This case solution delves into the evolution of Gucci Group and how it has moved from being a single-brand company into a multi-brand one.
David B. Yoffie; Mary Kwak
Harvard Business Review (701037-PDF-ENG)
September 19, 2000
Case questions answered:
Case study questions answered in the first solution:
- Map the competitive positions of the different players in the luxury goods business. Who are the best-positioned players? Why?
- Where was the Gucci Group positioned on the map above in 1990? 1994? 2000? From a strategy point of view, what was Gucci’s problem up to 1994? In other words, where do you see issues in how Gucci was creating/capturing value?
- What were the critical moves made by De Sole to reposition the company? Illustrate Gucci’s primary and support activities and explain how De Sole’s repositioning strategy affected these activities. (Hint: Value chain framework on p.13 of reading, “Strategy Reading: Competitive Advantage” (HBP: 8105)).
- In 2000, Gucci acquires YSL. What would be the key to making this acquisition successful for Gucci in the long term from a strategy point of view?
Case study question answered in the second solution:
- Please do a write-up of the case study and conduct strategic analysis.
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Gucci Group N.V. (A) Case Answers
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Gucci Group N.V. (A) Case Study
Consumer brand perception drives the luxury goods industry. The demographic of consumers within this market is usually price-insensitive and focuses on products that stand out amongst the options and the status that comes with the purchase. Due to this particular reason, we believe that Hermes, LVMH, and Prada are some of the best-positioned players.
Out of these three, LVMH is the most well-positioned due to its huge brand portfolio. According to Exhibit 4, Louis Vuitton has one of the highest operating margins as well as the volume of sales. In 1999, LVMH earned revenues of $8.2 Billion, which is attributed to sales in leather goods and fashion, drinks, retail, and cosmetics/perfumes.
The company is continuing to grow at a rapid pace, which is evidenced by its acquisitions of major brands, including Fendi, Tag Heuer, Krug, etc., in 1999. Additionally, in the late 1990s, e-commerce was also emerging, and LVMH launched eLuxury.com, a multiband portal that enabled its customers to purchase its goods online.
In the 1990s, the Gucci Group positioned itself as a luxury brand with high costs, but the product itself was made of low quality, with the only product differentiation being their branding of interlocking Gs.
The company lowered its costs in 1994 while maintaining its quality in an effort to present itself as a better value compared to its more expensive competitors. They also limited the number of retailers carrying the product, including Duty-Free, to further increase differentiation.
In the 2000s, they leaned into their reputation of being a luxury brand, driving consumers to their product through differentiation while maintaining high prices. The Gucci Group needed to figure out its strategy in terms of pricing and quality and advertise its product to the appropriate consumers.
De Sole repositioned the company by reorganizing and repositioning Gucci’s operations. He identified the critical cost drivers within the business and consolidated the company under one global brand.
De Sole worked to optimize operations by bringing more of the manufacturing internally within the company. He renegotiated rents on stores and reduced staff, which cut down the operating costs of the Gucci Group.
He also sought to control more of Gucci’s distribution. By stopping secondary market distribution, Gucci is better able to control how their products are sold through directly operated stores, which in turn preserves their image.
De Sole also identified the changing consumer preferences and repositioned the products to meet the market demand. He recognized the emphasis on quality craftsmanship as Gucci’s core competency, which was the central role in its early success.
In addition to reducing operating and manufacturing costs, De Sole worked to select premium manufacturers to guarantee and control the highest quality products.
He lowered the prices of the product to compete with Prada and Vuitton by offering superior and higher-quality items.
As of 2000, the Gucci Group consisted of Gucci, Yves Saint Laurent Couture, YSL Beaute, and Sergio Rossi. In order to continue the multi-brand strategy and make the YSL acquisition successful, Gucci should establish synergies that will maintain and strengthen its competitive advantage within the luxury goods industry.
Key factors or recommendations to make this successful in the long term include focusing on developing a robust e-commerce platform to anticipate changes in market trends.
Additionally, keeping the YSL and Gucci brands visually distinct for the consumers so that they don’t cannibalize each other’s revenues. The Gucci Group should…
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