Introduction
Coach Inc. is a notable fashion company, which started in 1941 as a small fashion shop that dealt with leather products for women and men, but it has grown and become a luxury fashion company. Currently, Coach does not only offer quality and cheap products, but also luxury products in the fashion industry across North America, Asia, and Europe. Analysis of the current state of Coach indicates that it is one of the leading luxury fashion companies. Thompson, Peteraf, Gamble, and Strickland (2012) state that market research, which led to the introduction of ‘accessible luxury’ in the fashion industry, made Coach to augment its sales by 20% annually from $550 million in 1999 to $4.2 billion in 2012, and concomitantly made the company to increase its net income to $880 million from $16.7 million in the same duration. In this view, it is apparent that Coach employed effective strategies that revolutionized its operations and triggered an exponential growth. To analyze the case study of Coach, the essay examines core competencies, identifies competitive strategy, and gives appropriate recommendations to enhance its competitiveness.
Coach Core Competencies
The examination of the case study shows that quality of products, low pricing of products, designs of products, outsourcing of materials, multichannel distribution, and the target market are some of the key factors that influence the growth of Coach. Given that fine handbags and leather accessories are luxury products, Coach ensured that it produces quality products, which match the needs of customers and surpass quality of competing products. Joy, Sherry, Venkatesh, Wang, and Chan (2012) assert that quality is an important attribute that differentiate luxury products from other products. In this view, the quality of handbags and other leather accessories is a key factor that Coach uses in differentiating its products. Pricing of its products is another key factor that Coach uses in outcompeting its rivals in the fashion industry. According to Thompson et al. (2012), Coach sells its products at prices that are 50% lower than competing products in the market. In this case, Coach’s products are affordable to low-end customers, who hardly consume luxury products.
Changing designs comprise a key factor that has enabled Coach to keep in tandem with the dynamic needs of customers. As Coach regularly undertakes market research to establish tastes and preferences of customers, it designs customized products regularly, which match the demands of the fashion industry. Outsourcing of products is a key factor that has contributed to success of Coach. To optimize costs and lead times of product manufacturing, Coach outsources most of its products from China. The cost and lead times reduce because outsourcing relieves Coach of the responsibility of constructing manufacturing plants, collecting raw materials, and undertaking manufacturing process. Multichannel distribution is a key factor that has enabled Coach to reach customers in diverse regions globally. Thompson et al. (2012) reports that Coach sells its products directly to customers through its retail stores or indirectly through wholesale stores distributed globally. On the key factor of target market, Coach concentrates its brand among the middle-income earners, who represent 20% of the population in the United States.
Coach Strategies
To compete effectively in women’s handbags and leather accessories, Coach employs the pricing strategy. Thompson et al. (2012) report that Coach has priced its products 50% lower than the competing brands and products. The pricing strategy is competitive because it enables middle income earners to purchase luxury products, thus, expanding the target market for luxury products. Thompson et al. (2012) hold that Coach targets 20% of Americans because of the low pricing strategy, while other luxury competitors target 5% of Americans because of their high pricing strategy. Thus, Coach enjoys extensive market share when compared to its competitors. Kapferer and Bastien (2012) argue that low pricing strategy is a powerful tool for expanding markets because it attracts customers. In this case, Coach employs low pricing strategy with a view of attracting many customers and increasing sales.
The pricing strategy gives Coach sustainable competitive advantage because it enjoys an extensive market share in North America, Europe, and China. The extensive market share is sustainable because Coach has built customer loyalty and continue to offer quality and stylish products, which meet the diverse needs of customers. Moreover, Coach is penetrating emerging markets and expanding its market share. In this view, the profit margins of Coach are predictably increasing despite low pricing of products.
The pricing strategy has made Coach to gain superior financial and market performance. Analysis of financial performance of Coach indicates superior performance in sales and net income. Since 1999 to 2012, sales increased at the rate of 20% annually from $550 million to $4.2 billion and net income increased from $16.7 million to $880 million in the same period (Thompson et al. 2012). Superior market performance is apparent in the increasing number of retail and wholesale stores in North America, South America, Europe, India, China, and Japan amongst other regions.
Supply chain flexible sourcing is another strategy that Coach employs in obtaining its raw materials. Given that it is expensive to produce leather and fashion products at the same time, Coach has opted to outsource from other industries in regions where leather is readily available and cheap. Thompson et al. (2012) note that Coach outsources 85% of its required materials from China and 15% from India and Vietnam. Outsourcing of products from China, India, and Vietnam improves quality, reduces the costs of production, and lessens lead times. In essence, Coach delegates the burden of manufacturing leather to diverse industries around the globe, and thus, relieves it of huge responsibility of processing products and managing industries. Thus, given that outsourcing reduces costs and relieves Coach of considerable burden, it is a sustainable and financially favorable strategy because leather industries produce enough leather, which meet the prevailing demands of leather products.
Retail distribution is a significant strategy that Coach uses in reaching out to diverse markets globally. Coach has realized that its customers are predominantly middle-income earners and they require accessible luxury brands in their nearest fashion stores. In this view, Coach has expanded its retail stores, which sell products directly to customers. According to Thompson et al. (2012), Coach plans to increase its market share globally by opening retail stores in Europe, North America, Asia, China, Japan, and online retail store with a view of optimizing their functions. This strategy is competitive because it enables Coach to dominate global markets. Expansion of retail stores boosts sales and profits that Coach make, and thus, it is a sustainable strategy.
Product differentiation is an effective strategy that has enabled Coach to provide quality and stylish luxury brands for women. Through its extensive customer research, Coach has collected relevant information about customer tastes and preferences, and thus, it has the ability to meet diverse needs of customers. Thompson et al. (2012) assert that Coach has understood shopping behavior of women in that it has differentiated its products to match product trends, customer desires, and expected quality. This strategy is competitive for it enables Coach to produce unique luxury brands, which are very competitive. Moreover, product differentiation is sustainable because it makes Coach increase its sales and profit margins from the attracted customers.
Recommendations
To improve its competitive position, Coach should not only rely on low pricing strategy, it should differentiate and diversify its products. Product differentiation enables companies to produce unique and quality products, which are highly competitive (Ireland, Hoskisson, & Hitt 2008). Moreover, Coach should undertake product diversification to include diverse products for men and women. Overreliance on women’s products weakens the competitiveness of Coach in the fashion industry because it increases vulnerability to dynamic market forces.
To improve its financial performance, Coach should increase prices of its products to 60% of the competitors’ products for it to increase profit margins substantially. Kapferer and Bastien (2012) state that low pricing of luxury products affects customer perception and reduce profit margins considerably. The pricing of 50% is very low and unsustainable given the dynamic nature of the fashion industry.
To improve market performance, Coach should employ vertical integration strategy as a corporate level strategy. Vertical integration entails is a supply chain strategy where a company owns raw materials, products, and distribution channels. Vertical integration strategy enables companies to reduce operating costs, own supply chain, expand market share, and enhance sustainability (Hill & Jones 2012). For instance, to avert the risk of raw materials shortage or cushion itself from a haphazard increase in prices of leather, Coach should own leather processing plants and stop relying on outsourcing. In this case, vertical integration strategy would enable Coach to improve its market performance due to enhanced ownership of supply chain and reduction of operating costs.
To resolve the issue of counterfeit products, Coach should register a trademark for its products with relevant bodies in various legal jurisdictions across the world to prevent. Registering of trademarks enables individuals or companies to own their products as intellectual property and reserve the rights to sell in different markets (Ireland, Hoskisson, & Hitt 2008). Moreover, Coach should recruit and train anti-counterfeit employees, who can undertake extensive research, identify counterfeit products, and report to the authorities for action.
Owing to the advancement in technology, Coach should create online stores associated with diverse physical stores globally so that customers can view available products, place an order, and receive delivery of product within the shortest time possible. Online stores are advantageous because they reach to more customers than physical stores. Moreover, customers can buy products in the comfort of their homes and offices without much struggle.
As the competitiveness of Coach’s products is dependent on its designers, Coach should not only recruit talented fashion designers, but also offer additional training for them to design stylish, trendy, and unique products, which are highly competitive. The designed products should reflect cultural diversity of consumers given that the target market for Coach is global. In this view, Coach would enhance diversity and competitiveness of its product.
Conclusion
Coach Inc. has made tremendous growth in the last decade owing to a number of key factors and strategies. Quality, price, designs, outsourcing, multichannel distribution, and target market are some of the key factors that have contributed to the growth of Coach. The pricing, flexible outsourcing, retail distribution, and product differentiation are sustainable strategies that have made Coach to be competitive in the fashion industry. To enhance its performance, Coach should undertake product differentiation and diversification, increase prices of its products, adopt a vertical integration strategy, monitor counterfeit products, open online stores, and train designers.
References
Hill, C & Jones, G 2012, Strategic Management: An Integrated Approach, Cengage Learning, New York.
Ireland, R, Hoskisson, R & Hitt, M 2008, Understanding Business Strategy: Concepts and Cases, Cengage Learning, New York.
Joy, A, Sherry, J, Venkatesh, A, Wang, J & Chan, R 2012, ‘Fast fashion, sustainability, and the ethical appeal of luxury brands’, Fashion Theory, vol. 16, no. 3, pp. 273-296.
Kapferer, N & Bastien, V 2012, The luxury strategy: break the rules of marketing to build luxury brands, Kogan Page, London.
Thompson, A, Peteraf, M, Gamble, J & Strickland, J 2012, Crafting and executing strategy: the quest for competitive advantage: concepts and cases (Global Edition), McGraw-Hill/Irwin, Boston.