Louis Vuitton and the Travelling Chinese Consumer

Louis Vuitton and the Travelling Chinese Consumer

Based on an online article by Fung, J. et al (2012) entitled "Louis Vuitton and the Travelling Chinese Consumer", even in its early years, LV’s handbags and luggage have established a symbol of status globally.

 At the initial stage, Louis recognized the people’s demand for flat trunks so that even when the bags are being handled roughly, it will not be damaged easily. Besides that, he only caters to the rich who appreciates his detailed craftsmanship and quality; therefore this free publicity of the rich using his products then gave the public the impression that only the rich uses products from LV so it becomes a status symbol. Subsequently, advertising plays a huge role in the success of the brand to educate the customers to recognize products whether it is a necessity, luxury or an inferior. Two reasons a brand does advertising is firstly to shift the demand curve to the right and secondly, to make the price less elastic. The geographic area that I will be looking into is China.

Firstly, advertising shift the demand curve to the right. This means that people will demand more compared before at a given price. This is because effective advertising such as getting popular artists to wear their brand will help gain attention from the people and this will lead people to have desire to own their own LV products. For example in China, seeing the fact that 10% of the global purchasing power of luxury items comes from China, Louis Vuitton took the initiative to fortify the relationship with the Chinese consumer by having the first ever Asian male, Godfrey Gao to showcase their products. In addition, if the publicity really did its work by increasing people’s desire to own LV products, people will be prepared to pay at a higher price for it. As a result, there will be more people willing to supply LV products to buyers. This is because according to the law of supply, “the higher the price of good, the greater is the quantity supplied” therefore as we can see now, there are many shops selling LV products and also branches opened in almost every mall.

Secondly, advertising also focuses on making the price less elastic. The reason for this is so that every rise in the price will not have any significant fall in the sales of the product. The only way they could do this is by boosting brand loyalty from customers that enjoy luxury products by believing that the competitors’ brands are inferior to theirs.

Hence sophisticated advertisements and campaigns play a major role in further express to customers that there are no close substitutes to the brand. Besides that, by making the brand’s product distinct from the rest will further reassure the customers that no other product can compete with that special brand. For example in 1896, LV introduced its first signature monogram canvas that prevented counterfeits as it was hard to imitate the layout of the canvas because every end of the canvas at the bag will have the same symbol.

Besides that, it is also seen that LV is very particular with their customers in China by finding a comfortable way for their customers to convey their wants by employing Chinese staffs, Chinese speaking staffs and also highly proficient staffs. In addition, LV also set up educational and interactive websites to expand their market to the youngsters. The reason for this is to influence them in their early years to purchase LV products. Subsequently, LV came out with a lower-priced “accessible luxury” items to encourage sales from the young and aspiring buyers who are not financially stable. Moreover, LV was also featured in the National Museum of China entitled “Louis Vuitton Voyages”. Therefore with all these, LV manage to create a brand which is less elastic to price due to their product differentiation, competitive advantage and their value-added services and effort.

Similarly, there are also other factors that determine the demand of a luxury product aside from advertising. Firstly is the income of the people or also known as the income elasticity of demand. Income elasticity of demand measures the sensitivity of the demand for a good or service to a change in income when other things remain the same. This can be calculated by taking the percentage change in quantity demanded over percentage change in income.

                             Income elasticity of demand: Percentage change in quantity demanded

                                                                                          Percentage change in income

There are three ranges of the income elasticity of demand which is greater than one that means the good is a normal good, positive and less than one and negative which means it is an inferior good. When the elasticity of the demand is greater than one, the income is said to be elastic. This is because the percentage change in quantity demanded is higher than the percentage change in income. Hence, there are a lot of substitutes in the market due to the customer’s responsiveness to their income as people are more likely to shift their demand to other products that are more inferior. In this case, LV products are known to be a form of luxury product because the demand for it is responsive to income. According to the article, the demand of luxury items in China has increased due to the increase in their wealth and disposable income hence they could purchase more luxury items.

               Besides that, due to China’s high luxury taxes and taste, they tend to shop abroad because of the cheaper product, better selection and greater “show-off” value. In one case, LV France had used up their three months of inventory in just one month so they were forced to limit to two leather goods per customer daily. This in turn will cause a surplus in the luxury products back in China and might prompt the government to reduce the tax on luxury products since they need to increase their domestic consumption for the better of their country. Conversely, China’s government is planning to enforce the retroactive taxes on luxury purchases made outside China to bring back their country’s purchasing power.

Penulis : angelina_liaw ~ Sebuah blog yang menyediakan berbagai macam informasi

Artikel Louis Vuitton and the Travelling Chinese Consumer ini dipublish oleh angelina_liaw pada hari Saturday, October 27, 2012. Semoga artikel ini dapat bermanfaat.Terimakasih atas kunjungan Anda silahkan tinggalkan komentar.sudah ada 8 komentar: di postingan Louis Vuitton and the Travelling Chinese Consumer