Answer no.1) LVMH diversification strategy gave them a competitive advantage over their competitors. However, this competitive edge might convert into weakness in the future. Their diversification strategy was exceptional in terms of efficiency, although their sales were not performing as expected.
Managing all the businesses together was not an easy task to achieve. It did not make any sense to compete with too many businesses. Therefore they must focus on their core business. Such as champagne and fashion has been contributing most, as far as profit is concerned. Although 9/11 affected the fashion industry, but still the fashion industry has an excessive probability to recover. Retailing business has not been doing well for the last three years and diverting the interest of the management.
Answer no 2). There were several origins that will add value to their business. Focusing on their core businesses might transform them into a market leader; they need to gain access in different distribution channels in order to expand their visibility in the market. They must expand the current existing brands geographically in which, they had been performing well in terms of revenue and customer satisfaction. Integrated the whole distribution system with a strong flow of information will give them some extra value in the future.
Answer no 3) Synergies in luxury groups are not so much about cost. LVMH did not realize the fact that cost reduction logic couldn’t be achieved at any point. They focused mostly on financial synergies. LVMH did not understand the importance of the corporate level synergies and operative synergies. They limited themselves to efficiency focused synergies and other synergies (Economies of scale) and missed out the opportunities.
Answer no 4) LVMH had been great at creating differentiation among their competitors and via strong positioning they generated strong brand image in the mind of the customers. Innovation, differentiation and positioning were the fundamental pillars of the competitive strategy. Their different capability is that the variety of product of LVMH was very large. If one brand is performing well than customers will go for other brands, produced by the same company.
LVMH has acquired over 50 luxury brands all with different positioning strategies. They were efficient in broadening the company's media operations, created a new retail outlet, and enhanced their line of champagne, and established fashion houses. They clustered all of their products into six different commercial units. The E-luxury website presented more than 50 plus of the world’s most luxurious products. Mush of LVMH growth was due to new business acquisition. And they have managed them very well, speaking in a corporate sense.
Answer no 5) LVMH applied decentralized approach to allow their employees to be creative and thoughtful, and this approach gave them an advantage and opportunity to differentiate their products with their competitors. They realized the fact that they need proper synergies to diversify their business efficiently. The combined return of the two or more groups together is greater than the single unit and that’s how synergy can work for them. They integrated operative synergies, market power synergies, cooperate synergies and financial synergies all with exceptional results. LVMH could also integrate the whole supply chain and distribution system.........................
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