Strategic Management Report: LVMH in the Top-Range Watch Market

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Added on 2024/07/03

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This report critically examines LVMH's strategic management within the top-range watch industry, utilizing various strategic theories such as profit maximization, resource-based theory, and contingency theory to explain the company's approach. It discusses the characteristics of the luxury watch market, the challenges LVMH has faced including competition from Japanese quartz watches and technological advancements, and the measures taken to improve its competitive position. The analysis incorporates a SWOT analysis and Porter's Five Forces model to evaluate LVMH's strengths, weaknesses, opportunities, and threats, as well as the competitive dynamics within the industry, highlighting the company's journey from a smaller market share to a leading position through strategic acquisitions and brand management. Desklib provides access to this and other solved assignments for students.

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CONTENTS
LIST OF FIGURES............................................................................................................................. 1
INTRODUCTION.............................................................................................................................. 2
1 (A) CRITICAL DISCUSSION OF THE MAIN CHARACTERISTICS OF THE TOP-RANGE WATCH
INDUSTRY USING RELEVANT THEORIES......................................................................................... 3
1 (B) CRITICAL EVALUATION OF THE CHALLENGES THAT A COMPANY IN THIS INDUSTRY FACES..7
2 LVMH’s TRADITIONAL COMPETITIVE POSITION IN THE TOP-RANGE WATCH INDUSTRY AND
MEASURES TAKEN TO IMPROVE ITS POSITION AND SUSTAIN ITS COMPETITIVE ADVANTAGE IN
THE INDUSTRY............................................................................................................................. 10
3 CRITICALLY DISCUSSING WHY LVHM ACHIEVED A POSITION OF SUCCESS IN THE LUXURY
MARKET....................................................................................................................................... 14
CONCLUSION............................................................................................................................... 17
REFERENCES................................................................................................................................. 18
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LIST OF FIGURES
Figure 1: Strategic Management Theories..................................................................................... 3
Figure 2: Total Revenue and Revenue of Watches and Jewellery..................................................8
Figure 3: Worldwide Sales of Smartwatch.....................................................................................9
Figure 4: Watch Market Share in 2011........................................................................................11
2

INTRODUCTION
Strategic management is a set of plans driven from a systematic analysis of different aspects to
guide an organization for long-term goals. It is categorised in four steps each designed to
extract opportunities from the market while considering the strengths and weaknesses of the
company. Environmental analyses, strategy formation, strategy implementation, and strategy
evaluation are the four aspects that organizations like LVMH use to become a world-recognised
group.
To the better gain understanding of strategic management, the following assignment will
consider the case study of LVMH group is taken into consideration. LVHM is a luxury
conglomerate, which covers five luxury sector: Jewellery-Watches, Spirits and Wines, Fashion
and Leather Goods, Cosmetics and Perfumes, and Selective Retailing. The total worldwide
workforce is around 145,000 people and reported sale in 2017 is 42.6 billion euros.
By applying relevant theories and models, following assignment will fall light of the strategic
management embraced by the LVMH group.
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1 (A) CRITICAL DISCUSSION OF THE MAIN CHARACTERISTICS OF THE
TOP-RANGE WATCH INDUSTRY USING RELEVANT THEORIES
For the success achieved by the watch and jewellery sector of LVMH, the credit can be given to
the strategic management of the group. The group has successfully managed to gain profit from
the opportunities and implemented a group of strategic management theories. There are
numerous theories that explicate the foundation, progression, principles, and application of
strategic management (Hill, et al. 2015). Flowing are the major theories that were used by the
LVMH:
Figure 1: Strategic Management Theories
[Source: Hill, et al. 2015]
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STRATEGIC
MANAGEMN
T THEORIES
SURVIVAL
THEORY
PROFIT
MAXIMIZAT
ION &
COMPETITI
ON BASED
THEORY
RESOURCE-
BASED
THEORY
CONTINGEN
CY THEORY
AGENCY
THEORY

PROFIT MAXIMIZATION AND COMPETITION BASED THEORY
It states that companies within an industry align their objectives to gain long-term profits and
develop a sustainable competitive advantage within a market. External factors and positioning
plays a vital role in a company's performance. LVMH's fashion and the luxury sector was formed
for the sole purpose increased and sustainable profits. Acquisitions with Louis Vuitton and
Christian Dior are such examples that have reaped out as profitable fruit (Teece, 2010).
RESOURCE BASED THEORY
It states that the competitive advantage gained by the organisation depends on the amount
and quality of resources it possesses rather than only analysing and evaluating environmental
threats and opportunities. Being a successful luxury conglomerate with more than 70
exceptional houses under its umbrella the LVMH has efficaciously used this theory in its
strategic management (Hill, et al. 2015).
CONTINGENCY THEORY
As per this theory, there is no singular approach for an organization to gain a competitive
advantage while making strategic decisions, rather it has to analyse different environmental
conditions (both internal and external). As in the case of LVMH, the introduction of quartz and
penetration of the Swiss market by Japanese foray, the company responded by introducing
‘Swatch’ in the market. The group even managed to protect the high-end watch market during
this declining period in the 1980s. This shows the two-way approach taken by the organization,
one by collaborating SSIH and ASUAG to for SMH that saved the mechanical watch market by
mixing ETA watch movements with all its watch range to provide better efficiency and by
establishing ‘Swatch’ that manufactured quartz watch to compete with Japanese organizations
(Hill, et al. 2015).
CHARACTERISTICS OF TOP RANGE WATCH INDUSTRY
5

Companies currently present under the LVMH group has been the result of various acquisitions,
thus consist of some similar characteristics that helped them to maintain in the watch market
for decades. Some of the characteristics as per case study that are common in the famous
watch brand in LVMH like Louis Vuitton, Hublot etc. are:
 They are built on customer value, watches by LVMH are categorised as ‘luxury’, ‘upper
range’ and ‘mid-range’ that shows that prices are set as per their customers
 High-quality parts, high-end watches are built with complex parts that are stones like
ruby, which makes it differ from other watch companies that rely on quartz system
(LVMH, 2016)
 Top range watch industries embed ‘complications’ in their watches; i.e. they consist of
special features like calendar, tourbillion etc.
Over the years, LVMH has managed to use different strategies as per situations to sustain in the
watch and jewellery industry. The potential for developing strategy and supporting strategic
decisions can be understood by applying Ansoff matrix:
Market Penetration
The aim is to increase market shares while selling existing products in the existing market; for
instance, the high-end watch is sold by the companies even after the introduction of quartz,
which is cheaper and easier to manufacture (Martinet, 2010).
Market Development
Here, the organization enter new markets with existing products, growth in such situation is
equally dependent on the market situation and customer's reaction (David, 2011). For instance,
Hublot, the Swatch Group etc. sell their high-end watches to new markets like Hong Kong,
London etc.
Product Development
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As per changing trends, organizations introduce new products in existing market; for instance,
the Swatch group was introduced by LVMH that introduced quartz watch for mid-range
customers withing Swiss market and to compete with the Japanese entrants (Martinet, 2010).
Diversification
Organizations with their new products enter a new market to gain profits and diversifying the
industry as per changing trends. LV is one such example under LVMH that is dedicated to for,
traditional and modern watches for a variety of consumers (David, 2011).
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1 (B) CRITICAL EVALUATION OF THE CHALLENGES THAT A COMPANY IN
THIS INDUSTRY FACES
In the context of the watch sector in LVMH as per case study, there were ranges of challenges
that the company faced during the change in technology for watch formation. Initially,
compared to other markets that LVMH owns, the watch and jewellery industry produces
significantly less profit due to several reasons; however, the company managed to maintain its
quality over the years. Challenges that were faced by companies during the early stage are
mentioned below:
 Entry of Japanese foray with quartz watches that were cheaper and easier to
manufacture
 Lack in number of master watchmaker during 1980s; even large training period required
to learn proper skills to form complex watches
 Manufacturing of raw materials that is time-consuming and expensive; even outsourcing
parts require significant expertise (Donzé and Fujioka, 2015)
 To compete with an existing brand like the Swatch group
These are some downfalls that were faced by the watchmakers and organizations that
challenged them to reform their strategic management plan that eliminates the threat of new
foreign entrants, saving the traditional watch technology and re-owning the watch market
(Donzé and Fujioka, 2015). SWOT analysis is conducted to gain a better understanding regarding
the challenges faced and benefits associated with those challenges.
STRENGTHS
 LVMH was successful in their other sectors thus had significant capital to invest in new
mergers and acquisitions (König, 2012)
 Tag-Heuer brand helped the organization to provide products inaccessible rates; while
Zenith's reputation as a skilled watchmaker helped in competing with top brands
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Figure 2: Total Revenue and Revenue of Watches and Jewellery
[Source: MONTREDO, 2018]
 The image of a traditional watchmaker that Blanchpain hold gave an edge to the
company and attracted a creamy layer of customers that appreciate quality work on
watches(König, 2012)
 Hublot strengthened the manufacturing process of the company (König, 2012)
WEAKNESSES
 Purchase of Ebel was a deal that went south since the company purchased it in $167
million in 1994 and sold it in $47.3 million in 2004 (LVMH, 2016)
 limited experience in the watch market compared to the Swatch group and failed
attempt of diversifying Ebel during the initial stage (König, 2012)
OPPORTUNITIES
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 The company used the opportunity of buying assets, patents and employees of BNB
while it went bankrupt that provided them profit in terms of experienced team
 Training and hiring effective watchmaker is an opportunity since there is a lack of
perfect watchmaker since the 1980s (LVMH, 2016)
 New but fast entrants like Louis Vuitton can invest in modern smartwatches to compare
companies like Apple, Samsung (König, 2012)
THREATS
 Technological companies like Apple, Samsung are entering the watch industry and
grabbing the profits of traditional watch industries
 Smartwatches are gaining pace in the global market thus affecting the sale of traditional
and quartz watches (König, 2012)
 The Swatch group possess a threat since they cover around 17% of the watch market,
which is higher compared to LVMH which is 4.5% in 2011
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Figure 3: Worldwide Sales of Smartwatch
[Source: Statista, 2018]
2 LVMH’s TRADITIONAL COMPETITIVE POSITION IN THE TOP-RANGE
WATCH INDUSTRY AND MEASURES TAKEN TO IMPROVE ITS POSITION
AND SUSTAIN ITS COMPETITIVE ADVANTAGE IN THE INDUSTRY
The Swatch Group that was established during the 1980s were the market leader when the
LVMH decided to enter the market in the year 1999, with limited experience in the watch and
jewellery industry. Lower information in the diversifying the business, the group faced several
challenges before it successfully made it possible to become the larger market shareholder in
the year 2011 in watch sector (LVMH, 2016).
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