Coach Inc. in 2012: Its Strategy in the “Accessible” Luxury Goods Market Coach was founded in 1941 when Miles Cahn, a New York City leather artisan began producing leader handbags. In 1981, Coach was able to grow at a steady rate by setting prices about 50% lower than those of more luxurious brands, adding new models, and establishing accounts with retailers such as Bloomingdale’s and Saks Fifth Avenue. After 44 years of family management, Coach was sold to diversified food and consumers goods producers, Sara Lee. The company continued to build a strong reputation for long-lasting, classic handbag. By the mid-1990s Coach’s performance began to decline as consumers developed a stronger preference for stylish French and Italian designer brands.
In order to solve the problem, in 1996, Coach hired a new creative director and began to conduct the extensive customer surveys and focus groups to ask customers about styling, comfort, and functionality preferences. By 2000, the changes to Coach’s strategy and operation allowed the brand to build a sizeable lead in the “accessible luxury” segment of the leather handbags and accessories industry and made it a solid performer in Sara Lee’s business lineup. At the last quarter of 2000, Sara Lee management elected to spin off Coach through an IPO. After that, Coach Inc.’s financial result and stock price performance proved to be stellar, as its quadrupled growth in annual sales reach $4.2 billion in 2012.
As coach was evolving more of a global growth-oriented in 2012, it was believed that the key growth initiatives was stores expansion in the U.S, Japan, Hong Kong, and mainland of China. In addition, Coach was considering expanding to the European and North America market but the threats from the existing prestigious brand are too strong. Coach was also racing to build brand loyalty in China, India, and other developing countries. These strategies are the tools to boost Coach’s profit margin and stabilize its stock which fell by nearly $20 in the first six months of 2012.
Coach Inc. – Internal Analysis
SWOT analysis: Identifying Strength and Weakness
The quality of the product is equal with the rivals, but Coach can sell it with 50% lower price. The product is distinctive, easily recognizable, extremely well made, and provided with excellent value Excellent service for its customer: Coach replace damage handbag regardless the age of the bag Weakness
The model of the product can be easily imitated
The fact that the share price of coach is declining in the beginning of 2012 showed us that this company is vulnerable toward economic condition
Competitive Advantage and Core Competencies: Resource Based View A company’s resources and capabilities represent its competitive assets and are big determinants of its competitiveness and ability to succeed in the marketplace. Resource Based-View should rely on: (Thompson, Peteraf, Gamble, & Strickland III, 2014) Tangible asset: Coach has many stores around the world, Coach is flexible in terms of sourcing, it have a good control and research and development system Intangible asset: Coach has really good reputation, Women‘s Wear Daily survey stated that Coach quality, styling, and value mix is really powerful. In 2014, Coach Inc. became one of 100 most valuable brands in the world by Forbes. (Forbes.com, 2015).
Coach Inc. also has a really good partnership in term of product manufacturing with China, Vendors in Vietnam and India, and also product development in Hong Kong, China, South Korea, also India and Vietnam. Those two kind of assets must be: (Jurevicius, 2013) Heterogeneous: Coach has different bundle of resources that make it different from the other. It have good knowledge in term of consumer preference, it have a good manufacturing and product development contract with outsourcing company Immobile: Coach’s resources and capabilities will stay in the company for quite a long time. Coach brand reputation and good relationship with outsourcing companies will create good core competencies for Coach Inc.
Value Chain Analysis
Supply Chain Management: Coach’s procurement process only selected the highest quality of leather. Operations: The operation process of Coach’s product is based on its sourcing agreement with quality offshore manufacturers, this contract help Coach in building reputation for high quality and value. Distribution: Coach’s channel distribution involved direct to consumer channels and indirect channels. Direct channels included full-price stores in the U.S, internet sales, catalog sales, and stores in both China and Japan. Indirect sales included wholesale account with department stores in the U.S and other international market. Sales and Marketing: Monthly product launches to make purchase in regular basis to increase the frequency of consumer visit.
The full-price stores’ designed to show luxury image, so it enhance the brand awareness to grow market share. In marketing, Coach communicates with customers through wide range of direct marketing activities including email, website, catalogs, and brochures. Service: Coach provides service to its customers by refurbish or replace damaged handbag regardless of the age of the bag. In peak shopping periods Coach provide additional store employees to ensure customers’ satisfaction. Company allow customers to have special request service as they are allowed to order merchandise for home delivery if particular handbag not available in the store
Product R&D, Technology, and Systems Development: Coach is doing major consumer research quarterly to define product trends, selection, and consumer desires. Human Resource Management: Coach provides its store employees with regular customer service training programs. General Administration: Coach is forming collaboration with offshore manufacturers with 40 suppliers in 15 countries. It allows Coach to maintain sizeable pricing advantage relative to other luxury hand bag brands.
Is the resource “valuable”? Coach has very valuable resources. It has many stores around the world; it has a good relationship with offshore manufacturers so Coach can keep competitive in term of price. Coach also a brand with a good reputation. Is the resource “rare”? A reputation is not something that easily obtained by a brand. Having a reputation of the world’s most valuable brand give Coach a good competitive advantage in this industry. Is the resource “imitable”? Coach is having a valuable research about its partnership with offshore manufactures, it something that can be imitated by the competitors, but to imitate something like this will take a really long time, difficult, and costly. Is the resource “organized to capture value”? Coach’s products give value to middle income woman to feel the experience of having luxury brand.
Conclusion and Recommendation
To conclude based on the RBV, VRIO, and value chain analysis, Coach Inc. has already the competitive advantage that can help it to sustain in this industry. But as Coach Inc. want to penetrate to European and North America market, I recommend it to elaborate more strategy of differentiation, because many luxury brand in Europe and North America can provide the same price as Coach did. The differentiation can be in term of value given to the customers, so Coach will not be considered as luxury brand only but also something that give impression to its customers.
The World’s Most valuable Brand. (2015). Retrieved March 8, 2015, from Forbes: http://www.forbes.com/powerful-brands/list/ Jurevicius, O. (2013, October 14). Resource Based View. Retrieved March 8, 2015, from Strategic Management Insight: http://www.strategicmanagementinsight.com/topics/resource-based-view.html Thompson, A. A., Peteraf, M. A., Gamble, J. E., & Strickland III, A. J. (2014). Crafting and Executing Strategy The Quest for Competitive Advantage Concept Cases. McGrawHill Education.