Luxottica is the largest eyeglass company in the world which was founded by Leonardo del Vecchio in 1961 and since then, it has become of the fastest and largest growing companies in the whole of Italy. The company first began as a supplier of glass frames meant for the eyes which as based in Belluno, a region in Italy. However, by the year 1976, Luxottica as a company began manufacturing eyeglass frames for its own brand together with making contract parts. By 1971, Luxottica stopped contract production and became a full line retailer and manufacturer. Eventually, it (Luxottica) began a series of acquiring competitors in the sunglass and eyeglass industry and marketing. Luxottica, as a company, is known to produce eight house brands like for instance Arnette and REVO. It is also known for the procurement of exclusive licenses for various luxury designer lines like for example Burberry, Dolce & Gabbanna, Prada, Donna Karan among others.
Luxottica’s adaptation strategies in price, promotion and distribution of its products
Marketing strategies during Globalization for Companies, including Luxottica, plays a vital role which decides the survival of a business enterprise in global competition. In order to survive, a business must be in control of the 4 basic marketing strategies in order to reach its targeted market Luxottica must therefore control the basic elements involved in the marketing strategies which include product, price, promotion and even place in order to remain competitive and maintain a cutting edge over its major competitors. One of the most vital elements of the marketing strategies that should be adopted by Luxottica is product. According to Armstrong and Kotler (2006, p. 276) , a product is “anything which can be offered to the potential market for use, acquisition, attention or consumption and which is capable of satisfying a need or a want”. In order for Luxottica to have better product positioning, it is essential for the business enterprise to develop a product image as compared to the image of their competitors’ goods or products. Excellent promotion strategies should be adapted in marketing Luxottica’s products which should have a strong brand image which differentiates their products from those offered by their competitors (Bloodgood et. al. 1996, p. 60).
In normal business circumstances or environment, a product will normally be comprised of two elements which are either intangible product or tangible product. For instance, when customers buy the sunglasses, they will be purchasing a good or product. This is because it is tangible, real and it is a physical object which can be felt or touched. The sales assistant selling the product will on the other hand be providing an intangible service. In order to successfully satisfy their client’s needs, then Luxottica needs to make good quality products for its intended markets. They (Luxottica) should therefore make use of the relevant adaptation strategies in manufacturing and distribution of its products through creation of good images of quality products in the minds of consumers (Chetty et al. 2004, p. 74).
Given the fact that Luxottica’s worldwide strategy is mostly global and having low adaptation and a high level of standardization, there is room for the company to adapt strategies in price in order to increase its profitability ratios and have a good market position. Given the fact that sunglasses and spectacles are clearly fashion items, Luxottica should adapt strategies in prices and building of brand names which moves away from price considerations. In order to establish a clear point of difference from other competitors, it will make sense for Luxottica to adapt the utilization of store architecture and technology. This can be done through allowing subsidiaries to experiment with new adaptation strategies in promotion, price and distribution of its products or goods.
Luxottica should adapt strategies in price since given the fact that it has been a curious player in the business of optometry and was once the only manufacturer, the vertical integration in the retail business without passing any cost saving to their clients may prove disastrous to their business entity. It is therefore necessary for the company to adapt strategies in prices which eventually leads to passing of cost savings to the consumers of their products. This will ensure that the company does not loose its clients to potential competitors like for instance Specsavers who are known to offer their clients a range of offerings with aggressive pricing. Even though it is difficult for Luxottica to establish considerable barriers to entry in the optometry business, it should face up to the challenge of adapting their strategies of business towards the new competitive dynamic (Johanson et al. 1990, p. 20).
As the twenty first century dawns, business strategy as well as adaptation strategies is a global strategy not only for Luxottica but other companies as well. Even though much is made of global markets, innovation, competition, organization and promotion of products is equally global. Luxottica should therefore adapt relevant promotion strategies in order to increase the integration of its national and regional economies and markets and dominate the economy of the world as multinational firm. It should thus adapt to strategies in promotion which will enable its products to become known to new consumers and therefore increase its sales returns.
In general, the real objective of Luxottica’s adaptation strategies in business and in particular regarding the promotion of its products, prices and the distribution of its products should aim at generating sustained competitive advantage for the company. Luxottica, as a company, can use competitive advantage in increasing its market share, creating growth in sales or even generating greater profits. The lack of a competitive advantage will make Luxottica and any other given company to fail in realization of social objectives and growth to profit as the necessary outcomes.
Luxottica’s Gradual approaches in market selection
Outsourcing, globalization, development in communication standards and the virtual economy are some of the external factors that have driven most business enterprises to approach the global market in totally different ways as compared to the Traditional Stage Model (Oviatt & McDougall 1994. As for Luxottica, it used the stage approach whereby it started by selling its products in the home market and then eventually started looking for new markets like the United States of America and other parts of the world.
The internalization process, according to Vernom (1971) , normally follows the Life Cycle product’s development in which companies will introduce their new products in their home markets and then gradually go abroad during the product maturity phase. Luxottica chose the gradual approach in market selection because it was necessary to start the internationalization process from markets which were perceived to be physically near and as the increase in experience abroad arose, Luxottica acquired new knowledge which enabled it to gradually gain stronger commitments to real markets and thus approach the new markets which were characterized through greater psychical distance. This also made it possible for the company to take into account its evolution within its environment so as to be in better position to explain the process of internationalization (Cavusgil 1994, p. 5),
For any business entity to succeed in internationalization of its business, it is vital for such a business venture to have the necessary information and knowledge regarding international operations and markets. Since knowledge an experience have been considered as important factors in explaining any international activities based on stage models, it was important for Luxottica as a new company to increase its know how regarding the international market before it finally goes and expands abroad.
The stage approach
Companies, according to the Stage approach, start selling their products or goods at home markets and then they eventually look at other new markets in new countries or nations. The stage approach has been identified with two main models which include Raymond Vernon’s product Life Cycle theory (1979) and Wiedersheim & Johanson’s (1975) Uppasala Internationalization Model. According to the product Life Cycle theory, companies will normally place new products in their home markets and gradually go abroad in the maturity phase of the product. On the other hand, the Uppsala Internationalization Model asserts that an enterprise will gradually increase its involvement in international involvement and upon entering new markets; such companies are normally linked to the distance which is psychical in nature.
Advantages of the gradual internalization approach by Luxottica
The gradual internalization process or approach used by Luxottica is beneficial to it because it increases the company’s international involvement. It also makes it possible to establish a good market base at home which can be used in ascertaining how the products are purchased by local clients before it is finally presented to the international market. Any complaints regarding the product can therefore be rectified or corrected before it can be presented to the international market. This will result in cheap operating costs as opposed to global startups which will incur extra expenses in recalling faulty products which have been presented to international markets without first testing them in home markets (Johansson et al. 2006, p. 70).
The gradual process of internationalization as adopted by Luxottica was beneficial to the company in that it enabled it to first exploit the demand that was expressed by its home market before it finally ventured into other markets gradually. This ensured that the home market and others that followed suit were left satisfied with the quality products and goods offered by the company.
Disadvantages of the gradual internalization approach by Luxottica
One of the major disadvantages of the gradual internalization process as taken by Luxottica was that it was difficult for the company to achieve financial viability due to the small domestic market. As such, the company could not achieve its targeted plans and expansion strategies due to the small sales and low profits. This was further worsened by low domestic demand. The disadvantages of gradual entry into foreign markets are that it takes time before the clients become adapted to a certain product or service. This is because awareness is done from one region to another and thus before the whole world knew concerning a particular business product or service, it would have taken a considerable period of time.
Why the United States is the first foreign market to invest in heavily
The United States of America was chosen as the first foreign market to invest in heavily by Luxottica Company, because of the fact that the market in the United States consists of consumers who have an average income that is higher than that of any national market. The United States high unit of labor cost is also as a result of the production of capital intensive products or goods. The United States was the first preference of foreign markets for Luxottica to invest in heavily because it let the company to participate in the story of growth in the united States and because the United States of America is the financial capital of the world, it is known to yield better returns as opposed to other foreign markets (Crick et al. 2005, p. 60).
How Luxottica can revise its strategies in order to maintain a competitive edge in the face of financial crisis
In order to maintain a competitive advantage over its competitors, Luxottica should revise its strategies in these new circumstances by collaboration with its customers or clients. This can be best done through the use of social media tools like for instance blogs and tweets, facebook, Google chat, yahoo chat and other social forums. This will enable the company to advertise and sell its range of products to various clients located in various parts of the world. Customers should be invited to become part and parcel of the company’s planning process since they are in better position to ascertain relevant innovations that are keys to potential customers and the market in general. Customers’ opinion regarding the products of Luxottica should be taken into consideration so as to develop products which satisfy the needs or wants of the targeted markets.
Adoption of cost leadership strategy
In order to maintain competitive advantage in the face of financial economic crises, Luxottica Company should adopt the use of cost leadership strategy in its operations through winning the market share. Winning of the market share by Luxottica can be done through appealing to price sensitive or cost conscious clients. This can be best achieved by lowering the company’s product prices in the targeted market segment and at least have the lowest price as to value ratio. In order to maintain this strategy, a continuous search for continuous reductions in costs is required in all aspects of the business entity. This will therefore include control of production costs, outsourcing, minimization of other costs which includes R&D, advertising and distribution among others. An increase in asset capacity utilization is also vital. Promotional strategy aimed at making virtue from low cost product features should also be pursued by Luxottica (Andersson et al. 2004).
To successfully offer lower prices while at the same time getting high returns on investments and profitability, Luxottica Company should be capable of operating lower costs as compared to their competitors. This can be achieved in three ways, first by achieving a high asset turnover which implies that fixed costs are spread over a large quantity of units of the service or product thus leading to lower unit costs. The second method is through the achievement of indirect and direct operating costs. This can be attained through offering of high volume standardized goods or products while limiting personalization and customization of service. The use of fewer components therefore leads to lower costs of production through the use of standard components.
The use of differentiation strategy
In order to achieve competitive advantage, Luxottica Company should strive for differentiating its products in some manner so as to compete successfully. A differentiation strategy is most appropriate in an environment where the targeted client segment is not saturated, price sensitive or market sensitive. This could include unique technical expertise, intellectual property, talented personnel and innovative processes. Perceived uniqueness can be due to successful brand management even when the product’s physical features are the same as that of competitors. When applying the differentiation strategy, differentiation strategy variants like the stakeholder value model and the unlimited resources model should be well considered (Autio et al. 2000, p. 102).
Luxottica pursued an aggressive distribution strategy which was based on acquisitions of its major targets in the United States and China. Through this aggressive distribution strategy, Luxottica was capable of gaining direct control of the market outlets even though it also generated some other additional risks. In selecting a distribution or marketing channel, the first step is the determination of the type of channel that will meet both the needs of the distributor and those of the clients.
The risks associated with aggressive distribution strategies based on acquisitions
In order to avoid the risk that could arise as a result of pursuing an aggressive distribution strategy that was based on acquisitions, Luxottica could have ascertained whether they wanted short or long distribution channels. A short distribution channel is one that involves few intermediaries while a long distribution channel is one that involves many intermediaries which work in succession to ensure that the products or goods move from producers to final consumers. Given the fact that Luxottica took a long channel of distribution, there are various risks for pursuing such an aggressive distribution strategy. Luxottica, as a manufacturer will feel dissatisfied with the performance of marketing intermediaries in the promotion of their products and as a result, this will lead to mistrust (Andersson et al. 2004, p. 24).
One of the strategies that could have ensured that Luxottica gains direct control of the potential market positions while minimizing risks would have been the adoption of strategies which was based on the development of various franchising chains which could efficiently allow for a comparable level of control over the retail stores and brand recognition. This would ensure that Luxottica used a lower level of capital and allowed faster coverage of its different markets. In order to balance Luxottica’s objectives of brand control and recognition and lower risks in markets, other alternative strategies should be used. This could include a Vertical Marketing system, also known as VMS. The VMS is a structure of distribution channel in which wholesalers, producers, and retailers all act as one unified system. One of the channel members owns the others and nevertheless has contracts with them or possesses so much power to the extent that they all cooperate. A conventional channel of distribution comprises of one or more independent producers, retailers or wholesalers. A vertical marketing system provides the means through which any conflicts that can arise in the distribution channel can be resolved in a conventional channel of distribution (Bell 1995, p. 60).
International markets, despite being a good niche for marketing of various good and services, are also affected by various risk elements like for instance socio-cultural, political and economic factors. It is essential for any business entity to ascertain the entry strategy for foreign markets that suits it and is capable of satisfying. As such business entities should choose between gradual and instant internationalization processes when entering new foreign markets to ensure that they reap the necessary profits from their worthwhile investments. Businesses should at all times strive for adopting strategies which would be used in pricing, promotion and distribution of their products. The failure by companies to adopt effective marketing strategies will make it difficult for such companies to gain a competitive edge over the competitors.
The use of information and technological tools should be appreciated in the marketing, distribution and general operation of the company. This can be well achieved through the use of modern social technological tools like facebook, twitter and other methods with a view of creating awareness regarding a company’s products to an extensive market.