SGMT 6000

STRATEGIC MANAGEMENT
Fall 2015

Individual Assignment #2: LOUIS VUITTON

1. Per unit costs (to determine cost leadership) and profitability ratios such as Return on Equity
and Return on Assets provided for Louis Vuitton (LV) and its competitors are best indicators of
whether LV has a competitive advantage. From Exhibit 5 we can assess that LV has the highest
operating margin in 2010 (33.7%) and 2011 (35.3%) relative to the industry average in 2010
(27.5%) and 2011 (30.5%). LV extracts the most profits from its sales relative to its competitors.
2. LV employed the differentiation strategy through various primary and support activities that
supported several dimensions of differentiation. First, under Firm Infrastructure support activity
LV had the largest number of stores relative to any of its competitors (Exhibit 5), which made the
product highly available and easy to reach for its customers. In response to product shortages the
company built a new factory in 2011 that allowed for increased store hours and improved
availability. Second, under the Procurement support activity, the company had its stores in
prime venues in major cities and also sourced its leather from northern Europe as cattle there had
fewer blemishes from insect bites, which enhanced the LVs image and product performance.
Third, under the Firm Infrastructure activity, LV is the only company to not use third party
sellers as a distribution channel. All its stores were designed centrally to communicate a unique
and common brand image of opulence, luxury and the companys French tradition. This activity
also ensured the reliability of its products and customer service. Further, some stores had areas
that were available to members only, which made members feel part of a prestigious club. Further
to brand image and quality control, LV destroyed excess stock instead of discounting them and
tight control of distribution was maintained to prevent its products from being lost and entering the
grey market. LV manufactured all its products1 and from initially outsourcing production the
company brought production in-house2. The company used rigorous testing to ensure quality4,
which allowed for LV to better control the reliability and durability of its products for customers.

Fourth, under the Operations primary activity, LV increased automation in its plants, reorganized work teams and reduced specialization to allow for extensive product variety from
changes in demand. Fifth, under the Service and Sales primary activities, assistants brought
products from the backroom so salespeople would not leave the customer alone. Best customers
were provided a specific area in a store to shop in privacy. LV, also owned private apartments and
yachts in some cities to provide its absolute customers with butler service for private design and
fitting consultations; this highlighted the unique customer service LV offered. Sixth, under
Human Resource Management and Technology Development support activities, LV was
known to have the top design and creative talent which helped the company keep ahead of the
competition by innovating raw material and manufacturing processes to develop unique products
and features such as bonding two layers together for a specific basket bag season3. Employees
working on leather goods also commented on the amazing training and experience they got5.
3. LVs firm infrastructure gives it a sustained competitive advantage after applying the VRIO
model against it. LV is the only company amongst its competitors to own all its distribution
channels that caters to all three customer segments. It has highest number of stores, where each
store is centrally designed with specific areas within stores to serve best customers and accessible
only to members. This allows for a common brand image and exceptional customer service. The
resource is rare as no other competitor has the same brand and store management model. Is it
costly to imitate? Yes, at least in the near future it is very expensive for competitors to acquire the
real estate and change their distribution channel & brand enforcement strategies. Is LV organized
to capture value from this capability? Certainly, from Arnault, the leadership team to LVs
employees, all believe that the companys brand and products needs to be communicated
effectively and consistently throughout the store network5.

References
1. Page 10, Manufacturing,
2. Page 8, Louis Vuitton,
3. Page11, product design and innovation
4.

Page12, quality

5. Page 11, product design and innovation