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BUS317 Strategic Management

BUS317 STRATEGIC MANAGEMENT

Group Case Study Report


Conduct a case analysis based on current information for the case study Tiffany & Co. Group members:

Lecturer:

Frankie Yee

Lecture day: Wednesday PM class Due Date: 21 July 2010

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Table of Contents
1. Executive Summary 2. Introduction 3. Company Situation 3.1. Current Performance Assessment 3.2. Past Performance Assessment 3.3. Past financial performance assessment 4. External Analysis 4.1. PESTEL Factors 4.1.1. Political/Legal 4.1.2. Economic 4.1.3. Socio-Cultural 4.1.4. Technological 4.1.5. Environmental 4.1.6. Implications 4.2. Industry Analysis 4.2.1. Industry Overview 4.2.2. Porters 5 Forces 4.2.3. Implications 4.3. Competitive Analysis 4.3.1. Current Situation 4.3.2. Immediate Issues To Be Addressed By Tiffany 4.3.3. Information Needed 4.3.4. Competitive Positioning Map 4.3.4.1. Implications 4 5 6 6 6 7 8 8 9 9 10 11 11 11 12 12 13 16 16 16 17 18 19 19 21 21 22 22 22 22 23
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4.3.5. Strategic Group Analysis 4.3.5.1. 5. Internal Analysis 5.1. Tiffanys Key Success Factors 5.2. Resources 5.2.1. Financial Resources 5.2.2. Human Resources Implications

BUS317 Strategic Management


5.3. SWOT Analysis 5.3.1. Implications 6. Problem Definition 7. Development of Strategies 7.1. Target Market 7.2. Objectives 7.3. Ansoffs Product/Market Expansion Matrix 7.3.1. Market Penetration 7.3.2. Product Development 7.3.3. Market Development 7.4. Positioning Strategies 7.4.1. Current Problem 7.4.2. Approach to Positioning A General Overview 7.4.3. Positioning Strategies 7.5. Product Scope 7.6. Branding Strategies 7.6.1. Product Differentiation Strategy 7.6.2. Aggressive advertising campaigns 8. Evaluation of Strategic Options 8.1. Affordability versus Exclusivity 9. Implementation 9.1. GANTT Chart 9.2. Budget 10. Evaluation and Control 10.1. 10.2. Evaluation Control 24 27 27 28 28 29 30 30 31 31 32 32 32 33 33 34 34 34 36 36 38 38 42 43 43 43 43 47 48

10.2.1. Balance Scorecard 11. Appendices 12. Bibliography

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1. Executive Summary
Despite the fact that Tiffany & Co. (Tiffany) currently holds the leading position with a 23 percent share in the $70 billion fine jewellery industry, strategic management is still the key for this worlds premier luxury brand to survive and prosper in an increasingly competitive environment over the immediate and long term future. This strategic business plan first conducts environment scanning in the form of external and internal analysis. The external environment presents a predominance of opportunities which Tiffany needs to capture such as economic growth and evolving demographic markets, while the main threats to defend against are competitive pressures and suppliers bargaining power. The internal environment shows strong brand recognition but the lower-end silver jewellery dilutes the luxury brand image such that some distinguishing consumers now view Tiffany as the inexpensive, common brand. After identifying the main problems faced by Tiffany, the target market and objectives are also established to serve as a basis for strategy formulation. With focus on the Asian market, the key strategies developed are: Market Penetration Increase number and size of stores worldwide with standardised glass palace-themed store outlooks Market Development Set up speciality bridal stores under the brand extension Tiffany Romance Product Development Adapt jewellery designs to cater to Asian culture and tastes

For planning and implementation purposes, the GANTT chart is used to illustrate the process of decisions, actions and evaluations required for Tiffany to achieve strategic competitiveness. Finally, the balanced score card is put in place to keep track of the financial, customer, internal business and innovation progress and to work towards its successful venture in Asia.

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2. Introduction
Tiffany & Co. holds the leading position in the fine jewellery industry with a deep history since 1837. This public company is worth US$5.4 billion and has become one of the most well known companies in the world, ranked 76th top best global company (Interbrand 2009). Tiffany has a vertically integrated channel as a supplier, designer, manufacturer, distributor and retailer of luxury fine jewellery. The main distribution channels are Tiffany stores operated across North America, Asia Pacific and Europe with robust business via internet sales.

For over 170 years, the name of Tiffany & Co. has been synonymous with romance, style, quality and luxury. Although the company has been staying successful in the fine jewellery industry with 87% of sales coming from jewellery, it continues to expand its consumer market by expanding its product line to offer a wide range of other premium luxury goods including timepieces, sterling silverware, china, crystal, stationery, fragrances and accessories.

The most important asset of the company is the strong, well-defined brand. Beyond the trademark name and the Tiffany Blue Box, the brand has developed into one of the bestknown symbols for quality, prestige and value in retailing, and the value of this brand is expected to continue to increase over the long term (Stephanie Blackburn 2004).

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3. Company Situation
3.1 Current Performance Assessment

Tiffany & Co. recently accounted its first quarter earnings for 2010. The company is performing well with worldwide sales increasing 22% to $633.6 million and strong net earnings increasing 135% to $64.4 million, due to growth in most regions and product categories. Despite the 2008 Global Financial Crisis, Tiffany has been able to sustain a continuous increase in its global net sales by a higher-than-expected margin of $3 million this year (Tiffany & Co. 2010). Tiffany is also opening 16 new retail stores to reach a total number of 221 worldwide with 91 stores in America, 27 stores in Europe and 103 stores in Asia-Pacific. This greatly improves the availability of Tiffany products for consumers all around the world to turn to this brand with a legacy of excellence in design and craftsmanship. However, an important note is that the Asia-Pacific and Europe combined retail sales are less than US retail sales, even though the number of international retail stores are nearly double that of the US (See Figure 1).

Figure1: Comparison of Global Net Sales and Retail Stores Worldwide (2007 2009) 3.2 Past Performance Assessment

Highlights of Tiffany & Co.s past performance: 1867: Tiffanys first international recognition at the Paris Exposition Universelle.
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1886: Tiffany introduced the worlds first engagement ring the Tiffany Setting. 1979 1984: Tiffany was owned by Avon Products. The introduction of low-margin watches, china and glassware caused a severe decline in the brand image and sales as customers complained about inferior quality and service. 1984 1987: Under William Chaneys new management, Tiffany successfully restored its image and went public with 30 retail locations worldwide. 1999: Michael Kowalski became CEO and Tiffany opened its first online store. 2000 2009: With continued expansion and brand building over the last decade, Tiffany has experienced a steady 68% growth in net sales from $1610 million to $2710 million.

3.3
Ratios

Past financial performance assessment:


Industry Average 1.7 : 1 0.8 : 1 7.5 times 1.7 : 1 15.50% 40.80% 2001 2.98 1.05 1.24 1.73 22.65% 56.86% Calculation 2005 4.02 1.35 1.01 1.6 19.20% 56.06% 2009 4.3 1.5 0.9 1.1 16.99% 42.16%

Current Ratio Quick Ratio Stock Turnover Gearing Ratio Return on Equity Gross Profit to Sales

Implications:
Tiffany is highly capable of paying its liabilities from its current and liquid assets with the

current and quick ratios substantially higher than the industry average. The difference between the ratios shows that the majority of assets is in the form of stocks.
The low stock turnover is not necessarily a negative implication due to the high-cost

nature of the luxury brand. Tiffany can address this decreasing stock turnover by implementing strategies to generate customer loyalty and return purchase.
Despite holding on to a large amount of stocks, Tiffany has been efficient in utilising its

assets to generate sales as its return on equity and gross profit are higher than the industry average. However, it needs to expand the number of stores and build the brand to improve its profitability.

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4. External Analysis
4.1 PESTEL Factors

Below is an outlined PESTEL analysis of the fine jewellery industry that will further aid the comprehension of implications that Tiffany should take in regard as vital references to its sustainability in its industry.
Economic Political-Legal 1. 2. Foreign Trade Regulations: PNTR signed by U.S. and China. Responsible mining due to antiquated laws set by the federal government in U.S. Weaker political stability and security in Brazil, a diamond producing country, affects price and availability. 1. 2. Increase in GDP and GNI in AsiaPacific. Rising wealth in Asia indicates increasing demand for fine jewellery and luxury goods. Increased consumer spending due to rising wealth in Asia. Higher discretionary spending through credit card use. Reduction in trade barriers and manufacturing costs allow for economic integration and globalization.

3. 4. 5.

3.

Socio-cultural Technology 1. Human rights abuses in Marange, Zimbabwe bring the attention of conflict diamonds to the public. There is a population boom in Asia, and increasing numbers in Baby Boomers due to the aging population. Bridal market boom: Generation X and Y have higher spending power on higher-priced wedding jewellery. Growing number of women in the workforce. 1. Increasing Internet usage and e-commerce: China surpassed the U.S. in 2008 to become the largest nation of Internet users in the world and by end 2009 was showing no signs of slowing down. QAD & MFG/PRO software increases efficiency for inventory scheduling management for stock check and availability. Rapid rate of product innovation fuels Research and Technology of fine jewellery industry to innovate new designs constantly.

2.

Fine Jewellery Industry

2.

3.

3.

4.

Environmental 1. Cyanide contamination affects human health and created social problems Environmentalists are concerned of the side effects it caused to the human beings and it has raised calls for responsible mining operations.

2.

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4.1.1 Political/Legal

1) Foreign trade regulations: Asia Pacific Economic Cooperation (APEC) may provide impetus for a series of bilateral trade agreements. In recent years, U.S. and China signed a Permanent Normal Trade Relations (PNTR). Chinas deduction of diamond import tax from 17% to 4% also promotes trade (Gillet 2009). 2) Pressure from Government on Environment: With the recent concerns over environmental protections and responsible mining, Tiffany has to take in regard the federal antiquated laws to promote responsible mining, and has been actively promoting responsible mining for its minerals and metals (Wharton, 2004; Tiffany & Co. 2010). 3) Government stability: The price and availability is dependent on the political situations in diamond producing countries. The weak political stability and security in Brazil, prevents Tiffany & Co. from expanding in the country. 4.1.2 Economic

1) Economic growth: There has been a steady increase in the Gross Domestic Product (GDP)/ Gross National Income (GNI) in Asia-Pacific in the recent years (Euromonitor International, 2010). The rising wealth in Asia hence indicates the increasing demand for fine jewellery and luxury goods. 2) Increased consumer spending: As a result of the aforementioned factor, there is an increase in consumers spending over luxury items such as fine jewellery. It has been reported by Merrill Lynch that the luxury goods market has always been solid with increasing sales and profits even in times of an economic crisis (Reuters, 2008). 3) Higher discretionary spending through credit card use: It has been reported that there has been a 40 percent growth in credit card adoption in China (Euromonitor International, 2010), as well as a surge of card transactions in Asia by 158 percent from 2004 to 2009, approaching nearly a quarter of global card volume (USA Today, 2010). In addition, it has been found that card use begets higher spending, as David Robertson of Nilson Report commented, It's a proven fact that if you can make people move from cash to
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electronic payment, then the average amount spent will increase, along with the average number of transactions," (USA Today, 2010). 4) Economic integration (Globalisation): The reduction in trade barriers and manufacturing costs such as logistics, labour costs and raw materials in emerging countries such as China and Vietnam facilitates capital flow for international business and encourages factories and plants to be set up there. This allows for economic integration and globalisation in international businesses. 4.1.3 Social-cultural

1) Human rights: The recent widely reported debacle on human rights abuses in the Marange diamond district of Zimbabwe in mid-2009 had brought about public attention to ethical means of mining for diamonds (Human Rights Watch, 2009). Morally ethical consumers might be apprehensive about the origins of the diamonds, unless responsible jewellers provide assertion and reassurance that their diamonds purchased are not of Marange origins, or conflict diamonds (Tiffany & Co., 2010; Amnesty International USA, 2007). 2) Evolving demographic markets: According to the Population Reference Bureau (2010), Asias share of population in the world may continue to hover around 60 percent through 2050. Baby Boomers (Schiffman et al., 2005, 416) are increasing in numbers due to the aging population and are typically high spenders in the luxury market. There is also a bridal market boom over the recent years prominent in Generation X and Y. As the average age of people getting married is higher, these consumers possess higher spending power and are more likely to purchase higher-priced engagement and wedding rings. It has also been reported by estimation that the female labour force participation in Asia has been growing steadily over the last 5 years (The Straits Times, 2009). Women are found to be more emotionally attracted to products with hedonic appeals, such as jewellery and perfume. This indicates that it serves as an opportunity to the jewellery industry.

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4.1.4 Technological

1) Increasing Internet usage and e-commerce: There are increased numbers of Internet users in Asia (Refer Appendix C and D). China surpassed the U.S. in 2008 to become the largest nation of Internet users in the world and by end 2009 was showing no signs of slowing down. (Internetworldstats, 2010; Euromonitor International, 2010). 2) New Communication technologies: QAD & MFG/PRO software allows for increased efficiency for inventory scheduling management between customers and suppliers constantly. The ability to check for real-time data would help consumers check for availability online and supplier update stock availability with efficiency.

3) Rapid rate of product innovation: Technology fuels Research and Technology of the fine jewellery industry to innovate new product designs constantly. It allows jewellery designers to create pieces to suit seasonal trends and generate consumer demand. 4.1.5 Environmental

1) Environmental and social impact of mining industry: Cyanide contamination affects human health and created social problems (International Cyanide Management, 2010). Environmentalists are concerned of the side effects it caused to the human beings and it has raised calls for responsible mining operations.

4.1.6

Implications

1) Predominance of opportunities: Tiffany can leverage on its core competencies and resources to implement strategies to earn superior profits. 2) Potential threats all arising from suppliers: Tiffany needs to establish stronger relations with the government, environmental organizations and its consumers.

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4.2 4.2.1 Value Industry Analysis Industry Overview Size & Growth Market worth $70 billion. Worldwide jewellery sales of $185 billion. Average 4.6% Compounded Annual Growth Rate (CAGR). Surging global demand stimulated by rising wealth in Asia. China (13%) and India (12%) together will emerge as market equivalent of US (26%).

(Source: Gem and Jewellery Export Promotion Council of India and KPMG)

Market Segments

Key Players

Key Customers

Gender (Males, Females). Age (Baby boomers, Gen X, Gen Y). Income (High-income, Middle-income) Highly competitive international brands. Emerge in 3 forms: 1. Big Brothers With a presence across various segments of the value chain. E.g. LVMH (De Beers), Richemont (Cartier). 2. Volume Players Companies with depth and large capacity in a single segment whether mining, diamond manufacturing or retailing. E.g. Tiffany & Co. 3. Specialists Companies that develop specialized expertise in niche areas at various points in the chain. E.g. Harry Winston, Bvlgari. Key Geographical Consumer Markets: 1) US 2) Asia 3) Europe
(Source: Gem and Jewellery Export Promotion Council of India and KPMG)

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4.2.2 Porters 5 Forces

The Porters 5 Force Model recognises the relative strengths of five competitive forces on the fine jewellery industrys competitive intensity and profit potential.

Bargaining Power of Buyers (Low): Largely fragmented across geographical locations e.g. US, UK, Asia-Pacific. High switching cost for consumer who pursue for collections. Highly differentiated designers collection.

Threat of Substitutes (Moderate-High): Asian consumer has a lower brand loyalty as compared to US. Substitute luxury product with cheap jewellery or limitation Seasonal sales trend also depend on the disposable income of customer Rivalry among competitors (High): Increase intensity of rivalry from direct competitors such as DeBeers LV, Cartier and Bulgari Market maturity

Bargaining Power of Suppliers (Moderate): Tiffany & Co. is able to vertically integrate and being the supplier of its own, bargaining power of suppliers is relatively low. Diminishing supply of diamonds, greater than 1 carat, in the industry result in moderate-high bargaining power of other diamonds supplier

Threats of New Entrants (Low): New entrants faced: High initial investment and startup costs Limited distribution channels

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(i) Bargaining Power of Buyers (Low) Fragmented Market: The consumers of fine jewellery are largely fragmented across geographical locations e.g. US, UK, Asia-Pacific, thus their bargaining power is relatively low. Product Differentiation: Products in the fine jewellery sector are highly differentiated. For example, affluent consumers pursue exclusive designs by Tiffanys renowned artists Paloma Picasso and Frank Ghery; while the younger consumers are attracted to collecting Charmed by Tiffany bracelet charms. These factors result in the inability for consumers to switch to other products easily thus lower bargaining power.

(ii) Bargaining Power of Suppliers (Moderate) Vertical Integration: In most cases, the bargaining power of suppliers in the fine jewellery industry is strong due to the importance of diamonds as raw materials. As Tiffany backward integrates to become its own supplier, bargaining power of suppliers is reduced. Other Suppliers Limitation: With global diamond jewellery sales soaring this decade, the dwindling supply level may increase suppliers power towards jewellers for profitability by raising prices.

(iii) Threat of New Entrants (Low) High capital investment: The high initial start-up costs required to acquire high quality diamonds serve as main entry barriers for new entrants. In addition, the capital investment must be high enough to allow the new entrant to enter on a large scale to enjoy economies of scale and compete cost effectively.
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Limited Distribution Channels: As Tiffany has access to extensive distribution channels, new entrants lacking connections with jewellery distributors and retailers face limited retail/ distribution channels thus they are unable to produce substantial threat. Product Differentiation: Product differentiation plays an essential role in reducing competition in the industry. New entrants face difficulties in competing with Tiffanys strong brand heritage and unique trademarked design collections.

(iv) Threat of Substitutes (Moderate - High) Low Brand Loyalty: Compared to the strong brand loyalty in US, Asian consumers have a reputation for mixing and matching conspicuous brands rather than sticking to one, the resultant low brand loyalty increases the threat of substitutes. General Consumer Goods: In times of economic downturn, consumers might substitute luxury fine jewellery and turn to costume jewellery, cheap jewellery or even imitations. This is evident in the 5% decrease in net sales during the 2008 global financial crisis. Counterfeit Goods: Counterfeit goods are imitation designs sold at a fraction of Tiffanys prices. The proliferation of counterfeit goods and inability to eradicate them has caused Tiffany to lose millions of dollars each year.

(v) Rivalry among competitors (High) Direct Competitors: In view of Asias rising wealth and demand of jewellery, the large number of firms consolidating in the market and offering more choices to consumers has intensified the rivalry. The close competitors DeBeers LV, Cartier and Bvlgari compete for international market share alongside countless other smaller national and international players. The rivalry is so intense that Tiffany and its close competitors have adopted both product differentiation and vertical integration.
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4.2.3 Implications

Due to high barriers of entry, there is minimal competitive threat from new entrants. Therefore, Tiffany only needs to focus its efforts on dealing with the intense rivalry amongst the direct competitors in the industry.

It can be foreseen that bargaining power of suppliers will increase as demand for diamonds continues to rise and supply diminishes. In order to prevent suppliers from squeezing them for profitability, Tiffany needs to find more suppliers and invest in mine operations to reduce its dependency on a supplier.

Since counterfeit goods are inevitable and difficult to eradicate, Tiffany can counter the threat of substitutes in three ways strengthening its brand positioning relative to substitutes, building customer loyalty and raising switching costs of buyers.

4.3 4.3.1

Competitive Analysis Current Situation

Competition is intensifying in the $70 billion diamond jewellery market as rising

wealth in Asia increases demand for fine jewellery (Forden 2006).


Demand will grow fastest in emerging markets like China and India. The trend will

benefit Tiffany because the nouveau riche will splurge on jewellery from well-known brands to show off their wealth (Forden 2006).
Tiffany is one of the leaders within the jewellery industry (Blackburn 2004), in terms

of jewellery design, number of stores and worldwide sales.


The market in which Tiffany is operating is highly fragmented and provides much

opportunity for market share capitalisation.


Tiffanys primary competitors are specialty fine jewellers De Beers, Cartier, Bvlgari,

and increasingly from mainstream luxury labels with their own jewellery collections.
Tiffanys indirect competitors, such as Gucci Group and Coach, are angling to take a

significant bite out of the lucrative China market. Tiffany could lose its foothold in the overseas market if it still does not effectuate its expansion plans (Dishman 2010).
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Despite the strong brand image which the Tiffany blue box portrays, the company may

dilute its luxury brand identity (valued at $3.64 billion) with its attempts to make the blue box affordable for the middle income.

4.3.2 Immediate Issues To Be Addressed By Tiffany Issues Justifications/Action by Tiffany

1. Who is Tiffany Due to the large variety of luxury goods and broad price range Tiffany offers, Tiffany has different sets of key competitors depending on the competing market segment it is operating in. against? Direct competitors: Tiffanys closest competitors at the brand competition level are De Beers LV, Cartier and Bvlgari. Indirect competitors: However, as consumers in the Asian emerging markets are fickle and can carry several high-end brands at the same time, Tiffany will also face competition at the industry level from firms such as Gucci and Coach.

2. What are their In view of the increasingly brand-conscious Asia market, Tiffanys competitors are using various elements, all aimed at promoting brand strategies? image:
Product differentiation strategy Aggressive advertising campaigns Celebrity endorsements

3. What strengths and weaknesses do they pursue?

De Beers is the worlds largest diamond supplier thus it has a strong supply of diamonds and has mining expertise. Its joint venture with the worlds largest luxury retailer, LVMH Mot Hennessy Louis Vuitton, serves as a formidable competitor for Tiffany. However, it does not have a strong branding as Tiffany and lacks physical stores internationally. Cartier, the worlds largest jeweller, finds its strength by balancing new and classic products and between accessible and high-end lines. Its brand is highly recognised in the China and Hong Kong market. Cartier and Bvlgari have thriving sales in high-end markets and average purchases of $3400 while Tiffanys average customer purchase is $180. However, Cartier and Bvlgari may expect channel conflict from the wholesale division and lower brand loyalty. Gucci and Coach have broad offerings, from handbags to jewellery, to entice a wide consumer market. Both companies are poised to
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penetrate the China market with 50 stores each while Tiffany has only 12. But both brands are not the top choice for fine jewellery as they lack the prestige to appeal to the truly affluent. 4. What are their likely response patterns? The risk of differentiation is that it is not sustained and competitors can imitate. Therefore, any action from Tiffany will prompt a swift response from its competitors as most of these companies have similar distribution channels, economies of scale and substantial financial power to retaliate any aggressive moves by Tiffany. In this regard, Tiffany will have to anticipate their responses prior to implementing a new strategy.

4.3.3

Information needed

Tiffany needs to conduct marketing research on the following: Information Market share by product groups

Justifications To evaluate all major competitors and develop product profiles Find out the range of products competitors have

Range of products offered

Benchmark Tiffanys own strategies Strengthen Tiffanys foothold on specific key/niche markets Look into competitors consumer base and find out weaknesses Penetrate into new segments where

Competitors consumer profiles

competition has not yet ventured into and become first movers Others:

To decide appropriate platform to compete successfully and sustain the competitive advantage

Marketing

expenditure

by

main categories

Objectives and strategies

To anticipate likely responses to new strategies

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4.3.4 Competitive Positioning Map

The below chart identifies Tiffanys positioning within the fine jewellery industry, in relation to companies competing directly and indirectly with varying prices, product scope and competitive strategies.

4.3.4.1 Implications (a) Tiffanys brand positioning needs to be maintained. It is more lucrative for Tiffany to maintain its current market position, instead of aiming for a higher positioning but dense market to compete closer with Cartier, Bvlgari and De Beers. The Universalist approach and middle- to high-end target market is wide and allows Tiffany to capture more potential market share, but the caveat is that it may dilute the luxury brand identity.
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Recommendations: Tiffany needs to build brand image and maintain its roots of quality fine jewellery. Tiffany needs to constantly innovate its product line to remain as the pioneer of fashionforward designs. (b) A major problem is having the lowest average purchase amongst its competitors. Tiffany is now middle-class compared to De Beers and Cartier. While the average purchase of a Tiffany shopper is $180, only $30 more than in 1984, the Cartier customer spends $3400. Recommendations: Tiffany needs to differentiate more and enhance the brand value in the consumers mind to draw more revenue from them. Identify a niche market to provide specialised products and services for, to charge a higher premium and enhance brand image.

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4.3.5 Strategic Group Analysis

4.3.5.1 Implications (a) Gucci and Coach are indirect but emerging threats. These mainstream luxury labels are fast penetrating the China market with their fast expanding number and size of stores. Coach is even investing in intensive market research to determine the right product mix for the Chinese market. Therefore, Tiffany could lose its foothold if it doesnt expand fast and adapt to market demands.

Recommendations: Tiffany needs to stop delaying and effectuate its plan to open 16 more stores this year. Tiffany can also adopt a glocalisation strategy and adapt its products to appeal to the Asia market.
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5. Internal Analysis
Internal Environment: The internal environment can potentially create key assets and competencies upon which strategic position can be built (Drummond & Ensor). The following section analyses Tiffany & Co.s internal resources which are crucial to the success of a company. 5.1 Tiffanys Key Success Factors Success Factor 1. Strong iconic brand 2. Exclusive product quality 3. Economies of Scale Description Since 1837, Tiffany has been renowned for its famous designer collections and unique Tiffany Blue Box. High reputation for excellent quality craftsmanship thereby creating value and trust for all Tiffany products. Tiffany is able vertically integrate its channel thus achieving economies of scale to lower production costs, gain competitive advantage and fend off threats from new entrants. Tiffany has different product categories, with prices ranging from $30 - $1.5 million, to cater to more market segments and offering more choices to consumers. Tiffany has 221 retail stores across US, Europe and Asia-Pacific and secured websites for online sales transaction. Access to direct distribution channels translates to more sales opportunities, a better position and a larger market share. As a pioneer of design in the fine jewellery industry, Tiffany constantly revolutionises its product designs through collaborations with renowned designers to generate consumer interest.

4. Wide range of products & product differentiation

5. Extensive distribution channels and strong direct sales capabilities 6. Constant strive towards innovation

5.2 5.2.1

RESOURCES Financial Resources

Financial resources concern the companys ability to pursue its chosen strategies e.g. capital investments, distribution channels, production capacity and working capital, which will place
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great strain on the business finances. Such strategy requires detailed and careful management from a financial perspective whereby the assessment of the financial position of Tiffany constitutes an important aspect of the internal analysis which must be carried out to determine the strengths and weaknesses of the organization to ensure strategy-fit capability. As one of the leading players within the fine jewellery industry (See Figure 2), Tiffany is a public company worth US$5.4 billion with $70 billion worth of market value which explains its financial stability. Tiffany is also well recognized for its high quality craftsmanship by the National Jewellers 22nd Annual retailer Hall of Fame 2010 With continued expansion and brand building over the last decade, Tiffany has experienced a steady 68% growth in net sales from $1610 million to $2710 million.

5.2.2

Human Resources

Tiffany recognises the importance of human resource and human capital investment in order to sustain its competitive advantage. Therefore, the company strongly believes in providing product, technical, leadership and professional development training for its employees such as the Retail Management Associate Programme. Additionally, tuition reimbursement and a forgivable loan program are also available for employees who pursue continuing education.
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Employees are also given benefits such as: Income Protection & Security Financial Savings & Retirement Benefits Rewards & Recognition Personal & Professional Fulfilment

This elucidates the companys sincerity in building employee relations as well as honing their life skills and well-being. 5.3 SWOT Analysis

The table below summarises Tiffany & Co.s Strengths, Weaknesses, Opportunities, and Threats in the Asia market perspective. STRENGTHS 1. Strong brand name and recognition: Tiffanys leading brand name WEAKNESSES 1. Product assortment tarnishes its brand and image:

recognition, valued at $3.64 billion, is the Tiffanys short-term success of the less strongest form of differentiation in the luxury expensive silver jewellery to appeal to the goods market. middle class has alienated more mature, affluent clients who now view Tiffany as an 2. High International Market Share: inexpensive, common brand. Once renowned With the highest market share amongst its for its luxury brand, those in the know don't direct competitors (See Figure 2), it means go to Tiffany for jewels anymore. It's for that Tiffany products are well-known and tourists.'' (Rice, 1989) well-received in the consumer markets. This provides opportunity to charge premium 2. Low brand loyalty in Asia: prices while enjoying economies of scale. Asian consumers have a reputation for mixing and matching conspicuous brands 3. Distribution Strength: rather than sticking to one, this result in low With retail sales presence of 221 stores brand loyalty towards Tiffany and low internationally, Tiffany has strong direct average purchase. sales capabilities that may be turned into a primary driving force to build the brand. 3. Lack of adapting and appealing to the
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Asia market: 4. Broad range of products: Tiffany has failed to get much traction in The broad range of offerings enables Tiffany China because its stores are too small (Forbes to meet a wide range of customer needs by 2009). As Asians associate size of stores with balancing between affordable and high-end brand lines. prestige, Tiffany is paling in comparison to Louis Vuitton and Gucci which have large flagship stores. In addition, 5. Product differentiation: Tiffany use of Caucasian models in its High quality craftsmanship of jewellery and worldwide advertising campaigns does not universally acclaimed designers collection connect with Asian consumers. e.g. Paloma Picasso 4. Lack of mining expertise: Tiffany only began to venture into the 6. Vertical integration: diamond business in recent years. This weak Vertical integration allows Tiffany to gain a link has caused the company to write off up high degree of control over its entire value to $50 million losses from investing in mines chain, from sourcing diamonds to retailing in Canada and Sierra Leone (OConnell the exclusively designed jewellery products. 2009). Tiffanys wholly-owned subsidiary, Laurelton Diamonds, supplies more than 50% of Tiffanys diamonds (OConnell 2009) thus effectively reducing the strong bargaining suppliers. power of typical diamond

OPPORTUNITIES

THREATS The soaring demand for global diamond

1. Continuous economic growth in the Asia 1. Diminishing diamond supply Market: There has been a steady increase in the Gross jewellery this decade has led to a diminishing Domestic Product (GDP in Asia-Pacific in diamond supply that may increase suppliers the recent years (Euromonitor International, power to squeeze jewellers for profitability 2010). The rising wealth in Asia hence by raising prices. indicates the demand will grow fastest in emerging markets like China and India as
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more people achieve incomes that let them splurge on fine jewellery and luxury goods. 2. Environmental and social impact of mining 2. Increasing Internet usage and e- With the recent concerns over environmental commerce: protections and cyanide contamination With the increased numbers of Internet users affecting human health, there is increasing in Asia surpassing that of Latin America, pressure on Tiffany to lead the jewellery there is potential opportunity for Tiffany to industry to promote responsible mining and expand its e-commerce in the region to establish a chain of custody for diamonds complement retail sales. 3. Easing of trade barriers The easing of trade barriers has led to a reduction in manufacturing costs and 3. Counterfeit goods: that may incur costs and create rumour mills.

increased capital flow for international Counterfeit goods are imitation designs sold business. Additionally, with bilateral trade at a fraction of Tiffanys prices. The agreements and economic integration, these proliferation Tiffany to expand its operations of counterfeit goods and factors create lower-cost opportunities for inability to eradicate them has caused Tiffany in to lose millions of dollars each year (Orji n.d.). In times of economic downturn, consumers are tempted away by lower priced 4. Increasing demand for mens luxury: The fasts pace of growth for mens products is especially noticeable in developing markets, such as India and China where the market is growing at a brisk pace of 25-35% (Trefis 2010). It is believed that the rising demand for mens luxury provides a tremendous growth opportunity to Tiffany given the lack of competition in the niche market segment. alternatives counterfeit goods. international markets.

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5.3.1 Implications:

Having identified the strengths, weakness, opportunities and threats of Tiffany, Tiffany should seize the growing Asia market opportunities and leverage on its core competencies (strengths) e.g. brand recognition, product differentiation and quality craftsmanship, to create new synergies with the proposed strategies in this report.

Tiffanys brand is both a strength and a weakness. The legendary jewellery brand has strong recognition yet some affluent clients view it as inexpensive and common. As such, Tiffany has to reinforce its high-end image as the essence of luxury.

Although Tiffanys Asia-Pacific sales figures have increased steadily by 12%, it has neglected the unique needs and preferences of this increasingly affluent market. Failing to integrate products according to the Asian preference could escalate the rivalry intensity in the jewellery industry and shift competitive positions.

6 Problem Definition
Problem definition: "Every problem has a gift for you in its hands." - Richard Bach

After an analysis of the external and internal environments, Tiffany needs to determine problem areas that can be turned into opportunities to achieve strategic competitiveness through planned business strategies. Main problems faced by Tiffany & Co.: Brand image: Tiffany positions its brand as be associated with luxury and exclusivity. However, the more mature and affluent consumers now view Tiffany as an inexpensive, common brand. Competition: Manage increasingly aggressive competitive pressures Sales: Increase sales and number of outlets internationally Product: Address cultural differences and meeting consumer wants across international markets Supply: Establish a stable diamond supply to reduce strong bargaining power of suppliers
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7 Development of Strategies
7.1 Target Market

With reference to the product-market scope, Tiffany needs to focus on specific demographic market segments whose needs best match its offerings.
Generation

X females, working young professionals, managers, executives and

businesswomen.
Couples and newlyweds with high dual disposable income of $5000 and above.

As Tiffany cannot penetrate all Asian countries at one go, the following GE matrix also helps to identify more lucrative geographical market segments in the region which Tiffany would have the potential and opportunity to expand its market share.
Market attractiveness (Measured by comparable growth rates)

High

China Hong Kong Taiwan Japan

Singapore

Vietnam

Medium Low

India

Australia New Zealand High

Cambodia Medium
Competitive Position

Low

Screening and selection of specific markets to focus on is critical in order to prioritise the allocation of resources: Due to product adaptation costs, it is most efficient to prioritise according to similarity in cultures to develop jewellery which can suit the group of markets The countries targeted for market expansion and concentration of sales are also ranked based on potential of consumer spending power, GDP per capita and business environment

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7.2 Objectives Short Term S1) To obtain 30% market share in the Asia fine jewellery market. S2) To achieve market attention in the engagement rings bridal market. S3) To achieve 10% increase in worldwide sales and 15% increase in Asia region sales annually. S4) To increase stock turnover to 1.2 times by establishing customer loyalty programs that promote repeat purchase. S5) To attract Asian consumers with culturally adapted product offerings and marketing communications. Long Term L1) To remain as the global market leader in the fine jewellery industry. L2) To project a global brand image associated with luxury fine jewellery with exclusive offerings to both middle- to highend markets. L3) To change the attitude of consumers who view Tiffany as an inexpensive, common brand to a specialist in designer collections and high-end diamond rings. L4) To attain sustainable growth in primary target markets. L5) Expansion of its markets through opening of at least 20 international stores annually.

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7.3 Ansoffs Product/Market Expansion Matrix The strategic options available to Tiffany are summarised in the Ansoff Product/Market Matrix, with indication of the strategies to focus on during the time frame stated. Market Penetration (Ongoing) Standardization of retail stores outlook worldwide. Increase number and size of stores in Asia. Product Development (Ongoing) Product adaptation to cater to Asian cultural taste. o Incorporating jade, pearl and gold elements. o Collaborating with Asian designers. o Developing jewellery sets for new generation wedding dowry. Product Diversification (N.A.) Currently not an applicable strategy for Tiffany. Niche market has been identified in Asia o Tiffany should place emphasis on focus differentiation, o Instead of venturing into new markets and new product categories.

Market Development (Now end 2012) Setting up Specialty stores o Bridal niche market. o Improve overall sales of Engagement rings by offering one stop products and services for weddings/anniversary.

7.3.1. Market Penetration Over the years, the various Tiffany stores have all taken on a different outlook with no standardisation. To further enhance brand equity and image, Tiffany will standardise its stores outlooks with a glass palace theme, to draw its roots as a premier jewellery house and portray its luxurious and exquisiteness. Mainstream luxury brands such as Gucci, Louis Vuitton and Coach are fast penetrating the China market with their larger numbers of multi-flagship stores and wide array of product offerings. In addition to aforementioned strategies, Tiffany will expand not only the size of their current stores, but to also expand the number of flagship stores all over Asia, placing importance in various countries such as China, Hong Kong and Singapore.
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7.3.2. Product Development Acculturate to cater to Asian market As of 2009, Asia would approximately take up 56.3 percent of the worlds total population (Internet World Stats, 2010). This serves as a large market for Tiffany & Co. In able to cater to the Asian market, Tiffany & Co. has to assimilate the culture of the Asian countries using product acculturation, yet retain its luxurious image through brand standardisation. With the Asian market as its main focus at present, Tiffany will adopt product acculturation to deliver and satisfy its target consumers connection to their cultural roots. As such, exquisite jewellery materials such as pearls, jade and white gold will be incorporated into its current extensive product selection with significance to the Japanese, Chinese and Indian cultures respectively. To further enhance brand equity and generate trust, Tiffany will form collaborations with various renowned Asian designers for the development and innovation of new product designs that might be more suited to the Asian market. To generate additional interest and gain favour from its consumers, Asian celebrities will be engaged to endorse Tiffanys range of fine jewellery, or even the brand name itself. Caucasian models have always been used in Tiffanys print ads, and the engagement of Asian celebrities will better appeal to this market.

7.3.3. Market Development Niche market to enhance brand image: After losing its lustre since Avon Products had taken over its operations (Rice and Kretchmar, 1989), Tiffany have had problems regaining its prestige and brand equity. To tackle this issue at hand, Tiffany needs to identify a niche market to provide its specialised products and services to while consequently charging at a higher premium and enhancing brand image.

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Bridal niche market: With reference to the bridal market boom over the recent years, Tiffany can introduce specialty stores to cater to the bridal niche market, under the brand extension Tiffany Romance. Its product offerings will cater beyond only bridal jewellery, but also to gowns, dining ware, and various wedding arrangements. 7.4 Positioning Strategies 7.4.1 Current Problem

Tiffany positions itself as a brand of luxury and exclusivity but the affluent and mature customers perceive Tiffany as a common and affordable brand. There is a perception gap between what the management expects the brand to be and the way customers see the brand.

7.4.2

Approach to Positioning A General Overview

The recommended approach is to maintain its current market position, instead of aiming for a higher positioning but dense market to compete closer with Cartier, Bvlgari and De Beers. The Universalist approach and middle- to high-end target market is wide and allows Tiffany to capture more potential market share.

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7.4.3 Positioning Strategies

Tiffany has to reinforce its high-end image in the fine jewellery market and reclaim its image as the essence of luxury: Constantly innovate its product line to remain as the pioneer of fashion-forward designs Standardise retail store outlooks worldwide with Glass Palace themes to project a consistent global brand image associated with romance, style, quality and luxury Provide specialised products and services for the bridal niche market as a reminder that this legendary brand introduced the worlds first engagement ring in 1886 and thus anchor the brand recognition into this area of expertise 7.5 Product Scope The following table suggests possible product-market segments matching for Tiffany. This allows the development of strategic choices as to which product-markets are more lucrative to target and serve.
Segments Designer Collection Diamond Jewellery Engagement Rings Watch Sterling Silver Accessories

Affluent Baby Boomers Gen X / Working Adults/ Young Professionals Couples/Newly Weds Gen Y/ Students

Tiffanys wide product range caters to different consumer segments: The more expensive range cater to the affluent baby boomers The expensive and silver range suit the Gen X who can afford exclusive designs yet may look for more affordable pieces from time to time. Diamond rings, wedding bands and watches cater to the couples and newlyweds.
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There are lower-end silver jewelleries for the Gen Y as they are a big market with less purchasing power. 7.6 Branding Strategies

As aforementioned, the main issue that Tiffany is facing now is that despite its efforts to position itself as a luxury brand of prestige and exclusivity, it is only an affordable and common jewellery brand in the minds of its consumers. Tiffany has carried and sold different brands of jewellery from different designers over the span of time of its operations. This serves as a problem for Tiffany as it does not sell only designs under its own name. The luxury brand image has been diluted as Tiffany attempts to make the blue box accessible to the middle income. To overcome this feat, Tiffany has to reinforce its positioning in the consumers minds by building on its brand image.

7.6.1

Product Differentiation Strategy

Exclusive merchandise will help not only in profitability, but also Tiffanys brand image as nothing else is exactly like it, and the retailer is able to employ prestige pricingto charge whatever the market can bear (Rice and Kretchmar, 1989).

Under the proposed product development strategy, Tiffany will design exclusive jewellery collections catering to the Asia culture and taste. This unique product differentiation incorporating Asian gems and precious metals with a global fine jewellery brand will effectively set Tiffany apart from its competitors.

7.6.2

Aggressive advertising campaigns

As the main issue is to communicate to its affluent consumers that the Tiffany brand can equal affordable luxury without diluting its elite image, the bulk of marketing and advertising expenditures will be focused on the affluent customer.

Tiffany will employ the use of corporate image advertising which promote the following brand attributes: o A long-standing traditional American brand established since 1837.
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o High quality: Generated standards for silver, platinum, and gems both in America and internationally. o Active in Corporate Social Responsibility: Promotes responsible mining, actively and publicly opposes inappropriate mine development and human rights violation (Tiffany & Co., 2010). Brand association o It has to be established in its consumers minds that Tiffany offers only the best quality, and has high standards for its materials. They should be able to associate the brand with high quality fine jewellery. o To leverage on the powerful image of its blue box to create an emotional attachment with the customer that it signifies luxury, exclusivity, and romance. o Tiffany Romance, a new bridal business segment will be introduced, to recapture Tiffanys past glory as the jeweller who introduced the worlds first engagement ring. o The proposed new outlook for Tiffany stores worldwide to be portrayed as Glass Palaces will convey the iconic brand as the worlds premier jewellery house. o Celebrity endorsements in advertisements will also be used to contribute to this brand association factor. Specifically in the Asia market, Asian celebrities will be engaged. Brand positioning o Tiffany has to educate consumers about the superior quality used to fabricate its fine jewellery, and that it is value for moneywhich is worth every cent that they are paying. o It has to be communicated to its consumers that its non-negotiable prestige pricing is as such because of its nonpareil designs and its notable brand image.

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8 Evaluation of Strategic Options


The evaluation of strategic options for Tiffany & Co. considers the following: 8.1 Affordability versus Exclusivity

Tiffany now faces the difficulty of maintaining its elite image while trying to draw a wider array of customers (Bongiorno, 1996), focusing on finding the balance between an image of ready accessibility and elegant affluence (Rosen, Tunick, & Samuels, 2004). As it is proposed that Tiffany can maintain its current market position to have a large customer base, it needs to focus on strategies that can reinforce the luxury brand image. Market development along with market penetration will be the major focus of the immediate market strategies for the next 24 months, starting from August 2010. The reasons are: Specializing in the bridal niche market will enhance customers perception by anchoring the brand area into this area of expertise. Moreover, jewellery purchases are highest during the bridal age range of 25-34 (Rosen et al, 2004) thus allowing Tiffany to draw more revenue from this lucrative niche customer base and increase sales for its existing products. In order to improve the effectiveness of the market development strategy, market penetration will take place concurrently because Tiffanys impressive 50 percent gain in the Asia-Pacific market indicates customers are ready to buy they just need more outlets (Dishman, 2010). Furthermore, indirect but emerging competitors are fast penetrating the China market with their expanding number and size of stores. Tiffany could lose its foothold if it doesnt expand fast enough.

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Once market development and market penetration are stabilised, Tiffany can turn its focus to product development from August 2012 onwards: Phased over a period of five years, Tiffany will conduct market research to understand the culture, tradition, tastes and preferences of Asian consumers. In collaboration with Asian designers, Tiffany can develop exclusive collections and bridal jewellery sets which incorporate Asian elements like jade, pearls and gold. This product adaptation is part of a transnational strategy that will improve Tiffanys competitiveness in the international environment. Thus the focus of our strategies would be:

MD MP PD

Aug 2010

2011

2012

2013

2014

Aug 2015

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9 Implementation
Budget Projected Costs for Proposed Strategies (S$) Phase 1 (Dec 2010) Standardisation of store outlooks to resemble Glass Palaces: Commitment to Asia Expansion: Product Adaptation and Development: Market Research: Marketing Promotion Activities: Total: 80 million Phase 2 (Dec 2011) 140 million Total Estimated Cost

220 million

40 million 20 million 1.5 million 4 million

80 million 30 million 3.5 million 6 million

120 million 50 million 5 million 10 million 405 llion

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10. Evaluation and Control


10.1 Evaluation A successful business plan needs to be both achievable and sustainable with evaluation of current resources, core competencies and capabilities through the development of both short term and long term commitments. In cooperation of the analysis of macro-environment and micro-environment, evaluation and controls are to be accomplished to ensure Tiffany and Cos future competitive advantage, they are as follows: 1) Refresh and redirect Tiffanys Vision and Mission in all regional outlets every 1-2 years to ensure that the company is following the ever changing economy and consumers preference. 2) Monitor accounts, financial and material inventory to ensure maximization of profit and minimization of loses. 3) Constant review on advertising and marketing campaigns effectiveness to ensure the positive movement from current to the desired brand position. 4) Engaged specialized economic and market analysts to research on current and future direction of both Tiffany and competitors. 5) Conduct market surveys in every quadrant of the year e.g., customer satisfaction, market perceptions, superiority on Tiffanys products to enhance customers relationships management, customer loyalty and value.

10.2

Control

10.2.1 Balance Scorecard The balance scorecard approach below aims to view Tiffanys overall strategies from four key perspectives namely, a) Financial Perspective, b) Customer perspective, c) Internal, d) Innovation and learning perspective to access and to ensure sustainable future profitability through implementing strategies that strengthens Tiffanys positioning and achieving competitive advantage over rivals.
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Focus Financial (F)

Strategic Objectives F1: To achieve 10% increase in worldwide sales and 15% increase in Asia region sales annually (1 result to be obtained by December 2010) F2: To obtain 30% market share in the Asia fine jewellery market by August 2011.
st

Strategic Controls Measure ROCE and gross profit to sales Cash flow Net margin Volume growth rate versus other direct and indirect competitors Improve overall sales by offering one stop products and services for weddings/anniversary in bridal niche market.

Customer (C)

C1: Continually improve products value and product awareness by closing the brand equity gap between the

Define share of segment in targeted key markets Analyze shoppers shopping pattern Standardization of retail stores outlook and advance e-commerce to create value

customer perceived value and market value. C2: Improve customer relationship management (CRM) to gain value and trust especially in Gen X, young professionals.

Generate interest and gain favour from consumers by engaging Asian celebrities to endorse Tiffanys range of fine jewellery and brand name.

C3: Product differentiation and innovation to achieve market attention in the engagement rings bridal market.

Enhance brand equity and generate trust through Brand standardization


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C4: Product adaptation to attract Asian consumers with culturally adapted product offerings and marketing communications. and flagship stores. With positioning strategies, Tiffany has to shift its position to a higher perceived value and targeting a larger market without eliminating existing target market Internal (I) I1: To remain as the global market leader in the fine jewellery industry. I2: Marketing to Asia market I3: Improve and maintain product quality I4: Brand standardization Inventory Management and compared to plan & output rate. Assimilate the culture of the Asian countries using product innovation and differentiation, yet retain its image through brand standardisation. Improve quality in craftsmanship and overall sales performance Collaborate with various renowned designers to Asian create

products suitable for the Asian market. Learning & Growth (L) L1: Refresh Tiffanys vision and mission every 2 years L2: Restructure Tiffanys core competencies and skills L3: Identify and improvise Conduct employee survey Product Development in Bridal niche market by introducing specialty
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Bridal niche market stores Identify potential of consumer spending power, via GDP per capita and business environment, to attain sustainable growth in primary target markets China, Hong Kong, Taiwan. Expansion of its markets through opening of flagship stores of at least 20 international stores annually.

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Appendices
Appendix i:

Source: Population Reference Bureau. Projected world population growth. 2010. http://www.globalchange.umich.edu/globalchange2/current/lectures/human_pop/human_pop. html. (accessed July 8, 2010)

Appendix ii:

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38. United States of America. USA Today. 2010. Asia-Pacific region embraces use of credit and debit cards. http://www.usatoday.com/money/world/2010-06-30chinadebt30_CV_N.htm (date accessed: 11 July 2010) 39. Wharton School. Tiffany & Co: A Case Study in Diamonds and Social Responsibility. November 17, 2004. http://knowledge.wharton.upenn.edu/article.cfm?articleid=1074 (accessed June 25, 2010). 40. Wikinvest. 2010. Wiki Analysis: Tiffany & Co (TIF) Competition.

http://www.wikinvest.com/stock/Tiffany_%26_Co_(TIF) (assessed on 25 June 2010) 41. Wilcox, Jenn., Scott Damassa., Zeeshan Hyder. 2007. Strategic Report for Tiffany & Company. dfs/Tiffany_and_Co.pdf 42. Yahoo Finance. 2010. Harkness (assessed Tiffany on & 25 Co. June Quarterly Consulting. 2010) Report. http://www.economics.pomona.edu/jlikens/SeniorSeminars/harknessconsulting2008/p

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