Analyzing LVMH

6 June 2016

Starbucks 1. In the United States, about two-thirds of Starbucks outlets are company owned; the remaining one-third are operated by licensees. Outside the United States, the proportions are reversed: about two-thirds are run by licensees or partnerships in which Starbucks has equity stakes. What is the explanation for the two different market expansion strategies? When conducting business abroad, multi-national companies can use different market expansion strategies.

The strategy of licensing is a contractual agreement where company A (the licensor) makes a legally protected asset available to company B (the licensee) in exchange for some form of compensation. Companies typically license assets such as brand names, company names, patents, trade secret, or product formulation. These agreements typically generate a substantial amount of revenue. It also allows companies to leverage their brands.

Analyzing LVMH Essay Example

Another advantage to licensing agreements is that typically the product will be produced and marketed on a local or regional basis, allowing companies to find a way around government imposed tariffs, quotas, and other barriers. In certain situations, licensees are free to adapt the licensed goods to the preferences of local consumers. However, there are also some risks associated –licensing agreements offer limited market control. Also, after gaining knowledge from the licensor, licensee may develop the know –how to produce their own version of the licensed product.

2. In response to the economic downturn, Starbucks recently launched a new line of instant coffee called VIA Ready Brew. The company also developed a breakfast value meal that costs less than $4. Do you agree with the decisions? In this economic downturn, it is wise that companies increase their product lines to appeal to different markets that originally intended.

Although the original concept of Starbucks was marketed to the upper middle class white-collar worker, the new line of instant coffee and breakfast value meal gives those that are less financially privileged an opportunity to enjoy the Starbucks brand. The original “in-café” experience will still appeal to the original crowd of “Starbucks Faithfuls’” , and adding a brand of instant coffee will appeal to the consumers who would rather make their own coffee than purchased an overpriced beverage at a café.

3. Should Starbucks enter the Italian coffeehouse market? Why or why not? Although entering the Italian coffeehouse market may appear risky, I would advise that Starbucks marketed themselves to the younger crowd. They won’t be able to capture the market of the middle aged coffeehouse appreciators, but they could potentially capture the market of their children. In the long run, Starbucks could become a staple in the Italian coffeehouse market.

4. In the long run, which company is more likely to win the global “coffee wars,” Starbucks or McDonald’s? While Starbucks has an international presence, it does not compare to the 34,000 locations that McDonald’s has globally. Because McDonald’s is the more recognizable brand on a larger scale, it is likely that McDonald’s will win the coffee war overall. Where McDonalds is considered to be a low-scale fast food restaurant in the US, it is somewhat of a delicacy in developing countries.

SmartCar 1 What is Smart’s competitive advantage? Brand promise? Positioning? Daimler AG’s Smart brand of automobiles has a few competitive advantages. One advantage is its “diminutive” size in comparison to other vehicles currently on the market. The brands competitors, such as the Honda Fit and Toyota Scion are nowhere near as small and economically efficient as the Smart car. Another is it’s unique design–Smart automobiles are highly recognizable and rarely mistaken for other cars.

The fact that the Smart car is manufactured by Mercedes-Benz provides consumers with added satisfaction that the vehicles are safe–the brand boasts that it the car “will have the crash security of a Mercedes. Since its inception, Smart has been loyal to the brand’s promise to produce eco-friendly, fuel efficient vehicles. However, the brands positioning is typically affected by the current economic situation. Although Smarts sales were said to have come to a screeching halt in 2011, the fluctuation of gas prices provoked a spike in 2012’s sales–the company surpassed its 100,000 unit milestone by selling 103,738 automobiles worldwide.

2. Assess the U.S market potential for the Smart. Do you think the car will be a success? Why or why not? The current state of the U.S market shows an increase of sales for the Smart brand. Because of the current economic climate, consumers are interested in saving money in every way possible. Smart offers vehicles ranging from $12,000-$24,000, making them affordable to the majority of the “eco-friendly” market. With these factors considered, one can conclude that there is market potential for Smart in the U.S.

In order to achieve the greatest success, they should consider revisiting the original design of the vehicle to make it look less like a “backpack on wheels.” Americans tend to associate social stature with the type of vehicle you drive. Also, the fact that the vehicle can only go 80 mph may force some potential customers to lose interest. 3. How does the Smart compare to the Honda Element, Toyota Scion, or Kia Soul? Are these models targeting the same consumers as the Smart? In view of Japanese carmakers success with these brands, do you think the Smart’s U.S. launch is too late?

Although the Honda Element and Kia Soul models are not targeting the same consumers as Smart, the fact the prices fall in the same range may create potential competition. Honda’s Fit and Toyota’s Scion iQ are the two vehicles that could be directly compared to the Smart Car, yet the Smart Car still remains the most affordable. The U.S. launch was not too late–Smart should position itself as a niche market and fully market themselves to people who would be interested.

To maximize success, Smart should seek partnerships and endorsements from popular eco-friendly companies that already have an array of brand loyal customers. Cars like the Smart Car and the scion iQ will never be extremely successful because overall, Americans love big cars. However, there will always be a group of people interested in the eco-friendly alternative. 4. As noted in the case, Penske Automotive Group is no longer the distributor for Smart USA. How will this affect Smart’s fortunes in the United States? Penske Automotive Group discontinued their relationship for Smart USA due to stagnant sales.

This has neither negatively, nor positively affected Smart’s fortunes–as sales have neither increased nor decreased drastically since the split. The Smart Car is a commodity in which the economies current state determines the amount of interest. 5. Evaluate Smart USA’s social media strategy. What additional channels or tactics would you recommend? Smart USA uses social media to relay their brand promise–to produce fuel-efficient, eco-friendly automobiles.

This is an extremely effective tactic, as the majority of effective advertisements today are shown on screens (smart phones, tablets, laptops). Utilizing tools such as Facebook and twitter allows current Smart owners the ability to share first-hand accounts of the “Smart experience.” In addition to social media, I would partner up with popular eco-friendly companies that already have an array of brand loyal customers. LVMH

1. Bernard Arnault has built LVMH into a luxury goods empire by making numerous acquisitions. What strategy is evident here? 2. What are the possible risks of Louis Vuitton’s first-ever television advertising campaign? 3. In March 2008, the euro/dollar exchange rate was 1 euro = $1.50. By November, the dollar had strengthened to 1 euro = $1.25. Assume that a European luxury goods marketer cuts the price of an $8,000 tweed suit by 10 percent to maintain holiday sales in December. How will revenues be affected when dollar prices are converted to euros? 4. Louis Vuitton executives raised prices in 2008, and sales continued to increase. What does that say about the demand curve of the typical Louis Vuitton customer? 5. Compare and contrast LVMH’s pricing strategy with that of coach.

Scotch Whiskey in China

1. Why are Diageo, Pernod Ricard, and other marketers of global spirits brands localizing advertising campaigns in emerging markets? DIAGEO, founded in 1998, is a global brand full of rich traditions. Some of its brands include Guinness stout, Red Stripe, Johnnie Walker, Smirnoff, Captain Morgan, Crown Royal, & Baileys to name a few. Pernod Ricard, an older, globally successful French company boasts brands such as Absolut, Chivas Regal, Kahlua, and Courvoisier, to name a few. Emerging markets across the globe have been increasingly attractive for businesses such as DIAGEO and Pernod Ricard.

The BRIC countries, for instance, account for 46% of the global GDP. These companies chose the adaptive approach to meet cultural norms. The goal of IMC (Integrated Marketing Communications) is an approach that uses “one voice” across all media outlets. The standardization of advertising poses four potential challenges. One possibility is that the message may not get through to the intended recipient as a result of the advertisers lack of knowledge about appropriate media for reaching certain audiences. Another possibility is that the message may reach the target audience, but may not be understood as a result of lack of understanding of the target audience.

Also, the message may reach the target audience but may not compel the audience to take action. The effectiveness of the message can be impaired by noise—what is considered noise in one culture may not be considered noise elsewhere. With these factors considered, using “one voice” across all media outlets is not always the best option. In some situations, adapting the advertising campaign according to country is the better alternative.

2. How do consumption habits for products such as Scotch whisky vary from country to country? In China, whiskey is considered a youthful drink. Companies like DIAGEO use market segmentation approaches to relay messages to consumers. One segment is “guanxi men” which categorizes 30-45 year old status-driven business men who spend lots of time networking and closing deals. The second the segment is “strong-independent women” who are also in the 35 to 45 age bracket. The final segment are men that are 25-35 who want to be viewed as “cutting edge.” The Chinese use drinking as a way to celebrate happiness and success in their life. It is also used to flaunt wealth. In western countries, drinking alcohol expresses style and attitude. Chinese drink with friends. Westerners drink with anyone.

3. Why are some spirits products and brands strictly local—pastis in France, for example, or Moutai—whereas others have global potential? Products that are typically associated with a particular culture tend to have very little global potential. For instance, Pernod Ricards beverage known as pastis reflects a generational and cultural aspect of France. While older people enjoy it, younger people find the drink to be old fashioned. Brands like Johnny Walker focused primarily on the quality of their product, allowing the products reputation to sell and expand the product to a global level. They relied on quality to increase demand.

4. What strategies should Diageo, Pernod-Ricard, and other Western spirits brands pursue in China? These companies should utilize the strategy of adaptation—adapting each marketing strategy according to the country they plan to enter. Directly connecting to the consumer will increase brand awareness, and ultimately increase sales. Standardizing marketing campaigns only works with cultures that are similar—bringing a U.S marketing campaign to China could potentially cause problems with the brands image.

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