PRICING STRATEGY - ARNAULT & ASSOCIS "A LUXURY GOODS EMPIRE" Through his Arnault & Associes firm, Bernard Arnault (a Frenchman in his early forties) controls some of the world's most prestigious brands such as Christian Dior, Celine (French ready-to-wear and leather luxury goods brand), and Givenchy (fashion & perfume house, Louis Vuitton (leather goods). Dom Perignon and Moet (winemaker), Johnnie Walker and Dewars (whisky producer, produced by grain), Hennessy and Hine - Cognac (brandy producer, produced by grapes), Domaine Chandron (California wine). In total, Arnault & Associes oversees more than a dozens of businesses with annual sales of over $12 billion. According to observers, Bernard Arnault "reigns over the Parisian luxury industry as no one before". Goods produced by his companies include $2200 luggage piece from Louis Vuitton, $1200 sports dresses from Celine, and $2700 women's suit from Givenchy. Arnault & Associes sells more Cognac than any other firm and is among the major producers of costly French perfumes such as Christian Dior & Givenchy. Yet, although Arnault & Associes sales and profits have increased dramatically in mid 1980s but there are signs that this may not continue. For Example, in 1990, sales of Vuitton declined slightly due to a weak Japanese yen (this was especially critical because Japanese customers account for about 70% of Vuitton's sales) as well as weak US dollar. Of greater long-term importance, some experts feel Vuitton has lost much of his upscale image due to his aggressive merchandising in the 1980s. In the united states, where a substantial amount of Arnault & Associes sales are made, changing attitude towards alcoholic products will have a continuing adverse effects on the sales of those products. Even in France, sales of Cognac dropped by 36% from 2005 to 2015. To sustain its sales growth, Arnault & Associes is developing new products and opening new company owned stores. For example, Celine expanding its products mix to include women's sportswear and men's suits. Vuitton is adding to its handbag and luggage lines and is considering additional lines of leather goods in its 150 company owned stores. Dior is opening two stores for its new ready-to-wear collections in fashionable US locations like New York's 5th avenue and Beverly Hills. Bernard Arnault hopes these flagship stores will attract attention and thereby gain department store interest in carrying these new line. He has also invested in a new upscale restaurant and upgraded some clothing departments in his Bon Marche department store in Paris. He wants to use the store to "test new fashion concepts, to see how the market reacts? Arnault is increasingly using the word "synergy" in his discussions with industry analysts and the trade press. One aspect of synergy involves better coordination among his separate business units and organizations. As a first step, Arnault has developed one-a-month intercompany meeting forums. The forum evaluates common opportunities and problems. One opportunity being explored is the development of luxury shopping centers that would situate Arnault & Associes's Dior, Celine, Lacroix (clothing), Givenchy, Vuitton, Loewe (leather goods) shops adjacent to one another. This arrangement would enable the firm to develop joint promotions, control retail atmosphere in adjacent stores, appeal to a common target market and share data- processing and other services. QUESTIONS 1. Describe how Arnault & Associes can use the multistage approach to pricing in developing a broad price policy? 2. How can Celine use a Cost based price policy, Demand based price policy, and Competition based price policy in setting prices for a new clothing line? 3. Explain the role of the "price quality association" for a firm that produces high priced perfumes such as Christian Dior than firms produces inexpensive perfumes. 4. Discuss hoe Louis Vuitton could use each of these price strategies i.e. one price policy. Leader pricing, price lining, and price bundling.