Strategy and value creation of the European Luxury Firms
François THOMAS N.CROFT
In a first time, it matters to define the concept of luxury, which isn’t a clear concept. It seems that luxury is something that people feel differently. There is no official definition of luxury according to the fact one or another perceives it differently, in terms of quality, design, durability or uniqueness.
Historically, these kinds of goods were limited to an elite class. The social perception of luxury goods is linked to the status in society, which is based on the purchasing power. Indeed the price of luxury goods is not determined by its functional value but by the value perceived. Unlike to necessity goods, the demand of luxury goods increases more than proportionally as income rises.
The global demand for luxury goods has been constantly increasing for the past few years; creating a reputation of resisting to economic recession by the sector. However those past few years show this industry is subjected to a cyclical dynamic, linked to economic variations. So there is a relationship between economic trends and luxury goods industry. The reasons of this slowdown are in a part linked to a recent strategy in the sector. * Indeed, the will to canvas new customers from the middle class made this sector more vulnerable to economics variations. This wasn’t true in the past, when only elite purchased luxury goods. * The integration of new advanced technologies and high-qualified workforces forced the sector to maintain high costs production The maturity of the luxury segment contributed as well to slow the growth of the sector. In order to compensate traditional mature markets in Europe, USA, and Japan, the industry tends to develop its activity in emerging markets, like India and China.
We also know there is a dual positioning today about customers: elite customers and mass consumption are the two elements on which companies will work with. The efficiency of those two targets will be determining on a company success.
Remembering the luxury goods market is highly competitive, it matters to remind the key components allowing performance: high quality products, pricing positioning, design coherence, distribution network and price promotion.
The goal is to combine those key factors with an efficient strategy. These strategies generally are: * Consolidation: concerns mergers and acquisitions. The act of combining structures each other. It consists to absorb smaller companies in order to consolidate financial development. It allows keeping mature market by reducing competition and increasing brand value. * Globalization: concerns emerging markets. The growth of new areas, the development of tourism and web marketing allow to reach new markets where the demand is increasing. * Diversification: consists to increase profitability with greater sales volume gained from new products and markets. Trough those elements, we’ll try to understand better the luxury goods industry with a diagnostic and an analysis of the macro environment. Then we’ll figure out which criteria’s are promoted by the companies given in example and determine what their respective strategies are. Finally we’ll suggest a strategy for one of these groups in order to be a worth target for an investor. * I/ Macro environment analysis and actors description
In this part, we will figure out a Pestel analysis to gain some info on market trends. Then a Porter analysis will help to measure the attractiveness of the luxury industry.
Secondly, we will use strategy segment on each company to understand better what they have in common and values they share.
1) Macro environment analysis
* Pestel analysis will help to understand through criteria trends in the market.
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