Income elasticity of demand Essay
Income elasticity of demand
Luxury product sales boost in the emerging marketing like China, which has extraordinary growth and strong potential consumers for the development of luxury goods in the China market. With gradually lower and lower increase of revenue in the European countries, Louis Vuitton (abridged as LV in the following sections) commits itself to set up more stores in China. However, LV is faced with the problems of declining profits in China, which urges it to adjust its entry strategy into the China market.
In this case, this report will focus on distinguishing the factors that influence LV’s development in China and laying out schemes for LV’s entry into China market by initially examining the internal and external environment for LV; analyzing the operational plan for LV’s entry into China based on the environment examination, and generating an action plan for LV’s entry strategy at the end of the report.
Content 1. 0 Introduction Louis Vuitton (abridged as LV in the following sections) is planning to set up more stores in the China market. However, it is now faced with the problems of declining profits in China, which urges it to adjust its entry strategy into the China market.
In this case, this report is to lay out schemes for LV’s entry into the China market by distinguishing the internal and external factors that influence LV’s development from the perspectives of country factors and internal advantages of LV with reference to the SWOT analysis model; analyzing the operational plan for LV’s entry into China based on the environment examination and including suggests on firm strategy, organization structure and management, entry strategy and modes, manufacturing management, marketing plan, and accounting as well as finance
management; and generating an action plan for LV’s entry strategy at the end of the report according to the specifications of the business operational plan. 2. 0 Research Methods The research method of literature searches is adopted to generate this report. This method is chosen because there are plenty of existing studies on the development of luxury goods, which makes it possible for abundant literature searches.
Also, there are a great many resources on the annual reports of Louis Vuitton available which offer insights into the financial performance of this company. Anyway, luxury goods are indeed possessed by the majority of people, which makes direct interviews or surveys less available. 3. 0 Findings: External and Internal Environment The internal and external factors that influence LV’s development will be examined in this section from the perspectives of country factors and internal advantages of LV.
A SWOT analysis will be involved in this section, which aims to find out the strength, weakness, opportunity and threat of the company according to analysis on the internal conditions of the company and the external environment the company is faced with (Johnson & Scholes, 2002, p122). 3. 1 External environment: Country factor analysis The external environment for LV’s entry into China will be discussed in terms of the politics and government policy of China, the economy and the China market, the social culture and transportation of China, and will be concluded from the perspectives of opportunities and threats for LV’s entry into China.
In terms of politics and government policy, China is now actively opening up to the world and enhancing trade relationships with world brands since the reform and opening up policy. In terms of the economy and the China market, according to Yuval and Vinay and Cathy (2011), the analysts of Mckinsey quarterly, China has increasing booming urban cities including the second- and third-tier cities and the world second-largest GDP which means strong purchasing power the China consumers for luxury goods and great market potentials (para 8).
They also pointed out that by 2015, Chinese consumers will account for more than 20 percent of the global luxury market. On the other hand, the large market potential has drawn a host of luxury-goods companies to enter the China market, which makes the competition fiercer and fiercer. And it is troublesome for LV that there are plenty of fake goods imitating LV’s style prevailing in China, which are actually not likely to reduce LV’s high-end consumers, but would exert negative influences on consumers’ impression and awareness of LV.
In terms of social culture, for one thing, the China consumers are attracted by middle- and high-end products and somehow more attracted by French luxury goods, and they believe that the higher the price, the better the quality (Yuval, Vinay and Cathy, 2011, para7) (Exhibit 1). For another thing, the traditional virtue of thrift is rooted in the mindset of the Chinese, with which some of the rich in China indicate that they would not spend a large sum of money to get a product.
(Exhibit 1) (Chinese consumers increasingly prefer internationally well-known brands. Retrieved on Jan 3rd 2013 from: http://www. mckinseyquarterly. com/Tapping_Chinas_luxury-goods_market_2779) In terms of transportation, airlines are increased like the Emirates group which launched air routines in the main cities of China, and railway transportation as well as road transportation is more and more available, making it convenient and fast for cross-national transportation.
Therefore in conclusion, the opportunities for LV’s entry into China can be concluded as China’s encouraging policies on foreign brands’ entering into China; China’s booming urban cities and increasing middle- and upper- class consumers with strong purchasing power; Chinese consumers’ purchasing preference for French high-end products; and the more and more convenient cross-national transportation in China.
While the threats for LV’s entry into China entail the fierce competition from the peer companies and brands; the trouble coming from increasing produced counterfeit products imitating LV in China; China consumers’ cautious traditional views on luxury goods purchasing. Anyway, when it comes to China consumers’ rational attitude towards luxury goods purchasing, it may be an opportunity for LV if it succeeds in drawing out their desires and needs for LV’s products, otherwise it may turn out to be a threat for LV’s expansion in China.
3. 2 Internal environment: Based on national level and firm level 3. 2. 1 Internal environment based on national level The advantages of internal environment for LV on national level lie in the its preference and prospect to greatly expand its business in China, its experiences of operating in China market for about twenty years, and its strong influence on and temptation to the China consumers, as well as customer loyalty for it.
On the contrary, the disadvantages lie in its high price which will greatly influences China consumers’ will to purchase the products, and in its could-be easily imitated appearance and style which is made used of by some China manufacturers in producing fake goods. 3. 2. 2 Internal environment based on firm level 3. 2. 2. 1 The nature of LV’s products Dubois and Czellar and Laurent (2001) delineated Luxury goods as products with extraordinary quality as well as high price, rareness and uniqueness, aesthetic appeal, respectful long history, and the sense of being superior to others (p156).
Yacine and Johnathan and Motohiro (2004) argued that luxury goods manual crafting and diligence should be involved into the manufacturing and designing of luxury goods (para 2). Based on these studies, the nature of LV’s products can be abstracted as unique, rare, and excellent-quality, and extraordinary. 3. 2. 2. 2 Industry characteristics of luxury goods Kapferer (1996) suggested that luxury industry distinguishes the needs and demands of the wealthy people like prominent social figures, and produce unique superior products for them, which acts like a status symbol for the rich (p251).
While Heine (2010) stated that the luxury industry is also fashion-oriented and high-quality guaranteed. And it is closely associated with the needs of the wealthy. Judging from these studies and the advancement of luxury products nowadays, the industrial characteristics of luxury products can be concluded as extraordinary quality with high guarantee, extremely personalized with unique designed style, strong brand recognition and customer loyalty, and highly profitable sales based on its high price.
3. 2. 2. 3 Advantages and disadvantage of internal environment for LV on firm level The advantages of LV on firm level mainly lie in its good brand image, abundant product portfolio, wide expansion in the China markets covering most of the first- and second-tier cities, and its control on the designs of products. This can be told from the following aspects.
Above all, LV enjoys a good reputation of high quality and excellent services that it has occupied the first place of the 2012 Hurun Ranking of the Top ten luxury brands in the world (see Appendix 1), in which LV beats Hermes, the second in the list by nearly 43%. Also, LV offers manual crafting designed products which are special for certain customers. What’s more, it offers permanent after-sale serves to its customers (Paul, 2012, p79). In terms of geographical expansion, LV has reached many areas of China (Exhibit 2).