1. Vision statement Become one of the leading luxury groups providing excitement and glamour to a global heterogeneous customer base. Young, creative and hedgy designers allows Gucci to deliver such vision. 2. Situation Analysis The luxury sector, where the Gucci group is operating, is a market where brand, product and the intangible benefit associated to the brand are key success factors (KSF).
The economic slowdown represents a potential threat to the group, which has poorly performed in some of its brands, and has maintained profitability by focusing on emerging markets (BRIC), which are the most likely to be affected by the economic cycle. Given the scenario ahead the management is in the process of deciding its marketing strategy. The options in the table are essentially two. Adopting a more diversified approach (LVMH multi-brand strategy), or continuing developing strong individual brands serving different niche / customer base under the same umbrella company.
Vital to the success of the group is the rapid adoption of a clear marketing and investment strategy around its flagship brands. The luxury sector is highly sensitive to the economic cycle and the potential losses in an economic downturn can be considerable given the high level of promotion required to maintain brand equity. 2. Objectives The Group is facing an uncertain economic scenario which is challenging the profitability of its flag ship brands, in the middle of a restructuring process started in 2004, when the icon designer of Gucci (the brand) and is CEO have both left the company for incompatibility with the new management.
Corporate objectives (5 years) Reestablish brand equity and image is vital for the group representing top-notch brands with a long life history of success, innovation and creativity within their distinct brand character. Business / Functional Objectives (Specific, Measurable, Achievable, Relevant, Time bound) •Reduce business concentration risk in terms of sales and EBITDA to a 25-30% cap on each product (leather goods is in 2007 around 55% and it has been growing from 2003) within 5 years. Maintain a widespread geographic allocation of sales to reduce the impact of any region specific risk, including geo-political and economic risks (particularly currency risk for Luxury). •Restructure the loss generating brand, bringing the operating margin to positive within 2 years (ambitious but necessary given the fast paced challenging market) 3. Strategies Some back-ground consideration relevant for deciding the marketing strategy A.
The first decade of the 21st century has seen the creation of large group operating in the fashion industry, with some players adopting a multi-brand diversified portfolio strategy (LMVH is a luxury conglomerate), while others have decided to maintain a focus strategy around its brand identity, building and expanding the brand into different segments to drive growth (Dolce & Gabbana, Prada and many others have expanded their presence in perfumes, accessories, etc). B. Star brands such as Gucci have built their brand image around its creative director reputation.
The strong association between the brands and the designer can make the brand vulnerable to its flagship designer future. As an example, few years before, the murder of Gianni Versace has drowned the Versace group into problem, to which the management has never been able to react successfully. C. The luxury and the fashion industry are changing rapidly and completely. For example in the 50-60’s l’haute couture was a product for an elite. The accessible fashion world was clearly separated from top-designer. Both product and customer were completely different with no overlapping.
In the last decade, the separation between these extremes world seems to have fallen apart. For example top fashion house designer Karl Lagerfeld (Chanel) had designed a line for H&M few years ago, against traditional conventions. The customers of luxury goods including fashion have changed. People that buys luxury goods, buy in department stores (El Corte Ingles) and low-end retailers too (Zara, H&M, Benetton, etc). Visibility is important, and such mass market brands allow top-designer to be seen, reinforcing brand equity and innovation.
Having considered some of the trends and changes the industry is facing, the Gucci group should focus on the following strategies: A. Reestablish the prestige and image associated to the Gucci brand (short term) After Tom Ford and De Sole had left, the brand has been incapable to rebuild its reputation within the industry. The Gucci brand has not been able to stand-up and walks on its own feet. Despite having delivered acceptable results from 2004, the brand has failed to rebuild a strong image and in the long run this could destroy the brand identity, its profitability and hence the group long-term survival.
It is obviously not correct to identify the Gucci group with the Gucci brand, given that other brands such as YSL and Bottega Veneta are important and part of the group strategy to built a luxury group. However, if we consider the weight of the Gucci brand on revenues and profit within the whole group, we understand that the future of the Gucci brand is a prerequisite necessary for the success of the whole group. A deep restructuring of its flagship brand is necessary because it allows generating the liquidity and the buzz around the whole group portfolio to foster the success of the other brands.
B. Brand Extension (short-term) The group should leverage on its existing brands, expanding into different segments to strengthen its brand visibility and hence its brand awareness. Cosmetics, perfumes and accessories have represented a traditional brand extension strategy for many companies operating in the fashion and luxury industry. Such strategy represents an easy way to leverage on the brand image, by using license agreements and royalties sharing agreements. Such complementary businesses provide visibility reinforcing brand recognition.
Furthermore, there is an emerging trend within the fashion industry for which profitability has shifted from clothes to accessories, cosmetic and perfumes (tier-2 businesses). This does not mean that brands operating in the luxury should only focus on secondary businesses, given that reputation and recognition is created mainly thanks to their primary business (ready-to wear clothes). Nevertheless, the positive contribution to brand image and profitability associated to secondary line of business further justify operating in those. C. Promotion (continuous)
Given that in the Luxury market price is not a base for competition, we can easily understand the importance of promotion in such sector. Luxury match an emotional desire with an intangible benefits (dematerialization process). The intangible benefits are created through a targeted and focused promotion. Promotion is vital in creating and maintaining brand image, although a risky strategy if not appropriately planned. The potential costs and reputational damage associated to an failed promotion can be prohibitive. D. Diversification (long-term) The Gucci group should in the long-term focus on reducing its overall business risk.
The timing for the implementation of a diversification strategy is crucial. Reducing the business specific risk may mean entering into new unrelated businesses (wine & spirits, jewels, furniture, etc), as well as reducing the weight of some business such as leather goods. Nevertheless, given the uncertain economic conditions and the problems with the current brand portfolio, such strategy can wait to be implemented. Ideally market expectations should have changed to positive and the restructuring of problematic brands within the Gucci portfolio should have started. 4.
Tactics The below is a summary of the different steps to be executed in order to brings the above mentioned strategies to life A. Reestablish the prestige and image associated to the Gucci brand – short term Within each leader fashion brand one of the most important aspect is represented by the creative group. The Gucci group should first study its customer base and their latest trends. Particular attention should be placed on the intangible association to the brand. Gucci is associated to comfort, practical, casual, cosmopolitan, class with no excessive extravagance.
The first step in creating a successful team is identify a potential successor to Tom Ford (Lacroix, Galliano, Marc Jacobs), which can be identified and selected by matching the intangible association with the portfolio, the track history and reputation of the creative director. The top-stylist is the person who decides the image and coordinates a team of designer. The people in the creative team need to fully understand the brand, its style, and its character and being also able to deliver such to the customer. Trend hunting will work with the designer in order to deliver an image consistent with the brand and with the group image.
Gucci is known for its creativity and capacity to reinvent and reinterpret fashion, which differ from more static brands such as YSL, Chanel, and Valentino. Therefore the creative team should be able to propose trendy top-quality design for people that believe the top-elegance is something reachable. To succeed in this strategy and to further increase brand visibility, I recommend the Gucci brand to explore cooperation with low-end retailers (similarly to Karl Lagerfeld), in order to design a limited special collection combining the value of Gucci with the value of the selected retailer.
Implementation stages: 1. Planning new research on target customer for each brand 2. Understand the intangible associations of each brand 3. Select the right star designer to lead the re-launch / re-position of the brand 4. Partner with low-end producer B. Brand Extension – short-term As explained before, to increase the brand visibility, the Gucci group should work on identifying any possible brand extension by entering the cosmetic, perfumes and accessories business leveraging on the strongest and innovative brands (Gucci and Bottega Veneta).
The fact that YSL Beaute’ has not delivered the result expected, does not mean that the group cannot undertake brand extension strategies. Preferably, entering new segment and markets should be done through licensing, keeping a strong focus on quality and service, in line with the brand image. The Group should develop a story board for the group, something that connects the different brands within the Gucci’s portfolio of Gucci. Implementation stages: 5. Identify business opportunity for the different brands of the Gucci group 6.
Identify potential partners and perform a brand image analysis of such 7. Check consistency and fit with the group storyboard 8. Decide whether to produce in-house or through licensing C. Promotion – from start Promotion and public relations in luxury and fashion is all. The Public Relationship team needs to work actively in establishing solid connection within the best magazines, the best buyers and the best department stores in the market. An important window to the press is also the seasonal cat-walk in the main fashion cities (Paris, Milan, New York).
These are events created for the press. The collection is most of the time created for the events and for the public invited to attend. During these events, the review of fashion experts can make the good or the bad of any fashion company. People like Suzy Menkes, one of the most respected fashion experts, can determine the success or the failure of a collection. There is obviously a lot of money changing hands to influence well respected commentators, and Gucci should reinforce its expenditure on PR in order to re-establish its brand equity.
All these represent the window of company products to the public (brand visibility), together with the indirect publicity obtained by artists and VIP (brand ambassador). If we think at Madonna and at the benefit generated by her indirect advertisement of Dolce & Gabbana we can appreciate how determinant few key ambassadors can be in leading to success a brand. Last, but not least, is the use of the most recent interactive technology to establish a contact with each brand customer base.
Therefore internet, blogs and regular newsletter can reinforce the brand image and capture the attention of Gucci’s customer on the different brand within the portfolio. By creating the right marketing buzz thorough web 2. 0 marketing techniques is a way to progress and move in line with the changes happening in the fashion industry (low-end mixing with high-end). Implementation stages: 9. Invest on events and public relations 10. Use the media channel consistent with the brand 11. Select few brand ambassadors able to increase visibility 12.
Enter the latest interactive marketing technology D. Diversification It seems that largely diversified group such as LVMH have been able to defend their operations more efficiently than others luxury groups such as Gucci, strong of a more diversified brand portfolio, composed of uncorrelated businesses such as fashion and wine. A diversification strategy should be implemented in order to reduce the long-term exposure to a particular industry (e. g. fashion) or segment (e. g. leather goods) of it.
Diversification could be implemented through acquisition of niche player, with an attention to the business concentration and the geographic presence of the acquired company, in line with the long term business & functional objectives In addition to that the group could push for advanced functionality and technology enabled creativity (for example technical sportswear waterproof). Implementation stages: 13. Identify business opportunities outside the fashion industry 14. Understand the possible synergies and fit between new business opportunity and Gucci value, mission and vision. Match with the Gucci group storyboard 15. Buy-in or Opt-out