Executive Summary
The focus of our 2 year marketing campaign is the building of the Coach line of handbags. The typical market focus of the handbag business for Coach is geared towards middle-class women who have an interest in quality handbags and don’t who mind paying a little more for the quality and prestige of Coach products. While a Coach handbag is certainly a niche item, we feel there is ample room for growth. Coach’s top competitors are Prada, Gucci, Hermes, Dolce & Gabbana, Dooney & Bourke, Inc. Kate Spade LLC, and Michael Kors, Inc. We feel that we can expand our lead in the ‘accessible luxury’ segment of the upscale bag market. The market opportunity we see is well over $200m. Handbags represented 62% of Coach’s total revenue in 2009, and though that is a large number, we feel it can be expanded. This segment is growing, and poised for even further growth, which we want to capture. The initial investment in this campaign is $50m, which equates to 2. 25% of 2009 handbag sales. We foresee a full return on investment within the last quarter of the first year.
At year two, we estimate a 4. 4-fold return on the original $50m investment, equating to $221m increase in revenue, and well as a market share gain of over 13% for this segment. Our Poppy line will fuel a significant portion of this growth through our reseller channel, mainly Macy’s and Dillard’s, Coach-branded stores, and the Coach Boutique locations within our upscale department store partners. Incremental increases will be seen at the Coach Factory Outlet stores, but this product line is not in need of heavy discounting to incentivize customers to purchase.
Introduction
The coach was founded in 1941 and is engaged in the designing and marketing of fine accessories and gifts for women and men in the United States as well as internationally. The company’s primary products include handbags, women’s and men’s accessories, footwear, jewelry, wearable goods, business cases, sun wear, travel bags, fragrances, and watches.
Its accessories product line comprises women’s small leather goods, including money pieces, wristlets, and cosmetic cases; men’s small leather goods comprising wallets and card cases; novelty accessories, such as time management and electronic accessories; key fobs and charms; and women’s and men’s belts. The company’s wearable product line consists of jackets, sweaters, gloves, hats, and scarves, including cold weather and fashion goods for women. Its business cases product line includes computer bags, messenger-style bags, and totes for men. Coach, Inc. also offers luggage and related accessories, such as travel kits and valet trays; jewelry, including primarily bangle bracelets; and fragrance products comprising perfume sprays, purse sprays, perfume solids, shimmer powder, body lotion, and lip gloss. The luxury brand sells its wares through some 930 department and outlet stores (in the US and more than 20 other countries), catalogs, and website, coach. com. Though the economic downturn worldwide has been affecting business since 2007, Coach has still seen growth. From 2007 through 2009 Coach‘s revenues are up 24%.
Revenues increased from $2. 62Billion in 2007, to reach $3. 23Billion in 2009. With handbags accounting for 62% of revenues, handbags contributed $2,002,910,000 to Coach’s business. Growth has been fueled by Coach’s niche as being ‘accessible luxury’. While Coach does not have the prices of most of its high-end competition, it is regarded throughout the industry, and most importantly by consumers, as being equal in quality to much more expensive brands.
Corporate Mission
Coach seeks to be the leading brand of quality lifestyle accessories offering classic, modern American styling.
The Brand is Our Touchstone. Customer Satisfaction is Paramount.
Situational Analysis (SWOT)
Strengths
Coach maintains very high brand equity within the market. Coach is known for producing items of exceptional quality. Coach has proven that, even in a down economy, customers are willing to pay for quality. The perceived value of a Coach bag has helped Coach to weather the financial downturn. Coach consistently outperforms the market. Being an aspirational brand, combined with the value consumers seek, has lead to year over year growth, and an increase in same-store sales the past 3 years.
This strong financial performance validates these assertions. Coach customers remain very brand loyal, and according to our research, our rate of repeat business is very high. Coach’s multi-channel retail network has enhanced product availability and driven sales. The growth of the Coach Factory Store concept has been a success.
Weaknesses
Currently, Coach maintains a high level of inventory. The theory behind this plan is to be prepared for growth and to be ready for customer demand. If our customers have to wait on a bag due to inventory issues, Coach might lose them to a competitor.
The downside of this is being stuck with a glut on inventory that will need to be shifted to Coach Factory Stores, and sold at a discount, which cuts into margins. Another weakness is the geographic concentration of stores selling Coach. Large urban centers host a significant portion of Coach outlets, whether they are Coach Boutiques inside upscale retailers, stand-alone Coach stores, or Coach Factory Outlet stores. This limits Coach’s exposure to the mid-market retailers of the US and makes Coach products generally inaccessible to most consumer segments.
Opportunities
A coach can expand its reach through new store openings. The Asian market is growing considerably faster than in the US. For instance, China in particular is booming. As China gets wealthier, the demand for luxury goods increases. China has experienced year over year growth in the 50% range over the past 3 years. This market trend bodes well for Coach. The expansion of the Coach product line has shown an uptick in revenues. The Poppy line of Coach bags has made a large impact on the ‘value’ end of the luxury handbag market. Exploiting this growth is paramount.
Tapping into the repeat business is another key. Coach has a loyal following, and these repeat buyers are vital. Another opportunity is the chance to gain customers from our competitors. As discretionary income is diminished, luxury bag customers will look to Coach as a quality alternative to a much more expensive bag from our competition. Lastly, affluent customers through this downturn have shown a willingness to be ‘patriotic shoppers’. The coach being a US company has proven to be an incentive vs. ‘foreign’ brands.
Threats
Coach faces several threats to its market position.
One is strong competition from the likes of Kate Spade, LLC, et al. Spade and some other brands have moved ‘upmarket’ with the hopes of taking sales away from Coach in the ‘accessible luxury’ space. The soft economy is viewed as a threat because, while Coach may be seeing an increase in sales, particularly from those who were buying Hermes, Prada, Gucci, or Louis Vuitton bags, the economy could be eroding those who shop in Coach’s low-end product segment. Lastly, the biggest threat comes from the growth of counterfeit Coach merchandise. Purse Parties” have grown considerably over the past 5 years. A purse party is where someone has a gathering of women and sells ‘knock-off’ luxury purses. Faux Coach bags are big sellers are these purse parties. Though these counterfeit items do not match the quality of the originals, attendees are attracted to the price. Acquiring a Coach handbag that usually retails for $400 can be done for as little as $30. These knock-offs cost Coach an estimated $20 million per year in lost revenue.
Marketing Objectives
The goal of this marketing initiative is a 10% increase in market share. % of this gain should come within year one. If that occurs, it would mean a revenue increase of $102 million. Expanding repeat business is also a goal while moving clients to Coach and away from higher-end competitors. We want to increase our brand awareness from 70% to 85% in our target markets. Lastly, the goal is to create a new niche in the luxury handbag market by establishing Coach’s Poppy line as the ‘value’ leader in the luxury handbag market.
Target Mix
Coach’s target markets for this campaign are as follows; Professional women New customers who’ve moved up-market
Buyers willing to pay for quality Patriotic buyers seeking American luxury goods Customers in this market segment are seeking quality handbags that carry a prestige about them at a good price. These customers are willing to pay for quality. Coach’s reputation for product quality and value for the price has it positioned very well. The trend heading into 2010/2011 is for there to grow in the low-end luxury line.
Product Strategy
The Strategy for this campaign is to continue the focus on the Poppy line of Coach bags while growing the ‘accessible luxury’ segment.
We plan to highlight the sub-$350 handbags in our portfolio, winning new customers, and moving customers to Coach from our competition.
Distribution Strategy
The distribution strategy for this campaign will be to utilize existing channels while increasing exposure at our lower-end retailers such as Macy’s, Dillard’s, Filene’s, and the Coach Factory Stores.
Promotional Strategy
Continue print ads in fashion magazines Maintain Coach Boutique stores at Nordstrom, Bloomingdale’s, et al. Increase Coach footprint in growth stores: Macy’s, Filene’s, Dillard’s Continue highlighting ‘Poppy’ line
Continue to avoid Europe, focus on Asian markets instead of Training reseller sales reps on the value proposition of Coach.
Pricing Strategy
“Accessible luxury” $200 to $500 handbags Special focus on the sub-$350 range of Coach lineup Keep costs affordable without heavily discounting items.
Risks
Significant competition within our industry Operates in international markets. Global sourcing could be volatile A continued decline of global economic growth depends on the successful execution of our initiatives Subject to increased costs if we misjudge demand
Results are subject to seasonal/quarterly fluctuations, that could affect the market price.
Key Issues
- Near term
- Long term
We feel that it will not dilute the brand since we are not adding a ‘new’ segment to the market, we are just expanding it. Moving into a wider array of retailers was discussed. An example would be Target and Kohls. Our market research indicates that significant dilution of the Coach brand would occur if we went any ‘lower’ than Macy’s, Dillard’s, and Filene’s.
Budget
Seeking $50million for; Cross promotional ad campaigns (Print ads in fashion magazines, Billboards, Street ads in kiosks, etc. ) Merchandising / In-store promotion Market Development Funds to go towards sales incentives Sales training for retail partner salespeople
Monitoring
We expect this campaign to Campaign will show Return on Investment within the first 12 months. Specifically, our forecasting shows that by the end of Q3, and the start of Q4, we’ll meet full ROI. The 2-year campaign cost is 2. 25% of FY09 Handbag sales revenue, which equates to $50 million.
We forecast double-digit growth of this segment (A 10% increase in year 2). The initial $50m investment will show Coach a 4-fold ROI for the life of the campaign, which equates to over $221 million.
Summary
The focus of our 2-year marketing campaign is the building of the Coach line of handbags. The typical market focus of the handbag business for Coach is geared towards middle-class women who have an interest in quality handbags and don’t who mind paying a little more for the quality and prestige of Coach. We feel there is ample room for growth. We feel that we can expand our lead in the ‘accessible luxury’ segment of the upscale bag market.
The market opportunity is over $220m. Handbags represented 62% of Coach’s total revenue in 2009, and though that is a large number, we feel it can be expanded. This segment is growing, and poised for even further growth, which we want to capture. The initial investment in this campaign is $50m, which equates to 2. 25% of 2009 handbag sales. We foresee a full return on investment within the last quarter of the first year. At year two, we estimate a 4. 4-fold return on the original $50m investment, equating to a $221m increase in revenue, and well as a market share gain of over 13% for this segment.
Our Poppy line will fuel a significant portion of this growth through our reseller channel, mainly Macy’s and Dillard’s, Coach-branded stores, and the Coach Boutique locations within our upscale department store partners. Incremental increases will be seen at the Coach Factory Outlet stores, but this product line is not in need of heavy discounting to incentivize customers to purchase. With the soft economy, we feel that Coach is poised for growth in the low-end of our product line, and we are in a favorable position over or competitors.
We do not feel that implementing this campaign will result in competitive retaliation from our competitors. Most of our competition is above, or below this market segment. Coach has a strong niche in the ‘accessible luxury’ handbag market. Implementation of the campaign will solidify and grow Coach’s current market position, and put Coach on the way for market dominance, not just simply market leadership. If the market assumptions prove to be incorrect, the negative impact on the Coach brand, and revenues will be slight.
Even if Coach is forced to move some of these products via the Coach Factory Stores, the margins built into the product will recoup the cost of the campaign within 3 years. Coach’s strong financial position, high margins, and large gross profits, compared to that of its competition, allows for us to take on such a campaign with very low risk.
According to Moritz, the “accessible luxury” segment of the handbag market is poised for exponential growth over the next 5 years. Moritz sees this segment of the market growth in year over year sales for the near term, as well as for the next decade. As the economy improves, this market should grow even more.
Currently, the market for handbags in the United States alone is 38. 8 million people. That is nearly 1/8th of the entire US population. For Coach to achieve the goals of this campaign, 5% market share growth in year one, 10% growth by year two, it would be looking at an increase of 1. 9 million bags. While this number appears high, it is an attainable goal. Based upon 2009 sales, ($2,002,910,000) Coach sold 5,722,600 bags with the average sale price being $350. Coach already owns 40% of this market, so a 5% increase in the remaining market share, 23. 2million, would equate to a sales increase of only 1. 6 million bags. With the Poppy line, we’re targeting a price point in the low $300 range, which will increase out total units sold, but we still feel that this can be achieved through this campaign. Additionally, this campaign will be worldwide, not just in the United States. The target numbers listed for the campaign can be achieved in the US alone. Therefore, achieving these targets worldwide is highly possible, and we feel highly probable. Our push into the ‘mid-market’ population centers of the United States, mainly via our retail partnerships with Macy’s, Filene’s, and Dillard’s stores will fuel this growth.
References
- Peter, J. Paul and James H. Donnelly, Jr. Marketing Management: Knowledge and Skills. 9th ed. Boston: McGraw-Hill, 2009.
- www.bloomberg.com
- www.coach.com
- www.hooversonline.com
- www.fortune.com
- Gamble, John E., University of South Alabama.
- Coach Inc: Is Its Advantage in Luxury Handbags Sustainable? , 2006.
