Introduction
Pricing strategy is an important factor directly related to a company’s success, especially in a highly competitive market environment, where price setting is a decisive factor in a customer’s willingness to purchase. Through market analysis, companies can obtain guidelines for effectively formulating their pricing strategies. By accurately identifying market trends, understanding the balance between supply and demand, and making comparisons with competitors, it is possible to derive the optimal price.
This article focuses on the topic of “how to conduct market analysis for pricing strategy” and explains specific analytical methods. We will take Louis Vuitton as an example and, based on its unique marketing strategy, unravel how it actually analyzes the market and determines its pricing strategy. Through this analysis, the objective is to learn and deepen understanding of practical ways to implement successful pricing strategies.
Define your market
Louis Vuitton’s target market is focused on women ages 18-50 with an annual income of $75,000 or more. This segment emphasizes a “premium feel” and therefore requires luxury and exclusivity. Hermes exists as a competitor and is differentiated not only by its pricing strategy, but also by their products, promotions.
Luxury Market Overview
The luxury market is a market for products and services that are generally high-priced and particularly focused on status and brand value. The luxury goods market is characterized by consumers seeking emotional value and symbolic meaning rather than simply product functionality. For luxury goods, the quality of the product itself, the design, the historical context, and the customer experience provided are important factors. Brands such as Louis Vuitton offer a synthesis of these elements, providing customers with a unique “premium sensation.”
Market Size
The size of the luxury market is growing every year worldwide, especially in emerging markets (e.g., China, India, and the Middle East). In particular, the growing number of affluent consumers in emerging markets (e.g., China, India, and the Middle East) is driving market growth, with the global luxury market size reaching approximately $327.52 billion in 2024 and projected to grow to approximately $405.80 billion by 2033. In particular, the rise of digital channels and the expansion of e-commerce are creating new demands in the market for luxury goods, and brands including Louis Vuitton are also focusing on enhancing the online customer experience.
(Cite : https://straitsresearch.com/report/luxury-goods-market)
Recent Trend
The luxury market has shown signs of recovery after a brief slump following the COVID pandemic, especially with a surge in online purchases of luxury goods. Consumers are shifting from shopping in physical stores to shopping in the digital space. This trend is particularly evident among younger consumer segments, who tend to connect with brands online and are influenced by social networking sites and influencers to make purchases. In addition, growing environmental awareness has led to sustainability initiatives having a greater impact on consumers’ purchasing decisions. Louis Vuitton is stepping up environmental measures, including the reduction of single-use plastics, and customers appreciate this socially responsible approach.
Competitors
Louis Vuitton’s main competitors include Hermes, Gucci, Shapire, and Prada. Hermès, in particular, employs a very similar marketing strategy to Louis Vuitton, with overlap in the 4Ps (product, place, and promotion) other than pricing strategy. Both brands emphasize the high quality, exclusivity, and brand value of their products, offering customers a “premium experience. Hermès is characterized by its strategy of concentrating high demand on a limited number of products, especially its “Birkin bag”. In contrast, Louis Vuitton constantly develops innovative designs and collaborations to differentiate itself from other brands.
Assess the demand
When evaluating demand for a luxury brand, it is essential to look beyond simple purchase volume and price elasticity to include emotional and cultural aspects such as brand loyalty and symbolic value. Throughout its strategy, Louis Vuitton is working to create and sustain demand by adapting to the psychology and behavior of this premium-value customer segment.
- Demand for a premium feel
Louis Vuitton’s primary customer base is women between the ages of 18 and 50 with annual incomes of $75,000 or more, who value an experience that offers a “premium sensation” more than the functionality of the product itself. This “sensation” is maintained by the brand’s consistently upheld core values – no outlets, no discounts, no second lines, no licensing, no employees other than those employed by the company – and the brand’s purity as a symbol of luxury is a key factor supporting demand. The purity of the brand as a symbol of luxury is an important factor in supporting demand. (Cite: https://www.edrawmind.com/article/louis-vuitton-segmentation-targeting-and-positioning.html) - Flexibility on price
Louis Vuitton’s main customers, women in the high-income bracket, place great importance on the “premium feel” and exclusivity of the brand, and tend to accept the high price itself as “proof of the brand value. Thus, they have a relatively high degree of flexibility with respect to price increases. In fact, while the regular model “Porte Foyle Victorine” (about $575 USD), the limited edition “Slender Wallet,” a collaboration with Yayoi Kusama, costs about $1,000 USD, about 1.8 times the price in the same category, yet the limited editions often sell out This is due to the elasticity of demand in relation to price. This is a concrete example of a structure in which the elasticity of demand in relation to price is extremely low, i.e., “it is difficult to lower the willingness to purchase even if the price is raised,” and it tells us that customers respond more strongly to brand value and rarity than to price. - Loyalty to the Brand and Uniqueness
Louis Vuitton is not just a product, but a “relationship with the brand” itself. Symbolic of this is the handmade production by craftsmen that has continued for over 160 years. Customers are not simply buying bags and wallets, but value owning the “history,” “tradition,” and “craftsmanship” of the brand. This emotional value increases loyalty to the brand and contributes to the stability of demand. Collaborations with famous designers and artists also contribute to customer engagement. Collaboration projects such as Yayoi Kusama’s bring Louis Vuitton’s artistic and innovative nature to the forefront, offering a uniqueness that is not “just luxury”. This provides an experience that consistently exceeds customer expectations and stimulates sustained demand. - Sustainability and Shared Values
Today’s consumers are also sensitive to the social responsibility of brands. Louis Vuitton is stepping up its environmental initiatives, including the reduction of single-use plastics, and these shared values are motivating purchases, especially among conscious young affluent consumers. The brand’s environmental consciousness is functioning as a new source of demand.Thus, Louis Vuitton customers are not driven by “price” alone, but respond to a composite of factors such as “sense, value, experience, and trust. Evaluating demand based on this structure is the key to deriving the optimal pricing strategy for the brand.
Analyze the supply
– Scarcity by hand and control by strategic restrictions –
Louis Vuitton’s supply strategy is distinct from other fashion brands. For more than 160 years since its founding, the company has placed “handmade by artisans” at the core of its product value, and its manufacturing processes are based on extremely high-quality standards. The manufacturing process is based on extremely high quality standards, and this has allowed the company to emphasize the perfection and artistry of each product rather than the expansion of supply through mass production.This supply chain is not merely a choice of production process, but also a strategic element to maintain and enhance the brand value. For example, Louis Vuitton has a clear “no outlet” and “no discount” policy, which prevents the brand’s scarcity from being undermined by price adjustments and inventory disposal according to the supply-demand balance. In other words, the narrowing of supply is not simply a matter of quantity, but a deliberate choice to “always remain premium.
Furthermore, Louis Vuitton’s supply strategy is also consistent in its collaborations, where it intentionally creates scarcity in the market by limiting the quantity. This functions as a supply mechanism that reinforces the experience of “status in itself to own” for customers, and as a result, increases flexibility with respect to price.
Thus, what emerges through the analysis of Louis Vuitton’s supply is that the foundation of its pricing strategy is supported by two pillars: “quality maintenance through handmade products” and “strategic supply limitation.
Determine the pricing trends
Louis Vuitton’s pricing strategy has established a unique position within the industry. The company has consistently adopted a “premium pricing strategy,” positioning product prices as a symbol of brand value rather than simply a means of cost recovery. This is reflected in the company’s thoroughgoing stance of not selling at outlets, developing a second line, or even discounting at the end of the season. This has enabled the company to establish the branding that “the high price itself is a value. This strategy becomes even clearer when compared to similar luxury brands such as Hermes. For example, Hermès also does not discount or offer outlets, maintaining the scarcity of its products and the consistency of its prices. What both brands have in common is that they are based on the idea that price is determined by the brand’s worldview and philosophy, not by market demand and supply. This makes it possible for the brand to maintain its value without lowering prices, even if market conditions are unstable.
In addition, Louis Vuitton implements constant price revisions every year, maintaining its premium image while responding to changes in the external environment, such as inflation, exchange rate fluctuations, and rising labor costs. For customers, this motivates them to “buy before the price goes up,” and is also a factor that encourages early purchasing. Thus, what can be seen by analyzing price trends is Louis Vuitton’s unique approach that “price is not the result of marketing, but the embodiment of the brand philosophy. This pricing approach, which remains true to the company’s core values while referring to competitive trends, is the cornerstone of its long-term success in the luxury market.
Summary
When we look at Louis Vuitton’s pricing strategy from the perspective of market analysis, two axes emerge behind it: consistency and differentiation. First, the company achieves a high degree of price flexibility by offering a premium customer experience, exclusivity, and other values in response to target customer demand. In supply, the company supports scarcity and reliability through handcrafting by skilled artisans and consistent quality control.
In terms of price trends, the company maintains a certain equilibrium with the competition while preserving the brand’s worldview through unique rules such as the elimination of outlets and second lines. The company’s flexibility in responding to changes in the external environment, such as inflation and exchange rates, while not undermining the brand loyalty of its customers, reveals an exquisite sense of balance. In this way, Louis Vuitton’s pricing strategy based on market analysis functions as “implementation of brand philosophy” that goes beyond mere numerical management. At the core of its pricing is a clear sense of value and thorough branding, which is what makes Louis Vuitton the top brand in the luxury market.
Please note that this report is based on the author’s findings from my MBA program and other courses, and may not necessarily correspond to the actual internal policies and operations of Louis Vuitton. However, we believe that its contents capture important perspectives in contemporary marketing, and we hope that it will provide readers with some hints for planning their own marketing strategies.
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