1) 1. What are the defining characteristics of the luxury goods industry? What is the industry like?
A luxury brand may have profound influence on an overall product strategy since its position may determine how the company is going to make its next step. A luxury brand like Coach epitomizes elegance and combines classic beauty with modern design. According to John E. Gamble, not only has Coach become one of the most respected and known brand names in the ladies’ handbags and leather accessories luxury brand industry, it is also one of the most best-selling luxury brand companies in the world, with net sales reaching 2.1 billion in 2006 (Gamble).
When a company like Coach decides to set up a product strategy for the next season, the manager will need to take the brand’s established style into account, since their incoming products must fit with the existing brand. When a manager, such as Lew Frankfort, chairman and CEO of Coach, Inc., aims to build a luxury brand like Coach, he invests millions of dollars in setting up a series of business strategies, including advertising on television, organizing fashion shows, and gaining the approval of fashion designers.
These actions are decided based on how a luxury brand is built; essentially, the brand will guide the future steps of the company to a certain degree. Coach, Inc. is different from other more expensive luxury brands, such as Hermes, Prada, Fendi, and Louis Vuitton in the sense that Coach focuses more on middle-income consumers who want to purchase their hand bags from a price range of $200 to $500. Coach is the alternative to these competing companies, matching their key luxury products on quality and styling, while beating them on price by 50% or more (Gamble).
2) 2. What is competition like in the luxury goods industry? What competitive forces seem to have the greatest effect on industry attractiveness?
The Luxury branding decision will influence an organization’s pricing decisions because its position is related to the product’s price. Take Coca Cola, for example. It is the most valuable brand in the world. The brand makers intend to compel everyone to drink Coca and provide a feeling of happiness. Thus, the price of the product will be cheap, since the brand is aimed at inducing the public’s joy. If the company sets the prices high, people may not be able to afford Coca Cola. Since the brand targets consumers of all backgrounds and income levels, it aims to market itself as a cheap beverage that tastes remarkable. This is how the brand is related to the pricing. Similarly, Coach, Inc. succeeds in maintaining a balance between affordable price and luxurious design. Coach is a less expensive luxury brand compared to its more expensive Italian and French counterparts.
The type of brand will directly influence an organization’s distribution system, especially if it is a luxury brand, since the brand may tell people where the product is distributed. According to the website (americanessays.com) “Coca Cola has its own distribution channel including direct and indirect selling.” By using this strategy, Coca Cola is able to provide Coke all over the world. Coach, Inc. keyed into “accessible” luxury ladies’ handbags and leather accessories. The brand will influence a company’s promotion decision because of its nature. For a brand like Louis Vuitton, customers barely receive any discounts or find any promotions since it is a very well-known brand with French elegance.
The company may not perform any promotions since it may hurt the brand. In contrast, a brand like Best Buy frequently holds promotions, usually every season or every month since this brand is meant to be economic. Thus, the company will execute promotions quite often. Coach, Inc. created its business model, which has different kinds of stores, including full-price stores, factory stores, wholesale department stores, and internet sales stores. Full-price stores sell the newest designer hand bags, leather accessories, fragrances, and women’s knitwear collections. Factory stores sell slightly out-of-season products. Coach, Inc. selects the highest quality materials to produce its products in order to maintain its reputation of exceptional quality.
Under the manager’s marketing team, Coach launches new collections every month to attract customers to return and browse its product selection. On the other hand, customers can find their favorite handbags and accessories in factory stores at discounted prices. Coach has become the best-selling brand of women’s luxury handbags and leather accessories in the United States, with a 25% market share. Moreover, Coach is the second best-selling brand of those products in Japan, with an 8% market share. With its successful global business strategy, Coach, Inc. has rapidly grown in the last six years after its initial IPO in 2000 (Paul. 283).
It attracts mostly middle-income consumers, who purchase its products rather than those of other name brands on the same price level. The growing desire for luxury goods in middleclass consumers is thought to be a result of a wide range of factors, including effective advertising and TV programming that glorifies conspicuous consumption. On the other hand, the demanding daily rigor of two-income households is thought to be another suggested factor.
Additional factor are the rising sales of luxury goods and the growth of big box discounters, such as Wal-Mart and Target (Gamble). Therefore, in the contemporary market environment, should the company want to build its business successfully, the key points are great design, high quality, and luxury styling in an acceptable price range. If the company doesn’t adhere to those key points, it will lead itself to loss of its market share or bankruptcy.
3) 3. How is the market for luxury handbags and leather accessories changing? What are the underlying drivers of change and how might those driving forces change the industry?
In the current luxury handbags and leather accessories market, any competing company faces two sets of challenges in continuing the development of its business and succeeding in growing its market share. First, when Coach, Inc. was founded in 1941, it was a small family-owned handbag business in New York City. After 44 years of family management with a steadily set price 50% lower than more luxurious brands, Coach was sold to Sara Lee. Coach continued to grow rapidly until the mid-1990s. Then, in an abrupt change of events, consumers quit purchasing Coach’s handbags in order to focus on French and Italian brands, such as Gucci, Prada, and Louis Vuitton. The company’s market share fell from 40% to a tragic 5%.
Reed Krakoff, the top Tommy Hilfiger designer, was hired by Sara Lee to save the business that had more than half a century’s worth of history. In the beginning, Reed did the extensive consumer surveys and held focus groups to get the information of styling, comfort, and functionality preferences. After doing consumer surveys, Reed found that customers wanted handbags with edgier styling, softer leather, and leather-trimmed fabric. After six months, Coach launched redesigned, brand-new handbags to the market. Furthermore, Reed improved the appearance from dark, wood-paneled interiors design to a bring and air ambiance design. Reed planned to launch new collections every month instead of twice a year.
Reed introduced the test models and the discontinued models sold at discounted price. After innovation, Coach sales continued to grow from $500 million in 1999 to more than $2.1 billion in 2006 (John E. Gamble). In addition, luxury brand name products face counterfeit goods, which threatened their market sales in current years. In 2006, more than $500 billion worth of counterfeit goods were sold all over the world. As a result, it seriously threatened the profit of name brand companies. Combating counterfeit goods requires the government to take a step to combat and convict intellectual property rights crimes.
4) 6. What are the resource strengths and weaknesses of Coach Inc.? What competencies and capabilities does it have that its chief rivals don’t have? What new market opportunities does Coach have? What threats do you see to the company’s future well-being?
Coach, Inc. is the well known luxury brand of handbags and leather accessories which that originated in the United States. It should be more popular and widely-accepted by Americans since it is an American luxury brand. Furthermore, Coach, Inc. continues to attract consumers by launching new collections every month, marking up full-priced new products and over-seasonal products’ low price level. Those business characteristics hardly occur in its chief rivals, such as Hermes, Ralph Lauren, Prada, and Louis Vuitton.
Therefore, it creates a long-term relationship with its customers. In recent years, Coach, Inc. has continued to expand and develop its business all over the world. For example, it builds more flagship stores in different countries. Moreover, Coach, Inc. tries to diversity its business. For example, Coach, Inc. now launches women’s knitwear collections, and ladies’ footwear. To the contrary, Coach, Inc. sets up too many stores in the nearby areas, which will hurt the luxury brand name’s reputation.
If one can buy Coach’s products anywhere, will one still find Coach to be luxurious? The economy is now getting better and better. Companies will compensate their employees well, and grant them more buying powerful to purchase Coach’s products. However, the challenge of Coach, Inc. is to compete with other luxury French and Italian brand goods and to combat the threat of counterfeit goods (John E. Gamble).
5) 7. What recommendations would you make to Lew Frankfort to improve the company’s competitive position in the industry and its financial and market performance?
In conclusion, Coach, Inc. is one of the most successful luxury brands of women’s handbags and leather accessories. Its products match key luxury rivals on quality and styling with pricing level focus on middle-income consumers (John E. Gamble). In the company’s future development, I would recommend that Lew Frankfort focus on market situations and customers’ perpetually-changing desires.
It would be to his benefit to do market surveys prior to a new product’s creation. The company should set up stores only in locations where expansion is profitable. The company should follow current business models, such as different price levels, launch new collections every month, continue with high quality production, and provide excellent customer service, which can develop and reach higher level returns on shareholders’ equities.
1) Case 5. John E. Gamble. Page 238-97
2) Marketing Management (J. Paul Peter/James H. Donnelly, JR.) 3)http://www.americanessays.com/study-aids/free-essays/education/the-coca-cola-enterprises.php