Marketing Positioning of Coach Incorporated - Case Study Example

Coach Case Study Analysis Introduction Coach Inc’s strategy that has created the “accessible” luxury goods market in ladies handbags has made it one of the best known luxury bags in North America and Asia. The company mainly leverages its operations on outsourcing manufacturing to Asia which gives it a competitive advantage since it has managed to charge lower prices for luxury goods by about 50 per cent. However, apart from its strategy that is commendable, the company of late has been experiencing a decline in the stock price. Consumer spending has been partly affected by the global economic slowdown witnessed in 2007 to 2009. As such, the paper seeks to critically evaluate Coach’s strategy and its appropriateness in view of the growing challenges related to improving its profitability. SWOT analysis According to Strydom (2004), a SWOT analysis standing for (strengths, weaknesses, opportunities and threats) is a useful strategy that can be used to scan the internal and external environments in which the organization operates. This helps the managers to capitalise on the strengths and opportunities available for the organization while making an effort to transform the weaknesses and threat into strengths that can improve the viability of the organization. The section below outlines some of the environmental factors impacting on the operations of Coach. Strengths 1. Coach offers distinctive, easily recognised brands that are well made and of great value to the customers. This helps to attract the customers to buy the products as well as to create loyalty among them. This helps to improve the viability of the company. 2. The company also has own retail stores and it has a good distribution network which makes its products accessible to a wide range of people. Coach channels of distribution include direct to customer and indirect channels as well as internet catalogues. 3. The company has well trained employees who are capable of handling customer queries. This has helped the customers to identify with the company as well as to create loyalty among them. Weaknesses 1. The strategy of licensing is not a very good income earner for Coach since it accounted for about 1 % of the sales in 2009. The company should manage its own affairs in order to maintain quality and consistency in the products it offers. 2. The other weakness of Coach is that all of its production is outsourced with vendors in China accounting for 85 %. This makes it difficult for the company to manage and maintain quality of the products it offered. Threat 1. The luxury industry is comprised of rivalry among the competitors. There are other competitors like Gucci, Prada, Luois Vuitton, Dolce and Gabbana. These competitors also compete for the same customers with Coach. 2. The other threat facing the company is related to the emergence of counterfeit products in the luxury market. Fake products are now infiltrating the luxury market and this impacts negatively on the organization. 3. The other threat is that the company cannot control the economic conditions in different countries where it operates. As noted, economic crisis can impact on the buying power of the consumers. Opportunities 1. The company has an opportunity to penetrate emerging markets as well as other developing countries. These untapped markets can significantly contribute towards the revenue generated by the company. Porter’s five forces model Porter’s five forces model can also be used to determine the profitability of the company and these forces are very important in its strategy formulation (Porter’s Five Forces Model, 2012). These forces include the following: barriers to entry by competitors, threat of substitute, bargaining powers of buyers, bargaining powers of suppliers and rivalry among the existing players. As such, this section of the outlines how these factors can impact on the operations of Coach. Barriers to entry There is a possibility of entrance of other low cost goods providers as well as other players in the market which can impact on the operations of the company. There are many players who can penetrate the luxury market across the whole globe. Substitutes The probability of a substitute penetrating the market is very possible as seen from the case study. Consumers can easily switch brands as seen in the case. Bargaining powers of buyers This mainly depends on the buyers’ ability to influence the price of the products offered. The global economic crisis impacted on the buying power of the consumers and this affected the customers. Bargaining powers of suppliers The bargaining powers of suppliers entail the capability of the suppliers to peg the prices for the raw material supplied. In this case, Coach sources its materials from reputable suppliers and these have high prices. Rivalry among competitors Rivalry among the competitors is very high. Other competitors include Gucci, Prada, Luois Vuitton, Dolce and Gabbana. These competitors also compete for the same customers with Coach. Diagnosis of the problem Essentially, the main aim of business is to generate profits from its operations (Kotler & Armstrong, 2010). This can be achieved through minimising operational costs while trying to generate as much revenue as possible. This can be achieved through creating a competitive advantage in the operations of the organization. There are several organizations in the market that are successful in their operations and they have strategies that can be hardly imitated by other rival competitors. This is known as competitive advantage (Porter, 1985). According to Porter’s model of competitive advantage, it can be observed that there are mainly two sources of competitive advantage which include the following: cost advantage and differentiation. “Differentiation is when a firm seeks to be unique in the industry while ‘cost advantage’ is where the firm seeks to be a low producer while maintaining quality. It may be possible for the company to adopt one of the strategies in order to gain a competitive advantage. However, both strategies can be implemented concurrently in the operations of the organization but there are likely to be problems encountered. Basically, differentiation strategy requires businesses to have sustainable advantages that can help them to offer something uniquely valuable to the customers (Kotler& Armstrong, 2010). In most cases, buyers need to purchase products that are of great value to them. It can also be observed that differentiated products in the market are unique and they can be hardly copied by other rival competitors and they often have premium prices to justify their value. Though Coach uses this differentiation strategy in its operations, it can be noted that its prices are comparatively lower than other similar products in the luxury market offered by other rival competitors. Some customers have recently switched to other exclusive brands such as those offered by Luois Vuitton as a result of great value attached to them. The strategy of low cost though it gives Coach a competitive advantage, it has its own setbacks. Low cost production can impact negatively on the quality of the final product at times since focus is on mass production. This does not augur well with luxury brands. Pearce & Robinson (2010) suggest that the aspect of pricing significantly contributes towards the performance of the organization in the market. For instance, the luxury market is denoted by premium prices charged for the products offered as a result of their exclusivity and uniqueness. Coach mainly focuses on expanding its stores and this strategy has a negative impact on the company as a result of the fact that its products will end up being treated as ordinary by the consumers. Therefore, the main problem confronting Coach is that it has a mixed strategy and this is problematic since it is quite difficult to create a fine balance between the need to differentiate the products while at the same time charging affordable prices to the customers. Solutions It is recommended that Coach management should consider possibilities of market development. This strategy for business growth is carried through identifying and developing new market segments for current products of the firm (Kotler & Armstrong, 2010). As noted from the case study, Coach has been mainly leveraging on both differentiation and low cost. The company should in fact also target affluent classes where it charges premium prices for some of its products. This will help to attract people belonging to a high income group. It is also recommended that Coach should also consider the strategy of product development. As noted from the case study, rivalry among the competitors is intense and the company can survive this level of competition through developing its products. This strategy is very effective since it helps the company to stay ahead of competition through offering unique and valuable products that cannot be imitated by other competitors. It is imperative for the firm to continue carrying out marketing research in order to establish the needs and interests of the customers. Conclusion Over and above, it can be observed that a company needs to gain a competitive advantage in order to operate viably. As shown by the case study of Coach, differentiation strategy is very effective since it helps the company to gain a competitive advantage by virtue of offering products that are unique. On the other hand, low cost also gives the company a competitive advantage since it can charge favourable prices to the customers. However, there is likely to be a problem if the two strategies are mixed particularly for a luxury market. This market should be solely based on uniqueness and exclusivity since the customers often attach great value to products with premium prices. References Kotler, P. & Armstrong, G. (2010). Principles of Marketing. CT: Person. Pearce, J.A. & Robinson, R.B. (2010). Strategic Management. Planning for Domestic & Global Competition. 13th Edition. J. Porter, M.E. (1985). Competitive Advantage; Creating and Sustaining Superior Performance. NY:The Free Press. Porter’s Five Forces Model 2012, Viewed from: Strydom J. (2004). Marketing. 3rd Edition. CT: Juta & Co Ltd. Read More