success

in the future Change in the market especially according to change in consumer attitude and mindset could be a serious challenge for business in current business environment Also, intensive threat from new players in fashion industry could be serious challenge to LV The lack response interm of strategy to anticipate future potential threat will lead to the loss of brand prestige Nagasawa and Sugitomo (2009) agreed that running a business based on brand is very risky in the condition of rapid change and intense competition

4 Change in consumer behavior toward luxury goods

Japan’s passion for luxury product actually began in the 1970s, where majority of consumers believes that European products were higher quality, more durable, and exclusive As explained by Nagashima (1970), European products especially “made

in France” product expected to be exclusive, luxurious, and have the story behind it This perception strongly related to the emotional and social connection with possessing luxury brands Thus, owning expensive European brand showed the success and social acceptance Additionally, unlike the luxury product in other countries, in Japan luxury product has long been seen as an integral part of middle-class life (Alderman 2011)

However, the situation is different now Globalization in the fashion as well as luxury industry has given the easy access for consumers to gain a lot of information according to the current condition As a result, it creates easy access to the variety of product with less expensive price and tendency to be more sophisticated in buying product (Fernie & Azuma 2004) There are some determinant factors of consumer behavior change toward luxury products

4.1 Economic Crisis

Current economic crisis has shifted the purchasing habit and consumption of consumers According to Salsberg (2009), the current crisis has fundamentally accelerated vital shifts in consumers’ attitude and behavior In addition, this situation decreases the confidence of buying luxury product The weak economy and the steady appreciation of Euro against Yen has affect consumer purchasing power and

diminished demand As a result, Luxury industry also predicted to be infected (The Economist 18 September 2008) Also the devastating earthquake, tsunami and nuclear

disaster have significant impact to the economy and consumers’ life priorities These incidents have changed people mind and attitude to purchase (Alderman 2011)

4.2 The greater number of Alternative product options in the market

Rapid increase in number of luxury and imported brand as new player in the market has become a threat to the old player of luxury product such as LV Sweden’s H&M, Spain’s Zara, Italy’s Diesel, and also local brand like Uniqlo are apparently getting

serious attention from potential customer These businesses are ready to hijack the current loyal customers of Luxury brand They are providing current fashion, trendy, and relatively inexpensive in price Zara is the most outstanding threat for LV in today global market, especially in Japan Over past five years, Zara’s revenue has

grown by an average of 27% a year since 1998 (The Economist 17 May 2001) The

success of close competitors is not a good sign for LV LV must quickly response to this current phenomenon

4.3 Individuality factor

As evidence, Japanese women are much more confident about their own style, they are more independent Globalization has profound influence in constructing their confidence They are really concern to the current fashion in the market They are beginning to mix the expensive and less expensive product and try to find variety range of channel Japan Market Resource Network (JMRN) insisted that only 20% consumers agreed that possessing luxury brand expresses their success and social status (Salsberg 2009) As the consumers have already had high level of confidence, they no longer need the luxury product Thus, it will become a challenge to industry marketing in order to maintain their loyal customers since they no longer think that luxury brand could give them extra confidence

The global financial crisis followed by increasing number of competitor in the market affects the consumer mindset and the behavior The most important key consideration, which proves to major obstacle in achieving the goals, is high priced products offered

by Louis Vuitton that could be easily attacked by competitors The consumers are very flexible in lifestyle, their taste, and preferences They tend to be very educated, high access to Internet to gain information, and eager to shop (Morton 2002) People are often delaying to purchase because they are very concern to their priority In fact, 60% of the luxury market is now based on demand from aspirational customers,

where they really well educated and concern about their expenditure in shopping (The Economist 17 September 2009) However, these current phenomena are not

impossible to manage The perception that everything will return to normal is not appropriate in high globalization world Marketer should understand this change and

taking strategic actions to adapt with this situation It is very important to note that attract and maintain loyal customer is not an easy approach

5 Maintaining competitive advantages

Great luxury business model as well as brilliant execution of the marketing strategy in the market is the main focus of LV in gaining wonderful market share in Japan Four main elements to business model, which are product, distribution, communication and price has become strength of LV They really focus more on the first three, so that

people will forget about the last one (The Economist 17 september 2009) As a result,

they become one of the world’s largest luxury-firm as discussed early

However, everything is different now Based on McKinsey Tokyo, in March 2009, the survey from 1500 Japanese luxury consumers and some interviews with CEO and other senior offices It found that the shift in Japanese consumer behavior in term of attitude and mindset would be long-lasting (Salsberg 2009) It means that the practitioners in luxury industry must prepare appropriate strategic approach toward this phenomenon Again, they have to preempt the current competitors such as Zara to gain and maintain their competitive advantages in the market Moreover, only relying

on brand might be very uncertain under the situation of rapid change and fierce competition, where change in market especially according to economic crisis and change in trend influence brand image (Nagasawa & Sugitomo 2009)

To gain competitive advantages in the market, LV has to encourage and convince the consumers that LV is the real luxury product and ready to give them uncompromising quality and value Quality and image of the product remain vital, but it must be supplemented by functional and extraordinary value (Reid 2007) The reality now in the market is there is no boundary between fashion market and luxury market Thus, the consumers of this two different market are mixed Luxury brands including LV have lost their shine in the mind of their current loyal customers At the same time, fashion industry players are ready to takeover the market Therefore, LV must first underline and maintain its shine by ensuring that the characteristic of luxury brand in their product is existed This can be done through enhancing customer connection, thus great coordination and integration between marketing and research and design

(R&D) is highly needed to achieve the main goal of firm, which is customer satisfaction

5.1 The expected characteristic of luxury brands

Shifting consumer behavior has resulted in the high expectation for current luxury brand in the market Keller (2009) insisted several ideas according to characteristic of Luxury brands in the consumer perspectives Maintaining premium image, and strong priority in controlling that image, and strong brand attributes behind their brand name are the relevant characteristics that must be proven by LV to their targeted consumers Moreover, timeless, modern, fast growing, and highly profitable are also the main characteristic for brand to be success in the market Luxury product must produce extraordinary luxury product, services, and event to keep their loyal customers and make us willing to pay more (Amaldos and Jain 2008)

5.2 Enhancing Customer satisfaction

Luxury means treating all clients as VIPs Basic goal of luxury product is to develop pricing power Creating consumer to become price insensitive And finally they are becoming fans of the brand These were traditional approach of building customer relationship with the brands Today, long-term commitment from current customers is crucial How long they are willing to pay for product is strictly related to how luxury product can prove that they are deserved to be luxury Current customer play very important role as the reference to the current trend in the market, thus they are representative of other potential customers in the market (Kapferer 2012) Being customer oriented Business model and marketing principle execution of LV has long been known as fantastic approach in the Japanese market Still, there is no evidence that LV has already had great connection and integration between marketing, R&D, and production fucntions within their company This is the most important element of enhancing customer satisfaction in the market a major barrier to success is the failure

of organization in critically linking the function within organization and between company and its customers (Craig 1990) Thus, LV should exploit its current marketing performance to gain customer information and link it with other organizational function to boost performance