Gucci Case Analysis

Gucci Case Analysis

A company has a competitive advantage over its rivals when it has driven a wider wedge between a buyers' willingness to pay and the actual cost it incurs than that of its competitors. Michael Porter describes three determinants for a business to achieve and maintain a competitive advantage: cost leadership, differentiation, and focus. According to Gucci Group N.V., Gucci utilizes a differentiation business strategy that has greatly increased the consumers' willingness to pay a premium for Gucci products. Gucci's customers are willing to pay a higher price due to its premium brand image, customization, unique styling, high customer loyalty, and unusual high quality.

As a result of all these factors, Gucci has obtained a significant competitive advantage over its competitors that allows it to charge a premium price for its luxury goods. A differentiation strategy is appropriate in a highly competitive industry. Analysts estimated that 25 companies share 60 percent of the luxury goods market, with a large number of smaller companies accounting for the rest. Originally, Gucci's quality leather goods, along with its red-and-green striped webbing and GG logo, allowed this strategy to succeed due to the unique brand image and high-quality attributes that the customers perceived to be better or different from the products of the competition. Furthermore, Gucci mainly focused on producing leather goods, making up 41.3% of its net revenue by product category. Gucci's target market was not price-sensitive and consisted of affluent, style-conscious customers. However, the 1980s were marked by internal family disputes that had a devastating affect on the company's revenue. In the early 1990s, Gucci's losses amounted to $102 million. The company was able to turn things around by repositioning its differentiation strategy to better utilize its unique brand image and tremendous brand loyalty. Tom Ford, Gucci's creative director, modernized the company by focusing on an aggressively glamorous and youthful style, rather than the classic and timeless style popular in the high-fashion industry at the time. Furthermore, COO Domenico De Sole not only unified all seven Gucci operating companies, but also welded many Gucci parts into a coherent hole, from the employees to suppliers, creating an environment of mutual respect and loyalty. From a marketing perspective, he revolutionized the image of the company, developing the ethos of Gucci lifestyle with a youthful, fresh edge.

Gucci's marketing has succeeded in appealing to their customers need to feel youthful and up-to-date. This modern, fashion-oriented consumer replaces items of clothing every season. Gucci has succeeded in making women in its target market, ages 30-50; feel fresh and edgy when wearing its products. This consumer is constantly buying new clothes to replace old clothes that are "out of style." Although this consumer may have less brand loyalty, they are extremely valuable because they are willing to spend a premium to acquire the hippest and newest items on the market and are replacing their wardrobe at a much higher rate than other consumers. Some attribute Gucci's appeal to this valuable target consumer to the excitement created by Tom Ford in the press. Because of Ford's physical presence, he was able to create a public image of a Gucci lifestyle with a cutting edge appeal to the target consumer. This change of focus from traditional, timeless items to modern youthful clothing was replicated industry wide by most companies in the luxury clothing industry.

To retain and enhance the competitive advantage resulting from its product differentiation, Gucci embarked on an aggressive strategy of controlling and limiting retail availability of its products, resulting in a sense of exclusivity for consumers purchasing Gucci products. Gucci developed a strategy of relying on directly operated stores (DOS) to foster the exclusive buying experience of its customers. Gucci bought out or closed franchised operations and pulled back from wholesale distribution through department stores and independent boutiques, allowing it to maintain complete control over presentation,