Louis Vuitton Porter Five Forces Analysis

Published in Companies category by MBA Skool Team

Here is the Porter’s Five Forces analysis of Louis Vuitton that covers threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.

Threat of New Entrants:

The threat of new entrants in the Louis Vuitton Porter Five Forces Analysis can be explained as follows:

Louis Vuitton is a high-end luxury brand which faces low threat of new entrants. With its strong brand image and customer loyalty, new entrants find it almost impossible to compete with such a gigantic brand. Louis Vuitton has the demand side benefit of scale since it has an extensive supply chain network and has differentiated product offerings which makes it difficult for new entrants to imitate. They also have cost advantage due to their supply side network. Louis Vuitton and other existing high end fashion brands also collude to deter market entrants.

Initial capital investment also deters new entrants. Multiple investments are required in machinery, premium quality fabric, customized production and patents by in-house top designers, collaboration with celebrities to endorse the product etc. Adding to that, marking global presence and attaining market share that these brands enjoy, new market entrants find it difficult to compete considering elite customers who go after established names and brands in the high-end luxury fashion industry.

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Threat of Substitutes:

Below are the threats of substitute products of Porter’s Five Forces analysis of Louis Vuitton:

Louis Vuitton faces moderately low threat of substitutes. Cheaper substitutes are available but the quality is downgraded that differentiates Louis Vuitton from its substitutes.

Switching cost for customers is high due to the brand value that adds on to the psychological and economic cost. Louis Vuitton focuses on providing high quality and ‘high value for money’ products to deal with the threat of substitutes. Elite customers who are mostly loyal to the brand and do not switch easily poses less threat to the company. Differentiating its product offerings and emphasizing on better customer experience through ‘attention to detail’ and ‘product of distinguished quality’, Louis Vuitton addresses such threats of substitutes. There’s still a major threat of counterfeiting where counterfeit products are available in the market at cheaper prices and LV faces a major problem in addressing such threats. With improved quality of counterfeit products, there’s a threat of dilution of brand value which has been the major concern for the company.

Bargaining Power of Customers:

In the Louis Vuitton Porter Five Forces Analysis the bargaining power of the customers can be explained as:

Bargaining power of customers is low, since the customer base is not concentrated. Louis Vuitton targets various market segments and varying levels of customer base which reduces the bargaining power of customers. Due to its positioning as an exclusive luxury brand and product diversification strategies, customer base is largely segmented. Wholesale do enjoy some bargaining power, however that is also limited. Switching cost for customers is also high due to its brand appeal. Customers do not have a say in reducing/cutting the cost of the luxury products. Adding to that is the customer’s inability to integrate backward due to low market knowledge, which further reduces their negotiating power. It is because of the availability of various players that results in indirect bargaining power of customers which offsets the company’s power to grab higher margins in cost competitiveness.

Even in the segment of customized products, Louis Vuitton has stronger positioning and thus higher bargaining power.

Bargaining Power of Suppliers:

Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Louis Vuitton:

Louis Vuitton outsources its product rather than manufactures it. Most of the products are outsourced from Spain, China, Italy, USA, Vietnam etc. There are few players in the high-end fashion industry which require premium quality goods like leather, wool etc., and the concentration of such suppliers is huge, which gives more bargaining power to Louis Vuitton and its rival. This industry also requires high capital investment and extensive market knowledge to compete which reduces the supplier’s ability to integrate forward. Switching cost for suppliers is also high due to few players(brands) in the luxury fashion segment and high availability of existing suppliers who supply the products, which reduces their power (i.e. Suppliers cater to only a few companies). In addition to that, these suppliers do not offer any differentiated or distinguished products. Their product supplies are very much alike. All these factors lead to more bargaining power of Louis Vuitton over its suppliers that helps the company in saving up cost for premium quality supplies.

Competitive Rivalry:

The impact of key competitors in the Louis Vuitton Porter Five Forces Analysis is as follows:

Competitive rivalry is moderately high in the high-end fashion industry, where players are few but customer loyalty is intense. Louis Vuitton's major competitors are Christian Dior, Ralph Lauren, Versace, Fendi, Hermes, Gucci, Prada etc. to name the few. The target base of these luxurious brands is elite loyal customers who expect unique/exclusive, handmade and premium quality products which differentiates these brands from commercial markets. Louis Vuitton competes with its rivals by differentiating its products and offering innovative ‘absolute quality’ products. It gives a small company feeling that has expertise in design and craftsmanship by top designers. The switching cost of customers is also high and this helps major players like LV in competing at different target segments and maintain brand loyalty. The industry growth of luxurious fashion brands is huge which makes it appealing for new entrants and an intense competitive market. Louis Vuitton is also facing competition from private customized wholesalers or retailers but at a much smaller scale.

Louis Vuitton is implementing various strategies to compete among global brands with its ‘Louis Vuitton or nothing’ marketing and innovative branding to capture the market share and stay relevant.

To conclude, the above Louis Vuitton Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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