Case Analysis – Gucci
How are the players in the luxury goods market positioned in terms of differentiation &
cost?
Firms in the luxury goods market positioned themselves effectively to target different
markets and to differentiate amongst competitors. Starting with the most expensive brand,
Hermes represents the top of the market with the classic Kelly bag, starting at $4300.
Hiring almost 600 artisans to handcraft leather goods, they used vertical integration of
in-house manufacturing and training of a saddle stitching method that was unique to
Hermes. For example, a single handbag could take over 17 hours to produce. Its target
market are those in the upper class, especially those who consider quality of the product as
their main consideration factor. Together, Hermes produced about 80% of its product,
which included but is not limited to, silks, apparels, watches, and perfumes.
One level down from Hermes is Chanel, famous for quilted leather bags starting at $1500.
Although at a lower price, they specialize on bags rather than the diversity approach on
multiple products like Hermes. The middle range market is dominated by Gucci, Louis
Vuitton and Prada, with basic leather bags from $600 to $1100. Their points of
differentiation lies within its target market. While the top brands use the direct
manufacturing approach, the middle range market outsources most production to small
Italian firms. For Gucci, they focus on fashion and their goal is to offer a superior product
that represents good value for the customer.
Firms like Ferragamo are found at lower end of the luxury scale. However, the low price
technique is a strategy they use to attract a more diverse group of people, mainly from the
average class. The four different classes of luxury goods markets all employ horizontal
segmentation, targeting their audiences by customizing products that match with their
willingness to pay.
Where was Gucci positioned in 1990?
In the early 1990’s, the fashion industry suffered an economic downturn and Gucci was no
exception; In fact, Gucci underwent its poorest time in the company’s history. In a matter
of three years, from 1991 to 1993, Gucci suffered a loss of about 120 million dollars and it
was no longer able to finance new products lines and collections or even pay its suppliers.
The owner, Maurizio Gucci was left with no option but to sell his the remaining 50% of
the shares for $170 million dollars to Investcorp. Shortly after the purchase, Domenico De
