Being one of the most recognized luxury brands in the world requires a constant wobbly balance to be kept. The customer should be always understood and heard, while the external factors should be adapted to within the shortest time. From the day of its foundation in 1941 Coach’s product itself did not change much. It used to be all about being simple in style and resistant to wear and tear; the difference is concealed in additional value added to the customer.
Question 1
For Coach the competition in the luxury goods industry is estimated as fairly strong, due to the number of presented rivals on a market. However, due to the Coach’s pricing strategy, the company actually differentiates itself from general competition. It increases target market by adding middle class in it, while keeping the original high-income households. Thus, Coach manages to keep competition within the average intensity level.
Because of the speed of economical growth within emerging markets an additional opportunity for a substantial gain is present for the luxury manufacturers. Currently a numerous list of luxury goods companies has already distributed their presence on those markets, as well as they have strengthened their positions in Europe and US. Thus, we can conclude that the pace of rivalry shows the tendency for quickening. We can assume that competition within luxury brands will become more intense with time, because of the speed of their growth. Market conditions provide for brands to keep earning and opening more stores each year, moreover, the new entrances are also considered.
The industry is considered as an attractive one. The new entrances are not expected due to the incredibly costly and timely entrance price: brands are usually estimated over a serious period of time; customers prefer the presence of history and backed-up values behind the product; high-quality products are expensive to produce; etc. The worlds’ growth of wealth increases the list of potential customers, who are willing to stand out. The power of suppliers shows a positive tendency for their commitment and willingness to work with luxury brands: since producers are willing to get high-quality materials, a good price is initially offered, and suppliers compete within each other. Moreover, due to the customer’s lifestyle the substitute nascence is barely possible: people still need cloth, and they still want to show off about their status.
The most common competitive weapons used by the companies are: product differentiation – quality, functionality, and new designs and trends introduction, etc; marketing campaigns – attraction of the most popular celebrities as brand representatives, charity, and massive events support, etc; customer service – the way customers are being treated and listened to, this is the main factor, and it has the biggest impact on customer loyalty terms.
Question 2
When defining a luxury product it always comes down to a specific brand positioning. The goods, which target such segment, are usually described as those of high quality and creative design, high-income consumers oriented, therefore, expensive, obtaining well-known image, which corresponds the brands’ target and creates an additional emotional value for the customer. Luxury products are far from being essential to have, but they create a strong perception of status for the owner.
In 2010 customers spent more than $224 billion on luxury goods (Case 4). While the United States made 30 percent of those purchases, as a producer the country showed the result of 14 percent of industry sales, Europe represented 30 percent of purchases and was first for the results of industry sales. Italy had 27 percent sales share within the industry, French gained 22 percent and Swiss held 19 percent. As per annual revenues in 2011 the most valuable representatives of luxury products were Lois Vuitton, Gucci, Cartier, and Hermes. Only the handbag together with accessories segment within the industry was counted as $28 billion, which leaved no doubts about the profitability and the obtained interest for such products.
Coach divided its customers by the way they made their purchases: “the typical full-price store shopper was a 35-year-old, college-educated, single or newly married working woman. The typical factory store shopper was a 45-year-olf, college educated, married. Professional woman with children” (Case 4).
Question 3
The luxury handbags and leather accessories market is changing due to the change of tastes, lifestyles and preferences of its clients. The rapid economy development influences the average income level, thus, increases the potential demand for the luxury products. Each day customers strengthen their opinion about the way they want to dress up. Social tendencies, various cultural differences and presence of sub cultures influence fashion tendencies. The world gets more informal in terms of business, thus, business suitcases are not the only option for office any more. Meanwhile, market demands are changing several times within a year due to the seasoning issue. Another important change driver is a technological progress, which influences both: production and consumption.
Luxury brands get an opportunity to produce better products for the growing demand, which can positively influence business’s profits. Due to the constantly changing preferences and fashion tendencies companies have to analyze customer’s tastes deeper and diversify the offered products, which can influence the available product line. The desire for new products may force companies to release new collections more often. Moreover, customers are getting more demanding for the unique experience when purchasing luxury units. Communication and customer service are getting vital for the industry. The general informational popularity and accessibility makes it easier for the customers to be heard as well as to get the desired product, while the negative public feedback can damage company’s image and decrease customers’ loyalty, which will result in a profit loss.
Question 4
The key factors, which determine the success of the luxury producer of women’s handbags and leather accessories, could be named as following:
Diversified distributional channels. Coach’s multichannel distribution model included indirect wholesales, which was reaching third-party retailers, and direct-to consumer sales. Moreover, an additional branching of the direct distribution was presented: full-price stores (core locations, fashion locations, flagship stores) and factory stores. Such approach let Coach to divide its customers and meet them at the right place for a purchase.
Diversified pricing strategy. “Coach Inc.’s strategy that created the “accessible” luxury market in ladies handbags made it among best –known luxury brands in North America and Asia and had allowed its sales to grow at an annual rate of 20 percent between 2000 and 2011, reaching $4.2 billion” (Case 4). The company increased its market presence, since it considered the desire of middle class representatives to obtain luxury units.
Outsourcing. Outsourcing production allows the company to minimize production costs, while keeping quality standards.
Product quality. Quality of luxury goods should always remain high, otherwise the consumer may abandon the company. High quality is the first factor, which distinguish luxury goods among others.
Presence worldwide. During the year 2012 Coach was operating “345 full-price retail stores and 143 factory outlets in North America, 169 stores in Japan, and 66 stores in China, along with Internet and catalog sales” (Case4). Being close to the consumer resulted into 87 percent direct-to-customer sales in 2011.
Advertisement. Luxury products need a sufficient image support, thus, creation of an effective marketing campaign results into a deep settlement in customers’ minds and long-term brand recognition.
Customer orientation. For every business it is important to understand the specific desires of your client. At some point Coach had to conduct an expensive market research, which showed preferences foe edgier styling, leather-trimmed fabric handbags and usage of softer leathers. The gathered knowledge and its implementation within farther company’s products resulted into brand popularization and customers’ satisfaction.
Question 5
First of all, Coach’s implemented innovation to divide its customers into two groups by making it affordable for middle class immediately increased the overall market share. Secondly, the conducted consumer surveys regarding functionality preferences, styling and comfort allowed the company to launch new, desired collections every month. Constant product line update showed incredible results: “During 2011, roughly 84 percent of Coach’s total net sales (up from 75 percent in 2010) were generated from products introduced within the year” (Case 4). Moreover, consumers were given a reason to make regular purchases, and monthly consumer visits increased. At the same time Coach did not abandon its Classic collection, which was representing its history and value to the customers, and had become the best selling line in 2012. Thirdly, the brad had a new stores look. Through the aesthetic attractiveness the redesigned rooms were adding product value, increasing the number of visits and enhancing the company’s image. Fourthly, 85 percent of Coach’s production requirements were outsourced to contract manufacturers in China and 15 percent were provided by Vietnam and Indian manufacturers, which allowed optimizing the construction capabilities, mix costs and lead times. Next, Coach had divided its distributional channels to fit the customer type: factory stores and full-price stores. By offering different prices the company motivated value-oriented clients to choose Coach. Moreover factory stores were placed within 40 miles distance from full-price stores and up to 25 percent of the inventory they held was stocked for full-price stores, which made the distribution process easier and more efficient. The last, but for sure not the least important point of Coach’s strategy was the attention to customer service. The company agreed to “refurbish or replace damaged handbags, regardless of the age of the bag” (Case 4). The employees were regularly attending customer service trainings, as well as the additional personnel was assigned for the peak shopping periods in order to provide a high quality service and assure the most positive experience for making a purchase. Moreover, Coach cared for the client to receive the desired product, thus, if a particular unit was not available, customers were suggested to place an order for a home delivery. Communication became another aspect of customer service. Coach was talking with its clients via emails, catalogs, web sites and brochures. As the result the company obtained 19 million active households contact list within the North American region and 4.2 million one for Japan, which provided the brad with numerous feedbacks and a deeper understanding of its clients. In total “Coach’s quality, styling, and value mix was so powerful that affluent women in the United States ranked Coach ahead of much more expensive luxury brands” (Case 4).
Question 6
Strengths: product quality corresponds to other luxury brands; production price is lowered due to outsourcing; product is 50% more affordable for the clients in comparison to competitors; new handbags designs being introduced each month; differentiated channels of retail distribution; high level of performed customer service; establishment of the strategic alliances, which allows an introduction of new products (watches, glasses, etc.); worldwide presence; strong brand awareness.
Weakness: mitigation of brand by the presence of factory stores; men’s product line sales stay low; difficulty with finding new perspective markets to enter; dependence on the economy.
Opportunities: lately increased customer’s wealth in Asia and US; growing demand for luxury products within emerging markets; launch of a new popular product, which will provide a long-term high revenue.
Threats: factory stores may outperform full-price stores, which can lead to the brands’ value depreciation; the volume of indirect sales leaves clients without the unique experience form Coach’s purchase, thus, it may also depreciate brand’s value; change in foreign legislation systems, which may forbid the company to be present on a certain market, or force to obey the disadvantageous terms of business operations; economical crisis.
Conclusion: Currently Coach is strongly positioned on a market. Its strengths and opportunities overweight the weaknesses and threats. However, the company has to be careful with brand depreciation actions and plan a reasonable action plan for the future.
Question 7
First of all, I would suggest increasing the number of both genders’ stores in Europe. It is not necessary to open new stores, but, perhaps just upgrade the already existing ones. In Europe men are considered as the one, paying for the shopping, even if they are not present during this process. However, women are more likely to decide what’s their men are going to wear. Thus, the increase of the men’s appearance in Coach stores may motivate women to shop more for their men.
Secondly, I would slightly reduce the number of factory stores. This will help to strengthen brand as a luxury one, and create a controlled demand for value-oriented customers to make a purchase now. The demand outcome will be short-term, but it can be used, while improving brands’ luxury image.
Thirdly, I would like to offer to establish a limited edition handbags collection. It can be introduced on a fashion show, perhaps, a charity auction can be held. The point is to involve Coach into social activity, that can help others and highlight company’s corporate values while being an example of socially responsible brand.
Learning from others would be the most important advice I want to give. Nowadays globalization influences numerous cultures, it changes them by giving a standardized product. I believe, that Coach can learn from other cultures, develop new styling and trends, and even educate cultures about each other.
References
