Assignment Questions Case #6 COACH Inc. 1. What are the defining characteristics of the luxury goods industry in 2012? What is the industry all about today? Today there are key defining characteristics of luxury goods industry such as pricing, quality, style, and brand reputation. The pricing of goods is based on economics, demand increases as income increases. Pricing is also determined by exclusivity, quantity availability, quality and location of the product. The quality of a product can help determine the price, but not always.
Luxury goods have higher quality, which results in higher price from the workmanship, material, and labor to product good. Many luxury goods have a particular style that is unique to each brand. Sometimes other brands or companies will try to reproduce a similar item, but cannot compete with the original style and exact fit or design. This is why the reproduced products might not sell as well as the original one. Each brand has a reputation to an individual. It can come from experience, advertising, word of mouth or location.
These factors will form your personal preference to whether you will purchase goods from that particular brand. It also creates a sense of status and how others will perceive you if you have certain luxury goods. For example, you seem to be wealthy if you own Louis Vuitton or Chanel handbag over an Anne Klein handbag. 2. What is competition like in the luxury goods industry in 2012? What competitive forces seem to have the greatest effect on industry attractiveness? What are the competitive weapons that rivals are using to try to outmaneuver one another in the marketplace?
Is the pace of rivalry quickening and becoming more intense? Why or why not? The competition in the luxury goods industry in 2012 is strong. The demand for luxury goods is increasing, especially in emerging markets such as China and India. Companies such as Coach, Michael Kors, and Dooney & Burke are competing with higher end luxury goods such as Louis Vuitton, Chanel, Gucci, Fendi, Tory Burch, etc. They are in competition because they are a lower price point but many women would prefer to have the higher end products to show their status. Another reason why they compete is because many brands now have more beyond handbags.
When consumers like products from brands, they tend to become loyal consumers and it is hard to appeal and gain their loyalty if you are another brand. The competitive force that has the greatest effect on industry attractiveness is brand exposure. New entrants would have to compete against so many established brands. Many recognizable brands like Dolce & Gabbana, Chanel, Marc Jacobs, Fendi and Gucci have been around for many years, some even decades! It would be very difficult to gain exposure in order to attract customers. Not only is it difficult to gain exposure, but you have to gain customers too.
High-end customers know what brands they like and have become loyal to them over the years. These loyal customers have to be persuaded by marketing tactics and buzz marketing. New entrants have to build their brand and status all the way from the beginning, which most brands have already. Some weapons used in the luxury goods industry to outmaneuver one another in the market place are customer service, celebrity sponsorship and setting trends. Customer service is a huge weapon that many companies overlook. Since there is so much competition, consumers are looking for an experience.
This experience comes from the store design, product, but most importantly employees at the store. They expect to be greeted and taken care of as soon as they walk into the store. If the experience is successful, they will return to encounter the same experience. This is how customers become loyal to a brand. Another tactic is celebrity sponsorship. Consumers believe they can be like a celebrity if they have the same goods as them. Some sponsorships are Demi Moore for Louis Vuitton, Natalie Portman for Chanel, Emma Watson for Burberry and Cameron Diaz for Tag Heuer.
In the luxury goods industry, brands always want to be trendsetters. The brand has to be “up to date” with the latest trends and always setting trends for the next season. This is a factor to why consumers are loyal to the brand. No consumer wants to have last year’s merchandise, so they are loyal to brands that are setting the trends. The pace of rivalry is becoming more intense because of the economy. Since the economy is slowly recovering, people do not have as much disposable income. Instead of visiting their favorite store once every two months, they might visit every four months.
Instead of purchasing every seven months, they might purchase every ten months. Customers will continue using a handbag for a few more months than they normally would. Trends are also lasting longer now instead of constantly changing every season. Since the demand has slowed down over the past few years, prices have increased. 3. How is the market for luxury handbags and leather accessories changing over the last several years? What are the underlying drivers of change and how might those driving forces change the industry? The market for luxury handbags and leather accessories are constantly changing.
Generations are becoming older so they become a new market. Different generations spend their money on different industries depending on which market they belong to. Also the economy is not doing well so people do not spend money on luxury but on the more practical. Factory stores and department stores have become popular since they offer a discount or products for lower price margins. There will always be a market for luxury handbags and leather accessories because people like to display their status and material items. But the frequency of their purchase is not as often as it was.
Since technology has advanced within the last ten years, it has made bargain shopping easier for the consumer. They can find a product they like in the store and then search on the Internet for the cheapest price. Smart phones are on the rise so people do not even need to go home and research their product, but can do it right in the store. Another change in the industry is that people wait until the item is on sale. They would rather wait until the season is over and purchase the product on sale than to purchase now for full price. 4.
What key factors determine the success of makers of fine ladies handbags and leather accessories? Key factors that determine the success of makers of fine ladies handbags and leather accessories are high quality products, accessibility, availability and innovation. Today consumers work hard for their money and they expect to purchase high quality products. Especially when consumers purchase luxury goods, it needs to be good quality. Coach is able to use high quality materials and lower their costs to provide consumers with high quality products for a reasonable price.
Since today’s society is influenced by technology, there needs to be accessibility to see products. It is important to have a user friendly website to view products and purchase, as well as find close locations. Many consumers do not have time to shop, so shopping online produces a large amount of sales. When consumers do make that trip to the mall, they expect stores to have a large assortment and a good stock of product. It is so easy to lose a sale when a store is out of merchandise. If that is the case, they have to make sure they satisfy the consumer to not lose the sale.
Lastly, innovation is very important. Brands need to keep making new products to keep their loyal consumers coming back. They also should adjust any issues that previous products have had. If products are not innovated, consumers will not return frequent. 5. What is Coach’s strategy to compete in the ladies handbag and leather accessories industry? Has the company’s competitive strategy yielded a sustainable competitive advantage? If so, has that advantage translated into superior financial and market performance? Coach seeks to be the leading brand in accessories of modern American styling.
They strive to provide quality, authenticity, value, distinctive American style, customer satisfaction, integrity, innovation and collaboration. Coach strategy has yielded a SCA because they are still a very popular brand in ladies handbags and leather accessories. They may not be the most popular, but they still hold a good reputation and are a top choice for women and men in this industry. In June 2012 their average growth rate was at 11. 97% and in June 2011 they were at 8. 54%. 6. What are the resource strengths and weaknesses of Coach Inc.? What competencies and capabilities does it have that its chief rivals don’t have?
What new market opportunities does Coach have? What threats do you see to the company’s future wellbeing? The strengths of Coach are high quality, keeping up with trends, high customer service, new handbag styles/colors frequently, value pricing, and all retail distribution (full price, factory and internet stores). The weaknesses are factory stores drive more sales than full price stores, increase of factory stores, other accessories accounting for small revenue (men’s, outerwear, luggage), Italian and French handbags are favored by women, and less disposable income of consumers.
Since 2009, Coach’s sales have increased, but constantly fluctuating. Coach’s opportunities are they are luxury goods in emerging markets and target wealth in global markets. The emerging markets are China and India and their global markets are Asia and Middle East. Coach has many threats because many luxury good brands are more popular. Coach has to strive to drive sales when other brands capture sales easier. Coach does not offer cheaper lines distributed at a cheaper price point. For example Missoni released a line for Target in the summer of 2012.
The line was priced from $20-$90 for accessories and clothing. Counterfeiting of luxury products is popular and very difficult to stop. Coach is one of the most commonly seen counterfeited brands, along with Louis Vuitton, Prada, Gucci, etc. 7. What recommendations would you make to Lew Frankfort to improve the company’s competitive position in the industry and its financial and market performance in 2012 and beyond? There are a few recommendations I would like to Lew Frankfort to improve the company’s competitive position in the industry.
First, I would analyze their competitors and see what they are doing. I would notice what products they have, when they release new bags and what they are doing to market their products. You want to know what other successful brands are doing to drive sales. I would also evaluate my products. I want to know what is selling and what is not selling. This is important because you need to know what your customer want, need, like, dislike and what he/she hopes to see in the future. The brand needs to keep up on trends and be a trendsetter. Financially, I would evaluate all my stores.
Whichever stores are not doing well, I would evaluate and possibly close. I would also want to know what the ratio of factory to full price stores is, and how close they are to one another. This is important because the factory stores outsell the full price stores. I think a reason this happens because the factory store gets specific merchandise that looks very similar to the full price merchandise. If the factory store and full price store had completely different (but sticking to Coach’s style) merchandise, there would be more of a desire to shop at the full priced store than factory.
The main thing I would focus on is creating a brand image and becoming an industry leader. From experience, I believe that Coach is not fully up to date on the latest trends. I am familiar with this brand and it does not appeal to my age group. It might be the area I am from, but Coach is not a popular handbag brand anymore. They need to reinvent Coach’s style in a way that can make it more modern way. A lot of their accessories are similar to previous styles they release. They need to figure out why they are not as appealing as other brands such as Louis Vuitton, Longchamp, Tory Burch, and Michael Kors.