Group Assignment MM 5003, MARKETING MANAGEMENT

MBA Institut Teknologi Bandung

Lecturer : Harimukti Wandebori
Time : Monday, February 6th, 2016
Submission : Monday, February 6th, 2016 at 4 pm.
Place : MBA ITB Bandung
Exam Model : Take Home Test
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Related with Gucci case:

1. What can you suggest to Gucci in terms of what Marketing Research to be conducted
to help restructure the company? (Define Problem, Research Design, Data
Collection, and Analysis).

Problem:

In 1994, Gucci made losses in excess of US $40 million and faced bankruptcy, while
a decade later the company emerged as the Gucci Group, one of the most important
luxury brand groups. Gucci reached sales in excess of US $2 billion and five-year
average annual operating profits exceeding US $200 million (Gucci Group Annual
Report. 2004).
The transformation of Gucci in the period from 1995 to 2004 was achieved in three
distinct phases, Gucci Brand Stabilisation Phase, Multi-Brand Acquisition Phase, Gucci
Group Consolidation Phase. The first phase, from 1995 to 1999, marked a period of
brand stabilisation. Management re-established the integrity and luxury equity of Gucci
through their consistent control and investment strategy. They developed formidable
expertise in product development, supply chain control, brand communications and
luxury fashion retailing. These core luxury brand management skills made Gucci
attractive to other businesses and close rivals, LVMH and Prada. Another interested
party, the French brand conglomerate, Pinault-Printemps Redoute (PPR), formed a
strategic alliance with Gucci in March 1999. PPR acquired a 42% stakes in Gucci for US
$9 billion.
The multibrand acquisition phase (November 1999 to July 2001) is when Gucci
signalled their emergence as the Gucci Group. The company acquired equal or majority
shareholdings in 10 companies to form the Gucci Group NV, the worlds second largest
multi-luxury brand conglomerate. (measured by share of the luxury goods market)
Finally, the third period from August 2001 to April 2004 is Gucci Groups
consolidation phase, when the company sought to exploit group resources
management; production and logistics; distribution to build these brands, which over
time can contribute meaningfully to Group returns. With their expertise in luxury fashion
brand management, the Gucci Groups strategy was to bring the skills and advantages
of the parent company to their subsidiaries.

2. Analyse the E4 external and Internal situation of Gucci and the implication to the
strategy.

External Analysis
General Environment

Gucci is one of the most luxurious brand. Luxury brands selling is affected by
culture, marketing, endorsement, product integrity, history, value driven emergence;
1. Culture depends on lifestyle and customers income.
2. Customers buy the product based on how the brands doing their marketing.
3. How the brands choose people to endorse their product to influence customers.
4. How the brands maintain their products quality to keep customers trust.
5. Customers believed in product that has good track record not only how long the
brands have been established but also the achievements that got by the brands.
6. To increase the brands value, they should deliver the brands promises.

Pest Analysis
Political:
The Political factors include Tax, Laws and Regulations which affects Gucci. The low
imposition of tax rate by the Government encourages Gucci to be more stable in
market. The increase in tax rate on contrary, will affect Gucci adversely that will cause a
rise in the cost rate. The organizations must stick to the rules and regulations while
manufacturing their product. For instance, Gucci needs to indicate the durability of
product in the outer packaging itself. A failure to do so will cause a downfall in its brand
image and most importantly, the business might even be sued.
Economical:
The economic factor mainly focuses on the purchasing power of the consumers. The
greater the demand for product the more is Gucci likely to increase its sales revenue for
their products. At the meantime, the less demand by the consumers for the product will
damage the reputation of Gucci. The interest rate is one of the economic factors that will
affect Gucci. The increment in interest rate will affect Gucci adversely, as the company
cannot take loan and will affect on company strategic plans. The lower the interest rate
the more the purchasing of goods of the greater value on credit which will be a positive
factor for Gucci.
Social
The social factor is the personal characteristics of consumers which include consumers
age, occupation, personality and lifestyle. Celebrities advertising fashion brands have
become fashion icons, trending the fashion industry. Growth of the professional women
segment and trend towards single households
Technological
The innovation in technology helps to gain more publicity for Gucci. This will result in a
strong brand image and loyalty upon the consumers in the market. The improvement in
technology will reduce the cost of production for producing the product for Gucci which
helps the business to increase its revenue.

Industry Environment
5 Porter
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.
Bargaining power of supplier:
Supplier threat is high because of there is an absence of substitutes suppliers.
Switching cost are high for Gucci other suppliers may be producing for their rivals.
Other suppliers may not deliver the quality and craftsmanship Gucci is expecting. In
addition, other suppliers do not have experience in producing Gucci products (current
suppliers have been with Gucci for long time). Hence, they will have a longer learning
curve slowing down the production process.
Bargaining power of buyers:
Two types of Guccis customers:
Super-rich, who can generate a lot of money (around at least 35,000+) due to
the high cost of Gucci product.
Middle-market costumers, who selectively trade-up to higher levels of quality,
taste and aspiration, 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 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.
Threat of Subtitles Product:
The threat of substitute to Gucci is moderately strong due to many factors. The threat
could come from imitation. Counterfeits often penetrate the market; this could take away
a portion of the sales that should go to luxury goods companies. If customers could get
better brand name with relatively low price than Gucci, they will switchover the brands.
Intensity of rivalry among competitors
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. There are numerous competitors such as Prada, coach, guess,
Burberry, Chanel, Luois Vuitton, and Herms.
Competitor Environment
Comparison of Gucci, Louis Vuitton and Vertu

Gucci Louis Vuitton

Established 1921 1854

Sector Fashion and Design Luxury Goods

Products Men and Womens Wear, Leather goods, ready-to-wear, shoes,

Shoes, Jewellery, Watches, watches, jewellery, textiles, writing
Perfumes, Eyewear, Home goods, instruments & accessories.
Luggage/Handbags, Famous for its handbags.
Baby Wear.

Average 800 (Handbag) $600 $2,000 (Handbag)

Pricing

Typical Florence, Rome, Paris, New York, Paris, New York, Tokyo, Dubai, Las
Locations London, Palm Beach, Tokyo and Vegas, Los Angeles.
Hong Kong. 300 Store Locations

Retail Provocative window displays, Products prominently displayed.

Environment model like salespeople dressed in Stores vary in product stocked. Uses
all black, free flow layout and rich concessions in department stores
dcor. such as Harrods and Selfridges. Very
contemporary in design and feel.

Business Locate on high street, directly Located in high street locations or

Strategies operated stores, online purchasing,
backward integration for watch
business and expansion of brand.
exclusive shopping malls with other
designer brands.
Online purchasing in the US only.
Have used Uma Thurman and
Jennifer Lopez in ad campaigns.
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

3. Analyse the Segmentation, Targeting, and Positioning of Gucci.

4. Analyse the Marketing Strategy of Gucci in term of: Value Proposition and Marketing
Mix (Product, Price, Place, Promotion).

Luxury strategys 4P

4P General marketing strategy Luxury strategy

Product Sufficient quality (not extraordinary Extraordinary quality
quality Absolute value ensured quality
Comparable quality Sensitive quality (customer experience
Function and benefit
Price Low or reasonable price
Comparable price
Place Extensive channel (large number of
stores, mail-order, wholesales, a
mass retailer and so on
High pricing and fair pricing based on
absolute value above function
Limited channel (only the channel which
they can control, directly-managed stores
and so on

Promotion large amount of public notice (TVs Mainly-utilized publicity

commercial, newspaper
advertisement and so on

4P Analysis of Gucci during the Start-up Period and the Regeneration

Period

4P Guccis start-up period Guccis regeneration period

Product High-quality leather goods made by
skilled craftsmen in the Tuscany
region
New products, including Bamboo Highly fashionable and unique products
Bag and canvas bags, launched under supervised by Tom Ford
the embargo
Price High prices with target customers
being the wealthy and tourists; fair
prices in terms of quality
Place Limited channel, confined to several
directly managed stores in Florence,
Rome, Milan and other major Italian
cities at home and 5th avenue, New
York
Promotion Utilized publicity as products were
used in movie scenes and other
media as well as by
celebrities in various quarters
Absolute value ensured by well-selected
skilled craftsmen
Narrowing down of licensed products
Quality was upgraded but prices were
reduced; fair prices were proposed from
the customers points of view
High pricing based on absolute value
above function
Centring on directly-managed stores65
stores in 1995126 stores in 1998
Limited to image-fitting department stores
and duty-free shops
Renovation of directly-managed stores
under the supervision of Tom Ford and
other measures to reflect the brand image
Aggressive and focused investment in
highly fashionable advertising
Utilized publicity with Ford as a poster boy

Marketing strategy:
Guccis management must have effective relationship with customers by answering
questions related to the issues of who, what, and how.
 Who: Target costumer is Gucci intends to serve by considering demographic factors
(age and income), social economy (high- income), psychological (lifestyle, personality),
and consumption pattern (heavy, moderate). What: The targeted customers needs to
have luxury good and very best product features from raw materials. How: Value-
creating strategies to satisfy customers needs
Focused differentiation strategy, Gucci differentiate their products in many ways:
a. Re-established control of Gucci product design and manufacture
b. Re-established control over Gucci product distribution
c. Create a balanced product portfolio for a luxury brand
d. Establish a luxury marketing communications platform
e. Create a luxury brand consumption experience
f. Hiring Tom Ford as a creatuve director to design direction and control
Gucci engaged in an luxury brand acquisition strategy that had been done before, in
terms of speed or its scope. The acquisitions which transformed Gucci from their single
brand status to become a multi-brand luxury goods group. With this strategy completed,
the company proposed a tripartite-brand categorisation of acquire brands which
identified declining brands such as Yves Saint Laurent (which have over extended and
required the rejuvenating inputs of Gucci management); emerging brands such as
Alexander McQueen and Stella McCartney (which would provide for future growth and
healthy returns); and complementary brands such as Boucheron and YSL Beaute
(which would afford synergistic opportunities in manufacturing and distribution).
Gucci believed that the acquisition will bring skills to advantage each category of the
brand and the group-synergies would provide positive benefits for the group as whole.
Each brand was acquired for its potential to generate outstanding value for our
shareholders through sustainable profit growth, return in excess of our cost of capital
and minimal short-terms earnings dilution.
Equity strategic alliance chosen to be implemented in Gucci consolidation phase,
where each brands own different percentages of Gucci holding shares by combining
some of their resources and capabilities to create a competitive advantage.