Today, for Gucci What Are the Real World Counterparts to Each of Porter's Five Forces?

THE GUCCI CASE

1. Today, for Gucci what are the real world counterparts to each of Porter's five forces?

Gucci is a leading global brand in the luxury goods markets. In 2012 majority of its sales were generated from leather goods (59%), footwear (13%) and ready-to-wear (12%). In 2012 Gucci's main markets accounting for its sales were Asia Pacific (37%), Western Europe (27%), North America (19%) and Japan (11%). 429 directly operated stores along with e commerce accounted for 75 % of its sales. Porter's five forces are applied to these key markets as below:

 Rivalry among competitors: There is strong brand identity in the luxury goods market and the market is slated to grow over the next few years. Gucci has an advantage of very strong brand and has to compete with other well established brands such as Chanel, Calvin Klein, Louis Vuitton and Christian Dior. Customers in the luxury goods market prefer high end products with highest quality materials and exquisite craftsmanship, which are offered by these well established brands. So the market is dominated by these established players and the profit margin pressures are low. Most product designs vary from company to company. Hence rivalry among competitors is low.

 Bargaining power of suppliers: Gucci has a network of around 600 first & second tier suppliers, some of whom work exclusively for Gucci and are under contractual obligations. Gucci has good control over this broad and highly flexible network of suppliers. Also, these suppliers would like to be associated with a strong brand like Gucci. Thus Gucci has good leverage on its suppliers. Hence bargaining power of suppliers is low.

 Bargaining power of customers: Customers have many choices among high end luxury goods. There is virtually no switching cost for the products. Customers have changing tastes and demand high quality personalized products. Since Gucci is a very strong brand and understands the tastes of the customers, the power of customers is moderate. Gucci has the advantage of being a proven brand delivering to customer needs over the years but also faces the threat of ever-changing demands of its customers.

 Threat of new entrants: Gucci operates in the fashion industry, which has products with very short life cycles. A high degree of creativity, market knowledge and manufacturing flexibility is required. Besides there is a strong brand value in the fashion industry. It is difficult for new entrants to acquire these competencies and establish their brand value to compete with established brands like Gucci. So threat of new entrants is low.

 Threat of substitute products: Luxury goods are discretionary items. Their purchase can be postponed by buyers or can be replaced with cheaper products during times of recession. Luxury goods also have to compete with other expensive valued items such as a car or with leisure holiday trips etc. Hence the threat of substitute products is high.

2. What information - no matter how hard to collect - would you need to seriously assess the threat that each force poses to Gucci's profits? Explain your reasoning carefully.

The following information will be needed to assess the threat of each force to Gucci's profits:

 Rivalry among competitors: The following information of rivals is needed to assess the competition: Market information of competitor's designs, their financial data, marketing strategies, production data, management team, raw material & manufacturing costs, supplier and distribution network, terms & condition with suppliers