Strategic Analysis of LVMH: Watch Industry Overview

This report provides a comprehensive analysis of LVMH's strategic management within the luxury watch industry. It begins with an introduction to strategic management principles and then delves into the application of these principles to LVMH. The report explores relevant theories and characteristics of the luxury watch industry. It examines the challenges faced by LVMH using a PESTEL analysis, considering political, economic, social, technological, legal, and environmental factors. Furthermore, it assesses LVMH's competitive position using Porter's Five Forces model, analyzing industry competition, potential entrants, supplier power, buyer power, and the threat of substitutes. The report also discusses LVMH's success in the luxury market, highlighting strategies such as product diversification and online marketing. Finally, the report concludes by summarizing the key findings and emphasizing the importance of strategic planning and market analysis for achieving business objectives. The report uses various sources including books, journals and online articles to support the findings.

STRATEGIC
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A) Theories, critically discuss the characteristics of top-range-............................................1
B ) Challenges for watch industry (PESTEL)-.......................................................................2
2) Traditionally LVMH competitive position in the top-range watch-..................................3
3) Success of LVMH in the luxury market-...........................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Strategic management includes implementation and planning of goals and action taken by
company to accomplish them. It deals with monitoring and analysis of organizationsl objectives
(Albers and et.al., 2017). LVMH is a watch making industry of France, which manufacture
luxurious watch models. Report will explain relevant theories and characteristics of luxury watch
industry. It describes the challenges in industry with use of PESTLE. Report will discuss
competitive position in industry and success position in the market.
TASK 1
A) Theories and critical discussion of the characteristics of top-range-
Strategic planning is an organization's process of defining strategy, direction and making
decisions on resources allocating. Long term strategic planning starts with customer’s desire or
ends with current performance status.
Mintzberg's 5 P's of strategy- The word strategy is used in different ways. Mintzberg's provides
five definitions of policies and plans.
Plan- Strategy is a plan which is used for handling difficult situations. It is a continuous action
and provides guidelines to deal with adverse problems and issues. According to this it has two
characteristics: one is they made in advance against the critical condition and second is
developed consciously and purposefully. LVMH prepares strategies to deal with different
situations.
Ploy- Strategy can be a ploy like plan. It is just a specific action of planning for competitor.
LVMH apply it to compete the competition in market.
Pattern- Strategy as plan is not sufficient, organization need definite plan, that encompasses the
resulting behaviour. It is a pattern, which is stream of actions (Barney, 2017). Plans may go
unrealised, while pattern may appear without preconception. It is realised strategy & plans are
intended.
Position- Its mean critically evaluating issues in organizational environment. According to this
strategy becomes the mediating force or match between organization and environment. LVMH
decide its external position by it.
Perspective- Strategy is a perspective. It not only defines chosen position of LVMH but of an
effective way of perceiving the world.
Characteristics of LVMH watch industry- Watch industry has some characteristics-
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An automatic movement rather than quartz- There are three main types of watch movement.
LVMH is a luxury watch maker who has automatic movement rather than manual.
A sapphire crystal- A crystal watch with transparent cover over its face (Durand, Grant and
Madsen, 2017). Crystals have been made using materials but only LVMH uses dominated
materials.
High water resistance rating- Water resistance rating in watches are a bit weird. LVMH
provides such features which protects its watches against liquid.
B) Challenges for watch industry (PESTEL)-
LVMH is an organization of luxury watches. Its business spread at worldwide level.
Company also influenced by political, technical, social etc. factors.
Political factor- LVMH has good international relations for trade with other countries. Being a
part of European Union it is good for organization that it can easily operate in other European
countries with the same currency. Company has to face many political issues like election,
changes in foreign trade policies, tax rate etc., and sometimes these government policies
influences the business. According to Ginter, Duncan and Swayne (2018) this challenges impact
the organization’s sales in other countries.
Economic factor- Because one of the economies' leader LVMH's impact on globalization.
Interest & inflation rates of country are low and it is good economic environment for company.
Lasserre (2017) said that large presence of workforce like more people- lower wage, fewer
people- reduced production is the economy situation for organization.
Social factors- High class society is a profit making sign for LVMH. It is one of the luxurious
watch industry and generally those people who are financially strong, easily buy products.
Individuals have a clear perception for prestigious items. According to McKiernan (2017)
customers like to check products first then purchase. This thought process of society reduces the
online services of LVMH.
Technological factors- LVMH is a France watch industry, which has high percentage of
Research and Development expenditure which is helpful to produce more qualitative or technical
watches. Online marketing services is also a part of technical environment which makes impact
in a positive way on company's sale and growth. Rees and Smith (2017) said that smartphones
technologies are the biggest challenge for the organization.
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Legal factors- According to Europe Union law misleading ads are ban there. LVMH has to
publish those advertisements which follows government rules and regulations. Labour law is
inflexible but secure. Trigeorgis and Reuer (2017) said that country law is change continuously
and it is quite difficult to follow employment, tax law etc. of various country.
Environmental factors- Climate of manufacturing country is another factor which impact the
sales or production of LVMH watches. According to Barney (2017) country’s climate, available
resources influences organization.
2) Traditional competitive position of LVMH in the top-range watch-
Organization in the market is one of the important factor of company’s success among
competitors. LVMH is a France located luxurious watch making industry. It has many outlets at
worldwide. In past it follows old marketing methods, while other watch makers uses technical
selling strategy and makes profit. LVMH manufactures expensive, designer luxury watches,
which is not affordable for middle class families. To come on number one position, it adopted
different market strategies. It started to manufacture different variants at different costs. With the
new planning company launched watches according to different social classes. It has own
internet channels to sell products online (Durand, Grant and Madsen, 2017). It is not easy for
organization to get top position in competitive market. LVMH followed porter's five forces
model to achieve good valve-
Porter five forces Model-It is equipment of analysis business competition. An unattractive
organization is one in which the effect of this model reduces overall profitability. Porter refers to
these forces as the macro environment, to contrast it with general term of macro business.
LVMH used this method for improvement of its market value.
Competition in the industry- In the watch manufacturing industry, there is a strong competition
between companies. Each brand tries to develop its image, concepts and storytelling. Firms
compete through expensive marketing campaigns to increase competitors influential power over
existing or potential customers (The WATCHMAKING INDUSTRY- PORTER'S FIVE FORCES,
2017). For improving market position LVMH produce watches in bulk during less competitive
market.
Potential of new entrants into industry- Highly competitive, divided between powerful
organizations, watch producing industry presents lots of barriers which shows great actions to
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overcome potential new market entrants. LVMH produces more qualitative or stylish models to
compare with new and existing competitors.
Power of supplier- cost of product is affected by suppliers. LVMH has certain or specific
suppliers across the world who provides raw materials and services at low cost (Ginter, Duncan
and Swayne, 2018). This kind of strategy saves company’s cost and helpful for its market value.
Power of buyers- For the buyer watch industry has large offers on different models. Due to the
strong differentiation of products between various brands, customers don't move easily from a
company to another. LVMH produces costly watch but after framing new strategies it started
manufacturing different class models at various prices.
Threat of substitute- It is fact that substitute is doesn't exist in watch market, but the increasing
development of smartphones is evolving the situations (Lasserre, 2017). Individual become used
to read the time on their phones. They avoid the use of wrist watches. LVMH produces specific
smartwatches to maintain its market position.
3) Success of LVMH in the luxury market-
LVMH is one of the luxurious watch brand, which produces different models at various
costs for all social class people. It is famous product among customers. Earlier company only
manufactured expensive watch models which is not affordable for common people and this was
the reason that generally buyers avoid buying it. Organization’s management wants to know why
customer ignores LVMH and like to purchase another brand. After market study they came to
know that their high product prices and old market concepts is the major reason behind low
sales. Every business is influenced by political, legal, social, technical and environmental factors.
With the use of PESTEL model organization can understand the impact on business process at
different level. They tried to reduce negative impact of these factors and took advantage of
positive side (McKiernan, 2017). They changed marketing process and started own online
channels to distribute products at worldwide with the less use of manpower. In order to capture
market, it is not essential to change marketing strategies but also produce model according to
current market trend. Sale of watch has decreased because people use their smartphone to view
time and date. To maintain market position LVHM has produced smart watches.
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CONCLUSION
From this report, it can be concluded that to operate any business, planning is important
to accomplish specific pre-defined goals and objectives. In this reference organization should be
framing their own strategies and those areas where it can be applicable to increase revenue.
PESTEL frame identifies the external factors those influences company in home or host country.
Porter's five forces model is beneficial to analyse the market competition and position of
organization among competitors.
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REFERENCES
Books and Journals
Albers and et.al., 2017.Strategic management in the aviation industry. Routledge.
Barney, J.B., 2017. Resources, capabilities, core competencies, invisible assets, and knowledge
assets: Label proliferation and theory development in the field of strategic
management.The SMS Blackwell handbook of organizational capabilities, pp.422-426.
Durand, R., Grant, R.M. and Madsen, T.L., 2017. The expanding domain of strategic
management research and the quest for integration.Strategic Management Journal.38(1),
pp.4-16.
Ginter, P.M., Duncan, W.J. and Swayne, L.E., 2018.The strategic management of health care
organizations. John Wiley & Sons.
Lasserre, P., 2017.Global strategic management. Macmillan International Higher Education.
McKiernan, P., 2017.Historical Evolution of Strategic Management, Volumes I and II.
Routledge.
Rees, G. and Smith, P. eds., 2017.Strategic human resource management: An international
perspective. Sage.
Trigeorgis, L. and Reuer, J.J., 2017. Real options theory in strategic management. Strategic
Management Journal.38(1), pp.42-63.
Online:
The WATCHMAKING INDUSTRY- PORTER'S FIVE FORCES. 2017. [Online]. Assessed
through: <http://swatchicewatch.blogspot.com/2013/12/the-watchmaking-industry-
porters-five.html>.
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