CASE STUDY 2: EMERGING MARKETS: HIGH FASHION FIGHTS RECESSION

Name

: Nor Shazrina binti Mohamed Razi

Nguyen Viet
Nicholas Chan Eng kit
Sohel Dawoodi
UOW ID : 5046907/ j15017979
5075725/ J15017965
Wickramasinghe
5160911/J15017986
5276044/J15019679

Subject coordinator: Dr. Poh Phaik See

Lecturers name: Dr. Ananda

Case Overview
Luxury goods industry fell about 20% by 2009
due to the 2008 Great Recession.
Market instability, industry practices and customer
perception are discussed in the case.
Porters five framework.
Strategies utilised by luxury goods industry to ensure
sustainability while maintaining brand image.

Q1: Using the 5 forces framework, how

would you characterize the competition in
the luxury goods industry ?

Michael Porter Five Forces

Framework:
Identifies & Analyzes 5
competitive forces that
shape every industry.
Used to determine
Strengths & Weaknesses
(Porter, 1979)

Industry Analysis Using 5 Forces

Q2: How much bargaining power did

consumer as buyers have during the Great
Recession

Buyers: Always try to improve the quality of Life

a) Buyers Personalities
)Reduce Profit
)Increase Competition
)Force down prices
)Increase bargaining for quality
b) Minimizing Buyer Power
)Target Numerous Buyers
)Identify Clear Value Added
)Provide Differentiated Products
)Enhance Entry Barriers

LVMH Differentiation Strategy

LVMH understands consumer behavior; people prefer spending their money buying
one Kelly bag by Hermes instead of buying 3 bags from a less prestigious brand.
Differentiate itself from the competitors by focusing on high fashion and quality.
Produce its goods become basic necessity for customers.
Therefore, bargaining power of buyer is low.

Q3: Why was discounting was looked down

upon by industry peers, all of which were
differentiated or focus competitors?
Discounts may pose to be
dangerous for luxury
retailers. (Burnsed. B., 2009)
Accentures Global Managing
Director quoted The losers
will be the ones who
destroyed their brand
through the discount
model. (Hoffman. J, 2009)
Looking down on discounting
strategy was intentional
maintain brand image

Example: 2008 Great

Recession
Gucci and Richemont
disposed majority of
excessive unwanted
inventory in discounted
website that had caused
marketing war between
smaller players.
Escada bankruptcy
LVMH remained in market

Cont.

When premium brands approach discount strategy, it

would undo the placebo effect of premium price
leading to a crumbling confidence in value of the product
offered. (Stibel. J., 2008)

Cont.
Differentiation
Firm seeks to be unique in the
industry
Widely valued by customers
Positions itself to meet customer
requirements
Rewarded for uniqueness premium
price

Cont.

Focus
Narrow competitive scope
Within the industry
Cost focus firms seeks cost
advantage in market and
target market
In this case, Dunhill opted
discounting to boon their
revenue

Q4: what would be

the likely challenges
in emerging markets
for luxury good
items?

Geopolitical issues- declining

global trends affect Coachs
earnings (Gustafson, 2015)
Government interventionimpose higher tax rates.
Small talent pool.
Poor intellectual property
rights protection.

Gustafson, K., 2015. The biggest threat to luxury brands

rapid growth. CNBC News.

External environment- challenges

Political:
geopolitical
issues

Economic:
increased
tax rates

Technology:
infrastructur
e

Sociocultural:
talent pool

Law: poor ipr

protection

Lessons
learnt

Great Recession was a trying time for

luxury good industry.
Luxury goods industry understands price
wars and discounts are bad for business.
Encourages innovative and creative ways to
remain competitive.
Industry makers understand strength the
quality of niche market.
Differentiating strategies help find new
markets to sell products in emerging
market.

References
Burnsed. B., 2009, Bloomberg, In luxury sector discounting can be dangerous, http://
www.bloomberg.com/news/articles/2009-07-23/in-luxury-sector-discounting-can-be-dangerous
Cavender, B & Rein, S 2009, 'Chinas luxury goods market may escape the worst of the global economic crisis
Luxury Goods: Still Strong Sellers', China Business Review, viewed 15 September2016,<
http://seekingalpha.com/article/142289-chinas-luxury-goods-market-may-escape-the-worst-of-the-global-econo
mic-crisis
>
Financial Post, 2015. Four challenges facing emerging market investors. Online. Retrieved from:
http://business.financialpost.com/investing/outlook-2016/four-challenges-facing-emerging-market-investors
[Accessed on 20 September 2016].
Gustafson, K., 2015. The biggest threat to luxury brands rapid growth. Online. Retrieved from:
http://www.cnbc.com/2015/01/28/the-biggest-threat-to-luxury-brands-rapid-growth.html [Accessed on 20
September 2016].
Hornby, L., 2015. US warns China over intellectual property risks. Online. Retrieved from:
https://www.ft.com/content/6469fe72-e4b4-11e4-9039-00144feab7de [Accessed on 20 September 2016].
Porter. M. E., 1985, Competitive Advantage
Stibel. J., 2008, Harvard Business Review, In a Downturn, Discounts Can Be Dangerous,

Question and
answer session

Q 1, slides & report

compilation : Sohel
Q 2, & slides for Q2: Nguyen
viet

Credits given to

Q 3 & slides for Q3: Nicholas

chan
Q4, slides & slide design: Nor
Shazrina