Key Strategies Employed by Coach, Inc.
The first strategy employed by Coach is that of expanding in emerging markets. It is strengthening its sales in China, and has begun to expand as well in India, which it considers to be an emerging market and a potential source of growth in terms of sales. It also would like to increase its presence in Europe, South America and the rest of Asia. It also desires to increase its presence in the United States and in the rest of North America. It plans to do this by increasing both the number of full price stores and factory outlets. It wishes to increase its presence in Japan, which it considers to be a potential growth area. The fourth strategy is that of increasing its market share for luxury products for men, to include accessories such as office bags, wallets, men's bags and other items. Finally, it hopes to increase its awareness through its e-commerce channels such as its website, coach.com and other e-commerce sites (Gamble and Eastburn, 287).
Key Elements of Coach's Strategy
It is clear that the first element of the company's strategy is that of increasing brand awareness in markets where it feels that it needs to increase brand awareness. There is special mention of the European markets where many luxury brands enjoy substantial market shares. Brands such as Louis Vitton, Prada, Gucci, and similar brands all have originated in the European market.
There is also the element of increasing market share in the locations where brand awareness is strong. These are in the United States and Japan. From 2012-2014, there has been an increase in the sale of luxury goods by 20%. This is attributed to an increase in the affluent population of the country, with a 14% increase in the number of households earning above 100 million yen in the same period of time (Bloomberg Business: Japan’s Luxury Sales are Booming Even in a Weak Economy). Japan is a special market because of the growing potential of luxury goods and items there. Another element of the strategy is the company's determination to remain as the "affordable luxury brand" as its products are priced about 50% less than the similar products of its competitors. Thus not only the more affluent sector or buyers are attracted to purchase the product, but also those coming from the middle class would like to partake of the company's products as well. Working women from the middle class echelons of society do work hard, and so they have to reward themselves with the occasional luxury item that they feel is affordable but classy enough. This is one of the customer needs that the company answers.
The next element of the company's strategy is that the company is doing its best to bring the products nearer to its customers. It has set up distribution channels such as full-price stores as well as factory outlet stores, where the older models of the company are sold. As the prices of the older items in the factory outlet stores are dramatically lower as compared to the full-price stores, then the middle class market of the firm is drawn to this distribution channel. Thereafter, in recognition of the fact that many potential shoppers look at their selections online and make informed decisions thereafter, the company has dedicated resources to improving its own website as well as its space on other websites that sell its products. A quick look at the company's website reveals a streamlined site that is quite easy to navigate and that provides ample information for potential shoppers to make the necessary decisions on their purchases. If one selects a certain product, there are several shots of the product, as well as comprehensive information on the materials used, as well notes on the functionality of the product (Coach Inc: Handbags).
Porter’s Five Forces Model in the Luxury Goods Market
Porter’s Five Forces Model relies on the assumption that there are five basic forces operating in any business situation. The first is supplier power. If suppliers’ power is high, they can drive up the prices of raw materials and services when they wish to. The fewer supplier choices there are, then the more powerful these suppliers are. The second force is the power of buyers. If buyers are able to drive the prices of your product downwards, and if they are easily able to buy another product from another vendor, then they have a substantial amount of power. The third force is the competitive rivalry in the industry. If there are many competitors offering the same products at roughly the same prices, then buyers and suppliers can easily switch from one partner to another, and so the firm would have little power in the situation. On the other hand, if the firm has a certain competitive advantage that no other supplier or vendor can replicate, then the firm has an advantage in the industry. The next force is the threat of substitution. If buyers are easily able to switch to another supplier because the costs of switching are low, then the firm has little power because the threat of substitution is great. Finally, there is the force of the threat of new entry. One’s power is also influenced by the ability of other enterprises to enter your industry or market. If there are fewer economies of scale in the industry, then new players can enter the market easily, and these new competitors can weaken one’s position in the industry if they have competitive advantages that the firm does not possess (Mindtools: Porter’s Five Forces).
In the case of Coach, Inc. the power of suppliers is quite low. This is because there are many suppliers of the raw materials of the company. It is very easy to switch from one supplier to another, and does not involve too much costs. The power of buyers could be said to be at a medium level as the company is focused on the end-user individual level more than the wholesale segment. Also, buyers can easily switch to the many other luxury brands such as Michael Kors if they wish to do so. Perhaps the most potent force affecting Coach Inc. at the moment is the competitive rivalry in the industry. Even if the company wishes to present itself as the more “affordable” luxury brand, there are still many other competitors that are trying to do the same – making their brands more affordable in order to widen their reach. Thus the threat of substitution for the company is quite high, as there are many, many brands to choose from offering equally attractive products of high quality. There is also the threat of the counterfeit substitutes, as proven in the cases of counterfeit bags made in China and in other locations in Asia (The Economist: Counterfeit.com). There are also low barriers to entry, as businesses such as bag making and the production of accessories is quite less capital intensive. One can easily outsource its manufacturing in locations overseas where the costs of raw material and labor are lower.
If the company is able to develop competitive advantages that cannot be developed by other competitors or rivals in the industry, then the industry is an attractive one. The most influential force for Coach Inc. at the moment is that of the rivalry in the industry. Coach, Inc. does have several competitive advantages. First, it can provide high-quality and trendy products that are desired in the market. It also has a strong brand recall that is associated with luxury, and yet is affordable according to the perceptions of its customers and buyers. As the company has a multitude of current and potential suppliers to choose from, then it has also become easy for it to survive in the industry. Therefore there is the opportunity for profitability, which makes the luxury goods industry an attractive one indeed. Another competitive advantage of the company is the fact that its consumers have an emotional attachment to the brand. This emotional attachment translates into added value for those who own a Coach item, making them want to check out the new product lines that are introduced into the market. Also, being in the lower price range for luxury items make the firm’s products attractive to its clients. Therefore the industry in general is truly attractive because of the potential for profits, if the company maintains its competitive advantages and generates more of these.
Sources of Competitive Advantage for Coach
As mentioned above, the company has several competitive advantages. First of all, brand awareness for the company is high. The brand is perceived as being able to provide its clients with the luxury they want at a lower price as compared to the prices offered by its competitors. Also, as the brand is still considered as a luxury brand, there is a great emotional attachment of consumers to the brand. The company is also very profitable, as evidenced by the decreasing cost of goods sold over the period 2009 to 2011. The cost of goods sold decreased from 28.1% of sales to 27.2% during this period (Gamble and Eastburn, 289). The net profit of the company also increased from 19.3% to 21.1% over this same period of time. The company also has very little long-term debt, and thus one senses that funding for expansion and growth is taken from its own profits (Gamble and Eastburn, 289-290). This profitability thus enables the company to price its products reasonably against its competitors.
Lessons Learned
An important lesson that was learned in the case is the necessity for businesses today to develop competitive advantages. These competitive advantages will help these businesses survive in the dynamic and competitive business environment. In the luxury goods industry, there are indeed many competitors whose brands are very strong. Coach, Inc. has been able to survive in the industry by providing its clients and consumers with a brand that is perceived to provide luxury and yet is quite affordable for many. It makes use of surveys which provide the firm an idea of what their clients want and what they look forward to. Why purchase a $2000.00 Gucci or Prada bag, when one can get a similar, high-quality bag from Coach? Therefore creating and sustaining competitive advantages are musts for businesses today.
Another insight gained is that these competitive advantages also contribute to the profitability of the company. Pricing the products in the “affordable” range means that the company will have to be careful about its costs and expenses. It has managed to keep its cost of goods sold percentages to below 30%, thus enabling the firm to price its products reasonably as well. Add to this the low level of long-term debt, and thus profitability is enhanced as well.
It is also very important to listen to the customers. In the case study, it is mentioned that the company conducts surveys in order to know what the customers like about the firm and the products, and what the customers stay away from. As part of the previous survey results have mentioned that customers want “edgy” designs, it has employed the services of young and hip designers so that these needs are addressed.
Works Cited
Coach Inc. Handbags. 21 March 2016. Web. 22 March 2016.
Gamble, John and Eastburn, Ronald. Coach, Inc. in 2012: Its Strategy in the “Accessible Luxury Goods Market. In Essentials of Strategic Management. NY: McGraw-Hill. 2015. Print.
Iwamoto, Masaaki. Japan’s Luxury Sales are Booming Even in a Weak Economy. 20 February 2015. Web. 22 March 2016.
Mindtools. Porter’s Five Forces. 2016. Web. 22 March 2016.
The Economist. Counterfeit.com. 01 August 2015. Web. 22 March 2015.
