MBA613 Global Marketing

Dr. Sheng

LV in Japan

Instruction:

1. Each student will read the case(s) ahead of time before attending to the class.
2. Your group will be assigned to one or several questions in class.
3. After a thorough group discussion, your group will outline/summarize your answers into
a PPT file and drop it onto the Blackboard’s drop-box.
4. Your group will present and lead the discussion of the question(s) assigned to you.
Although the group in charge will be the major discussants for the assigned question(s), it
is highly recommended to have the rest of the class involved and participated in the
discussion.

Questions:

1. What are the specifics of the Japanese fashion luxury market? What are the
opportunities and challenges for Louis Vuitton in Japan?

Japanese fashion luxury market is very unique. As a capital of luxury, Japan is first on the list if
we look at the amount of revenue obtained from luxury brands. Japan is a home for many luxury
brands like: Bulgari, Burberry, Coach, Tiffany & Co and many more including the LVMH
group. Japan is a small geographic region that is famous for having hundreds of stores selling
many luxury brands. Japanese luxury market is associated with the word “quality”. Japanese
customers are very picky and pay attention to details. Japanese luxury market has become a mass
market thanks to brands like Prada, Hermès and Louis Vuitton. Young Japanese beauty
conscious women and their money are a never ending fuel to market and offer anything they
desire with the best standards, quality and prestige. Japanese customers have a psychological
need to own something luxurious, this way they are accepted in society and represent their social
position and class.

There are plenty of opportunities for Louis Vuitton in Japan. Demand for high fashion in this
country is still very high and will remain like that. Even in tough economical times many people
in Japan will be in high need to own luxurious goods. Japanese people proved for years that they
appreciate luxury and value of products they purchase.
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With opportunities come challenges. Obviously as any successful business, Louis Vuitton faces a
huge challenge concerning its ability to further penetrate Japanese market and challenge with
reaching the potential growth. When the risky dependence on Japanese market is visible, then the
question become: how to reach to markets in United States, China or India without
compromising strong Japanese cultural characteristics. The challenge for Louis Vuitton is also
to overcome counterfeit of their goods. Nowadays counterfeiters have skills and ways to copy
designer’s bag in a very good way. Also it is easy to purchase fake bags on illegal and legal
markets. They look exactly this same as an original product. These counterfeiting activities can
damage image of Louis Vuitton. Counterfeiting counts for about $600 billion dollar industry.
Louis Vuitton has to protect its image. If the real fans of LV see a person living in a very poor
and money challenged areas wearing Louis Vuitton products, then he or she will lose the desire
to the brand and loyalty to it will disappear this same time. Opportunity that Louis Vuitton can
take advantage of is to create extra service for the customers to teach them how to recognize a
fake LV goods. Customer service at Louis Vuitton’s store should be extremely professional and
always assist any customer that have any questions, remarks or just needs attention. That special
treatment could potentially encourage more customers to experience that shopping spree at LV
instead of going to other designer’s stores or buy a fake product. Another challenge is to keep the
top position in the fashion industry in Japan. Nowadays Louis Vuitton has many competitors,
which are established brands like Michael Kors, Gucci, and Prada, etc. It is crucial for LV in
Japan to differentiate itself as the precursor with strong cultural Japanese ties. Another big
challenge is to keep balance between the global expansions without risking loosing LV’s brand
personality. Being too global can bring many threats to LV. Also being a price sensitive depends
of economic times and geographic regions can overall hurt Louis Vuitton. LV needs to keep
prices relatively high to be perceives as a rich, luxurious and sophisticated brand even in tough
times. The challenge is to go down with prices just enough to keep bringing customers and to
create a perception that they really need LV despite economic downturn. LV need to keep in
mind that they are facing a challenge dealing with new trends that are affecting Japanese price
conscious women. Japanese fashion market is huge and other fashion markets like in Europe or
United States heavily depend on what’s going on in Japan. The challenge for Japanese Louise
Vuitton is to sustain its growth and place as a number one designer brand. Another challenge that
can be changed into opportunity is since people experience tough economic times, but still desire
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to be surrounded with luxurious goods, is to provide a renting services of Louis Vuitton goods.
That is an opportunity for LV to keep customers happy in difficult times for them, and also
provide them with something special.

Another good opportunity for Louis Vuitton would be to search and organize talent hunt for new
designers. There are plenty of talented people that would be ecstatic to take a designer position at
LV in Japan, the leader in Fashion industry. Challenge is to hire somebody who is already
established as an artist with very good reputation.

2. What has made Louis Vuitton’s business model successful in the Japanese luxury
market?

Louis Vuitton entered the Japanese market with its first store located in Tokyo and Osaka. From
the beginning it became the most wanted and popular luxury brand in Japan. Louis Vuitton has
been very successful developing its brand by applying working strategies; innovating and
making its business operations smooth at its birthplace during 1854 in Paris. One of the key
strategies that the leaders of Louis Vuitton developed though the years is being efficient in
everything at what they did. Louis Vuitton’s success was possible because it was able to keep
balance on global level having its heart directly in Japan, while making whole world fall in love
in this brand. Love to this brand was very contagious due to LV offering the best quality product
ever possible and was able to provide top-notch fashion appeal. Very shortly Japanese customers
developed obsession toward this brand since it was associated with luxury that everybody
wanted to experience. High profile customers were mesmerized by quality of LV products that
were hand made with precision to details by small group of 20-30 people. Louis Vuitton
implements very rigorous manufacturing standards. For example every bag is tested and must
withstand many obstacles including zipper check or withhold certain weight and pressure. If
manufactured product is not perfect and doesn’t meet quality standards then is simply destroyed.
Customers knowing all of the above are willing to pay very high price for LV goods. Louis
Vuitton’s product never goes out of fashion and style and is endorsed by famous celebrities
making this brand constantly desirable. Jennifer Lopez, Naomi Campbell and Mikhail
Gorbachev are only a few to endorse LV over the years. Hard economic times in Japan didn’t
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stop people from buying $1000 priced handbags and accessories. Japanese customers value a lot
Louis Vuitton’s European image and luxurious culture. Louis Vuitton is associated with desired
rich lifestyle and prestige. Even with LV being globalized, LV still remains number one in Japan.
What is very important for Japanese customers is the reminiscence of monogram canvas on LV’s
products that remind them of their culture and pride in supporting their own country.
Summarizing, the question: “What has made Louis Vuitton’s business model successful in the
Japanese Luxury market?” can be demonstrated by describing Marketing Mix used in LV
strategies. Products that are defined by quality are desirable. Products that are very expensive are
generally less desired. Louis Vuitton was able to connect those two and create unique products
with attention to details that made the brand highly desirable. LV created limited editions to keep
their customers wanting more and also partnered with local artists with the intention to keep the
product line always at the top in the fashion industry. The strategy was to add more product
categories and make different visible selections of products depending of store location. Louis
Vuitton protected their products against counterfeiting, since that has become a big threat related
to globalization. Market will always be in favor of lower price, but this is not a case in Louis
Vuitton’s strategy. LV products are priced very high which is a result not only of high standards
in labor, but the price is highly associated with desired luxury. Instead of price, value of the
brand made the difference between LV and its competitors. Louis Vuitton has a good perception
of reality. During tough, economically challenged times LV lowered its prices, but to certain
amount. This strategy helped to attract customers affected by recession, but this same time
purchase goods were still expensive, which didn’t changed the original strategy customers feel
about luxury. Talking about Place, Louis Vuitton put lots of attention on control, which is
definitely a key in its business plan. LV wants and needs great locations like Tokyo, Paris, and
NYC that are associated with prestige. LV continues with its expansion to mid-sized markets to
establish presence. Even during such times when globalization is important, LV doesn’t have
many distribution channels. The last important part of marketing mix is Promotion. LV brand is
always associated with value, quality, durability and fashion. Louis Vuitton is not really present
in TV, instead it advertises in fashion magazines where customers can deeply look and analyze
the featured products presented by actors, models and famous celebrities.
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3. How did Louis Vuitton enter into the Japanese market originally? What were the
other entry strategies it adopted later to strengthen its presence?
Louis Vuitton entered Japanese market in 1968 and since then, their customer base has increased
significantly. Louis Vuitton had a strategy entering Japan to increase awareness of its products in
department stores with a single brand. Japanese customers have and eye to detail and they value
tradition. They would associate French products with quality, so it was easy for them to adapt
LV. Louis Vuitton implemented truly original strategy upon going into Japanese market. It
established its own distribution system. By exporting its goods from France to Japan, LV became
a specialist that is not only experienced but also efficient.
Besides the strategy related to 4 P’s, other than the marketing mix, Louis Vuitton applied many
other strategies to strengthen its presence in Japan as they became the most wanted luxury brand
in Japan. As mentioned before, distribution channel strategy was one of the most important
aspects since it included sales channel model. LV also strictly selected its distributors in Japan
based on legit logistics, reputation, and safety. For LV, every aspect of distribution is important,
so people selected for the management positions were scrutinized. French leaders knew that they
could trust Japanese managers with decisions, since they truly understood Japanese culture and
local people. As a result of expansion strategy the company was able to control 54 stores as a
directly owned Japanese shop network. As a group, LVNH have about 250 stores across the
country. Another very good strategy was associated with freedom of architecture in Japan.
Architecture of the stores in Japan expressed brand identity of LV. Japanese customers loved
new luxurious places to shop for high quality goods. Stores were opened in main cities in Japan,
where strategy of convenience was applied. LV cares about great locations because it defines
Louis Vuitton’s prestige. Another strategy that helped LV succeed is that management and
associates selling LV’s product were customer-centric oriented. Needs and expectations of
Japanese clientele are extremely important. Louis Vuitton provides not only the highest desired
product, but also delivers the best customer service possible that is known to local people and
shared their values. Managers are trained to listen and notice what Japanese customers have to
say. Another visible strategy is a response strategy. It is important for LV to collect feedback
from customer. For example, when the Murakami line became very successful in 2003,
marketing executives ask store managers for feedback that store managers got from clients. As a
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result new Boulogne Multicolor bag was born. With this, another strategy concerning heavily
tested new products in a manufacturing stage, different kinds of problems came out, but were
quickly resolved. Communication strategy visible in above example paid off. That lead to a
loyalty strategy. When customers feel like they are important and they are getting attention, it is
pleasurable for them to shop at LV in Japan and they most likely will stay loyal to this brand.
Describing human network in Japan we can see that is very family oriented. Louis Vuitton
noticed that and implemented that fact into strategy of keeping good relations with customers
and celebrities that were happily endorsing the brand. What is bringing customers back to the
Louis Vuitton store is not only convenience or great customer service, but is also a
differentiation of product strategy. Japanese customers are never bored being targeted with new
designs, colors and ways of wearing or using new products. Lines of products are periodically
broadened, so this strategy is meant to keep customer satisfied. Louis Vuitton also implemented
value-added strategy. Very rich customers such as actors, celebrities or politicians are getting
special customized attention that increases the value that is added to products. Another visible
strategy that Louis Vuitton used to penetrate Japanese market was resonance strategy that is used
to keep customers satisfied which would make management of manufacturing facilities and
employees happy and that would be translated into their efficient work. Louis Vuitton perfectly
found an answer for the declining sales when faced with sluggish economy in the United States
which took impact on Japanese purchasing power. Louis Vuitton knew that their new strategy
would be a focusing on local clients instead of tourists. This shift in thinking created strategy of
understanding local customer’s needs and addressing them immediately by creating and
releasing desired goods

4. Will Louis Vuitton have any new challenges arise due to the global financial crisis?
How does it overcome the new challenges?

Since the end of the 1990s, when Asian Financial crisis struck Asia and through the 2008s
recession, luxurious goods, mainly handbags had become a subject to counterfeiting. Fake goods
were imported from cities like: Seoul, Hong Kong and Los Angeles and other countries
including South Korea, which was the biggest threat. Counterfeited goods in South Korea were
very well done and attracted more and more women to purchase them. Japanese women would
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use the real handbags and accessories if they were for example grocery shopping or during rainy
days. They would use the real Louis Vuitton bags when meeting with friends or going to parties
and weddings. Despite tough economic times Japanese women still believe in a cult of luxury,
but now they were more aware of prices and they were searching for something less expensive.
Director of fashion strategy at LVMH Christophe Girard wasn’t worry about new trend. His
opinion was that even in hard economical times, people would buy luxurious goods so they can
simply feel better. Even it was true what he believe in, still Hidehiko Sekizawa, director of the
Hakuhodo Institute of Live and Living shared concerning observation that fake bags and
accessories will be purchased in a big quantities, because some of them look very original LVs.
Louis Vuitton tried to overcome those challenges for example enforcing a intellectual property
law that has been modified in 1985, unfortunately not achieving desired outcome. At the peak of
the recession in 2008 a big scandal occurred concerning Japanese website Girl-Oku. Allegedly
90% of goods sold were counterfeited. That was a big challenge for LV, which took action
cooperating with UDFT-Union des Fabricants Tokyo. The outcome wasn’t as LV expected. Even
the volume of products sold on this website rapidly diminished, still faking a Louis Vuitton’s
goods didn’t stop. If the Yen is weak and prices of raw materials necessary for production of LV
goods are rising, then Louis Vuitton has to increase prices of its handbags and accessories. It is
important to notice that in November 2008, due to economic recession in U.S, Louis Vuitton in
Japan lowered prices of leather goods to about 7%. Louis Vuitton’s strategy concerning global
financial crisis is very flexible and shows us that the LV is very aware about the economy and
the level of purchasing power of people across the globe. Also good news is that since Louis
Vuitton is a luxury brand and luxury brands have low price sensitivity, fluctuation with the yen
affecting LV’s goods prices won’t be a huge disadvantage for Japanese customers.