Marketing audit or environmental scanning - Essay Example

?Executive summary During the contemporary period, it can be d that organisations operate in an environment that is characterised by both internal as well as external factors over which the company in some cases has very little control. From a marketing perspective, this is referred to as marketing audit or environmental scanning (Lancaster & Reynolds 1999). Both the external as well as internal environments have a bearing on the way an organisation operates. Against this background, this report seeks to critically analyse and explore some of the external as well as the internal factors that affect the operations of LVMH Moet Hennessy particularly in the fashion and leather goods sector using PESTEL analysis, SWOT analysis, Porter’s Five Forces model as well as the TOWS matrix model. It starts by outlining a brief historical background of the organisation in question for the sake of easier understanding then followed by an analysis of the above mentioned tools for scanning the environment in which the organisation operates and this analysis will be limited to the geographical location of UK. In essence, scanning the environment enables the marketing managers of an organisation to be better positioned to know the situation obtaining on the ground for them to be able to gain a competitive advantage. Background According to its official website, world leader in luxury, LVMH Moet Hennessy - Louis Vuitton possesses a unique portfolio of over 60 prestigious and the group is active in five different sectors: wines and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewellery, selective retailing (http://www.lvmh.com/groupe/pg_mot.asp?rub=2&srub=0). The report will specifically focus on fashion and leather goods sector by Louis Vuitton, a trunk-maker in Paris since 1854 which became a legend in the art of travel by creating luggage, bags and accessories as innovative as they were elegant and practical. Specific focus in this report will be limited to the activities of the organisation in UK especially on how the micro and macro environments are impacting on the organisation using the tools for analysis mentioned above. PESTEL analysis for Louis Vuitton PESTEL stands for factors which may affect the operations of business such as political, economic, social, technological, environmental as well as legal factors (Lancaster & Reynolds 1999). These are explained in detail below and appendix 1 shows a summary of the major points noted. This is a very useful tool in analysing the environment in which an organisation operates. It can be noted that there are various factors that affect the operations of any given organisation and these have to be taken into consideration by an organisation that is serious about its viability so as to achieve competitive advantage (Kottler 1999). Any given organisation is guided by certain factors that so as to ensure that it does not violate the needs and interests of the consumers as well as the other stakeholders. Political In UK, there are policies that govern the operations of all organisations that are involved in manufacturing of different products so as to meet the expected standards. Consumer law in UK is effective and under the EU law, every big organisation like Louis Vuitton is expected to protect the needs and interests of the customers. It can be noted that the current political environment prevailing in the EU is not exploitative which is seen as the reason why exclusive manufactures like Louis Vuitton continue enjoying growth and expansion since inception to the present day. Economic factors The organisation has not been spared by the impacts of the recent global economic recession though it managed to bounce back in the first half of 2010. By virtue of specialising in producing only exclusive products with premium prices, the operations of the organisation are likely to be affected during turbulent times given that premium prices charged are specifically meant for a few people who can shift their buying behaviour which negatively impacts on the operations of the organisation as a whole. However, LVMH- Louis Vuitton harnesses on its resilience and responsiveness even during the most difficult trying times. Social factors The Group is also involved in culture and heritage, humanitarian action, education and supporting young artists and designers. It is primarily concerned with promoting social activities that will nurture talent especially among people from different backgrounds. This group’s approach to issues related to employment issues is very accommodative given that it employs people from diverse backgrounds as long as they are concerned with positively contributing to the overall performance of the organisation as a whole. Technological factors Technological developments in new information and communication technology have immensely contributed to the positive growth of the organisation. Online shopping for instance has had a great impact on the operations of the organisation. With the use of the internet, it is now possible for the customers to conduct their shopping while at home and the specially designed website allows a two way communication whereby the customers will have unlimited access to the organisation’s catalogue. Environmental factors It can be noted that there is a long standing relationship between LVMH- Louis Vuitton and environmental protection as well as its sustainability. Protection and caring for the environment are principles that are closely linked to the organisation’s values and business as a way of attempting to reconcile economic development with the well being of humanity. This is confirmed by the presence of the organisation in worldwide declarations such as Rio and Kyoto. Effort is made to protect biodiversity, ensure consumer health, use of harmless production methods as well producing quality products that are not detrimental to the environment. According to its official website, “as part of LVMH core management organization, an Environmental Affairs Department works every day to spread the special culture of the environmental impact assessment, coordinates actions and encourages all of our subsidiaries to adopt the "best ecological practices" at all levels of production,” ((http://www.lvmh.com/groupe/pg_mot.asp?rub=2&srub=0). Legal factors The LVMH website is published by LVMH Moet Hennessy - Louis Vuitton, a Societe Anonyme under UK law. Thus, it can be noted that the legal framework for the operations of this organisation are guided by the UK law and it is the duty of the organisation to ensure that it commits itself to the best of its ability, that the information posted on this site is correct and up-to-date and does not use unethical means to gain a competitive advantage. According to its official website, under the UK laws, LVMH is committed to make sure that there is confidentiality of any information provided by Internet users and all the information exchanged through the website is subject to UK legislation (Loi no. 78-17 Informatique et Libertes du 06 janvier 1978). Internet users are allowed to rectify, access or delete any personal information under this legislation. Swot analysis “A SWOT analysis is a useful instrument for helping managers to identify internal strengths and weaknesses of a business and external opportunities and threats facing it,” (Strydom J. p 31). Basically, SWOT stands for strengths (S), weaknesses (W) while on the other hand the external environmental factors are regarded as either opportunities (O) or threats (T). This analysis is very important to managers as it allows them to focus on key strategic issues based on the notion that an effective strategy fully utilises the strengths and opportunities of a business and strives to minimise the weaknesses and threats. Strengths The major strength for LVMH- Louis Vuitton is based on brand development strategy. The internal environment of the organisation encourages increased selectivity whereby the onus is put on the intrinsic value of the goods. This has significantly led to customer loyalty in all star brands which is seen as a major strength for the organisation. The other major strength of the organisation is that it harnesses on the talent and skill of the employees who are creative and better positioned to provide the customers with a truly unique experience of luxury and devoting the attention needed. Skilled workers greatly contribute to the viability of the organisation. Weaknesses The major notable weakness of this organisation in question is that it invests heavily in order for it to produce exclusive products that are sold to only a cluster of wealthy and affluent people. Recovering the costs incurred may be problematic especially during turbulent periods. Thus, the weakness related to high production costs should be reviewed as it impacts in some cases on the financial position of the organisation. Opportunity The major opportunity for LVMH- Louis Vuitton is that its operations are strongly determined by innovation of luxury based products. The group operates in a professional manner and is better positioned to meet the expectations of the customers which often reflect its magic of creativity with a unique expertise the world over. The group’s working environment is entirely luxury based and it is cemented by consistency in production of the top of the range quality products which is a great opportunity especially in such a niche market that specifically targets the rich and affluent. The other opportunity for the group is that it has a lot of skilful people who are working for it so it can harness on this opportunity to be innovative. Threats The LVMH Louis Vuitton group’s major threat is that their luxury goods carry premium products designed for very wealthy individuals and the major threat is the demand for spares to get the best in terms of quality, style and design. Price is not determined by competition which may scare away other potential buyers. The other threat is that its products can only be acquired through Louis Vuitton boutiques situated in upmarket localities of wealthy cities or through exclusive luxury goods stores. This differs from the other products that can be accessed in shopping malls throughout the world which may deter potential customers to have access to the products by virtue of their scarcity on the market. The other threat to the organisation is competition especially from the rival Gucci which also specialises in luxury leather products. Porter’s five forces model According to an online article, ‘Five competitive forces -Porter,’ the five forces model of Porter is, “an outside in business strategy tool that is used to make an analysis of how attractive an industry is,” (http://www.12manage.com/methods_porter_five_forces.html). Entry of competitors It can be noted that there are equally high chances of barriers to entry in this industry given its exclusivity. This is a capital intensive industry which is not very easy for small players to penetrate while at the same time barriers to exit are very low. Already established organisations can manage to maintain their position in the market which can make it difficult to enter into the market as a competitor against LVMH Louis Vuitton group which is already established. Threat of substitute In most cases, luxury goods like the ones produced by LVMH Louis Vuitton group often do not have direct substitutes like other ordinary goods. However, the only threat can only come through the emergency of counterfeits whereby the other copycats would imitate the luxury goods which can result in loss of sales that should go to luxury goods companies. Bargaining powers of buyers The rich and affluent people have great loyalty to the fashion and leather products produced by LVMH Louis Vuitton group. This can be seen through a number of luxury products that are offered through exclusive channels that are mainly found in upmarket retail outlets. The buyers in the identified segments have the power to purchase the luxury products offered. Bargaining powers of suppliers Given that LVMH Louis Vuitton group uses exclusive quality raw materials in the manufacture of their products, it can be noted that there are not too many suppliers in this case. The few suppliers can actually bargain on the situation and charge high prices since they will be better positioned to enjoy the advantage of their few numbers. Rivalry among existing players The major competitor in this particular case is Gucci which also specialises in luxury brands particularly in leather products. Opportunity for the organisation in the next 3-4yrs The major opportunity for the organisation in the next three to four years is that it can capitalise on its excellence in meeting the expectations of the customers through creativity and innovation. Through harnessing the tremendous number of different skill sets around its companies in France, LVMH Louis Vuitton group stands higher chances of stimulating the interests of the customers which will keep on opening the opportunities for the organisation. Creating brand loyalty among the customers is a virtue and it is anticipated that this organisation can continue enjoying the relationship that exists between it and its customers. It becomes pretty difficult for the other competitors to topple it from its position given that the luxury brands are different from the other ordinary brands. These brands appeal to the wealthy and affluent classes of people and it can be very challenging or equally impossible for new competitors to penetrate the market and grab a lion’s share of it from scratch. Through continuous product development and innovation, the organisation can continue to grow to higher levels since this is a lucrative industry especially for already established industries. Threats The major threat that is available to LVMH Louis Vuitton is that its target market is specialised and it focuses on niche segments of the market. The risk that prevails is that should the consumer tastes change, then the organisation will suffer unprecedented losses in sales of its luxury products. It can also be noted that there is also the threat of substitutes to contend with especially with regards to luxury products. Ordinary to medium brand products can eventually be expanded to become premium brands which can be challenging to the market position of LVMH Louis Vuitton. However, a close analysis of the internal as well as the external environment of the organisation shows that the threats that exist in the environment pose little danger compared to the opportunities available to the organisation especially in the manufacturing of the luxury products. It is anticipated that in the next three to four years, the organisation can continue to enjoy market dominance especially in UK through capitalising on product innovation and creativity. Appendix four shows the TOWS matrix. Conclusion Over and above, it can be noted that LVMH Louis Vuitton is an organisation that specialises in manufacturing luxury brands such as fashion and leather products. However, it can be noted that this organisation does not operate in a vacuum and as discussed above, there are many factors that affect the environment in which it is operating. One major notable advantage that contributes to the organisation’s success is its ability to innovate new products that are appealing to a large number of affluent people. Bibliography Kotler P. (1999), Kotler on Marketing: How to create, win and dominate Markets, Free Press, London. Lancaster G. & Reynolds P. (1999), Introduction to Marketing: A step by step Guide to all the tools of Marketing, Kogan Page LVMG Group (ND) http://www.lvmh.com/groupe/pg_mot.asp?rub=2&srub=0[Accessed 18 January 2011] Official website (ND) www.louisvuitton.com [Accessed 18 January 2011] McCarthy J.E & Perreault W. D. (1996), Basic Marketing: A Global Managerial Approach, 12th Edition, Irwin McGraw-Hill, USA. Pestel analysis of macro environment (ND) http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm [Accessed 18 January 2011]. Porter M.E. (1985), Competitive Advantage; Creating and Sustaining Superior Performance. New York: The Free Press. Porter’s five forces (ND) http://www.12manage.com/methods_porter_five_forces.html [Accessed 18 January 2011] Swot analysis for Gucci (ND). http://www.suite101.com/content/the-marketing-strategies-of-gucci-a100826 [Accessed 18 January 2011] Strydom J. (2004), Marketing, 3rd Edition, Juta & Co Ltd, SA. Using the TOWS matrix-developing strategic options from an external/internal analysis (ND) http://www.mindtools.com/pages/article/newSTR_89.htm [Accessed 18 January 2011] Appendix 1 PESTEL ANALYSIS for LVMH- Louis Vuitton Political factors - In UK, there are policies that govern the operations of all organisations that are involved in manufacturing of different products so as to meet the expected standards. Consumer law in France is effective and under the EU law, every big organisation like Louis Vuitton is expected to protect the needs and interests of the customers. Economic Factors -the organisation is somehow affected by turbulent economic crisis. Social factors -The Group is also involved in culture and heritage, humanitarian action, education and supporting young artists and designers. It is primarily concerned with promoting social activities that will nurture talent especially among people from different backgrounds. Technological factors -Advanced information and communication technology has improved the chances of better performance of business (Use of the internet). Environmental factors -It can be noted that there is a long standing relationship between LVMH- Louis Vuitton and environmental protection as well as its sustainability. - Protection and caring for the environment are principles that are closely linked to the organisation’s values and business as a way of attempting to reconcile economic development with the well being of humanity. Legal factors - the legal framework for the operations of this organisation are guided by the UK law and it is the duty of the organisation to ensure that it commits itself to the best of its ability, that the information it uses on its site is correct and up-to-date and does not use unethical means to gain a competitive advantage. Confidentiality is advocated. Appendix 2 SWOT Analysis for LVMH- Louis Vuitton Strengths -Brand development strategy -skilled and talented workers Weaknesses -heavy investment on production of exclusive products Opportunities - Its operations are strongly determined by innovation of luxury based products. - It has a lot of skilful people who are working for it so it can harness on this opportunity to be innovative. -It can also harness on new information and communication technology Threats - Luxury goods carry premium products designed for very wealthy individuals and the major threat is the demand for spares to get the best in terms of quality, style and design. -they are sold through few outlet found in the upmarket places only. Appendix 3 Porter’s Five forces Model The table below shows the five competitive factors that are likely to affect a business. Entry of competitors It can be noted that there are equally high chances of barriers to entry in this industry given its exclusivity. This is a capital intensive industry which is not very easy for small players to penetrate while Threat of substitute -In most cases, luxury goods like the ones produced by LVMH Louis Vuitton group often do not have direct substitutes like other ordinary goods. However, counterfeits may emerge. Bargaining Powers Of Buyers The rich and affluent people have great loyalty to the fashion and leather products produced by LVMH Louis Vuitton group. Bargaining powers of suppliers In this case, there are few suppliers who can bargain on the price of the raw materials they would have supplied. Rivalry among the existing players - The major competitor in this particular case is Gucci which also specialises in luxury brands particularly in leather products. Source http://www.12manage.com/methods_porter_five_forces.html Appendix 4 TOWS Matrix model Eternal opportunities - Operations are strongly determined by innovation of luxury based products. - It has a lot of skilful people -It can also harness on new information and communication technology External threats Luxury goods carry premium products designed for very wealthy individuals and the major threat is the demand for spares to get the best in terms of quality, style and design. -they are sold through few outlet found in the upmarket places only. Internal strengths -Brand development strategy -skilled and talented workers Strengths/opportunity (SO) The strategy of combining brand development and innovation is greatly helpful in giving the organisation competitive advantage. This can also be aided by skilled workers. Strength/threat (ST) Product innovation should be used as a strategy to counter threats whereby it will appeal to customers regardless of the premium price involved in manufacturing. Internal weaknesses heavy investment on production of exclusive products Weaknesses/opportunity (WO) Through Product innovation, the products are likely to appeal to many customers which will generate more revenue to upset the costs incurred. Weaknesses/threat (WT) An effort ought to be made to minimise the production costs while at the same time retaining first class products. Source http://www.mindtools.com/pages/article/newSTR_89.htm Read More