Company History
Gucci, a renowned international luxury goods seller was founded by Guccio Gucci in 1923 Florence as a small shop that dealt in leather goods (Frisa, 2011, pg7). He later expanded the shop from a repair shop selling goods from Germany to a workshop which made the famous Gucci brands. The business greatly expanded in the following years with a large expansion realized in the late 20’s (Frisa, 2011, pg8). The sanctions imposed by Mussolini however meant that the company would have to reduce its annual growth and potential for expansion. The importation of leather was expensive and this led to the use of canvas. Guccio decided to venture in the provision of goods that didn’t require large amount of leather and started to produce belts and wallets following the new restrictions (Journal of International Management, 2011). By 1938, the business had turned into a big boutique in Rome with a wide range of products offered through their stores. After the Second World War, Guccio expanded his company into an international company. Business grew over the next twenty years and the company became internationally recognized by many people (Frisa, 2011, pg15). It had branches in Korea, Tokyo and Hong Kong. The company was largely recognized by celebrities and politicians and this built its public image
However, this glory was short-lived. The hard work by Guccio Gucci started to fall and the company started to crumble following internal conflict in the business (Frisa, 2011, pg12). Gucci’s sons Rodolfo Gucci and Aldo Gucci started to fight on how to manage and control the company (Journal of International Management, 2011). This led to a 50% stake share for the two sons in the next couple of years. Maurizio, Rodolfo’s son, inherited his father’s share after his death in 1983. Maurizio was determined to transform the company according to the vision his grandfather had and he decided to lay strategies to meet this (Solca, 2008, pg28). However, he didn’t get the company back on its feet. The company was therefore given to Domenico De Sole and Tom Ford to help transform it. They made a number of steps and were able to revive the company.
MACRO ANALYSIS
PESTLE ANALYSIS
Political
The free trade areas offer a great opportunity to increase the market share for most of Gucci’s products. Trade liberalization has taken root over the years with government agreements on reduced tariffs. Taxation also affects Gucci’s operation in the market. If Gucci doesn’t abide by these laws and regulations, it may face legal constraints and restrictions. High taxes may also affect the profit since the prices for goods will be high. Political instability especially in war –torn countries will also limit their market potential and decrease sales.
Economical
Investment in the ever growing ASEAN countries like Vietnam has offered a larger expansion capability for companies. Economic meltdowns will reduce the amount of income available to purchase goods by the consumers. High capital adequacy ratio in the ASEAN countries has affected the performance of the products from Gucci. High economic and borrowing interest rates limit the amount available for borrowing. Low interest rates enable more borrowing increasing demand levels. The demand levels affect the company’s reputation at present in the future and at present. Higher demand will mean that the company gets a good marketing platform unlike lower product demand.
Social
Most of the luxury goods depend on the ability of consumers to demand more products, products such as perfumes, shoes, accessories and clothing depend on culture. Some communities may not like to be associated with particular designs and therefore only dress as per their culture. Other communities may also like to use Gucci’s products increasing demand for such products. Personal consumer tastes and beliefs also affect the type of goods that consumers demand. Some consumers may not feel comfortable wearing luxurious clothes while others may feel great wearing them. This affects the amount of goods that Gucci may demand.
Technological
Increased technology helps create better avenues to market goods. The internet offers an opportunity to all players in the industry to use it for increased growth. Technological improvement also reduces the operational costs for the company. This therefore makes the product cheaper and easier to acquire. Increased ordering of goods through the internet and the use of mobile phones in marketing has increased Gucci’s market.
Legal
Environmental protection issues affect the way Gucci operates. The many international regulations requiring detailed corporate social reports on the environmental protection must be followed. Gucci may therefore have to incur costs of reducing pollution and increased recycling costs. Employee health and public safety continues to be an emerging legal issue in the industry (Journal of International Management, 2011).
ENVIRONMENTAL
Availability of resources affects the ability of Gucci and other players in the luxury goods to operate. Most materials required by Gucci are rare especially in the cosmetics production. Gucci therefore needs to strategize n how best to meet customer demands with the few resources to avoid losing customers.
MICRO ANALYSIS
Gucci doesn’t have control over its micro-economic factors:
PORTER’S FIVE FORCE INDUSTRY ANALYSIS
Threat of new entrants
Any new entrant in the industry will have to worry about the high costs of resources. Technological costs are quite high and this affects the productivity in the industry. The industry is also very competitive and most businesses have got customer loyalty due to experience. The new trends in the market and expansion potential however may attract investors. The many rules and regulations by the government may also make some companies fail to expand or join the industry.
Bargaining power of suppliers
The market has not grown to its full potential. The luxury goods are expensive and this therefore doesn’t give suppliers much power in bargaining. Most of the players in the industry are however confident.
Bargaining power
Most of the customers are highly profiled people in society. Most are also in the pinnacle of the working class and may therefore like to be associated with expensive and luxurious products. The demand for luxury goods is high since they are made in limited amount and on order. The customers have therefore a high bargaining power since the market hasn’t been flooded. The customers are also influential people and may influence demand of products.
Threat of substitutes
Product substitution remains a very low risk in the luxury industry. Most of the products are custom-made and only made for few people in society. The manufacturers also make unique designs and the luxury industry unlike most industry has lower risk in terms of substitutes.
INDUSTRY LIFE CYCLE
The luxury goods industry
Luxury goods are those goods that are personalized for a highly valued consumer and are highly positioned in the market. Many a times we relate luxury goods with designer clothing and other expensive materials (Tungate, 2009, pg45). Luxury goods are mainly made for the wealthy people in society who feel that they need to be stylish and are normally characterized by high pricing.
As Gucci was improving in its operation, it experienced a number of changes. The market segmentation on luxury goods in the 90’s was highly increasing and competitive (Tungate, 2009, pg50). The market has been growing since 1991 to 2000 with most of the growth in the century taking place at that time. The industry at that time was segmented in a number of ways at that time. The luxury industry has a number of categories and is divided according to the type of goods offered and the geographical location (Tungate, 2009, pg.20).
Leather shoes and other leather products
Wines and spirits
Ready-made fashion
Cosmetics
Accessories
The United States accounts for more than 30% of the market share with Europe and Asia leading the chat with more than 35% each on the goods offered.
Manufacturing
The production process helps maintain quality and public image. Most luxury goods are produced in large quantities depending customers.
Marketing process
The marketing process for luxury goods is subject to the sales. The sales in the industry are mostly marketed online and through celebrity endorsements.
Distribution of goods
The use of direct selling is a major breakthrough for players in the industry. The industry offers opportunities for expansion in selling of goods. Most of the stores operate on franchise and a wholesale basis. This gives the businesses an opportunity to get more contact with customers (Tungate, 2009, pg84).
These market characteristics affect the industry’s life cycle and help ensure that they define it. The cycle mainly also involves a number of stages which may vary depending on the good
Introduction : Introduction of new products in the market with little knowledge of the product hence low-demand
Growth: Growth in production with increased price and supply stability over the years as more people get to know the product’s existence
Maturity: Mass production in the product maturity stage with the products attaining maximum market potential. The stage involves intense marketing and selling.
Stability and decline: The stabilization stage involves the market product loyalty maintenance with more emphasis on stabilizing of prices and market share.
SWOT ANALYSIS
Strengths
High quality products that are varied and diverse to meet a number of market needs
Global expansion and long history of growth and experience. Since its revival, Gucci has been on an increasing growth path and therefore attracting investors.
The use of business analytics in analyzing markets. This enables Gucci get real-time data on the market performance.
Fairly priced goods. Most Gucci products are fairly priced compared to most companies in the luxury industry and therefore catering for the medium class.
Organized supply management. Gucci has a powerful supply chain with suppliers supplying raw materials in time and retailers selling them fast.
Great customer care service to customers
Good public reputation and image. The partnership with UNICEF enables it improve its CSR.
Reduced amounts of expenses since it uses directly operated stores.
Renowned brand name and image. Gucci has strong brand equity because of its long history in the industry. The company is also associated with companies like General Motors which help increase the brand value.
Weaknesses
The need to increase investment to protect brand name reduces amount to use in developing new products and meet market expectation. High operational costs limit company’s future plans for expansion.
Low international presence due to few global locations. The number of direct stores do not cater for the increasing market in the luxury industry
Possibility of losing important staff to competitors. Increased competition in the industry makes most companies fight to get highly skilled personnel and gain competitor secrets
Unreliable circulation of funds making the company to have weak financial backing. Most funds depend on share value and investors shy away when the company shares are not increasing.
The company has a number of weak branches with very low market share. Gucci is yet to invest in developing markets of the world where competitors are now focusing.
Opportunities
Market expansion in other areas such as Asia and Africa. China and Indian markets are increasing rapidly with the increased demand for luxury goods by the middle class and the wealthy people.
Expansion in the perfume products. Gucci has increased the amount of perfume products it produces. The ASEAN market has increased demand for perfume products.
Introduction of new products. Gucci has invested in research making it likely to increase the products it has currently in the market with the increased customer needs diversity.
Increased technology use in marketing especially social media. Social media gives a platform to increase sales over the years through internet marketing and online buying.
Threats
Competition from both various footwear manufacturers and luxury goods manufacturers. The luxury industry is extremely competitive given the limited market. Some competitors also offer better products than Gucci attracting Gucci’s customers.
Unstable political conditions in some of the international markets. The wars in most war-torn countries disrupt business reducing the market share.
Continued technological development and expansion pose a threat to expansion with constant need to upgrade. New technology is costly to implement and constant upgrading of the Management Information System increases costs.
Product duplication from counterfeit goods producers. The duplication makes the market flooded with cheap fake products which tarnish Gucci’s name.
The threat of being public. Public companies are in constant checking by the public and valuation depends with the public shareholders. Government regulations are more strict on public companies (Journal of International Management, 2011)
ANSOFF MATRIX
This is a model that helps a company in strategy formulation under various circumstances that may arise. It has four areas namely:
Market diversification
Market penetration
Diversification
Product development.
The company was able to penetrate the market given its ability to effectively go public after the internal conflicts ended. This enabled the company to organize its self and it decided to use a variety of products to both penetrate and diverse. The Gucci, Boucheron, Stella McCartney and the YSL are some of the brands used by Gucci to expand in its operations.
Marketing
The company has continued to invest more resources in marketing and creating an online presence after its fall. The company has sought to expand to new areas like Japan and China over the years. The company has invested a lot of resources in enabling it increase its market presence
The wide variety of goods has served to help increase the company’s presence in most places over the years. Gucci remains to be a leading figure in the luxury industry. It has over the years dealt in handbags, accessories, shoes clothes and other luxuries. The brand name is known for quality and luxurious goods globally. This market mix enabled Gucci monitor its operation and increase the customer base.
Product development
The company has invested in technology to help it improve its various products and provide a better product mix. This diversification of products has made marketing easier and improved its profile. Gucci invests in research work and related activities to help contain any possible loss of funds.
Decision making and management
The company has learnt from its past mistakes and has therefore changed how it organized its self. Using the bottom-up decision making strategy, the company has been able to make decision making faster The decentralization of roles in the company has also enabled it to effectively improve its management over the years. Authority is also distributed through the various departments (Solca, 2008, pg28).
Conclusion and recommendations
Gucci needs to improve on its products by checking on a number of key factors that influence its expansion and market success.
The company needs to ensure that it enforces consistency in the brand name of the company. This will ensure that the company gets a chance to utilize the available resources. Maintaining the brand name is important since it gives the company history and identifies with the public.
An effective supply chain is also important for the company. This supply chain will enable the company to adequately control all its activities. It will also ensure that the customers in all parts of the globe get their goods in time.
Creation of new products will also help enforce better market share. The new products generated will help ensure that the business meets new markets and fights off competitors. This development will increase variety of goods available for sale.
Increasing online marketing and celebrity endorsement will also make the brand more popular. Most luxury goods like to be associated with a celebrity since the celebrity appeal gives more influence on the possible outcome. Marketing through social media should also be intensified.
Encouraging financial stability through reduction in expenses will encourage get more investment. Gucci remains to be one of the few most popular companies in the industry and its going public means that investors watch the production process and profitability.
Reference List
'Gucci Has a Plan' 2011, Black Book - PPR: Standing On Two Legs, pp. 27-33, Business Source Complete, EBSCOhost, viewed 23 June 2015.
Frisa, M. (2011).Gucci. New York, USA: Rizzoli New York.
Solca, L, Chan, A, &Giovanelli, M 2008, 'PPR: Is Gucci a Serious Problem?', Black Book - The Best Of Bernstein - Pan-European Edition (Third-Quarter 2008), pp. 19-22, Business Source Complete, EBSCOhost, viewed 23 June 2015.
Tungate, M. (2009).Luxury world. London: Kogan Page.
