1.What has made Louis Vuitton’s business model successful in the Japanese luxury market?
As the business model addresses “how the company makes money in this business”, Louis Vuitton’s business model in Japan can be simply explained as selling products through directly owned and controlled stores. A good business model can guarantee the success of business. LV’s business model in Japan successfully drove it to the world’s largest market by strictly following the principles and benefiting from the external environment.
First of all, the specifics and advantages of Japanese market played a significant role in facilitating LV’s success. (These advantages of Japanese market will be discussed further in Question 3.) With these specifics and advantages facilitating its operation and production principles, Louis Vuitton (LV) was able to adapt to the Japanese market and quickly occupy the Japanese luxury market.
The success of LV’s business model also benefited from the first mover advantage in Japanese luxury market. LV entered the Japanese market in 1977, and it met the Japanese economy boom in the following years. The pioneer advantage arose as the company established its own subsidiary in Japan while other foreign companies only manufactured and distributed their products by licensing. The advantage enabled LV to build solid brand image and to increase the market share. Meanwhile, the company accumulated experience in Japanese market, which would have positive influence on the further development in Japanese market and the later expansion to new Asian markets.
Most importantly, LV values the customers’ benefit and attaches great importance to customers’ psychology. LV has been committed to the quality control. As Japanese market emphasized greatly on the product quality, good quality made LV acceptable and popular in Japan. Through achieving high quality, LV nurtured an addiction of the Japanese to luxury and built the loyalty to the brand in order to sustain its profitability. This made Japan the largest market of LV for a long period. According to the smile curve of value creation, LV insisted adding value to its brand and products to sustain its profitability. To keep the brand new and attractive to Japanese customers, Louis Vuitton strove to add fashionable elements into its products and maintain the tradition and heritage of the brand. With such innovation, Louis Vuitton started to reach more local customers and continuously motivate purchases since most Japanese women are beauty-conscious. Also, as believing that productivity would not sustain growth, the company built the brand image through great expense in advertising.
In addition, the efficient structuring of the company led to the management efficiency, which guaranteed the normal operation of LV and provided the solid foundation to its success in Japan. Besides, production efficiency is another key factor of LV’s successful business model. The production was completed through teamwork, and the employees were trained to be autonomous and multi-skilled so that the problems of the product could be found by the front-line workers and solved timely with their knowledge and experience. The teamwork efficiency, to a considerable extent, ensured Louis Vuitton’s products with high quality.
2.What are the opportunities and challenges for Louis Vuitton in Japan? The inherent advantages of Japanese market brought Louis Vuitton great success. While the market is growing rapidly and gradually come to be mature, challenges, which also imply opportunities, appear to LV in Japan.
For the weak economy, the consumer preferences began to shift, and the Japanese consumers became not to endure high prices. The young generation began to lose its appetite on LV; however, an opportunity can be seen that the wealthy old generation gained increasing purchasing power as Japanese population aging. Meanwhile, as the competition from foreign brands rose, the consumers tended to turn to the brands like H&M and Zara for its good quality with affordable prices. Meanwhile, some consumers were also attracted by the counterfeit products, which have the same design and considerable quality. The situation of LV in Japan seems to be fierce, however, with effective solutions, LV can also seize the opportunity to sustain profitability in Japanese market rather than just survive.
As it is stated in the case that Japanese consumers had been holding the desire for inexpensive luxury products from Louis Vuitton. Therefore, to solve this problem and attract more customers, LV should strive to make “inexpensive” products by increasing the value of products, lowering the costs and prices, and finally creating high value for the consumers. As the scandal of counterfeit sold on the websites in 2008 led to a decline in the sales of Louis Vuitton products, it can be viewed as a valued opportunity for Louis Vuitton to establish its own business online since it can both add selling channels and empower the company to fight with counterfeiting.
Another challenge for Louis Vuitton is the market and brand dilution as it has already entered and successfully fit in the Japanese market. The products have already maintained the “acceptable” group, and the company has become to feel difficult to increase the revenue. The figure provided in the case showed that nearly half of the Japanese have Louis Vuitton-monogrammed items by the time of 2007. This seemed to make LV prevalent but not luxury any more. To maintain its brand image, it is also an opportunity for LV to reposition itself as a fashion luxury brand by offering fashionable and up-to-date design without abandoning its heritage. Since most Japanese females are beauty-conscious, the fashionable design can help Louis Vuitton regain the profits and the market shares. Besides, in this case, providing limited editions is another good way to stimulate consumption.
However, limited editions also face losing appeal to the customers because of overdoing “limited edition” as a marketing strategy. This forces Louis Vuitton to seek new strategies to attract customers. Additional opportunities for LV rise as solutions to this problem. LV can either expand the market by opening stores in middle-size cities or grow customer base by developing new products such as products for children in order to increase the revenue.
In conclusion, challenges will never be the end of LV’s development in Japan as long as the new opportunities can be figured out beyond the threat.
3.What are the specifics of the Japanese fashion luxury market?
The distinctiveness of Japanese fashion luxury market contributes a lot to the success of LV. The advantages of Japanese market provide not only LV but also other luxury brands opportunities to grow in such environment while some other specifics of the market also bring problems to these luxury brands.
To consider the overall Japanese market, the consumers have large demand for high fashion products because of the social culture, social structure and shared value in Japanese society. First, Japanese women were conscious to beauty and willing to purchase things that could be considered beautiful. The fashion luxury products fit their need well in this case. Second, Japanese value social status much and thus, need luxury goods to express their social position. Third, as to the social culture, Japanese seem to be influence by the norms. In this case, Japanese purchasing habit is consistently under the effect of the large middle class who has the preference on luxury products. All these factors lead to the Japanese great interest in fashion luxury products.
Meanwhile, the prosperity of Japanese economy endows the consumers with high purchasing power. The large proportion of Japanese social structure is consisted of middle class. This made LV’s products affordable to a large proportion of Japanese people.
Another specific of Japanese market is that although consumers have great demand of luxury product they are still rational since Japanese people emphasis much on product quality and affordability. On one side, this provides some luxury brands, which stress on the quality, such as LV, great opportunity to capture the market; however, on the other side, it forces the luxury brands to focus not only on the design but also on the quality control, and accordingly, raise the cost of production.
Besides, as the population aging and economic environment changing, the Japanese people, especially the young generation, began to change their mindset to high-quality products with affordable prices. This requires the luxury brands to add more value to the products as well as to lower the costs and charges. Thus, a question is raised to the luxury brands since it is contradictory to both enhance the quality and reduce the costs.
As Japanese market offering many possibilities to the growth of luxury brands, the competition in the Japanese fashion luxury market is fierce as well. According to Exhibit 7, in 2005, the most revenue of world top luxury fashion brands came from Japanese market. The benefits of Japanese market continuously attracted foreign brands to enter while all the brands needed to face the competition as a severe challenge. For example, as the market was inundated with fashionable elements of design, the consumer preference could be changeable so that the companies needed to keep up with trend timely.
The specifics of Japanese market both contributed to the growth of foreign luxury brands and set up some barriers to them. To bring LV as an example, thanks to the specifics of Japanese market such as the high consumer purchasing power, it successfully built impressive brand image and earned great profits from Japanese markets.
4.How did Louis Vuitton enter into the Japanese market originally? What were the other entry strategies it adopted later to strengthen its presence?
LV firstly entered the Japanese market in 1977 by opening two own shop-in-shops. Unlike other foreign companies who distributed the products by licensing under the help of Japanese distributors, LV created an efficient business model by establishing its own subsidiary in Japan and selling the products directly under its own control. LV initially followed the international strategy through exporting products from France to Japan. Also, the subsidiary in Japan had great autonomy, which contributed to the efficient market-driven decisions and helped reduce some obstacle in the initial stage.
The success of LV’s first move was followed by some other strategies for maintaining its advantages as the pioneer in the market. To expand the market in Japan, the company later opened its first retail store and some franchisees, which may decrease the risk of the company to some extend. To adapt to Japanese market well, LV gradually turned its strategy from international to localization. The head manager of Japanese subsidiary was a Japanese person who knew more about the local market and customers. As Japanese people cared much about beauty and quality, LV began to corporate with Japanese designers and combine fashionable elements with its tradition and heritage to reach more customers.
With the first mover advantage and the good adaption to the Japanese market, LV successfully entered the Japan market and became the industry magnate in the Japanese luxury market.
5.Will Louis Vuitton have any new challenges arise due to the global financial crisis? If so, how can it overcome the new challenges?
Within the changing global environment and under the increasing competition in the global market, LV certainly will meet new challenges when facing the global financial crisis.
Due to the decline of purchasing power and demand during the financial crisis and rising competition, LV may face serious decrease of revenue. Within the whole depression environment, people will tend to reduce their expenses on luxury goods. Besides, changes in mindset will happen to some people. They may shift to purchase general goods that are cheaper in price and with comparable quality. In such condition, competitors, like Zara and H&M, can strength their advantages in global market. Some other customers, especially the Asian, may turn to anther choice to buy counterfeit products. In this perspective, the financial crisis seems to provide a chance to the growth of counterfeiting industry.
To solve the problems caused by consumer loss and sales decline, there are several possible ways that can be taken into consideration. The most direct way is to lower the prices. However, this solution is controversial since LV, as a luxury brand, is doubted whether it should go counter to its luxury concept to stimulate the purchases. Although LV can maintain its profits by reducing the costs at the same time, it still seems not to be a wise decision to do so since people will not buy the luxury products only for the reducing prices when they do not have enough purchasing power. Therefore, the cost reduction can not be considerate as an effective solution. However, LV still has the chance to survive in the financial crisis by developing new market in the 2nd or 3rd tier cities. The reason is that these cities may have little influence from the financial crisis and thus people may keep the curiosity of LV.
The overdependence on Japanese market is risky and has potential crisis to LV. As Japan will also suffer damage from global financial crisis, the market will be collapsed thus having disastrous effect to the LV not only in Japan but also in the world range. In case to avoid such tragedy, LV should began to turn to new market, for example, the Chinese market. With its accumulated experience in Japan, LV can easily succeed in any other markets that are similar to the Japanese market. By opening more new markets, LV can reduce its rick to a certain extent when facing the financial crisis.