GUCCI

Mission:

To become a group leader in the luxury market at world-wide level through:

putting into effect and maintaining.

The company’s objective was to enhance its rapid development and growth

plans, as well as to bring about great flexibility to its production and business processes.

Vision:

To become the global multi-brand, well-diversified luxury goods company leader.

PESTL ANALYSIS

Intra-regional liberalization of trade in services Ranging developments of the redefinition of the concept of power and politicsDemocratic reforms have been also trending

Political

High potential market and sales to Asian Market

Economic

Bags and Luggage are on a fashion "fad"Celebrities advertising fashion brands have become fashion icons, trending the fashion industryGrowth of the professional women segment and trend towards single households

Social

continuous innovation of fashion and garments machine localization of luxury goods globalizing trends in multimedia technology such as the web which can serve as a marketing and advertising tool innovative mobile phone features

Technological

legal proceedings that need to be undertaken in settlement of the legal suits with the ESOPintellectual property (IP) rights and IP Registration Systemsthe patenting of intangible assets

Legal

Porter’s Five Forces Model Analysis

Industry rivalry

The competitiveness in the industry can be qualified as relatively high, but given

the high margins and the customers' perception about the price, the competition is not

on price, but rather on quality and image perception, as well as on the ability to attract

the right designers.

Competitors

The barriers to entry are very high. They are the intangible image and the

perception built around the brand.

The barriers to stay are also very high: there is a continuous need to "feed" the

image, to maintain the perception but still to respond to customers' needs and changing

expectations.

The trade off between exclusivity, stylishness, extravagance and lasting image

makes it difficult to be for a long time in the business.

There are hardly any barriers to exit given the high barriers to entry and to stay

and the low barriers to exit, the dynamics of the industry are: few big players and only

the best, as the others either cannot get in, or are easily out.

Suppliers

The bargaining power of the suppliers depends on the segment. As some tended

to have increased bargaining power, this leads to the concentration and vertical

integration trend in the industry, one of the reasons for which is to lessen the bargaining

power of the suppliers.

Until now, there is not observed concentration among the suppliers of the luxury goods

industry among themselves. There is however a trend for larger houses to buy smaller

suppliers and to deprive the market form access to those suppliers.

Customers

There are two types of customers:

The super-rich

The middle-market customers, who selectively trade-up to higher levels of

quality, taste and aspiration

The super-rich customers (or High Net Worth Individuals) seem not subject to the world

economic cycles. In addition, they are a growing number. Estimates predict that their

number will increase from ~ 26 millions in 2000 to ~ 40 millions in 2005 (an increase of

~ 9% p.a.)

The middle-market customers are those that are willing to buy luxury goods, but "they

want the hottest, trendiest design, which increasingly have to be marketed in creative

and expensive ways". They can potentially expand the market quite dramatically, as

they are part of the upper-middle class. They are considered to be both a great

opportunity (show no price sensitivity when buying the "hottest" product) but they are

also a threat. "They are more demanding, more selective and show less brand loyalty

than the super-rich class".

This implies for the luxury goods industry a difficult equilibrium between the two kinds of

customers, because both are not necessarily compatible. This can lead to a difficult

trade off between satisfying a smaller number of loyal customers and a larger number of

more volatile customers.

New entrants

The new entrants are mainly new designers who start their own brand on their

own. Usually, these new entrants, if successful, are quickly acquired by the big names

of the industry, by providing them the needed infrastructure for growth. However, new

entrants, if remaining independent, can represent a threat by capturing the volatile

middle market customers. These customers go after the established name and the

perception build around it, after the quality and design. All these elements take time to

be built, which makes the threat of new entrants less significant.

SWOT Analysis:

Strengths: -

1. Strong Brand Name

2. Strong Presence in International Market

3. Diversification Strategy with a large Portfolio of Brands

4. More control over Distribution Channel

Weakness: –

1. Unstable Management/Interest Conflict between family members can arise

2. Weak Profitability from other brands than GUCCI

3. Weak Financial Base (Decline in Margins, High Debt…)

Opportunities: –

1. Enter High Potential Markets in Asia, Particularly India and China.

2. Consolidation of other Brands(Build Competitive Advantage in different business

segments)

Threats: –

1. Take over by PPR who owns a 68% stake in capital of GUCCI

2. Threats of Competitors from medium Brands that have the potential to move to

Premium Brands in Future Example – ZARA & GAP

Ansoff analysis:

The third model that we are using to analyze Gucci’s strategic decision is from Ansoff (2000). Ansoff’s corporate strategy matrix shows that a business grows either by expanding market or product. Accordingly, De Sole’s decision to buy the two businesses falls under expanding in existing market through a new product, which will be developed by acquiring new products (under product development).

. De Sole and team have taken the right step after six years of continuous growth in Gucci brand by acquiring two significant luxury brands to improve their market position. The key to success from here on is to modify the corporate mission, vision and strategy

intent towards integrating and creating a synergy between the acquired brands both internally and externally.

BCG Matrix:

As Gucci group integrates more and more brands. Brand positioning shall be key, and keeping Chinese walls between them will reveal a challenge to the new conglomerate. Additionally, front-office synergies here are almost impossible as a blurring perception might result for clients.

Strategic Business Plan:

Gucci has the characteristics of a firm with a different business-level strategy. Gucci's plan is to provide value to their customers with high quality luxury goods. They consist of unique product features in relation to their rivals.

One example of Gucci’s unique quality is the prestige image of their brand name using the well known “GG” logo on their items. Two guys have really helped Gucci in the right way after losing a lot of money in the 1990's. These two guys are Dominco De Sole and new creative director tom ford. they turned the company around from almost bankruptcy to a close competitor against Louis Vinton.

One other characteristic Gucci uses as strategic planning is their sense of recent fashion all over the world. I have to say I do agree with Gucci's strategic planning, yes we know it’s an expensive brand but for the money I’m paying I really would like great quality and a very up to date fashion sense from its creators.

Growth strategy:

Gucci has made significant progress over the last six years after the departure of the last Gucci family member under the De Sole and team’s management. However, they lack a compelling strategic vision to take the organization to the next level. The last time Gucci had a strategic vision was under the last Gucci, where the vision was to grow the enterprise to a billion dollar organization. Since then, Gucci had strategy and intent at design level but not at the corporate level. Perhaps, the focus for the last six years was revamping and recovering the loss making business. Now that Gucci has achieved that goal by revamping the product line, reducing the price, restructuring the distribution channels and improving the manufacturing method to maintain the quality and reducing the average time required to manufacture an item, they need a bigger goal to integrate and innovate themselves and prepare for the progress in next decade. While the progress made in the previous six years is essential for running a business, it lacks a bigger strategic intent to take this positive transformation into next level.

Strategic Intent

Gucci immediately needs to define its strategic intent with a clear vision and tangible goal that inspires each and everyone in the organization as well as its clients and partners. That will help Gucci group to identify and bring the synergy that they need at all level with the new acquisition and the subsequent ones that they may likely to go for in the coming days. The strategic intent will also make it clear the reason for planned acquisitions and value that the group is trying to derive for its action.

Strategic Assessment

Once a high-level strategic intent is established, a detailed strategic assessment to take stock of internal and external situations needs to be performed to understand the possible areas where a synergy can be established and how it is being done by its competitors like LVMH. This is crucial given the projected lower margin from the acquired businesses. This will also help Gucci to understand external business environment given the aggressive acquisition wave across the board by all luxury product makers who are consolidating and strengthening their market position. As Gucci is expected to acquire more businesses in the coming days, a detailed strategic assessment will help to identify the right future actions.

In addition, the growth in rest of Asia is expected to increase the market share of luxury products from the current 18% 1 to higher. This will help to achieve the desired operational results and better align the future strategic choices when planning for the next acquisition.

Alternative Strategies:

1. Market Expansion

Its well known brand and high consumer recall worldwide of its brand, it is given that the company finds a favourable pick of action in market expansion as it can venture into expanding in the growing economies in the Asian continent and other potential markets.

1. Related Diversification

Related Diversification is possible through the company’s aggressive strategizing and expansive product lines.

3. Innovation and Improvement of Current Technology1

The multimedia way of marketing the products can pave way to innovative operations for Gucci since its controlled and integrated network provided the company the tool to possibly seek this course of action for further improvements.

4. Product Development

Fashion fades too fast and for Gucci’s brand to remain fresh and new, it should create, new products that would create value for the company and would stabilize its financial position in the luxury good industry.

5. Strategic Alliance with acquired companies

The company can improve its cash base and expand its revenue base thereby increasing its market share if the company ventures into alliances with its acquired companies in order to promote and market its products.

6. Backward Integration

Gucci could cost in its production/ manufacturing of goods without compromising quality by means of backward integration, with this strategy, Gucci could distribute and sell its products at a lower price making them more competitive and could threaten substitutes.

7. Strategic Alliance with Local Distributors and Retailers

The company can easily penetrate the market if it can close an alliance with local distributors and retailers thereby increasing cash and revenue base.

8. Product line extension

Gucci could also extend its product line and innovative products that are related to its core business.

Marketing Mix (4P.s):

Product: One of the first measures was to slash unsuccessful product lines (a massive reduction in the range of leather products) and focus on quality. All manufacturing licenses were terminated and production was brought back to the Tuscany region, except for watches remaining in Switzerland. Franchises were granted exclusively to sectors where craftsmanship is required, such as perfumes (Wella has a 25 year contract). Finally the low-end products were slashed (although providing a very high margin) because of brand dilution: “don’t run after the last dollar”.Additionally both de Sole and Ford understood that they could not rely on designerextravaganza, and very early on, introduced commercial considerations into their work: “in their world, value comes from a brand image more than form a designer’s artistry”.

Ford was then instrumental in developing the Gucci new look. He dropped the old look of red and green stripes that had adorned every Gucci product since its creation, and shifted towards an ultra-chic black minimalist look, that appealed to the fashion conscious clientele. He also understood that ready-to-wear (originally 10% of sales) should be used as an entry product and image ambassador for the other much higher-margin products such as accessories (bags, ties, shoes, tableware and belts).

Indeed, Ford created a mechanism to design a pipeline of new products, heavily using technology. Working from Los Angeles or London, he sent drawings electronically to Florence, were they were shaped in 3-D, then modified using cupboard models, and finally made into prototypes, again slashing both costs and new product development time.

Additionally, there is some evidence that he started to delegate part of the actual sketching to some 20 designers at Gucci and later to some additional 10 designers at YSL.

Price:The price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition, material costs, product identity and the customer's perceived value of the product. The business may increase or decrease the price of product if other stores have the same product.

Another measure applied immediately by de Sole was to reprice every single item in the product line, mainly downwards, to create a consistent positioning of the brand, taking into account the competitor landscape. He stressed the importance of bringing value to customers.

Indeed de Sole was quoted on several occasions that it was stupid to try to chase the last dollar in sales if that created blurred perceptions and inconsistency with the clientele.

Place:Place represents the location where a product can be purchased. It is often referred to as the distribution channel. It can include any physical store as well as virtual stores on the Internet. Place is not exactly a physical store where it is available Place is nothing but how the product takes place or create image in the mind of customers. It depends upon the perception of customers.

De Sole is bullish in his ambition to control the distribution channel, for he believes that in order to deliver the right image to his clients, Gucci needs to control the whole supply chain from manufacturing to distribution where the brand image is finally conveyed to its clients.

In order to create the same look and feel all over the world, Gucci closed or bought back all franchises and licensees, including airport duty-free shops, and shops in shops in

large department stores. “I am in the process of reducing the number of upscale retailers that carry Gucci” – de Sole. He indeed closed down Gucci’s presence at Harrod’s in 1996, opening a new store back a year later.

He also heavily promoted directly operated stores (DOS) in exclusive locations (Gucci Group: 67 self-owned stores in 1996, 124 in 1999). In 1999, all stores around the world were redesigned simultaneously , in order to impact the clientele worldwide simultaneously. And again de Sole went on annual tours to check consistency of brand guidelines and closing down stores several times if necessary.

Promotion:

It represents all of the communications that a marketer may use in the marketplace. Promotion has four distinct elements: advertising, public relations, personal selling and sales promotion. A certain amount of crossover occurs when promotion uses the four principal elements together, which is common in film promotion. Advertising covers any communication that is paid for, from cinema commercials, radio and Internet adverts

through print media and billboards. Public relations are where the communication is not directly paid for and includes press releases, sponsorship deals, exhibitions, conferences, seminars or trade fairs and events. Word of mouth is any apparently informal communication about the product by ordinary individuals, satisfied customers or people specifically engaged to create word of mouth momentum. Sales staff often plays an important role in word of mouth and Public Relations.

We understand that the Gucci brand was not heavily advertised in the pre-de Sole years. In order to relaunch the new image imagined by Tom Ford, Gucci relied on the usual techniques for fashion: public relations and press advertising. The difference with the previous era was the emphasis on this tool.

Indeed in 1994, “there wasn’t much money for advertising, so we decided to sink what we had into fashion which is a highly publicized business” – de Sole. The two Milan readyto- wear show in 1995 by Tom Ford were massive successes, and relaunched the brand into the forefront of the luxury goods field.

Gucci also used public personalities to showcase its products and create press coverage, such as with Hollywood stars: Madonna, Tina Turner, Nicole Kidman.

A massive global advertising campaign was then launched using the best fashion magazines: increasing from $6 million in 1993, to $28m in 1995 to $70 million in 1997, to $80m in 1998 (representing between 6 to 12% of sales).