case of finance 3

Topics: Luxury good, Goods, Economics terminology Pages: 3 (723 words) Published: February 26, 2014
Emerging Markets: High Fashion Fights Recession
1. Using the five forces framework, how would you characterize the competition in the luxury goods industry? Threat of Substitutes
There is relatively no threat of substitution in the luxury goods industry. This is mainly because of the quality and price of substitutes, and the cost of switching to the consumer. The price of counterfeit goods that copy the luxury goods causes there to be a positive monetary cost in switching but there is a loss of prestige as luxury goods are characterized as having a persona, paucity, that are accompany by a performance of a quality product with unique design, extraordinary capability and innovation. There is no comparison between luxury goods and the counterfeit products. Threat of New Entrants

The luxury goods industry has a high level capital requirement, brand loyalty and recognition by consumers, the exclusive access to suppliers and distribution along with economies of scale, all make it difficult for new firms to enter the industry. Capital investment restricts entry to the industry as a large investment in marketing is needed to attract customers and to increase brand recognition. In additional suppliers and distributors have exclusive contractual agreement with manufacturers, thus creating a strain for new firms to build their supply chain. However there is an increase threat from internet based companies. Bargaining Power of Suppliers

The risk of losing quality from switching suppliers and the limited number of skills and specialization workers available give suppliers a high bargaining power; however this power is mitigated by the scaling down and cancelation of orders for the supplier of material from other industries during the Great Recession. Thus there is a moderate power for suppliers, as they are more willing to accept any order given by the luxury goods industry. Bargaining Power of Buyers

The bargaining power of buyers is high in the luxury industry. The...
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