Team-2 Louis Vuitton in India Case

7/28/2019 Team-2 Louis Vuitton in India Case

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FIN 502 Page 1

Group 2: Patricia Fassler-Mize, Jesse Galindo, Maggie Jones, Ted Lasch, Donna Li

Louis Vuitton in India

Executive Summary

Louis Vuitton Mot Hennessy, the worlds leading luxury brand, made the decision to formally enterIndia in 1999. India was a familiar market for Louis Vuitton as the company had filled custom orders

from maharajahs since the late 19th century. However, the Indian market was unlike any in which thecompany was currently operating. The changing socio-economic conditions of the developing nationopened up opportunities for the brand but also posed unique challenges such as changing customerprofiles and concepts of luxury.

In the West, luxury goods are often sold through company-owned stores in a luxury retail cluster spreadover several blocks, usually in a citys downtown core. In cities that did not have luxury retail clusters,Louis Vuitton operated in luxury malls. Previous attempts to develop premium retail space in India hadnot been successful. Nevertheless, several real-estate entrepreneurs had plans to open an estimated 300luxury malls in India by 2010. In India, Louis Vuittons first two stores were introduced in luxury mallsin New Delhi and Mumbai targeting customers who had shopped abroad and were familiar with the

brand. The company was now looking to increase its reach and teamed up with other global brands todevelop luxury malls in five Indian metros.

Does a high-end brand have a market in a low income country?

According to the National Council of Applied Economic Research, in 2001-02 there were 20,000families in India with annual incomes greater than INR100 million. This number is expected to grow to140,000 by 2010. Although 87% of the Indian population lives on an income of less than $2.50 per daythe high net worth consumers, which are the primary target of high-end brands, is growing. Although themaharajahs had lost much in 1956 and 1971, they were still significantly influential and formed the newelite that would be the new generation of customers for Louis Vuitton (LV) along with Bollywoodactors, politicians, and bureaucrats. Exclusivity is a main factor in maintaining the gap between the

super-rich and other consumers. Since LV caters to this need, they have an edge that allows them tocharge the premiums on their goods. Every market in the world will have consumers that desire to standout, be recognized as special, and feed their egos. Whether they are looking for superior functionalityand quality, a status symbol that shows they have arrived, or self-indulgence, every free market seeksto satisfy these needs and, as such, there will always be a desire for luxury goods.

Where should this high-end brand find its niche?

For centuries the maharajas of India held vast amounts of disposable income and enjoyed spending theirmoney on luxury items as a show of class distinction. These maharajahs and their families knew LVvery well and continued to buy LV products up until they finally lost power in 1971 following the StatesReorganisation Actof 1956. From that point forward LV tried to connect with the countrys new rich:

owners of businesses, CEOs of companies, and Bollywood actors. In India, the super-rich sought tomake statements about their status. One way to show it was by buying expensive products that wereout of reach to the vast majority of the population.

Today, India is one of the fastest growing economies in the world, second to only China, and has seen anexponential increase in the number of middle and upper class families with high net worth (HNW) orliquid assets in excess of $100 million. Indias economic boom continued to add families to this class.


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FIN 502 Louis Vuitton in India Page 2


These newly-rich had extra disposable income and were starting to sample the good life by purchasingluxury items for the first time. The idea was that these consumers would get a taste of the finer thingsand would hopefully become customers for life. These consumers are exactly who LV was targetingwith their expansion plans.

Louis Vuitton decided to target these consumers directly by moving their stores out of the safety ofluxury hotels and into luxury malls. Luxury malls were new to India and LV desired to be involved intheir design so as to avoid any cheapening of the malls by adding tenants that didnt fit the luxurybrand status. LV traditionally enjoyed the retail ambiance of the luxury retail cluster. However, as notedearlier, if a luxury retail cluster wasnt feasible, the luxury mall was the next best option. LV had theadvantage of more than one luxury brand under the LVMH umbrella with different product offeringsincluding Fendi, TAG Heuer, Christian Dior, Givenchy, etc. These offering allowed LVMH to placemultiple products into the malls so they could enjoy the spillover from browsing shoppers.

Luxury brands struggle to gain footing in India even today due to a poor retail infrastructure and highimport duty taxes.i The HNW Indian consumer likes to spend money and buy expensive items but also

is price conscious. This means he wont buy the same item in India if he can get it cheaper outside of thecountry. Also, the buying experience is apparently much better in foreign countries between theselection and customer service. There has been an effort by some luxury retailers to clear those obstaclesby adding more of a local flavor in their offerings and customer service and LV would be wise to do thesame. Having a customized India-specific product may create the sense of exclusivity that wealthyIndian consumers desire and could help drive sales up locally.

How should a luxury brand company deal with changing customer profile?

In the past, luxury brand companies such as Louis Vuitton, Bentley, and Prada have never had an issuetrying to market their products for their targeted HNW customers. In fact, a company like LV seemed tofollow a basic strategy to attract customers ranging from the nearly rich to the super-rich with theslogan, If you build it, they will come. Simply put, the name speaks for itself and creates demand. InIndia, however, the customer profile is entirely different - the super-rich are also interested in lookingfor the best deal, not just the highest priced one - and LV was now forced to make changes in order tobetter market their goods to the respective target population.

It is apparent that LVs target group was going to be wary of the cost, as their consumers also shop atdiscount stores like Target and Walmart, and this concept is illustrated by the tendency of the wealthy tonot buy premium cell phones since, other than the name, there was no inherent superior value.Therefore, anything that LV puts out in an attempt to reflect itself as a luxury brand must be seen as thecrme de la crme offering a unique value proposition.

In this, LVs customer base must be shifted to the next lower level, rather than focusing only on thesuper-rich in order to maximize profits and buy into anything with a luxury brand logo on it. Instead,as Singh, Booker, and Barasia put it, Louis Vuitton can acquire a less expensive brand, price productsmore carefully, and launch new value-focused brand extensions. ii In the case of LV, since a lessexpensive brand is contradictory to that which they are trying to emphasize, and LV has stated that it isnot a discount luxury brand (and therefore has never once been discounted in price), the best optionwould be to open up a new line of products focused solely on Indian consumers and their buyingbehaviors. In doing so, LV can sustain their brand image as a high-end luxury brand for the super-rich,


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while also redirecting focus geared towards their more appropriate customer profiles in India.

How should a luxury brand company deal with changing concepts of luxury?

Louis Vuitton not only faces a different customer profile than before, but their consumers concepts ofluxury are also changing. Considering the fact that the luxury market in India is expected to grow and

reach $30 billion by 2015, while the market for luxury products is expected to grow 20 percent annually,it is apparent that in order for Louis Vuitton to be successful in India, they must carefully define, target,and market to HNW consumers.

Customers of luxury consumer goods fall into three basic categories. The first category consists of older,wealthier, buyers that want to buy products for their superiority and quality. The second categoryincludes consumers that feel they deserve to pamper themselves by purchasing exclusive products. Thethird category consists of young consumers, predominantly male, who want to indulge themselves inluxury goods.

According toInside the Affluent Space, an American Express study that examined Indian consumers,

most fell into the second category and were predominantly affluent women. The target market of LouisVuittons product is Indian women who wanted to prove to themselves and their peers that they hadmade it. They were successful and driven women who wanted to make intelligent, exclusive choices andfeel good about their purchases.

Using a different marketing strategy, Louis Vuitton should focus on the exclusiveness of their products.Limited editions, products that make statements, and items that say I made it! Since Louis Vuittondoes not mark down their products, this helps to retain the products value. Special or customized ordersadd to LVs exclusiveness, and can be encouraged even further by identifying the brand with Bollywoodactors. And with the brands unique design, color, embossing, and packaging, Louis Vuitton can standout amongst the rest and appeal luxury consumers.

The Indian culture is based on social hierarchy and buying luxury goods like Louis Vuitton makes theconsumer feel that they are in a higher class with their prestigious purchase. Measures of success inIndia are money, wealth, and consumerism. Therefore, the prestige of the LV brand must be upheld bylimiting the areas and businesses that sell their products to those which reflect the high-end andluxurious image of Louis Vuitton, as a means to reduce the risk of being viewed as common.

Case Update

The DLF Emporio opened in New Delhi and houses Louis Vuitton as well as 73 other internationalbrands including Cartier, Versace, DKNY, Dior, and Gucci.iii In addition to the Emporio, only one otherluxury mall in Banglore has opened to date. Hermes opened Indias first stand-alone luxury retail storein Mumbai in July.iv Louis Vuitton currently has five stores in India: three in hotels in Mumbai and NewDelhi, and one in each of the nations two luxury malls.v Donna Karen, another member of the LVMHgroup, has also entered India.vi

Despite growing wealth in Asias third-largest economy, conversion of potential demand into actualsales has been slow.vii Most of Indias rich prefer buying their luxury items abroad where goods arecheaper, service is better, there is greater variety and a superior shopping experience. viii However, theopportunity remains and luxury brands like LV continue to vie for the HNW Indian market.


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i Chakravorty, Jui. Insight: Luxury retail not part of Indias success story.Reuters. Aug 24, 2011. Retrieved Aug26, 2011 fromhttp://www.reuters.com/article/2011/08/24/us-india-luxury-idUSTRE77N11120110824.

ii Singh, Ashish, Booker, Mike, and Barasia, Sandeep. India: Strategies for Consumer Goods.Bloomberg

Businessweek. 12 June 2009. Retrieved 26 August 2011 fromhttp://www.businessweek.com/globalbiz/content/jun2009/gb20090612_706157.htm.

iii DLF Emporio Website. Retrieved 27 August, 2011 fromhttp://www.dlfemporio.com/dlf/wcm/connect/emporio/Emporio+Site/Left+Link/Emporio/.

iv Chakravorty.Ibid.v Louis Vuitton Locations in India. MyStore411. Retrieved 27 August, 2011 from

http://www.mystore411.com/store/listing/187/India/Louis-Vuitton-LV--store-locations.vi Mukherjee, Rupali. Donna Karan to enter India with DLF Brands. The Times of India. 27 March 2009.

Retrieved 27 August, 2011 fromhttp://articles.timesofindia.indiatimes.com/2009-03-27/india-business/28043607_1_dlf-brands-donna-karan-new-york-dkny.

vii Khandelwal, Payal. A luxe life. The Financial Express. 23 August 2011. Retrieved 27 August, 2011 from

http://www.financialexpress.com/news/a-luxe-life/835780/1.viii Chakravorty.Ibid.
http://www.reuters.com/article/2011/08/24/us-india-luxury-idUSTRE77N11120110824http://www.reuters.com/article/2011/08/24/us-india-luxury-idUSTRE77N11120110824http://www.businessweek.com/globalbiz/content/jun2009/gb20090612_706157.htmhttp://www.dlfemporio.com/dlf/wcm/connect/emporio/Emporio+Site/Left+Link/Emporio/http://www.dlfemporio.com/dlf/wcm/connect/emporio/Emporio+Site/Left+Link/Emporio/http://www.dlfemporio.com/dlf/wcm/connect/emporio/Emporio+Site/Left+Link/Emporio/http://www.mystore411.com/store/listing/187/India/Louis-Vuitton-LV--store-locationshttp://www.mystore411.com/store/listing/187/India/Louis-Vuitton-LV--store-locationshttp://www.mystore411.com/store/listing/187/India/Louis-Vuitton-LV--store-locationshttp://articles.timesofindia.indiatimes.com/2009-03-27/india-business/28043607_1_dlf-brands-donna-karan-new-york-dknyhttp://articles.timesofindia.indiatimes.com/2009-03-27/india-business/28043607_1_dlf-brands-donna-karan-new-york-dknyhttp://articles.timesofindia.indiatimes.com/2009-03-27/india-business/28043607_1_dlf-brands-donna-karan-new-york-dknyhttp://www.financialexpress.com/news/a-luxe-life/835780/1http://www.financialexpress.com/news/a-luxe-life/835780/1http://www.reuters.com/article/2011/08/24/us-india-luxury-idUSTRE77N11120110824http://www.businessweek.com/globalbiz/content/jun2009/gb20090612_706157.htmhttp://www.dlfemporio.com/dlf/wcm/connect/emporio/Emporio+Site/Left+Link/Emporio/http://www.dlfemporio.com/dlf/wcm/connect/emporio/Emporio+Site/Left+Link/Emporio/http://www.mystore411.com/store/listing/187/India/Louis-Vuitton-LV--store-locationshttp://www.mystore411.com/store/listing/187/India/Louis-Vuitton-LV--store-locationshttp://articles.timesofindia.indiatimes.com/2009-03-27/india-business/28043607_1_dlf-brands-donna-karan-new-york-dknyhttp://articles.timesofindia.indiatimes.com/2009-03-27/india-business/28043607_1_dlf-brands-donna-karan-new-york-dknyhttp://www.financialexpress.com/news/a-luxe-life/835780/1http://www.financialexpress.com/news/a-luxe-life/835780/1

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Team-2 Louis Vuitton in India Case