Business Opportunity Analysis
[Gucci Group N.V.(HBS 701037)]
Seoeui Hong 1316692
1) Map the competitive positions of the different players in the luxury good business along the “cost leadership” (Y-axis) and “product differentiation” (X-axis) strategy map. Where is Gucci’s position on this map in 1990, 1994, and 2000 respectively?
a. The luxury goods arena is a highly competitive industry in which companies must position themselves with both objective and subjective differentiating factors. The competition in this industry lies in the perceived extent of luxury status the purchaser will receive upon buying said luxury item. There are several players in the luxury goods arena that have all become household names across the world through their strategic positioning. The competitive position mapping table below is based on two areas for assessing competitive advantage.
Its recent remaking effort and its outsourced manufacturing model has helped to reduce cost and thereby price by 30%. It also minimizes fixed investment and helps to maintain its return on invested capital at 36%. The in-house manufacturing model adopted by Hermes, LVMH and many others have shown to increase the fixed investment and thereby resulting in lower return on invested capital and thereby reducing cost advantage and increasing the price. Differentiate
It focuses heavily on the unique customer service experience to maintain its brand image. It also has different range of products including jewelry, watches, leather, apparels etc. The acquisition of YSL resulted in a new branding the ‘Saint Laurent woman’ and rebranding exercise resulted in ‘Gucci woman’. Two brands that suit different situations. Many competitors focus heavily on customer services experience as part of maintain their luxury branding efforts. However, LVMH focused more on leathers in the luxury products and other like liquor. Not many brands have a spread of luxury products and they mainly focus only on high margin leather products or watches only.
Gucci’s competitive advantage and strategic positioning can be analyzed using SWOT analysis, which identifies a company’s strengths, weaknesses, opportunities, and threats. Throughout its life Gucci has developed many sustainable strengths, such as strong worldwide brand recognition, ownership of many different highly regarded luxury brands, and a strong value chain. While all of the heavy-hitters in the luxury goods arena focus on their value chain with regard to quality manufacturing and a large investment, Gucci has sustained much competitive advantage through control of their distribution channels. While many brands sell their products through a wide variety of locations, Gucci primarily sells its products through directly operated stores, which allows them to control their brand image, pricing, and the overall shopping experience of Gucci products. Moreover, while most luxury brands are sold solely through physical retail stores, Gucci has positioned itself well for the young and “hip” demographic by selling their products through their own website. On the contrary, two of Gucci’s weaknesses concerns instability resulting from owning multiple different brands, not all of which will always be profitable, and the large investment they must make in marketing and advertising in order to sustain its brand image. Concerning its external opportunities, Gucci could potentially increase profitability by expanding globally into new markets with growing economies. In addition, they could also market new product lines to the “hip” youth who may also be willing to pay for the image associated with the brand. Lastly, external threats that Gucci may face include the extreme competition between the heavy-hitters in the industry and the volatility of the global economy. Because Gucci’s products are so expensive, a...
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