The Likelihood of New Entrants
Luxury business is a unique business in the market. The industry lacks necessary regulations that govern the entry of new firms into the market. Thus, the firm GUCCI has ensured that it produces quality products that go hand in hand with the fashion industry. This strategy has helped the firm to meet the intended preferences of its clients. Because of technicalities problems in the fashion industry, it has been hard for new firms to enter the market easily. The difficulty in entry requirements has permitted Gucci the large shares that it holds in the market.
The Power of Buyers
There are probabilities that firms from other countries and continents would distribute their products into Italy as indicated in the case study to secure a market share. Gucci is worried of these new entrants in the market. Gucci has made it possible so share the cake of the fashion industry by opening branches all over Italy and the entire world. The company has reduced its distribution channel hence increasing the power of buyers.
The Degree of Rivalry
It is very unfortunate that the competing firms are of the same size in their operations as Gucci. Examples of these firms are LVMH and Bulgari who have the same size of distribution channel. It is, therefore, a threat to Gucci who if they cannot cope up with current strategies will risk survival.
Because of the rivalry among the competing firms, Gucci come up with the fashion-oriented approach strategy along with the usage of contemporary technology in manufacturing its products.
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The Bargaining Power of Suppliers
Gucci has a good number of suppliers. This strategy has enabled Gucci to control the power of suppliers from uttering the demands. Having few suppliers in the market means that they will control their supplier’s power.
Substitute Threat
The fashion industry has no substitute since the design or products depend on an individual’s choice and preference. Several buyers have switched from buying fashion products at cheaper costs and best qualities.
Gucci has been able to outsource activities from other organizations or companies. The company has been able to outsource technological assistance from other companies. Gucci is also outsourcing goods from the suppliers. The intention of the company to undertake such management action was to ensure that quality of products is improved, and the delivery of products is faster. The other strategy that Gucci is employing to create value is freeing resources to undertake other functions more effectively and efficiently. For example, Gucci has freed the use of technology resource to other organizations to ensure the quality of fashion designs are of better qualities. This has been evident via the localization of its suppliers. Some of the Gucci suppliers have good relationships with the company as indicated in the case study thus; works hand in hand to ensure clients get the right preference and quality of fashion.
Gucci has shared risks with the government to make sure that it reduces the investment requirement making the company more dynamic and adaptability. This will be undertaken with respect to the changing opportunity and probability of better results in the fashion world. This strategy has made Gucci to remain competitively in the market reducing the power of new market entrants as well as diversifying the target market. The third strategy, used by Gucci is ensuring that strengths and weaknesses of the company are analyzed. This will improve customer image and the facelift of the company.
The company is using cost leadership strategy. This strategy involves Gucci winning of the market share by evaluating price sensitive customers. The company is manufacturing quality products but sales them cheaply to its customers as compared to other competitors in the market such as LVMH and Bulgari. To remain competitive by offering lower prices in the market and to attain profitability on the investment, the company has to operate at lower costs as compared to its competitors.
There are three ways to undertake this:
- The first method is to ensure that Gucci attains a high turnover. In the fashion business, this implies that the company should be able to sell in shop sales. It boosts the strategy by improving high volumes of output. This means that the company should spread production costs as technological advancement cost over several years over a larger number of units produced.
- The second method that the company has been using implement this strategy is in directing operating costs. This is attained by offering basic quality products, offering high quality products and personalization of the service. Gucci’s production costs are kept low by using standard materials and current designs. In addition to diminishing the number of models used to ensure better production runs. The reduction of production costs is done via outsourcing suppliers to offer direct services to the company and the use of excellent technology for its production. Quality concern is the key issue when running this strategy.
- The third tactic is taking control of the supply chain and the distribution channel. The company buys raw materials used in the design, in bulk, to gain quantity discounts from suppliers. Squeezing the price of suppliers and just in time advertisement that the company is currently using helps in ensuring the cost of production is kept as low as possible. This ensures that the cost of delivering is kept as low as possible hence the value addition of the products are maintained.
There are several reasons for choosing the above strategy. The following are the reasons:
- Gucci have problems with leadership, and for this reason, the company decided to employ the above strategy to ensure that its leaders get the best training and skills. Equipping top managers or executives paves way for quality production. Ensuring the company maintains its outside image it has to perform exemplary in the fashion industry since it is a competitive industry.
- The other reason for undertaking this strategy is to allow the business to compete competitively the long-term rather than in the short-term. The business seeks to diversify the business by merging with the government in order to distribute its risks. Thus, prevents the business from running at liquidity.
- Taking control of the supply chain is also a reason behind the implementation of the strategy. Ensuring that stakeholders and customers, as well as suppliers have the best supply and distribution chain that is fast, and easy access is the key concern of using this strategy.
- The last reason for using the above strategy was to ensure that maximization or profits are the key concern of Gucci. Maximization should be undertaken under safety care about the quality or products.
The model concerns the relationship between the industries with other industries in the market. Gucci Company is not able to interact with other sectors of the economy since the nature of the business is unique. This business only deals with fashion and design. I/O model is a matrix that represents a section of the national or part of the regional economy. Given all the above facts about I/Q model, it is true that the model is not part of Gucci Company. The ideal reason for this difference is that the firm is a private business that only shares its profile to its affiliate companies around the world.
The company has only three stakeholders; the government, the customers and the family of Rodolfo Gucci. The main stakeholder of the company is Rodolfo Gucci family. It owns more than half of the company is shares. The government is a new stakeholder of Gucci Company. The reason for including the government is to seek political interest and to distribute risks. Such consideration made by the company to include the government has been made to permit risk diversification as well as to prevent the company from running at liquidity. Clients or customers are considered as secondary stakeholders.
Since the company is fashion designed, company the taste and preferences are determined by the target market.
The company has several environmental opportunities to consider. The company is closely related to the environment since all the raw materials are sourced from the environment. Gucci should ensure that it exploit the resources but should ensure that opportunities such as creation of green environment should attainable. Despite the fact that the company has various opportunities in maintaining the environment it is also faced with threats. The competition that exists between Gucci and its rivals will eventually exploit all the raw materials used in the fashion industry. With this, environment will be affected causing detrimental impacts to the people.
The group that the company is can be evaluated as intra-strategic groups. The company works within the different strategies to ensure that the company benefits from the outcome of the fashion instructor. As specified in this case, the company has been able to come up with technological strategies and fashion approach strategies to ensure that it meets the demands of the people. Thus, intra-strategic means that the company merges with other strategies to ensure clients get the best quality of fashion. The changing fashion design is what affects the intra-use of these strategies. It should be considered that being in such as group offers the Gucci competitive advantage.
Gucci has several resources that range from the company infrastructure, the capital resource it holds, the human resources and the availability of natural resource at its disposal. The company uses all this resources for the well good of its customers and that of the state it operates (Italy). It has varied capability such as expansion and maximization of profits. Offering the best quality of fashion and design is also one of the capabilities of the company. The core aptitude of the firm is a production of quality products as well as a reduction of prices of its products. The core competence helps the company to abide by its mission and vision.
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