Chanels Position Strategy - Case Study Example

CHANEL’S POSITION STRATEGY Table of Contents Political 3 Economic 3 Weaknesses 5 Opportunities 5 Threats 6 Target Audience 7 The Ansoff Matrix 9 References 11 Appendices 13 Company Background Chanel fashion house as founded by the French designer, Gabrielle Bonheur coco Chanel in 1909 in France (Okonkwo, 2007).  As fashion designer, coco Chanel was profoundly associated with menswear-inspired fashion and more modernist fashion philosophy. As the pioneer of the Chanel fashion house, Coco went ahead to instills her unique style of fashion into the Chanel’s product portfolio. Chanel fashion house has successfully emerged as a global fashion house whose product portfolio is majorly segmented into apparels and accessories (London, 2013). According to Doran, (2014), Chanel products include ladies wear, perfumes, hand bags, cosmetics, shoes, accessories and jewelry. The product portfolio further has three divisions, cosmetics, fashion wear and jewelry. Some of the iconic brands that have gained global reputation from the Chanel include Chanel No. 5 fragrance, little black dress and the 2.55 quilted handbags (Doran, (2014). The house of Chanel is currently owned by two brothers, Gerard and Alain Wertheimer and is valued at $ 18.5 billion according to a report by Bloomberg (2013). Macro Environment Analysis To evaluate the strategic position of Chanel, Jobber (2010) noted that it was imperative to assess the impact of the external environment on the operations and management of the organization. The PESTLE tool of strategic analysis provides an elaborate framework for the examination of the impact of the political, economical, social, technological, legal and environmental aspect of the fashion industry. Pestle Analysis. Political The proliferation of counterfeits and piracy of Chanel products is of significant concern to the house of Chanel. The growth and development of the Chanel’s products to the emerging markets has resulted to resurgence of counterfeits particularly in the Asian regions (Tungate, (2009). It is hence imperative that regional governments institutionalize stringent regulations to deter production of the counterfeits and pirate products. Similarly, the implementation of the new EU consumer laws further poses a threat to the iconic brand of Chanel No. 5. The EU has banned use of mosses in perfumes due to risks of allergic reactions (European Commission, 2014). Chanel’s market expansion into the global markets has further been slowed down by existence of numerous and varied international trade regulations on the target markets such as China, Vietnam and Japan. However, Tungate (2011) noted that the bilateral trade agreements between France and other nations have underpinned the successful penetration of Chanel into international markets. Economic The currently witnessed rebound of global economic crisis of 2008/09 has resulted into increase in demand for luxury goods and services (Apparel, 2014). Consumers are increasingly spending more on luxury goods with the prospects of favorable economic conditions in future. Additionally, the global apparel industry has been characterized with increase consumer base as result of increasing consumer purchasing power in the developing world. The unprecedented increase in consumers’ income and growth of the middle class in emergent markets such as china highly signify market opportunities for Chanel’s products. The global economic recovery has led to increased consumer income thereby encouraging purchase of luxury goods. Vis a vis, the resultant of the two factors has been positive consumer behavior change towards to the purchase of luxury goods. Social The growth of the middle class in the developing economies has given rise to consumerism trend where consumers have a higher preference for quality and prestigious social status. On the other hand, consumers have come to identify Chanel with elegance and style. Vis a vis, the apparel industry has been dominated with brand conscious consumers who are less sensitive to price levels and highly loyal to brands. Technology The growth of technology has positively impacted on the growth of the apparel industry and House of Chanel in particular. Noyes (2014) noted that the advancement in information technology has revolutionarized market competition through internet advertising, social media interactions and improvement of production efficiencies. Development of broadband technology has led to online advertisement with global audience and real time reaction to consumer feedback through face book and twitter accounts. Proliferation of mobile devices has further facilitated development of online stores for luxury products. Legal and Environmental Aspects Implementation of the EU consumer protection law on perfumes with mosses poses threat to apparel companies such as Chanel. The company is will likely incur additional costs due to the reformulation of the perfume brands to maintain their unique identity. The environmental aspect of the apparel industry has further led to the development of the concept of sustainable fashion. According to Dickson (2014) sustainable fashion entails the design and production of luxury goods produced through processes and materials that result to minimal environmental impact such as carbon footprint. Chanel is thereby expected to adopt these practices in order to development competitive advantage in terms of social and environmental responsibilities. Micro Environment Analysis The SWOT analysis tool was employed to analysis the internal environment of Chanel fashion house by identifying the strengths, weaknesses, opportunities and threats to operations of the organization. The findings from the results thus underpin appropriateness of managerial decisions on the strategic management of the company. SWOT Analysis Strengths 1. Chanel has successfully built a strong brand image associated with elegance and style 2. Chanel products characterize high quality accessories and jewelries made of premium fabric and embroidery techniques 3. Celebrity endorsement by Marilyn Monroe and designer Karl Lagerfeld has maintain the prestigious image of the products. 4. Effective management of Chanel fashion house through rigorous training of staff and incorporation of the Chanel’s heritage into the organization’s culture. Weaknesses 1. As producer of high end products, Chanel’s stores are geographically limited, only situated in major world cities therefore less market penetration. 2. The proliferation of counterfeit luxury goods has resulted to incurrence of high cost of brand protection by Chanel Opportunities 1. Continual economic growth and market expansion in the developing economies 2. Technological advancements in communication leading to improved producer-consumer interaction and cheap advertisement 3. Chanel could further diversify its product portfolio to meet the needs and market niche in the developing economies 4. The development of new apparel market segment also presents opportunities for new product development and market penetration Threats 1. Proliferation of counterfeits luxury goods 2. Competition from local producers in developing market Internal and External Environment Analysis Conclusion The external and internal analysis of the strategic situation of Chanel indicated key drivers of the growth and global success of the company. From the external environment point of view, Chanel operates in highly conducive industry coupled up with resurgence of economic growth and growth of the middle class in the developing economies. Chanel has further diversified into emergent markets through market penetration and product development therefore creating competitive advantage. In terms of the internal analysis, the company enjoys multiple strengths and opportunities as opposed to threats and weaknesses. Furthermore through effective strategic management and government regulation, identified threats and weaknesses could easily be eliminated. Industry Analysis Target Audience House of Chanel primarily targets younger middle class and upper women who have preference for premium luxury goods (Hill and Jones, 2012).The products are design to attract younger consumers through product association with elegance, style, class and modern simplicity. Additionally, Chanel also designs high end male wear mainly driven by the company’s iconic designer Karl Lagerfeld. Market Positioning Chanel has strongly positioned its self a unique brand for women’s luxury goods thereby dominating the apparel industry. According to Hoovers (2014) Chanel controls over one third of the France’s luxury goods market and a $ 18.5 billion estimate its company’s worth in 2013. Chanel was named the marketer of the 2013 for its strategic measures on consumer related segments such as video advertising. Chanel brand was further voted the most favorite fashion brand in china. Vis a vis, not only has Chanel succeeded in France but its replicating its cultural heritage in the emergent market. Competition Analysis According to Hoovers (2014), key competitors of Chanel include Louis Vuitton, Gucci and Prada. Louis vuitton is the world’s largest luxury company whose product portfolio includes perfumes, cosmetics, leather hand bags, watches and jewelry (Kapferer and Bastien, 2012).  Louis vuitton has also expanded its penetration to emergent market such as china and Japan. Another notable competition is an Italian owned luxury goods company Gucci based on Netherlands. Similar to Chanel, Gucci’s brand include ready to wear cloths, hand bags, cosmetics, skin care and jewelry. Unlike Chanel, Gucci and Louis vuitton have expanse global network of stores across major cities. The other competitor is Italian brand Prada, profoundly known for its strategic entrance into the Chinese market. These three brands pose threats to Chanel due to their well established image in the global market as market leaders of prestigious luxury goods. Just like Chanel, Gucci and Louis vuitton key success factors are exclusivity and image of prestige. Furthermore, these brands target audience are the young women between 20s-30s. However, Gucci and Louis vuitton have specialized on leather goods while Chanel does not (McCarthy, 2014). Marketing Strategy The marketing strategy of the Chanel was identified through the examination of the product, price, placement and promotion strategies. Pricing: Chanel employs premium pricing strategy on its luxury goods. The pricing strategy could be attributed to numerous factors. Chanel brands are of high quality and further consumer significant time resource in their production. Additionally, Chanel brands undergone rigorous production process that entail time consumption and extended value addition. Placement: The ready to wear stores are majorly located in cities and major towns. Globally, the company operates 310 stores mainly situated in affluent streets and airport in order to target consumers from upper and middle class demographic segment. Additionally, advancement in technology has led to development online stores where one can order purchase from any location. Promotion: fashion magazines forms Chanel primary channel of advertisement. As producer of high end product, Chanel associates its product with classy and expensive magazines such as the Marie Claire whose clientele share similar values and preferences inherent to Chanel products. Furthermore, fashion magazines equally resonate with the core philosophy of Chanel’s product, stylish and elegant fashion. Other channels include, fashion shows, television and the internet. Product: Chanel categorizes into product portfolio majorly into fashion and accessories, fragrance and beauty and fine jewelry and watches. However, the primary market segment is younger women and wealthy consumer with lower sensitivity to prices and higher preference for style and prestigious image. Strategy Formulation Strategic Options With reference to the Ansoff matrix, there are four possible markets – product combinations which could be employed by Chanel to achieve additional growth of the business. The Ansoff Matrix Existing Products New Products Existing Markets Market Penetration Product Development New Markets Market Development Diversification Source: Johnson et al. (2012). Market Penetration: The house of Chanel should establish new boutique stores with the same product portfolio in the European market with the aim of increasing its market share. Market Development: Chanel should increase its expansion strategies to the emergent markets in Asia and Africa Product Development: Introduction of new product portfolios such as skin care and new perfumes Diversification: Chanel should further venture into production leather goods and publication of its own fashion magazines. Recommendations Based on the findings of the internal analysis, key competitors of Chanel in the apparel industry have wide geographic coverage compared to Chanel. Therefore, it is imperative that Chanel focus on increasing its investment in the emerging markets. Likewise to geographic coverage, Chanel also lagged behind in terms of the number of boutique stores. The company should therefore establish more retail stores especially in the emerging Asian market. The proliferation of counterfeit goods further results to dilution of Chanel brand and reduction of revenue. The company should therefore collaborate with local governments and retail stores to formulate stringent regulation on counterfeit goods. Retail stores should be encouraged to stock genuine Chanel goods only. Hence, Chanel should over emphasize and further market its unique logo to create awareness of the genuine Chanel brands. Information technology and communication continues to play a vital role in the growth and development of global organizations. Vis a vis, to attract the younger generation, the company should maintain the integration of technology into its core operation. Chanel should actively engage with its consumers in social platforms such as face book and twitter. Additionally, the emergent sector of e-commerce further offers unprecedented opportunities to Chanel through online stores, web based advertising and real time feedback platform through emails. References Apparel. (2014). 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