LVMH’s diversification represents the group’s strong presence in the luxury goods market as a whole with products from the fashion and leather range, wines and spirits range, watches and jewelry range, perfumes and cosmetics range, and finally the selective retailing range. This strategy aims to claim market share in market segments that are interrelated with the specific customer segment as the common denominator. LVMH is a market leader in some markets and has a decent market share in others and aims to be the leader in the luxury market as a whole where the elite customers can recognize its brands from all of its product ranges and the company plans to build brand loyalty within those customers so that a customer who chooses LVMH for watches for instance, is also inclined to choose an LVMH product for wine and spirits.
Diversification also spreads the company’s costs over a number of brands and the revenues as well so that it can always insure good rate of return for investors.
For a company like LVMH to compete on a scope that includes champagne, jewelry, fashion, cosmetics, and retailing is logical and even necessary for it to keep a competitive edge because its competitors have implemented the same strategy to fight for market share in the luxury market in all of its segments. The company’s policy aims to build the idea in their customers’ heads that they can always expect the same consistent high-end quality when choosing any brand that is owned or associated by LVMH and since elite customers, or simply customers looking for some products for luxury living, usually want to wear high quality jewelry to match their high quality fashion wear or even enjoy the consumption of high quality spirits, they can always have the brand image of LVMH in their heads because they expect that the quality of the jewelry or the wine will match the quality of the fashion wear they are wearing.
LVMH adds value to its different businesses by passing down the know-how that made its original products timeless to the brands that are relatively newer so that quality is consistent throughout its different brands. The company does this through human resources departments that have an eye for talents for design as well as the right people to learn the company’s policies and to implement them so that the functioning of the group remains consistent. The value chain for LVMH begins with purchasing raw materials for them to create their product, which of course, they have gained expertise and leadership even in some segments. In operations, handled extensively in France and Spain, they strive to compete for cost leadership. Next comes logistics, which is mainly sea routes and they strive to have their products delivered in timely fashion so they can meet customer demands which sometimes exceeds supply knowing that creating high-end luxury products is time consuming.
Next is marketing, where they always depend on their brands’ historic qualities to promote themselves to already-loyal customers and to newer customers seeking luxury goods. Finally, in service, human resources can always insure the best retail outlet partnerships and good sales and after-sales services.
In general, LVMH have their value chain synergized whether purchasing, operations, technology, sales and marketing, distribution, and services but since their multi-brand strategy is highly decentralized (this is due to the belief of keeping the independent identity of the brand and its creative process), but technology can be best synergized in this sense only to control quality and oversee the creative process while at the same time assuring the creative processes remain independent and well-backed.
LVMH’s core competence begins in its product and service quality which is history timeless and is already infiltrated the luxury market as a whole either as a market leader or a strong competitor for market leadership. This alone gives the brands a strong competitive advantage and attractiveness. Another core competence is innovation. LVMH’s brands and smart brand acquisition strategy has seen it house some very important fashion labels that are historically known for innovation (Luis Vuitton, Givenchy, Tag Heuer etc…) as well as hiring some of the most world-renown designers (example: Marc Jacobs).
With this in customers’ minds, they can always expect innovation from the company’s already established brands as well as their newly acquired or marketed brands. LVMH organizes training and skills development seminars that ensure they always remain competitive and leaders in innovation, creativity, and luxury appeal. Their controlled distribution networks, extensive marketing activity, and their presence in all the luxury markets also gives the company as a whole a competitive edge.
LVMH has exploited its core competence in its various diversification moves and strategic acquisitions in a very reasonable and logical manner. The diversification moves have remained consistent with the company’s image because it has diversified only into markets and products which the company viewed as “luxury” in the eyes of the customer. The company has enough knowledge of the market and they know customer tastes and behavior and it also uses the existing infrastructure to promote their diversified products.
The same can be said about the strategic acquisitions as they usually acquire a brand based on its fit with LVMH’s existing product lines or if that is not the case, they may acquire a brand for a certain characteristic or asset they think they need to gain more competitive advantage which may be used either in the newly acquired brand or their existing brands. It is also important to note that newly acquired businesses have greatly contributed to the company’s revenues over the recent years and shareholders have, as well, benefited from the diversification strategy of LVMH.
LVMH manages its diversified empire by implementing a decentralized management strategy to manage its many diverse brands. Most of them enjoy a great deal of autonomy because in the fashion business, which depends on creativity and innovation, the creative people must be given freedom for their work to become a hit and not a miss. Headquarters ensure quality control and financial backing for newly acquired brands that have near future potential. LVMH manages a very diversified product portfolio with star brands in the fashion and leather goods and to some extent the watches and jewelry brands.
They have cash cows in the wine and spirits brands and in selective retailing. They have however question marks in the perfumes and cosmetics lines. The cash cows look to remain that way and not become poor dogs due to the timelessness of LVMH’s products in history and their portfolio of star products are diversified and positioned in the market in a way that capitalizes on the industry’s growth. As previously mentioned, LVMH manages people with a human resources department that organizes skill developing seminars as well as inter-product seminars to strengthen the brand’s philosophy in its people and to motivate them to work always in that manner.
As previously noted, LVMH has a strength in its synergies due to its existing infrastructure regardless of its diversified brands, newly-acquired brands, and global presence where it is normal to form synergies in the value chain in order to have consistent quality and timely delivery of products as well as maintaining the same level of excellence in sales, marketing, and after sales services. Their selective retailing of course, is the main reason for delays in case of unexpected high demands and in high costs, but since it does not sacrifice its core competency in delivering always high quality luxury products.
Some synergies that can be identified and exploited by LVMH include overlapping technology across all its diverse businesses including e-commerce and to implement technology developments into some of its brands which have long been run in a traditional way. Operations are normally overlapping due to the nature of luxury goods and this can be further exploited to include wine and spirits product lines to include better synergy in marketing and sales for this product line. Luxury products are normally sold in similar markets therefore they can always demand a premium price since they target premium customers and this will always be to the company’s advantage and it should not back down from this pricing policy. This product placement and premium price it demands makes it easy for LVMH’s different diverse businesses to overlap and cross-sell its diverse luxury brands.
Bernard Arnault’s diversified strategy and his acquisitions under LVMH have been, in general, fruitful and this is evident from the fact the new acquisitions are contributing significantly to the revenues of the company and the growth is sustained in existing markets and is positive in new markets. It is normal, when implementing such a strategy, that some strategic moves may not always be fruitful but the company can afford to pull the plug on brands that are not performing as expected due to the large diversification in all departments that the company enjoys and the existing infrastructure and operations chain which won’t be harmed in this case.
The company’s image is still regarded by the customer as it was historically and the elite customer can still relate to its fresh acquisitions and above all the shareholders are satisfied with the financials of the company so, all in all, as long the management is remains overlooking the creative processes and the company satisfies its strong creative people, the strategy looks to be sustained.
LVMH is recommended to continue adding to its already impressive product portfolio by keeping sight on appealing brands that fits its brand image. However, luxury businesses that are not core to its image should be divested from such as the mass retailing and media businesses and it should focus on its core product lines.
Also, management should be patient with brands that are initially underperforming because over time, they may build their own reputation and become hot sellers and this move is in line with the company’s philosophy of timelessness. LVMH should also have back-up options in creativity in the form of protégé designers in the case of head designers leaving or disagreeing with management policies because at the end of the day, in the luxury business it is the combination of innovative design as well as high quality that affects the bottom line sales and revenue.
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