Marketing by the Numbers: Louis Vuitton Price Increase One way to maintain exclusivity for a brand is to raise its price. That's what luxury fashion and leather goods maker Louis Vuitton did. The company did not want the brand to become overexposed and too common, so it raised prices 10 percent and is slowing its expansion. The Louis Vuitton brand is the largest contributor to the company's $13.3 billion revenue from its fashion and leather division, accounting for $8 billion of those sales. It might seem counterintuitive to want to encourage fewer customers to purchase a company's products, but when price increases, so does the product's contribution margin, making each sale more profitable. Thus, sales can drop and the company can still maintain the same profitability as before the price hike. Example: The new margin is prices go up 10%. a. Set the price equal to $1. At a 50% margin, their costs are .50 per unit. b. If price goes up by 20%, then the new sales/revenue will be $1.20 and the profit will be $.70. c. Margin = profit/sale price = $.70/$1.20 = 58.333% The percentage of sales loss that still makes the same profit before price increase. a. Let us say total revenue last year was $10,000,000,000. b. Profit last year was $5,000,000,000. c. To get the same profit with a margin of 58.333% sales would be $5,000,000,000/.58333 which is equal to $8,751,428,571.43 d Sales can drop 1.00 (8,751,428,571.43/10,000,000,000) = 1 - .8751 = .125 = 12.5% and we still get the same amount of profits 1. If the company's original contribution margin was 40 percent, calculate the new contribution margin if price is increased 10 percent. 2. Determine by how much sales can drop and still let the company maintain the total contribution it had when the contribution margin was 40 percent. 3. If the company's original contribution margin was 60 percent, calculate the new contribution margin if price is raised 20 percent. 4. For #3, if the total revenues are $18,000,000,000, determine how much sales can drop and still let the company maintain the total contribution it had when the contribution margin was 60 percent