Environmental Analysis for Gucci Group - Essay Example

At least 2-3 tools (PEST, VRIE (this is needed)., and Value Chain Analysis* - Need to highlight only the key relevant trends/success factors from the internal external situational analysis. Environmental Analysis for Gucci – PESTLE Political factors Process of globalization is also increasing the trend for political integration and alliances across the world where markets are merging such as EU and closed economies such as China have opened up with new political ideologies taking power. Such emerging markets hold vast potential for luxury brands such as Gucci. Other luxury brands such as Rolls Royce are having extremely successful sales in markets as China. Environmental factors Companies such as Gucci which are always in the lime light and have high public profiles are affected by the impact they have on environmental aspects. For example when they use raw materials for a particular collection of clothing, care should be taken to minimize the usage of materials such as animal fur that carry negative impact on nature. As the company uses leather and other animal skins as alligator, environmental damage which may be incurred by high usage of such raw material must be born in mind. With emission control laws setting out new and stringent standards in Europe and across the world, manufacturing facilities of Gucci will have to ensure compliance to new regulations. Social factors With the process of globalization, internet era and new industries such as ITC creating new avenues of wealth and wealthy individuals, the primary market segment of Gucci have expanded. A new segment of less affluent “ Wannabees” aiming to emulate the Gucci’s traditional customer profile is offering new business opportunities. With the ageing population increasing in Europe, the market for fashionable luxury goods as Gucci will expand as it is the more mature people who can afford such exclusive luxuries. However in the long run this social trend can be detrimental as there would be a larger population that are seniors and supported by a fewer number of working population, creating low spending power in the economy. Technological factors With the developments in IT, managing logistics, supply chain, retail outlet inventories and product development can all be upgraded to be on a networked system with real-time information. Such information integration is essential to support multi brand multi product business operations which are highly diversified and globally located. Internet is widely used and can be utilizes as a advertising tool to a greater extent, making available design and product information, as well as collection videos so that the reach of the communications are wider and cost effective. With the new developments in technology, new fabrics are being developed and Gucci as a forerunner in the fashion industry will be affected by these new developments as it is expected to experiment with and utilize these newly developed fabrics. Legal factors Duplicate products being marketed at cheaper prices is another big problem which luxury goods manufacturers are facing. With copy right laws becoming increasingly stringent and also integrating and harmonizing across the world, such duplications are becoming illegal, traceable and chargeable under law for violation of trade mark rights and copy right infringements. Economic factors Most economies of the world are undergoing recessions, making it a hard task for marketing luxury goods. Even if the business cycle of key markets are experiencing boom phase where economies are prospering, the cyclical nature of the economy will pose recessions during which companies such as Gucci needs to withstand. 2. VRIE Analysis – Giucci Group 1. Valuable Capabilities & Resources Being a part of Pinault-Printemps-Redoute’s (PPR) which has business and financial stability. A well balanced luxury product line portfolio including fashion ware, jewelry, accessories, perfumes, watches and shoes which complements each others. The different brand images such as classical Gucci and YSL as well as Cutting Edge new brands as Bedet and Alexandra McQueen allows Gucci Group to be represented many market segments with different customer profiles Rare Capabilities and Resources Highly Talented creative designer team heading different brand operations. Over 200 fashion retail outlets with full control. Difficult to Imitate Capabilities & Resources “Gucci Group” brand image. Exploitable Capabilities & Resources The global presence in all major International cities. The two pronged strategy at Gucci where support services are centralized to achieve synergy across multi brand operations while front end operations are decentralized in to separate SBU’s to maximize responsiveness. Dedicates suppliers who are solely producing for Gucci which improves quality control aspects. Over 65% of sales being generated by own outlets providing better marketing control Presence of professional management skills compared to other fashion houses such as Prada, Hemes etc which restricts their growth in to large scale from their current medium scale business status. 3. Company Value Chain Analysis for Gucci Group Clearly identify what capabilities the firm has that are truly strategic (VRIE) and what it needs to do given its context. The company has developed a product portfolio through various acquisitions which is truly strategic and would allow the company to exploit its brand image, support service operations operated by the group management and the presence of large number of own fashion boutiques in international locations. While some of the brands are classic and well established, generating established cash flows, other new brands such as Badet and Stella McCartney will offer potential for new growth. Such a well balanced portfolio is of strategic advantage. To further develop this strength, the company needs to invest in the new cutting edge brands to develop them in to established businesses while also putting efforts to rejuvenate and maintain the classic brands in its portfolio. The company’s highly creative designer team with respected designers in the industry adds value to the brand image while ensuring creativity in product innovations. The company needs to keep focus on these personnel to ensure that they are happy with being a part of the company and their inspirations are kept at high level The small base of dedicated suppliers producing only for Gucci brand is also a key strategic capability which allows the company to maintain high quality even within its outsourced production activities. The company needs to maintain the high quality across all products whether or not they are in-house produced or outsourced. The raw material suppliers too should be integrated in to a similar program so that high quality can be maintained within the supply chain. Financial strength of the parent company PPR which has allowed the company to compete well and establish its brand names with high advertising activities which is essential to attract the new customer profiles of “Wannabees” who lack brand loyalty and respond to high brand exposure. This place the company in a strategic competitive position to out compete other brands. The company needs to keep this in mind in future activities as well as allocate substantial marketing budgets to maintain brand momentums. The new brands too should be allocated high budgets to attain their potential status. The presence of professional management expertise, the Gucci’s two pronged management strategy where synergy is achieved through group management being responsible for the “back end” support activities while separate brand management teams are entrusted with development of brand through front end marketing activities will allow the company to exploit the above mentioned capabilities better. Gucci needs to further develop this area by streamlining the management structures to balance responsiveness vs. synergy. -Then generate ideas on issues. Gaps- misalignments. The key issue in the GG’s operations lies in the current management structure where it has failed to be developed in line with the multi brand operations to which the company has aggressively diversified in to. Retailing section should be run by a separate management team while the product development, marketing, sourcing etc should be done through cluster teams which are allocated for each brand. These teams should be developed in to high performance autonomous work teams which thrive on challenge, short lead times, innovation and creativity as well as drive for being number one in industry. The company has also failed in achieving synergy through the outlets to support all its brands. For example, the company currently operates exclusive outlets for some of the brands as YSL ad Sergio separately while other brands don’t have their own outlets. In order to achieve brand synergy, outlet operation synergy as well as retail logistic synergy, the company should revamp the whole retailing structure where all GUCCI GROUP products are made available at each of the company owned outlets. The brand separation can be achieved through separation of product counters and layouts but the fact that all the product lines are exclusive will allow them to be retailed under one roof. The fact that there is a range of exclusive well established brands under Gucci Group will re- enforce the brand strength of each of the individual brands. In marketing, the element of Gucci Group should be brought in to all brand advertising whether or not it is Gucci brand it self. This will create synergy and support the development of new cutting edge brands within the group portfolio. A separate marketing campaigns, which advertise the new Gucci Group boutiques should be launched, educating customers of availability of all products of GG under one roof. -Link above to recommendations. I will be writing this in the exam. _also could you comment on the usefulness of each tool- are they useful in explaining Guccis situation. When one considers the importance of business environment analysis tools such as PESTLE, SWOT, VRIE or Value chain, care should be taken as not to depend on one singular analysis tool but to combine a few to arrive at a clearer picture of the situation. For example, external environmental analysis such as PESTLE may provide only overly generalized trends. However, industry conditions are more critical for the analysis so the external environmental analysis should have a combination of PESTLE analysis with an industry analysis tool such as Key Success Factor analysis and Porters analysis. A competitor analysis is essential and a PESTLE analysis can be strengthened through bringing in quantified analysis elements of a Environmental Threat and Opportunity analysis (ETOP) analysis. When internal analysis is being conducted, VRIE and value chain provide powerful analysis opportunities which can identify company cost bases and key value activities. It also allows the capabilities to be identified and also to identify areas where internal capabilities need to be developed. However, in a multi brand scenario such as Gucci, portfolio assessment tools such as BCG matrix, Shell Matrix etc needs to be applied to assess each brand’s strengths and potential as well as level of investments needed or type of promotional support to be allocated as well as to arrive at investment or divestment decisions. Q2: Corporate strategy from the point Gucci goes to a Mutli Brand Strategy... What is Guccis business and corporate strategies... And what is the difference between the two? Corporate strategies for a Multi Brand company which has diversified businesses involve a series of portfolio related decisions. Following are the key corporate strategies which Gucci has to make from the point onwards of becoming a diversified company : 1 – Whether the diversifications should be strictly related or unrelated. Currently Gucci has diversified only in to related areas of fashion related clothing, accessories, leather goods, perfumes, jewelry and cosmetics. However the company may consider other areas of investments if capital build up warrants such moves. 2 – A second corporate level strategy which Gucci makes is the moves to build positions in new industries through acquisitions, mergers and strategic alliances. Current strategies such as take over of YSL and other new cutting edge time piece brands as well as alliances with new designers such as McQueen are examples. 3 – Among corporate strategies which are of importance, remains divesting strategies. Gucci needs to assess profitability and potential of its product portfolio and consider divesting some of its products and brands if need be. Their move to cut short many of the accessory lines which had cheapened the brand image in the early 1980s is an example of how companies need to consider divesting. This can be applied to whole business units as well in the diversified setting. 4 – Resource allocation strategies also fall in to corporate level strategies where having ranked the priority of each strategic business units (sbu’s) the corporate management has to strategies on how to allocate its resources based on potential for growth and profit expectations of each SBU 5 – Corporate level strategies also involve the level of domestic vs. international expansions. GUCCI needs to implement new strategies to capture new markets in potential emerging markets as China. 6 – Strategies aimed at capturing cross business synergy through strategic fit also falls within the scope of corporate strategies. GUCCI should strategies to achieve supply chain synergies, marketing and advertising synergies, retail outlet operation synergies through offering all brands under one roof as well as synergizing the management and admin workforce efforts to maximize profits. Having decided upon corporate strategies, the business level strategies have to be drawn up to meet the corporate strategies. The business level strategies for each SBU will depend upon the stage of product life cycle in which the brand is positioned and priority of the SBU in the corporate product portfolio. The difference between the corporate level strategies and business strategies in a diversified business lies in the scope of relevance and implications the strategy has. Corporate strategies will take in to account the whole business model and operations and make decisions in relation to each business unit while individual business level strategies are concerned with the achievement of the objectives of the business unit itself. These will include production, marketing, product development, finance etc strategies which will assist the company to achieve the overall business objectives which are in turn aligned with the overall corporate strategy of the group company. Read More