Michael Kors Business Strategy and Policy - Essay Example

Michael Kors strategy and policy Introduction Michael Kors Company is a speedily growing lifestyle branded global luxury that is led by a technical world class management team and a prominent and a celebrated award winning designers. Michael Kors Company has presented very distinctive materials, designs and craftsmanship with an aesthetic that puts together a sporty attitude and a stylish elegance. The vision of Michael Kors has taken the company from American luxury sportswear house to a merchandise of global accessories, and footwear with presence in over 74 countries. The company has exceptional experienced sales momentum with a clear trajectory for important future growth. This has made Michael Kors a highly recognized brand of luxury lifestyle in North America, and has led to an improving awareness in the international markets. The company has successfully expanded over the years beyond apparel into accessories that include small leather goods, handbags, jewelry, eyewear, watches, and footwear. Introduced in 1981 in the fashion industry, Michael Kors Company reflects the luxury pinnacle and establishes authority in aesthetics in the entire brand and makes the cornerstone of the company runaway shows. The collections of Michael Kors Company are available in many retail shops and other department stores in the world and are subjected to international competition in offering accessories in the industry. In spite of the cut throat competition in the design market and fashion industry, Michael Kors Company has remained a world celebrated designer. This paper seeks to discuss the business strategy and policy of Michael Kors Company with respect to Porters Five Forces Analysis, in terms of ease of entry, rivalry, supplier power, buyer power, and available substitutes. In the analysis of Michael Kors’s business strategy in the fashion industry through the Porters Five Forces Model, we will consider the following competitive forces of the company: Threat of entry by emerging or new competitors Intensity of rivalry among the competitors Pressure from the available substitute products Supplier bargaining power Bargaining power of customers These five forces in the Porters Model taken together provide insight into the competitive position of Michael Kors Company in the fashion industry as well as its profitability (Porter 64). Intensity of rivalry among the existing competitors Rivals in the fashion industry are the existing competitors in the market. These are the competitors that Michael Kors faces in the fashion industry which may drive profits to even zero. Rivalry can be weak in the industry with small number of competitors that do not aggressively compete. Rivalry can also be intense where there are a large number of competitors who fight in a cut throat environment. In the case of Fashion industry, some of the factors that affect the intensity of rivalry among the existing competitors include the number of replica handbags of from Michael Kors by other firms and this will lead to intensive competition. The fixed costs and high percentage of fixed costs in the total costs of Fashion industry demands that the company sell more accessories in order to cover for such costs, hence increasing the competition in the market. In addition, Fashion industry need to practice product differentiation because similar products in the market will basically compete on price basis, and therefore identification of brand reduces rivalry (Porter 66). Threat of entry by emerging or new competitors Among the features of competitive advantage is the barrier to entry into the fashion industry. Fashion industry has very high barriers to entry such as the fake Prada china handbags because the prices are normally very expensive for the newly established firms such as authentic designer handbags to gain entry. On the other hand, where the fashion industry has minimal barriers to entry such as Louis Vuitton handbags are cheap relatively for new firms to enter. The threat of entry by new firms rises with the reduction of barrier to entry in a market. As more companies gain entry to the market, more rivalry is seen, subsequently leading to the fall in profitability to the point in which there is no spur for new discount Burberry handbags copy firms to gain entry into the industry. Fashion industry has however ensured various barriers even though this is a threat to its profitability: patents, with patented technology, Michael Kors ensures that there is a huge barrier that prevents other firms from gaining entry into the market and fashion industry; high cost of market entry, Michael Kors has made it very expensive to get into the fashion industry by making it very costly to start up a firm in the fashion industry, this results into a high barrier to entry; and finally, Fashion industry has gained customer loyalty in the market. The strong brand loyalty in the fashion industry makes it expensive and difficult for competitors to enter into the fashion market with new products (Porter 67). Pressure from the available substitute products This is the most damaging competitive force to the element of strategic decision making in Fashion industry because it is overlooked. It is imperative that the management of Fashion industry not just focus on its direct rivals and competitors and what they do in the market, but should also focus on what such competitors produce as products that customers may buy instead of their own products. There are numerous handbags and other accessories in the fashion industry, and when the costs incurred by the customer to switch to the other available product (switching costs) are low, and then Fashion industry faces a high threat of its products being substituted. Just as the company may deal with the threat of entry by new competitors, Fashion industry prices its products in order to keep its customers from switching to new products. This is because when the threat to switch to new products is high, then the firms in the Fashion industry will experience low profit margins (Matthews 63). Bargaining power of customers/ buyers There are two existing forms of customer powers in the fashion industry that are faced by Fashion industry. This includes the sensitivity of the price to the buyers. This is because when the product brand is similar to the others, the customers often base their decision to purchase the product on price. This due to the influx of the fashion industry, Michael Kors experiences in the Fashion industry an increase in competition that result from lower product prices, and ultimately lower profitability. Another customer power seen in the fashion industry is the negotiating power. The customers who are considered large have leverage with the design companies and are able to negotiate for lower prices. At the same time, where there are numerous small product buyers with all other things remaining constant, Fashion industry will have higher profit margins due to higher prices. In the contrary, if Michael Kors sells its products to a small number of large customers in the Fashion industry, then such customers have the advantage of leverage to negotiate for better prices. In the fashion industry, the size of buyers affects the customer power, as well as the purchase quantity. For example, if a buyer purchases a large quantity of Michael Kors handbags, the buyer is able to exert more power over Fashion industry (Porter 69). Supplier bargaining power The fashion industry has numerous suppliers producing the products. This means that the Fashion industry makes their decision to purchase products mainly on the price, and this lowers the costs. In the contrary, if there is one supplier that produces that something that Fashion industry needs in its production, then Fashion industry will have minimal leverage for negotiating a better discount on the prices of the handbags. The size of Fashion industry also plays a role in this competitive force, where Michael Kors is larger than its suppliers, and in turn buys supplies in large quantities, and then the supplier has very minimal power to negotiate for better prices. For example, the major competitor of Fashion industry, Wal Mart Company purchases in large quantities and therefore its suppliers have no negotiation power. This to some degree gives Fashion industry a cut throat competition. In the fashion industry, the supplier concentration affects their power. The smaller the number of suppliers of cheap Louis Vuitton handbags, the more power the suppliers will have over such company. The cost to shift to another supplier could be higher and therefore the supplier becomes more powerful. Again, the uniqueness of the supplies producing the exact commodities that Fashion industry want gives the supplier more power since Michael Kors is not able to switch to other suppliers (Lubin & Esty 56). The Porters Five Forces Model presents the scenario of Fashion industry as analyzed above. It is hence important to analyze these forces as they give immense explanation for the industry profitability as well as the firms in it. These five forces determine the profitability of Fashion industry. It is therefore important to do this analysis in order to know what Fashion industry is able or unable to accomplish in terms of profitability. Michael Kors is a profitable company as seen in the analysis. The company dresses both real and imagined stars. The company designs, sells and distributes high fashion footwear and accessories for both women and men. The company has expanded the portfolio of its products by linking various agreements through the years such as eyewear with Marchon, watches with Fossil, and fragrance with Lauder (Unruh, G & Ettenson 55). Works Cited Lubin, DA & Esty, DC. The Sustainability Imperative, Harvard Business Review, 2010, 49-58 Matthews, J. Constantly Changing Design Required in Asian Markets, Market Leader Quaterly, 2010, 59-65 Porter, ME, Strategy and the Internet, Harvard Business Review, 2001, pp. 62-78 Unruh, G & Ettenson, R, Growing Green, Harvard Business Review, 2010, 54-61 Read More