Louis Vuitton Case Study

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Executive Summary: The global luxury goods’ marketplace in the past decade has experienced nothing short of a complete evolution and transformation. This industry has endured global economic downturns in advanced economies such as the United States requiring them to branch out of their comfort zones and expand into emerging markets specifically the BRIC countries. These Asian nations possess high GDP rates that are anticipated to increase significantly in the upcoming years. Luxury goods were once a possession of strictly the wealthy, brand conscious consumer with a high disposable income. Within these developing economies reside a “new breed of young entrepreneurs and noveau riche consumers”, offering large potential within the…show more content…
Gray Markets LVMH has found that gray markets, markets where a firm’s product are sold or resold through unauthorized dealers, are a significant problem. In Japan, handbags cost more than 40% more than they did in France (Nikoemeran). This difference in price created a gray market where groups from Japan would fly to France to purchase Louis Vuitton handbags for resale through parallel channels in Japan. These gray markets can create a number of problems for LVMH. The first is the dilution of the exclusivity, where the exclusive rights of distributors are watered down due to the influx of additional distributors of the same product. The result is a drop in margins for distributor (Sloan). A second problem gray markets create is free riding. Free riding occurs when authorized distributors start skimping on important services they provide to promote a product, such as presale service, education on product attributes and sales person training. This reduction in services causes the customers of high-end brands, who value these services, to abandon the brand (Sloan). The third problem caused by gray markets is damage to channel relationships. Manufacturers spend a lot of time and money establishing relationships with their distribution network. The result of gray markets is unhappy distributor(s) that could greatly affect the flow of a manufacturer’s product and therefore could be very costly (Sloan).

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