The Marketing Strategies of Gucci

The House of Gucci, or simply Gucci is one of the more established premium fashion brands in the world. Its success depends largely on its effective marketing strategies.

The House of Gucci or simply Gucci is an Italian fashion icon company. Founded by Guccio Gucci in Florence, 1906, it is now the most famous luxury brand in the world.

Gucci earned US $ 7 billion in revenues in 2006. It ranks 46th in Business Week’s Top 100 Brands. It now has 425 stores worldwide and a number of franchisees and high-end department stores that carry its brands.

Gucci, being one of the premium brands, has to contend with a number of factors both internal and external in order to maintain its current status. The following is the analysis on Gucci’s strengths, weaknesses, opportunities and threats.

SWOT Analysis of Gucci

Strengths

The strength of Gucci is in its established, very strong brand image and international presence. Gucci has also the ability to control its distribution channels. This is part of Gucci’s defensive strategy in the chain value to capture the value added instead of giving it to the middlemen such as suppliers and retailers.

The company has also increased the number of their Directly Operated Stores (DOS) as part of the defensive strategy of taking more control of the distribution process. The 2003 figure showed that DOS accounted for 61.3% of revenues compared to a much lower 32.5% in 1999.

Its aggressive strategy accomplished through diversification and communication is also another of Gucci’s strengths. Gucci changed its strategy of carrying a single brand to branching out to a multi brand group. This strategy is also adopted by other conglomerates such as Louis Vuitton and Prada.

Some luxury companies use the strategy of focusing only on one brand and add other business segments such as what Armani, Polo Ralph Lauren, and Versace did.

This strategy is done in order to allow the positioning of the brand in the industry to differ depending on the number of brands and the number of business segments the company wants to compete in. This is the idea behind focus (mono brand) versus diversification (multi-brand). Gucci Group has more than 10 brands, including Gucci, Yves Saint Laurent, YSL Beauté and Sergio Rossi.

Weaknesses

The weaknesses of Gucci include instability in management and financial base. The instability of its management can affect the group’s corporate strategy and vision.

The financial base is weak and alarming, with a long term debt increase from $17 million in 1998 to $143 million in 1999 and to $1.3 billion in 2003. Some brands in the Gucci group’s portfolio are still not profitable, and there is a need to promote and market them aggressively.

Opportunities

Opportunities for Gucci abound especially in the emerging luxury markets in growing economies from Asia such as India and China. People who come from these places who recently amassed huge wealth due to the excellent performance of the economy would definitely want to try luxurious brands such as Gucci.

There is opportunity in the consolidation of other brands too. The opportunity exists in creating competitive advantage in different business segments. There are various business segments Gucci can venture into should the need to expand and create more luxurious products arise.

Threats

The luxury goods carry premium products designed for very wealthy individuals. This demanding market spares on expense to get the best product in terms of quality, style and design. Price, therefore, is not a basis of competition in this kind of industry.

Competition largely exists on how potent and valuable the brand image has become. This is the focus of Gucci’s thrusts. Its competitor Louis Vuitton may have made its mark in size with more than 50 luxury brands in its belt and sales of 12.6 billion euros in 2004 alone but it is not exactly the single dominant player in the market.

This is because in the luxury products market, companies can carry several brands and business segments which could change their positions depending on the segments such as leather & shoes, cosmetics, jewelry & watches, wine and spirits and others.

Competition is also effectively minimized by the intense rivalry of established luxury goods. New firms would definitely find it next to impossible to penetrate such an exclusive market. The cost of maintaining and promoting this image are also prohibitive.

Companies are forced to invest huge money in brand promotions in order to maintain their image. Expenses such as advertising and marketing expenses, acquisition of competitors, control of the distribution channel and other strategies take the bulk of company’s operating budget.

The barriers to exit in this industry are low which means that survival is for the fittest. If the company cannot compete with other players in the industry then it has to fold or sell to other bigger firms which make exit quite easy and quick.

In this industry, the barriers to entry are really high and the barriers to exit are low, therefore only the select few can maintain their position in the market, while others could give up altogether or are bought by bigger firms.

Also, luxury goods do not have direct substitutes like other ordinary goods but the threat could come from imitation. Counterfeits often penetrate the market. This could take away a portion of the sales that should go to luxury goods companies.

There is also the threat of substitutes to contend with. These are products that are considered ordinary or the medium brands but can eventually expand their product lines to premium brands in the future such as Zara and Gap.

Internal threat could also come from French holding company Pinault-Printemps-Redoute (PPR) who currently owns 68% of Gucci’s stocks.