Audrey Lee
afl488
1.
The y-axis is cost advantage. The x-axis is differentiation advantage.
1990: Hermes and Chanel are grouped together as having more differentiation because Hermes
was selling products for more than the other firms at the top of the market, and the case
mentioned Chanel was one step below. Hermes also does everything in-house and their
products are sewn by hand by artisans trained for three years, taking 17 or more hours to
complete one product, which would indicate that Hermes’ ability to sell for higher prices is due
to a high differentiation advantage (hand-sewn, quality bags) that people would still want
despite the high cost (low cost advantage). Chanel was put on the chart with the assumption
that it was similar to Hermes. LVMH, Prada, and Gucci all sell at similar prices. However, Gucci
has lower cost advantage because the case mentioned that production and delivery was
disorganized, there was no cost control, and there was little organization overall. Prada has
higher differentiation advantage than Gucci because of its “modern, anti-luxury take on luxury.”
Relative to Chanel and Hermes, Gucci has higher cost advantage despite all its operational
nightmares, because they, like Prada, outsource most of their productions which minimizes
fixed assets for Gucci.
1994: Assume Hermes and Chanel, Ferragamo, and LVMH and Prada have stayed the same
because of lack of information in the case. Gucci has gained a higher cost advantage and higher
differentiation advantage from before because Tom Ford took charge of design as creative
director. He launched a ready-to-wear brand with lower prices that leveled Gucci more to
Prada’s and Louis Vuitton’s pricing, giving good value for their redefined modern, urban
customer. This drastic change was marketed and advertising expenses doubled to really get
people to understand that Gucci has changed. Just changing what Gucci offers in terms of
search goods (the clothing) serves as a signal and toward a better reputation. It also helps build
their brand in the long-run, especially with their leather goods which was mostly manufactured
in-house and looked at for quality. There was higher cost advantage because of economies of
learning, as Gucci as a firm went from an operational nightmare to learning how best to
operate with the help of De Sole. In addition, their classic products make for lower costs
because the design does not have to change and they still sell reliably year over year. Not only
that, Gucci made delivery quicker and utilized more capacity of manufacturing, saving on costs.
However, the cost advantage is still lower than LVMH and Prada because of input costs. Gucci
had low supplier relations which hindered Gucci’s ability to get inputs at a better price because
of low bargaining power.
2000: Gucci addressed bottlenecks in their planning and production process which helped to
lower the amount of time it takes to go from manufacturing to a warehouse from 104 to 68
days. They are able to be more efficient which lowers costs. Also, Gucci introduced many more
products as they became more fashion-oriented and made production more complex because
of that. This is product design that is not design-for-manufacture, and as Gucci introduced more
products, there is less standardization and more cost because of that. These variety of products
that are produced for only one season accounted for 80 to 90% of volume. Thus, Gucci’s cost
advantage on the graph has remained the same due to the balancing out of lower costs from
efficiency, yet higher costs because of product design and complexity. Gucci, however, has
more differentiation now due to their fashion-oriented approach and wide variety of products,
in addition to all the expansion and acquisitions they’re making.
2. Elements of Gucci’s strategy and competitive advantage came about from 1994 with Tom
Ford and De Sole working together to build up and restructure how things are done at Gucci.
These include growing a loyal partner-suppliers and supplier relationships base, quality
maintenance throughout Gucci’s supply chain, and a more fashion-oriented approach, in
addition to the Pinault infusion and acquisitions. There is clearly a differentiation advantage,
and while it may seem there are cost advantage from improved efficiency and loyal suppliers,
that is not necessarily the case. Quality checks throughout Gucci’s supply chain help increase
Gucci’s brand and reputation and help with product integrity as customers continue to rely on
Gucci’s brand for fashion and quality at a good price. This change in quality and fashion
approach also signal to customers that Gucci has changed and this change can be seen through
search goods like the new and different fashion clothing and products Gucci makes every
season, as well as the remodeling of directly operated stores to a more modern style. This
provides for more uniqueness in their offerings, as Gucci aligns itself with being modern, urban,
and hip through all that it does. There is also differentiation advantage with PPR’s 40% share of
Gucci, because it “transformed Gucci into a multi-brand luxury group,” which also serves to be
unique with potential bundlings, or just overall shared brand value and reputation. Gucci also
has a differentiation advantage with its partner-suppliers, because they work exclusively for
Gucci and all the suppliers were very loyal, helping to maintain quality. This is not really a cost
advantage because suppliers are guaranteed production levels and receive training from Gucci.
Quality maintenance provides for potentially better reputation, brand, and product integrity.
3. Gucci’s strategy and competitive advantage in 2000 is sustainable, but not for a long period
of time. It is sustainable in the short-term. Gucci has deterrence mechanisms, such as producing
some products in-house and having a good supplier relationship that work for them closely and
exclusively. In addition, designs are patented, which further disincentivizes imitation. However,
although deterrence is subtly signaled, there is not large enough deterrence of imitators who
just want to make the same item for cheaper and approximate quality. With Gucci as a global
brand, corruption among other risks is a factor they must be aware of to deter imitators. In
terms of luxury brands, Gucci could be said to have preemption as an isolating mechanism as
well in its shift to being modern and fashion, unlike its competitors that stay in the traditional,
classic offerings approach. Its wide range of products every season also deter imitation just due
to its wide variety. In addition, because Gucci creates new products every season, this shows
their ability to adapt and respond to the environment and trends. The case had also mentioned
they adapted to local markets in order to have more stable revenues and customer base. This
creates external competitive advantage which will help them sustain their advantage, because
not all firms are so quick to respond. While all of this may point to Gucci having a sustainable
advantage, it is not long-term/forever because most of what they make can indeed be copied,
and competitors/imitators are able to acquire the resources to replicate Gucci’s products. For
example, anyone who has enough experience sewing would be able to acquire the materials
and sew their own Gucci fashion. If a stitch is special, reverse engineering it is possible after
buying or analyzing the product.