A Case Analysis on Emerging Markets: High Fashion Fights Recession( Week 1 Case Study Assignment, Global Business Strategies)Prepared by:Ritesh KhadkaCollege Roll No. 10Nova International CollegeSubmitted to:Nova International College(California Institue of Management and Technology)Minbhawan, KathmanduKathmandu, Nepal12th April 2019 IntroductionThe case is about how high fashion has fought in the Great Recession in 2009 and how it has recovered from it and how it has entered new emerging markets. The luxury market was merely touched by the recession but they grew rapidly in emerging markets after a recession.
The answers are in favor of high luxury items due to its customer brand loyalty. Consumers in these segments do not look for pricing and wealthy people lie in this segment so the luxury brands survived in the recession without offering much discount to the consumers and without going to the price war.1. Using the five forces framework, how would you characterize the competition in the luxury goods industry?According to Peng (2014), “The framework reinforces the important point that not all industries are equal in terms of their potential profitability.
” (p. 43) so the competition in the luxury goods industry depends upon the brand and the quality that is offered to the consumers. The recession has hit this industry according to their goods that are offered. The intensity of rivalry among competitors is very high since the luxury good industry falls under loyal and brand seeking customers. The luxury industry was ruled by mainly three big names LVMH, Gucci Group, and Bur-berry and another number of specialized firms.
The targeted groups of this industry is wealthy people who can spend well on the luxurious items so if the consumers are not satisfied with the qualities, designs, and uniqueness, there is less possibility to switch to other brands due to high loyalty to the brand so there is an emotional attachment for the producer to exit.Threats of potential entry are very low since this section includes loyal customers and there exist top brands in the market already. People are less interested to switch to the products. There is tough around for new entrants in this field. A huge amount of investment is needed in order to displace the existing market and also to gain control over the suppliers. Bargaining power of the supplier depends upon the quality of the products they offer and the number of rivals in the market. Power will be high if the materials are of high qualities, and special as in case of LVMH. Power will be low for low-grade materials and a high number of suppliers.Bargaining power of buyers is pretty low in this section due to high brand loyalty. The buyers are emotionally attached to the brands and continue to stick to one brand. The brand is referred to as prestige in the luxury goods segments since the products are unique and customized according to the buyers need. The threat of substitute products is low in this section due to loyalty, strong brand, and high quality though there is a possibility due to other choices of brands.2. How much bargaining power did consumers as buyers have during the Great Recession?The bargaining power of consumers during the Great Recession was dependent on the products they were using. The middle and the user of the low-cost product had upper hand in choosing the products of their choices while the luxurious brand was not caught by the recession since the people falling under these categories were wealthy and were not hit by the recession. The products which were global got a number of buyers as we can see that Chinese people consumption has increased between 20% and 30%, this shows the consumption and bargaining power of people have increased. The silent cut down in the price and discount offers from a few luxury brands have added up in the power too. Though the bargaining power of high brand quality has remained the same since there were no offerings as we can see from the example that LVMH revenue was increased gradually.3. Why was discounting looked down upon by industry peers, all of which were differentiated or focus competitors?There was not much price cut down or discount offerings in luxury good items in open. Though they had silently gone for the offerings as we can see at Tiffany jewelers informed their customers through salespeople that there was reduction in diamond ring prices, Gucci and Richemont kept their excess products at discounted price online, LVMH never gave any discount to their consumers still increased their revenues from $24 billion in 2008 to $29 billion in 2011. The price war in luxury items will be harmful to the industry since consumers are offered differentiated, high quality, and the most its name brand. The discounting and price war exists in low luxury items which is always harmful to all the competitors.4. What would be the likely challenges in emerging markets for luxury goods firms?The challenges in emerging markets for luxury goods is the cost of transportation and the tariff rates since it will increase the cost of the goods and people might not be willing to buy high priced products. There will be a need for a strong supply chain and the distribution channel. Brand awareness and the culture of consumption in the emerging market are to be identified. A large number of competitor products will be into the same market looking for the share so the competition will be high. The biases of international production by the local government with domestic products by enforcing high taxes in foreign products. The rules and regulations might be different in different states of the same country. ConclusionIn conclusion, we can say that luxury fashion brands grew up more and penetrated emerging markets like China after the recession. Their dilemma to decrease the price in the recession was done silently as of example like Tiffany jewelers notifying customers through salespeople, and Gucci and Richemont kept the excessive items on discounted price through online without getting involved in the price war. The consumers to the high brand fashion were loyal and wealthy enough not to get affected by the recession. The high fashion brand had gone through different challenges like cost involved in transportation, taxes, culture, brand awareness, the need of strong supply and distribution chain, and many more to increase the shares in the emerging markets. While making up to 2011, a brand like LHMH increased its revenue to fight back from the recession.ReferencesPeng, Mike W. (2013). Global Strategy. Managing Industry Competition. Retrieved from Strategy High Fashion Fights Recession. (2016, May 15). Retrieved from Ebin. TBS 984 IBS ” Emerging Markets: High Fashion Fights Recession. Retrieved from Retrieved from
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