Case Analysis: Coach Inc.: Is its advantage in luxury handbags sustainable?
Introduction: Overview of Company Situation
Coach Inc. (“Coach”), a U.S. based luxury handbag and accessories manufacturer, has been able to achieve extraordinary growth rate following Sara Lee’s acquisition in mid-1980s. In a luxury goods industry where market characteristic tends to be highly sensitive to economic upturns and downturns, the ability to establish and maintain brand loyalty through various strategies is one of the most vital factors. Coach’s immense success has been largely attributable to its focus on quality and stylish products which respond to consumers’ needs based on its extensive marketing research. Its “affordable luxury goods” price strategy also helps drive growth by appealing to a wide range of consumer, while at the same time, correspond with changes in middle-income consumer behavior. Nonetheless, in order to understand Coach’s approach to success and the market, a detailed analysis of the external environment and internal circumstances and competitiveness will be further discussed.
Analysis and Evaluation:
1. External Environment – Five Forces Model
(i) Current competitors
* Given that there is no fixed definition of the term “luxury good”, a high degree of consumer perception will be involved when considering whether a product has attained the status of "luxury goods". Research has shown that Coach is one of the first few brands which successfully established itself as “affordable luxury” despite the fact that its average price of handbag is well below the entry-level price of other luxury brands. In light of this uniqueness of its product, Coach has created a niche market within the luxury goods industry, with little competitors. * In comparison to the other luxury brands, Coach has also been able to increase its sales without a price increase. This outcome was achieved by attracting new customers with its price advantage to expand its customer base while also retaining existing customers with the quality of its products, as well as first-rate after sales service such as the lifetime repair and replacement warranty.
(ii) Threats of new entrants
* One of the market characteristic of luxury goods is the importance of brand image. The prestigious of a brand is attained over a period of time, and cannot be made overnight. In this sense, the most significant barrier for new entrants is in terms of image and reputation. However, given the strength of Coach’s market presence, and its ability to sustain its price and quality of goods and services, the threat from a new entrant of comparable size to Coach is relatively low.
(iii) Threat of substitute products
* A substitute of Coach products include both alternative luxury brand, as well as counterfeit products. * In terms of alternative luxury brand, Coach has been able to distinguish itself from other luxury brands by targeting both hi-end consumer, and discount shoppers through its outlet stores. Alternative brands of comparable quality are also higher priced than Coach products. Based on the statistics in 2006, Coach held up to “25 percent of market share in the U.S. luxury handbag market, and was the second best-selling brand of luxury handbags in Japan with 8 percent market share”. Its sales growth has also been growing consistently since 1999 till 2006. Nonetheless, the fact that Coach has adopted a strategy to target discount-shoppers may jeopardize the exclusivity of the brand which consequently drives the hi-end consumers to other alternative luxury brands. * The threat of counterfeit products largely depends on the seriousness of authorities in each country. In the case of Coach, there is a widespread of counterfeit products available in many markets which poses a grave threat. Although it is arguable that these counterfeit goods are unlikely to affect Coach’s sales given that the consumers...
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