By students, for students.

LVMH: the strategy of style

In Management, Marketing on January 22, 2013 at 5:21 pm

lvmh

What are the advantage and disadvantage of LVMH’s current organisational structure?

LVMH, world leader in the luxury goods industry, has adopted a global product structure wherein the business’s diverse product categories are managed separately.

This is a suitable structure for a highly economically integrated multi-national. LVMH likes to boast that its global brands unite consumers into a worldwide elite through their highly-recognised motifs and standardised (though quickly replaced) designs. This brings advantageous economies of scale. As a retail brand, LVMH could expect to save 30% of its commercial costs – advertising, rent, shop assistants – each time it doubles in size . Indeed, LVMH uses marketing to change consumer tastes to suit the firm’s existing offerings, not vice versa. Efforts to encourage Asian middle classes to embrace LVMH’s European sophistication have taken off in recent years. In 2011, they accounted for 27% of total sales. At the same time, the structure helps LVMH build and maintain the link between product development personnel and customers, placing brand experts at the helm. Because of this, the firm has been proactive in keeping up with global trends. For instance, Loewe is expanding as part of a strategy to satiate a growing appetite for leather goods with lesser-known names.

The global product structure is not without disadvantages. When product categories are independently managed – charged with pricing, location and inventory decisions – there is an inevitable duplication of facilities and personnel which adds to LVMH’s operating costs.Furthermore, it takes longer to foster professional managers to meet the criterion for global product structure, which is to understand local and foreign markets well.

What alternative structures might be suitable for LVMH? Why?

Matrix structure might be suitable for LVMH. Currently, there are many multinational enterprises using matrix structure since matrix structure consists of two lines of responsibilities, which are functional and product structure or regional and product structure. Matrix structure can make up for deficiencies brought by a single division of the enterprise. According to the annual report of LVMH in 2010, the three major markets based on the profit contribution are the United States(23%), Europe(34%) and Asia(34%). The features of each individual regional market are different from the others. Hence, matrix structure allows LVMH to balance product and global location strategy in order to develop the business in-depth according to characteristic of each region. As a luxury industry leader, LVMH might need to enhance the differentiation and services in order to make further development. LVMH utilizes both product division and geographical division, which helps to integrate the needs of local customers and product innovation and service, to achieve part of national responsiveness.

Why might it be difficult for LVMH to develop a ‘transnational’ network structure?

Transnational network structure combines both functional and area structure and it also depends on a network arrangement to connect global subsidiaries. The aim of this structure is to help companies to take benefits from different resources in local environment to feed the organization. For instance, , the company would move its manufacturing to Asia to take the advantage of cheap labour if LVMH adopted this structure. However, the purpose of LVMH is to provide high- quality luxury products. Besides, the brand image is the most important part to gain high profits. Once the company wants to take other advantages of global economies of scale, for example, the cheap labours in Asia, it might damage the brand image. Therefore, transnational network structure is difficult to help LVMH to achieve global economies of scale and hold a reputation of high quality and status at same time.

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