Luxury Good and Gucci Essay Example for Free

Luxury Good and Gucci EssayGuccis boilers suit strategy was to vertically integrate to strengthen its overall brand image. After vertically integrating they acquired other luxury retail merchants to continue to grow horizontally and to increase economies of scope. The economics of the luxury goods sedulousness changed forcing Gucci to modify its strategy. Consumers necessary shifted from classic style buyers to style conscious buyers. Gucci not only had to change due to the economics of the industry but they also had several problems with their existing structure. and so Gucci made the following moves to reposition it to compete in the sunrise(prenominal) economics of the luxury goods industry. Gucci The partnership between DeSole and Ford addresses the companys inability to hand streamlined decision making and lucid branding through and throughout the company. By partnering product design and strategy, Gucci can now make product and business decisions that go to bed a c onsistent message externally. All products and communications will support the brand image of a luxury goods retailer that Gucci wants to deliver to the marketplace.The cost parapraxis and targeted layoffs address Guccis poor cost structure. While profit margins were healthy, the extravagant sp kiboshing by the former CEO was reducing profitability. The company had excess head count in some atomic number 18as and less in others. The layoffs improved Guccis cost structure and streamline the organization. Secondly, Gucci lacked the management talent to run a high end luxury company. By laying off underperforming managers and hiring experienced business executives, Gucci significantly improved the quality of its management team.The cash investment by PPR protects Gucci from hostile takeovers by competitors. The improvement in Guccis capital structure enables Gucci to move from an acquisition target to a potential acquirer of substitutes and new entrants. This is critical because in t he appearance industry, new brands are always emerging in the market. The $3 billion dollar cash investment enables Gucci to protect its core market break. Additionally, the acquisition of YSL through the merger diversifies Guccis product portfolio and give rises high barriers to entry.Buyers Due to changing consumer demands, Gucci started to focus on trend in particular the glamorous edge. Since switching cost for consumers are low and consumers are now demanding new fashions every age focusing on seasonal trends competitively positioned Gucci against its rivals and impeded consumers from finding substitutes. Gucci changed its target consumer from an older more than conservative buyer to a modern, upstart, fashion conscious one.Since all of Guccis competitors had the same target (30-50 year affluent women) going after a modern, youthful spirited consumer allows Gucci to focus on a different segment of the luxury market, capturing a different slice of the pie. To create fir mty, give consumers options, and to prevent consumers from switching and purchase a substitute product Gucci decided to revolutionize their product assortments to correspond with the seasonal trends. In addition they increased the quality of their products comparable to Hermes and offered these products at a value to suitable the consumers needs.Furthermore, Gucci tailored their product assortment in each DOS to local customers to attract more consumers in the local markets. To better forecast product demand for seasonal goods and to keep inventory costs down Gucci added customer intelligence to the decision making process to better soul consumers buying behavior. In order to obtain higher profit margins and offer a comprehensive line of products it was necessary for Gucci to diversify its portfolio. Hence Gucci introduced items from scarves to fur coats.To die hard focused and maintain its luxury status, Gucci did not introduce diffusion product lines. Gucci had initially set i ts prices too high hence reducing their retail prices by 30% was necessary to attract and maintain customer loyalty. In order to generate demand for the product Gucci doubled their advertising and turned tomcat Ford into a celebrity hoping to attract media and attention from around the world. To restore Guccis image as a high end luxury goods retailer they renovated all of their stores to support this new image.In addition all internal and external communications had the same look and feel to convey a consistent brand identity. Furthermore, they reduced distribution through retail stores that didnt support the new brand image regardless of sales. Gucci launched an official web site to create awareness and exhibit new product lines and to position themselves against their competitors. Suppliers Suppliers are a key driver of profitabilitya key competitive force.Suppliers are trusty for delivering a premium product that satisfies the companys standards in quality and that reflects To m Fords creative vision. Without fast turnover to meet fashion forward trend demands and a quality product, the repositioning of the Gucci brand could not lay down taken place. To fulfill this vision Gucci created an incentive program to keep suppliers loyal to ensure a quality product was manufactured, on time delivery, and it would prevent the suppliers from forging relationships with Guccis competitors.In addition, Gucci made suppliers more efficient through engineering and logistics investments, provided training for suppliers and built an EDI network allowing Gucci to efficiently communicate with partner suppliers through the production process. As more fashion products will be produced every season along with the classic products, delivery and meeting demand could become an issue if production processes are not efficient. Investing in suppliers ensures that supplier threat, which is high, is controlled and suppliers have incentives to confine with Gucci.Supplier threat is hi gh because of there is an absence of substitutes suppliers. Switching costs are high for Gucci other suppliers may be producing for their rivals. Other suppliers may not deliver the quality and craftsmanship Gucci is expecting. In addition, other suppliers do not have experience in producing Gucci products (current suppliers have been with Gucci for long time). Hence they will have a longer learning curve slowing down the production process.There are few suppliers in specific regions Gucci suppliers had production capacity to meet Guccis growth (20-30% a year). However, finding new suppliers would be going into Pradas territory. With more growth, suppliers gained bargaining power with sub-suppliers and with Gucci. Initially, Gucci had power because suppliers worried that Gucci would go foreign for suppliers. Complementors Complementors are a not a high threat to Gucci because there only a few of them, media and advertising. Competition There are many firms in this industry because profit margins are high.However with the number and volume of MA activity on the rise, consolidation is imminent with a few big players unexpended in the market. Consolidation among competition has given competitors lower cost structure resulting in a competitive advantage such as ad buying discounts and supplier negotiating power. The competitors have a diversified product portfolio to target multiple segments of the market. They dominate in particular segments, for example Hermes and leather bags. Since there is slow industry growth precipitating fights for market share is certain to occur.This may result in a high threat from competitors such as LVMH and Prada. Threat of debut The threat of entry is low because brand identity and product differentiation has been well established in this industry. In addition, access to distribution channels is circumscribed and the new entrant would be competing with already established channels of distribution for Gucci and others firms. Guc ci and other competitors have substantial resources to fight back because they of their monetary resources and could obstruct the new entrant or buy them out.