Question One: List and elaborate some strategic issues facing Coach Inc.? (One small paragraph listing top 5 strategic issues for Coach)
Coach faces challenges common to companies experiencing a growth "stand-off" as she expands globally. This stand-off is informed by specific and generic factors in luxury goods industry. Notably, Coach faces strategic challenges in 2012 in five areas: (1) market maturity, (2) value differentiation, (3) growth pattern, (4) counter-competition strategy and (5) market research in emerging markets. For market maturity, Coach has reached a point of market maturity beyond which more aggressive product innovation and marketing activities are required in order to offer a boost for growth. For, value differentiation, Coach has historically relied on pricing as a major driver to beat competition, a pattern which is being reversed by introducing diffusion product lines (at lower prices) by major, international European and U.S. brands. For growth pattern, Coach appears to achieve a non-organic growth pattern manifest in soaring growth in emerging markets and rapidly declining (compared to historical performance) in "home" markets, particularly in U.S. For counter-competition strategy, Coach does not have a clear strategy aimed at countering competition's more aggressive moves, particularly in emerging markets. For market research in emerging markets, Coach is on a rising pattern of opening stores in China and India without apparently performing proper market research and/or overestimating customer purchasing habits in China and India.
Question Two: What are the key elements of Coach’s strategy?
Coach adopts an expansion strategy both in market share and product portfolio. Coach has expanded her international presence both for outsourcing and quality control purposes. For market share expansion, Coach has a market expansion strategy into main, revenue-generating markets (namely, North America and Japan) by opening new stores. For product portfolio expansion, Coach has expanded her brand portfolio by rolling out more men-only leather products, particularly in Japan. In so doing, Coach is, as noted in current case, aligned to an uptrend in men's market for luxury goods. For international expansion for outsourcing purposes, Coach has chosen to outsource manufacturing jobs to local workforce in emerging markets, particularly in China and India. This strategic choice is informed by a drive to cut out labor costs in order to ultimately drive down retail price for customers seeking quality products at affordable prices. For international expansion for quality control purposes, Coach has been well aware of how significant quality is in luxury goods industry. This awareness has been interpreted into a broad network of Coach regional offices in China and India in order to follow up on quality control issues at production facilities. Not least, Coach has pursued an aggressive policy of introducing new product offerings and periodic market research (in home markets vs. emerging markets). In so doing, Coach has remained ahead of more established haute couture and conventional luxury brands by offering up newness of offerings in addition to innovation in designs.
Question Three: Please apply Porter’s Five Forces model to the luxury goods industry. While doing so, clearly identify who is behind each force – for instance Suppliers, Buyers, Substitutes, Competitors, etc. And what is the impact of each force on the profitability of the industry – in terms of the following levels - High/Medium/Low. At the end, also provide a summary of all the five forces and propose whether you think the luxury goods industry is attractive industry or not an attractive industry.
Porter's Five Forces Model is made up of: (1) Supplier Power, (2) Buyer Power, (3) Competition, (4) Threat of Substitution and (5) Threat of New Entry. For current case, each force exercises a differential power (ranging between High, Medium and Low) in luxury goods industry. For Supplier Power, suppliers of leather products have a High impact level on industry manufacturers. This is justified by a limited number of leather suppliers (particularly in Italy) and an infinite number of luxury brands cutting across different geographies, products and distribution platforms. For Buyer Power, customers have a High impact level on industry. This is justified by a higher quality / lower price duality driving competition in luxury goods industry. Given how customers (particularly ones in emerging markets) are becoming more price sensitive, a slight increase in price in order to offer quality products is apt to make customers switch to another brand, a pattern which is repeatedly exploited by Coach as a competitive advantage. For Competition, luxury brands have a High impact level on industry. Indeed, as established brands and new comers compete over an increasingly demanding marketplace and changing lifestyle habits, completion grows fiercer. For Threat of Substitution, switching to a different luxury brand has a High impact on luxury goods industry. This is partly justified by growing number of industry new comers and partly by industry's susceptivity to slight increases in price and, probably more significantly, by emerging new needs created by innovative and aggressive marketing campaigns in an industry characterized by high emotional attachment to products. For Threat of New Entry, more recent developments in luxury products – namely, emergence of diffusion luxury products in both developed and emerging markets – have lowered entry costs for new comers making a High impact on luxury goods industry. Overall, impact on luxury goods industry is High for all forces. This analysis indicates, if anything, unattractiveness of luxury products industry, particularly for startups seeking a niche market in a highly competitive industry.
Question Four: Evaluate the sources of Coach’s competitive advantage and determine whether or not the company can sustain its advantage.
Given current situation, Coach is set lose a critical competitive advantage, i.e. lower priced products, as more and more established luxury brands switch to diffusion products. Still, Coach has an additional competitive advantage of an expanding global presence. By opening more stores in different geographies, Coach has more visibility, particularly in emerging markets. Not least, Coach adopts a multi-channel distribution model making her at a better strategic partnership edge compared to competition.
Question Five: Elaborate some of the key lessons you have learnt from the case analysis?
If anything, Coach is an ideal example of a company experiencing a market maturity and increased competition. By losing her "flagship" competitive advantage, Coach is recommended to review her value differentiation proposition beyond conventional higher quality / lower price duality. Further, Coach is recommended to better manage her comparatively rapid store expansions in emerging markets by performing more extensive market research. Finally, in her race for international expansion in emerging markets, Coach should not lose sight of her home U.S. market.