The Business of Bagging Customers - Coach Inc - Case Study Example

? The Business of Bagging s Jafar Alnakhli ADMN1016: Foundations of Management St. Lawrence College, Kingston, ON Coach Inc. startedwas a bagging company in 1941. In 1971, it was bought by Sara Lee and had to survive in hard economic times. Although the company started as a maker of small leather handbags for women, it is currently a leader in the sale of handbags, wallets, luggage, briefcases and many other related products. It should be known that the market is saturated with other competitors. In addition, there have been some difficult points in the economy that have affected business in the bagging industry. This means Coach Inc. has learned from and expanded on what competitors are doing within in industry in order to stay on top of the market and maintain their business. THE BUSINESS OF BAGGING CUSTOMERS Coach Inc. is an American company dealing in leather goods from bags, shoes, jeweler, wallets and many other products. Coach was started in 1941 and has expanded rapidly in leaps and bounds, especially after the turn of the 21st century, and right now it boasts of over 500 branches worldwide. Coach started as a bagging firm back then and specialized in the manufacturing and sale of leather bags. The company was later bought by a bigger company called Sara. Lee Corporations in the 1970s. Sara Lee was diversifying its merchandise leading to the purchase of Coach among others. This diversification strategy did not work out well for Sara Lee and Coach suffered from lack of focused management (Encyclopedia, 2012). The large portfolio proved hard to handle under one management. In 2000, Frankfort Lee, the CEO of Coach, convinced the management of Sara Lee to allow Coach to run independently. This strategy paved the way for the growth and expansion of Coach. In fact, the company's growth was averaged at 51% per annum since 2002. This paper seeks to establish the factors that contributed to this rapid expansion and what exactly is the reason why the company was less affected by the economic downturn in the later part of the first decade of the 21st millennium. This paper, therefore, starts by outlining the reasons why the company could weather the economic downturn storm and the strategies it employed. It then goes ahead to discussed what Coach did that its competitors did not hence giving it a comparative advantage, lastly, it analyses the success of these strategies employed by Coach Inc. In 2008, a global economic depression hit affecting the United States of America and the entire world. During this time, many businesses collapsed and Coach was expected to follow suit. However, Coach expanded its operations to wider markets in Northern America and competed with leading brands. Although the company started as a maker of small leather handbags for ladies, it is currently a leader in the sale of handbags, wallets, luggage, briefcases and many other related products. How Coach Has Managed to be Successful in Challenging Economic Conditions Coach managed to be successful despite the economic challenges as a result of several management and marketing strategies. One management strategy was the creation of a business plan with a corporate strategy. The corporate strategy gave Coach the authority to run its activities independently without the interference of the mother company. This proved to be the decisive step. Coach planned to expand and diversify its operations. The company, which had a narrow range of products that were made of leather diversified into jewelry, eyewear and picture frames production and selling. It opened more stores in International markets, including Canada and China, setting up multiple stores in the countries it ventured into. The large population in China gave the Coach Inc. a ready and wide market for its products. By increasing its market share, Coach was in a position to navigate through hard economic times. Coach managed to cruise through the economic downturn through proper analysis of trends in the fashion industry and market at large. Through this analysis, the company was able to track trends in the market and thereby manage risks. For instance, the Company did not rush to invest during the credit crunch of 2008 because it was better informed of what was likely to happen. Instead, it calculated some risks associated with investment during that time (Encyclopedia, 2012). The company spent $2 million on market surveys to gain insight into consumer behaviors in the leather products industry. What Coach Did That Other Companies Did Not Do Coach adopted a customer focus strategy whereby the company designed new products based on the demand and taste of the customer. The consumer market was segregated in terms of sex, age and geographical location. The female and the youth of both sexes were the primary target and formed the bulk of the company’s market share. Therefore, the products were designed with these two fashion-conscious groups in mind. Market segregation further enabled Coach to design and sell directly to its specific audience according to their unique needs, a thing the competitors never had the resources to do (Kotler, 2000). At the same time, Coach, unlike its competitors, invested heavily into market research. Coach invested 5% of its revenue in market research and advertising while its competitors averaged at 2% of theirs in relation to their revenue (Encyclopedia, 2012). The company performed market preference tests before introducing the product instead of just jumping right in. This calculated risk taking ensured that the company was not hit hard during the tough economic times as its products managed to stay relevant throughout as its competitors products were being pushed out of the market. Furthermore, they developed a good business plan based on professional consultancies from other fashion designer companies. For example, Karen Harvey and Brocade Agencies, which offer consultancy services in the fashion world, advised Coach to intensify their marketing by partnering with artistes and other well-known individuals and firms in the fashion industry. This led to them partnering with Tony Duquette, a jewellery designer and in China, it partnered with Zhang Lan, an artiste. Coach also diversified into other products, including jewelry to expand its market base and therefore diversify their risks; this proved to be a great and timely move. Coach eliminated all of its slow-moving products. That way only the profitable and fast moving were designed and produced. None of its competition took this necessary precaution, and their products stayed for long in the shelves. Meanwhile Coach was able to sell fast their products and reinvest the profit generated in more market research, production and expansion. Finally, Coach outsourced its services to increase efficiency of operations and reduce the cost of manufacturing from abroad. For instance, at the start of the decade the company used to outsource only 25% of its production activities. By the end of the decade, the company was outsourcing 80% of its production. This was a higher percentage as compared to its competitors, mostly who strived to manufacture on their own. This proved to be advantageous to Coach since it could focus its energy in the design and market research, fully understanding that their production needs are being taken care of by competent independent contractors. Analysis of the Success of the Strategies Coach’s strategies were chosen carefully thereby making the company a success. In the first place, customer focus led to the creation of an automatic market. According to Kotler (2000), customer, focus leads to self-regulation of the market thereby making it an automatic market. In this case, the customer dictates what he or she needs. As a result, Coach was able to maneuver through the highly competitive fashion industry. Morgan and Inks (2001) claim that marketing through customer focus should be substantiated with market research. This is the case for Coach. As a result, the success of Coach was based on the integration of marketing research with customer focus that is essentially an effective tool for customer relationship management (Payne, 2005). Coach further employed outsourcing and diversification. Outsourcing is an effective cost cutting tool for any business organization. However, the company risks industrial action from its employees on the issue (Weeks & Fenny, 2008). Diversification, on the other hand, is a tool for risk minimization. If one line fails, the business will still thrive in the market. What the Competitors Did Not Do Bellroy, Clara, Tuscany and a host of other leatherwear making companies can be regarded as Coach’s closest competitors. These companies, having less financial muscle as compared to Coach, could not do most of the things that Coach did in order to gain the comparative advantage. For instance, these companies should consider removing all the slow-moving products from their stores; they should diversify their operations to cover even the products that are not in the leather industry just like Coach has done. Most importantly, in the fashion industry, companies should outsource most of their productions so that they can concentrate all their energy in staying abreast of the competition in research, marketing and designing. Lastly, though most of the competition has internationalized their operations under parent companies, it is vital that these fashion houses be given the autonomy and the necessary space to run their own operations. Conclusion Since starting as a bagging company in 1941, Coach has expanded its operations despite the presence of competitors and hard economic times that have negatively affected business throughout the industry as a whole. The success of the company has been based on doing something that competitors have failed to capitalize on and thereby consolidate a wider market share. References Encyclopedia. (2012). Coach Leatherwear. Retrieved from http://www.encyclopedia.com Kotler, P. (2000).Marketing management: The millennium edition. Englewood Cliffs, NJ: Prentice-Hall International. Morgan, A. & Inks, S. (2001). Technology and the sales force. Industrial Marketing Management, 30 (5), 463-472. Payne, A. (2005). Handbook of CRM: Achieving excellence through customer management. London: Butterworth-Heinemann. Weeks, M. & Feeny, D. (2008). Outsourcing: From cost management to innovation and business value. California, CA: Harvard Business Publishing. Read More