Opportunity for Lvmh in China
LVMH as the largest luxury producer should take this as an initial factor which will be the greatest potential global environment factor in China’s market beyond 2015. This paper will first focus on the economy situation of China. Then analysis the reason of that Chinese economic growth is significantly link to LVMH development in the future. In the last part, some actions will be discussed in order to advise LVMH to get massive market share after economic recession from the new emerging market. Global environment factor in Chinese market
China’s economic always maintain strong growth momentum. This has become the focus of world attention to China’s, especially during the economic crisis. From 2001 to 2007, China’s economic growth, measured in gross domestic product (GDP) always maintained a high growth rate, and the growth rate climbed year by year, accelerated from 8. 3% to 14. 2%. In the 2008 economic crisis outbreak situation, though growth slowed, but still kept in more than 9% of the high level. Contrast with the United States and United Kindom’s negative economic growth, China’s performance is surprised.
Graph 1, which shows by The World Bank (2011), illustrate that, in economic size, China is surpassed today only by the United States, in current exchange rate. And China already accounts for approximately 9. 3 percent of world GDP. Geoffrey Murray (1998) defined China as the next superpower. An article named the China Price (2004) said U. S. industries are inflicted by destroyed Chinese competitors, from kitchenware and car tires to electronic circuit boards. The future may be predicted by China’s GDP growth rate in the past. In 2015, China’s economic size will likely more than the United States. pic] Graph 1: GDP (current US$) Data from World Bank. Why this factor is important? There are three main elements make the economic growth become the decisive factors of LVMH in China. The first one is citizens do have money to buy goods produced by LVMH. The LVMH products positioning is luxurygoods. Luxury is a type of goods that beyond the range of people existence and development needs. It has distinctive features, such as unique, scarce or exotic. It is beyond the basic needs of consumers. So it is expensive. Customers need a certain economic strength to buy.
Because of the growth of economy, China’s urban residents’ income maintained a rapid growth. According to data released by China’s national bureau of statistics: national urban per capita disposable income reached RMB19109 in 2010, increased 82. 1 percent by 2005 (RMB10493). Deducted price factors, a real increase rate is 59. 0 percent. The average annual real growth rate is 9. 7 percent. An article from Wireless News (2011) stated that the number of Chinese high net worth individuals grows rapidly, the number in 2011 is already two times as 2008, growing to 585,000.
In China, people can be called high net worth individuals must have more than 10 million Renminbi in individual investable assets, or the equivalent of $15,00,000 of assets. The two aspects data demonstrate that the number of available consumer increased more than twice in recent years. If China’s economy continues with an expected growth, the number, which can be used by LVMH, will also double after 2015. The second element is people expecting to buy luxury goods. The increasing of the economic strength give consumers more opportunities to travel or accept education in western countries.
According to the COTTM 2012 (n. d. ) “…one remarkable change in 2010, with China (US$ 55 billion) moving up into third position, overtaking the United Kingdom (US$ 49 billion). China has shown by far the fastest growth with regard to expenditure on international tourism in the last decade, multiplying expenditure four times since 2000. Ranking as the seventh biggest source market in 2005, it has since overtaken, respectively, Italy, Japan, France and the United Kingdom. ” For the abroad students, the data also increased rapidly in recent years.
Yang Ning (2011) demonstrated that the number of Chinese students abroad increased around 20 percent per year on average. According to statistics released by the Ministry of Education, from 2009 to 2010 academic year, the number reached 229,300 in total. It is 30 percent higher than the previous year. All these people who have western life experience affect by the western philosophy of life. Especially the abroad students, subtle change the attitude towards life, improve their requirements of the quality of life. They are more likely understand and love the philosophy expressed by luxury, like the “art of travel”.
They also transfer these cultures to other potential consumers. As a result, the demand of the whole market improved. Compared with soft luxury market in western countries, Chinese rising is a vigorous and potential growth market. According to the classic life cycle theory, western luxury industry has set up a file in the maturity stage. This stage is a relatively long period. In this period, a few manufacturers, which survived in the competition of the industry, monopolize the market, each manufacturer has their own proportion of the market.
The chance of changing share proportion in the market may be small, due to close to each other. However, Chinese luxury industry is in the growth stage. In this period, the market demand is beginning to rise. The market need to have a certain marketing and financial strength enterprise (like LVMH) to gradually lead the market. The new industry products can gradually gain the characteristics mass welcome or preference of its own after the right business activities. New industries also will prosper. Predicted by Boston Consulting, China is expected to promote to the first luxury market in the world in 2015.
It will be 32 percent share of total global luxury goods market. This is a remarkably chance for LVMH to gain the competition advantage of the market. What should we do? In order to benefit from this opportunity of economic growth movement, LVMH needs a lot of new strategies in China. There are four points may be can used by LVMH. First of all, according to the different depth that familiar by Chinese consumer on different brands of LVMH, bloc choose the right strategies to improve brands awareness. It means China is a fresh country of luxury consumption, the degree of understanding brands is not high.
But for the luxury goods which express the status and represent the high quality, brand awareness is a crucial aspect. In LVMH, people are only familiar with few brands, like Louis Vuitton, Parfums Christian Dior, Givenchy and Hennessy. These brands, especially for Louis Vuitton already has certain market share in China. However, for the other dozens of brands, their name may never heard by Chinese customers. This leads to LVMH’s restricted sales. Bloc can try to rely on the awareness of Louis Vuitton, introduce other different brands.
These brands are in the same group, but have different styles, for example Loewe, Celine, Berluti and so on. We also can introduce other wine brands with Hennessy, which have the same quality and different taste. For instance, Domaine Chandon of the California flavor, Bodegas Chandon of the Argentina flavor, Domaine Chandon of the Australia flavor and so on. Let different preference customers have more suitable products for their choice. It is using internal cross-brands cooperation to promote the overall effectiveness of the group. In addition, it is necessary to develop the market in tier two cities.
Yuval Atsmon, Vinay Dixit, Glenn Leibowitz and Cathy Wu (2011)stated that China’s purchases of luxury goods mainly concentrated in the higher income people, this part of people’s residences are transferring to tier two cities. At present, China’s first cities are crowd of population, and the air is unfresh. People living in any corner always feel pressure. The second city, such as Jiangsu, Sichuan, Fujian, Chongqing, there local people happiness index is higher than the economy developed cities. This multitude who has higher income Pay more attention to the quality of life, they plan to move to second cities.
Discovering second city market and establishing stores in tier two cities may first occupy this group of customers. Moreover, transfer the information to target population. Chinese travelling to Hong Kong, Macao and overseas is the purpose of shopping for more. The reason is they can enjoy duty-free treatment. Tariff improved these products sales price in China. The price of commodities which bought from outside the mainland, plus travel and accommodation costs, are still cheaper than bought from the mainland. KPMG (2008) survey data showed that the number of the crowd have increased, compared with 2006.
It has accounted for about half of the luxury consumption. Actually, this group of people lack of product information and promotion outside the mainland. Aim at this group of people, LVMH propagandizes their new overseas product and promotion. The organization will gain a competitive advantage, result from people’s target products and preferences before go out. Finally, strengthen Internet sales, establish the customer database. The Internet’s biggest advantage lies in the information flow, update speed, and consumers’ personal information collection.
Through the Internet, building customer database is the effective method to improve sales. Especially for its department stores, duty-free airport outlets and specialist shop sales. Customers who has purchased behavior and no buying behavior can be separated. One part is to take members, club and other forms for those target consumers and potential consumers, make sure they keep for a long time loyalty of our products. The other part is take experts online q&a, email or dm sheet in the form of enterprises to promote the feature and sold products newly activities and more valuable services.
These activities are for people who never had bought these products, but have landed, and browsed the web site. It aim to improve the company’s reputation. At the same time, company also can consider building a platform for communication, which conducive to three parties (current consumers, potential consumers and sale). For instance: the product usage exchange area, discussion blog and so on. Result from the three parties communication, the brand awareness can be improved, desire of shopping can be stimulate, and the purpose of increasing sales can be achieved.