Competitive Advantage at Louis Vuitton and Gucci - Essay Example

Competitive Advantage at Louis Vuitton and Gucci Famous brand names like Louis Vuitton and Gucci with the kind of turnover and profits they enjoy annually are expected to deliver a competitive advantage. With annual sales of over a hundred and sixty-five billion US dollars and profit margins of over fifty percent, Louis Vuitton Gucci are relied upon to deliver competitive advantage (Porter 2008, p.212). When we look at a competitive advantage in the industry we examine the value chain that is where the profits are generated in the said business as it identifies the parts of the business that are more profitable as they are likely to be associated with the potential advantages. Another part that we are keen to look at the value chain in relation to competitive advantage in luxury goods. The value chain is quite complex but the key activity in most companies is the preparation and display of a new collection for their bi-annual or annual fashion show. Brand reputation is also included in the competitive advantage whereby the lead designer is at times more important. Usually, the main value is generated at the fashion house and not at the earlier parts of the chain. At the fashion house where the value is added varies; the fashion designer - for instance, famous designers like Giorgio Armani or Stella McCartney takes a leading role in the development of a new silk dress, say an embroidered silk haute couture dress, as part of a certain fashion house next women’s spring collection. The designer’s work is better if supported by a business manager as he ensures that the business aims of the house are met and the designer is not burdened by a lot of managerial matters (Porter 2008, p.212). With these help from the manager, the designer is able to create two complete collections every year in all the major fashion centers as well as create men’s collections and arrange pre-collection briefings. Some of the activities that add value to the garment start with just an idea on a static mannequin which is refined over time as the silk fabric is chosen; then after the materials arrive they are cut to make up the finished garment (Porter 2008, p.213). Other activities involve the final touches like invisible stitching by skilled seamstresses who are key in a fashion house. But the ultimate thing is when it appears on the catwalk and in showrooms for sale. The value chain of haute couture silk dress that constitutes that competitive advantage could be briefly analyzed. Suppliers who supplied silk from China have low value as they are many suppliers. Design co-operation with the fashion house on colors, pattern, fabrics, and styles have high value as it requires specialized staff and good contacts as well as co-operation from the house. Operations which involve the manufacture of each dress and famous designer are a crucial part and hence add very high value to the end product (Porter 2008, p.213). Outbound logistics which involves the distribution of the dresses to the shops this adds medium value since it needs to be regulated as a way of brand control. Marketing and sales include fashion shows, media coverage, and other brand-associated products like shoes and bags this stage is very valuable as it is most useful for brand promotion and inspiration. The real value added to the fashion house can be seen in three other related areas: dresses from the same design label since many people may not afford a thirty thousand dollar silk dress but they can afford a two thousand dollar ready-to-wear dress by the same designer. Accessories like shoes and scarves among others-people are able to pay for them because they come from the same fashion house though they are sold by other outlets (Porter 2008, p.214). Other related and licensed items like fragrances which customers pay for even if they are not manufactured by the fashion house but are licensees of the brand name. A brand is more than just a product produced for a fashion show but the ability of a company to know the dangers of diluting the brand. The high fashion houses protect their brands and even go as far as revoking the licenses if they detect that the brand is being diluted which could include a case where the products are being sold below the normal prices (Porter 2008, p.214). Brand licensing across many related products by a fashion house gives it a wider range of activities to develop its major brands on. A good example is the world’s leading fragrance company L’Oreal has bought licenses from fashion houses for several of their lavish fragrances. Most fashion houses have developed their own retail shops where they sell their products from all over the world these outlets account for close to eighty percent of the proceeds. Fashion houses too have taken to operating a wide range of brands which is a plan to spread the risk so that in case one brand fails the other can take over thus the house just suffers a temporary slump it also creates employment for people across the globe to where it has outlets. Competitive advantage in the luxury goods industry is basically brought about by the value chain which may as well maybe the same in all the houses but it is countered by the different brands in a particular house. These luxury goods are however supplemented by other products under the same brand like shoes or accessories which are sold at much cheaper prices but they still serve the same purpose of strengthening the brand name (Porter 2008, p.214). For instance, Louis Vuitton which is based in France has as many as fifty different brands under its wings this has led to it opening its own outlets which bring about eighty percent ‘of the total profits and has created employment for over fifty thousand people thus expanding its boundaries far and beyond. Gucci, on the other hand, is the third largest brand of luxurious goods whose own retail outlets generate about fifty percent of the overall profits and spend about fifty-five million US dollars on advertisements to promote its brand. Thus the two leading brands are highly expected by companies to deliver a highly competitive advantage of the luxury goods there are in the market which they do. References Porter, Michael. Competitive advantage. New Jersey: Simon and Schuster, 2008 Read More