Gucci: Marketing and Brand Strategy - Essay Example

Running Head: GUCCI: MARKETING AND BRAND STRATEGY Gucci: Marketing and Brand Strategy [The [The of the Gucci: Marketing and Brand Strategy Introduction Fashions, by their very nature, come and go, but fashion houses must simultaneously control and ride the vicissitudes of the industry. Gucci is a global retailer of luxury, high quality fashion items: handbags, small leather goods and luggage, shoes, ties and scarves, RTW, watches and other personal items such as key chains, money clips, pens, etc. Gucci makes its products available to the public through four main distribution channels: Directly operated stores; Franchise stores; Duty-free boutiques; Department stores. Gucci's Marketing Formula Gucci has adopted an international marketing strategy of communicating a consistent image to its customers around the world. To uphold the consistency, Gucci has centralized marketing operations to Florence, which provides all creative material, and controls all aspects of marketing. The main marketing strategy of Gucci is "designed to maintain a high profile and consistent visibility". This involves constant marketing of its products and image, which keeps the company constantly discernible to customers and the fashion world. To achieve this, Gucci has started increasing communications expenditure in the last 3 years, and is planning on continuing the increase of its marketing budget. Gucci's products and marketing methods are not tailored according to national needs or customs. It aims at reaching the growing global market segment of the rich and "newly rich", among which groups a homogenization of taste for luxury products has been detected. This group is a true example of the emergent phenomena of the global marketplace, where needs and perceived benefits are common from the USA to Europe to Japan. This global market segment's price elasticity is low, meaning that they are not affected by changes in prices. They see price as an irrelevant factor, and shop for luxurious, high quality brand names. I once read a report that quoted the CEO of a luxury goods company, as he stated that it is simpler to increase prices of luxury goods than to lower them, as this is what consumers expect. Marketing Communications Since Gucci has several rival firms on a global scale, it coordinates its marketing activities with careful timing and placement to achieve maximal penetration of its core message: the luxurious and fashionable image of all Gucci products. Gucci advertises in national and international fashion, lifestyle and business magazines. Advertisements are timed to appear at the start of buying seasons, where customers will be looking for fashion items to purchase for the coming season. This is effective use of advertising, since the ads appear at times of the year when customers are open to receive such messages. Direct Marketing Gucci publishes product catalogues and makes them available to existing and potential customers. These catalogues should be sent out via mail to the companies customers, and be reachable by potential customers at e.g. prestigious hair saloons, etc. Direct mail should also be sent to the wealthier people in each of the countries where Gucci pursues business activities, thereby making it convenient for the potential customers to familiarize themselves with Gucci products and even order through the order sheets provided in the catalogues. Gucci has set up PR offices in the fashion capitals of the world. Their job it to make local and international fashion press deal with Gucci as much as possible. (Silverstein, 2005, 155-63) Holding four seasonal fashion shows yearly, where the newest Gucci models are unveiled, also backs this. These shows are also good opportunities to appear in fashion press and other magazines. Image Tom Ford, the creative director of Gucci has been molding the company's image at his will. Gucci sells an attitude, as does all fashion today. Fashion is all about beauty, desire and sex and this is why Gucci's image is so successful. Tom Ford has succeeded in combining the classical image of Gucci with a modern, trendy image, which is apparently a great recipe for success. Models in Gucci advertisements are portrayed as standing out of the crowd, as being individuals (we can observe that the Gucci model in most Gucci advertisements is above everybody else in the ad). This reinforces the image of superiority and uniqueness. Growth Markets Seeking out and entering new markets is imperative for a global company. The world is constantly changing, presenting new business opportunities. Gucci should set up a separate division within its marketing framework to seek out potential markets. Once a general scan has ruled out markets that are impenetrable because they are either closed or insignificant, the remaining markets must be analyzed in greater detail. Markets that would be ideal to penetrate by Gucci have rapidly growing GDP per capita, socially and culturally not extreme, competition is acceptable, and already have, or will soon have a relevant portion of the population that can afford Gucci products (high disposable income), and are apparently looking for benefits provided by such luxurious items. (Quelch, 1998, 61-68) As we already know, market segments for luxurious goods are close to homogeneous around the world, so modification of the products will not be needed. Deciding on the product lines to enter the market with may be a more interesting question, since for example, entering the Arab Emirates with women's clothing may not be sufficiently profitable. Once relevant markets have been identified, entry planning must commence. Gucci's present strategy of distribution should be utilized, the form depending on the perceived risk. If the entry would have lower risk factors, Gucci could start off business activities in the given country by opening a directly operated store at a suitable location. If the risks of entry are higher, franchisees should be sought out. Entering a market through placing Gucci products in department stores would be inadvisable, since this method would not truly communicate the luxurious, unique image of Gucci. (Roberts, 2005, 131-40) Gucci is already present in many countries around the world, all of which have shown increasing sales in the past years. The most striking growth in revenue can be seen in the Far Eastern countries, especially Japan. Gucci must take advantage of this by deepening its penetration in these markets, e.g. by opening up more directly operated stores. Other than Gucci's existing business rivals, a serious form of 'competition' must be handled in the Far Eastern countries: that of counterfeits. Studies have been conducted on the purchasing habits of wealthy people. These studies showed, that truly upper class individuals do prefer high quality, luxurious clothing and fashion apparels, but they prefer not to have brand names or logos visible on what they purchase. (Schmitt, 1997, 220-27) However, the lower classes of society are exactly the opposite. They want to be thought of as possible more than what they are, and prefer clothing with the brand names visible to other people. Counterfeits make use of exactly this, by making low quality look-alikes of the originals, with the difference of having the counterfeited brand name very visible on the clothing. These low quality copies hurt the Gucci image, and should be dealt with aggressively. This is especially true for the Far East, where the population is very large, but only a small percentage can afford real Gucci apparel. People who cannot pay for real Gucci clothing chose to purchase imitations. Central and Eastern European countries may show potential as well, since they are rapidly developing countries, with the newer generations having been strongly influenced by the 'modern', capitalist Western culture. The government has lessening influence in most of these countries, and the new wave of wealthy population will be open to the image conveyed by Gucci. The Middle East (Gulf Region) will show high growth in demand for luxury goods. Many well-to-do people live there with very high levels of disposable income. This market must be analyzed. Latin American countries should be monitored, but decisions to enter should be made only after very thorough analyses of the given markets. Standardization of the Marketing of Luxury Goods I believe that when it comes to global luxury brands, the messages need to be uniform across all markets. Purchasers of luxury products will be well traveled, having been to some of the most prominent fashion capitals of the world. They must be communicated a consistent brand image. Strong luxury brands send a clear message, are consistent in delivering and often lead consumer trends. That is why brands represent the most valuable asset of luxury goods companies. However, the means of communicating the brand image may differ from country to country. Gucci should set up regional marketing centers, which should provide marketing services to retail outlets, be it a directly operated store or a franchisee store. This regional marketing center should be responsible for developing the tools, which the local representative is free, or in some instances, compelled, to use. Gucci should develop a comprehensive, global marketing strategy with clearly defined above-the-line, below-the-line and in-store activities. These are critical elements that should be provided to retail outlets, being especially important in department stores. It should be the right of the local franchise holder to adapt those materials to suit the prevailing environment, taking into account culture, traditions, language, etc. The local retailer must make certain that the message they are sending is consistent with Gucci's global communications strategies and it is also the franchisee's responsibility to select the most appropriate means of delivering the brand message, since the bottom line is that they are the ones that will be the most familiar with the culture of the specific market. Standalone stores play a major role in the marketing of a brand. People want to be seen shopping at Gucci, where they can expect a higher quality of service. Standalone boutiques are important in order to show the image of Gucci, while giving the true sensibility of the brand. As Gucci is in the luxury segment, the overall environment of the store is very important, the location of the shop, position of the display and who your neighbors are is also significant. Luxury has to remain luxurious. This is a fact and does not differ by country or religion. Product lines need tailoring as deemed fit. As I said, revealing women's clothing would not be desirable in the Persian Gulf, but $10,000 watches would be. The regional marketing center must have thorough knowledge of the customs of the given country, and adapt the product line and marketing methods accordingly. (Levitt, 1991, 292) Climate is also an important factor for the clothing section of Gucci. Humid and hot regions, such as the Far East, will not take in as many winter-coats or scarves as a Northern European country. All the variables must be kept in mind when designing the product line to be sold in a market. It will also be the job of the regional marketing center to be aware of the legislative issues/restrictions regarding marketing communications in any given market that belongs to the specific center. The Gucci images of luxury, quality, uniqueness, beauty and desire should be consistently communicated where legislation/culture allows. The real indicator for Gucci will be its ability to continue to control its overall image centrally. As the business expands into new brands and divisions, it becomes difficult to exert creative control. Gucci's strength is its unquestionable appeal. (Journal of Fashion Marketing and Management, 1999, 281-86) Gucci remains a highly desirable brand, but it suffers from the classic scenario of being seen too much everywhere and on anybody. Sporting a Gucci bag or a pair of sunglasses is no longer the preserve of the rich and famous and this brand democratization has damaged its glamorous and exclusive image. Tom Ford turned around Gucci from an Italian brand on the brink of extinction in the late 80s to one of the leading international luxury consortia in less than a decade. But today it has become too much of a money-making machine, which in the short term has been fruitful but now starts to erode the brand's appeal. (Kapferer, 1992, 301-10) Generalizations Relating to the Global Luxury Goods Industry The first generalization we can draw is on the market segment of consumers of luxury goods. They are the well-off individuals, with high disposable income who purchase luxury goods not only because of their quality, but also to uphold their personal image. Therefore we can say that this segment has homogeneous needs across the globe and is one of the very few truly global market segments. However, producers of luxury goods must be careful. The more successful they become in terms of increased visibility, sales volume and profits, the more the power of their brand equity diminishes. Mass availability has diminishing effects on desirability. Luxury goods producers have this difficult task of balancing the growth expectations of shareholders with a weakened image. (Silverstein, 2003, 48-57) Counterfeiting is also a key issue. Put a luxury name on items that do not support expected levels of craftsmanship, design, quality and style, and the atmosphere around a luxury brand immediately fades. Most companies producing luxury goods offer similar standards of quality. What differentiate them from one-another is their brand image, product design and assortment. This is where the market shares of any given luxury goods provider can be increased. The designers and marketers must identify the needs of the upper class, and sell products offering benefits that attend to those needs. For a fashion apparel provider like Gucci, trend-setting lineups should be designed. Of course, volume must be balanced with brand equity. A luxury goods provider cannot sell too many products, since its luxurious essence will diminish. If demand is high, the prices of Gucci products should be raised. This increases profitability, and does not weaken the image of Gucci. The luxury goods industry is unique from all other industries. When we compare global luxury brands like Gucci or Porsche with e.g. Coca-Cola, which is also a global brand, we find striking differences. In the example of Coca-Cola, the brand's success is based on conveying the American image. This will not be a good selling point in countries like Afghanistan. However, Gucci and Porsche, being luxury products, are known for quality and tradition, which is accepted all over the world. The segments of the population in Afghanistan that would accept Gucci as a global brand and perhaps buy its products will not buy Coca-Cola. The difference is in the general brand identities of luxurious goods and commercial goods. Luxury products are globally accepted for the quality they provide (and thereby the upper-class image), while more commercial goods will have a USP that will not be favored globally. Another generalization we can draw is that the luxury goods industry is in general less cyclical than are comparable products in the mass market. This is mainly due to the fact that, the buying power of luxury goods consumers is good even in difficult economic times. In times of recession, the middle class will accumulate savings, while the upper class individuals still have their image to uphold, therefore keep on spending. Deming states that the customer's definition of quality is the only one that matters. This is true but I feel that the customer does not always get quality from what they perceive as quality. This is partly to do with the fact that some companies are very good at doing some things, but is not so good at others. Designer label brand Gucci is a prime example of this. If somebody buys a Gucci designer watch for the cost of 800, there are a host of other things that the buyer will achieve like admiration, prestige and self-esteem. Gucci is not a watchmaker and does not have the same level of expertise of watch making as Rolex or Cartier. Although somebody who does not have knowledge of watches may perceive this watch as quality. Those with know-how or those in the industry would regard this watch as crap. (Juran, 1988, 88-93) Watches of this nature are purely soled through success of the brand. The watches are simply a spin-off from their designer clothesline and are made with very low quality and cheap components. According to Which magazine, the life expectancy for a Gucci watch is two - three years. This is very low compared to Rolex's lifetime life expectancy. Looking at Pass's definition of quality, a Gucci watch does not carry vital characteristics such as, reliability and durability, which are key to the "quality package". This brings us to Deming's theory that the customer's definition of quality is the only one that matters. I appreciate that the customers opinion is all that matters them, but whether or not the customer is actually receiving quality is another matter. If a product were purchased on the basis of the customer being happy with the product initially, then it would be very difficult to apply Deming's theory of quality if the product has hidden defects. (Crosby, 1984, 110-14) Similar to the phrase, "things aren't always what they seem". To achieve high quality, a company does not have to always have to pay the high costs. For example the cars produced by the Japanese used to be of low quality and unreliability was common. The whole area of purchasing and suppliers is streamlined to achieve minimum waste. Adopting these techniques cannot be done over night, but lean supply is an excellent step in the right direction in achieving a good balance between cost and quality long-term. (Garvin, 1984, 45-50) Mark Lee, Gucci's new chief executive officer, has an aggressive agenda that includes boosting the brand's sales as well as redesigning retail stores and expanding in emerging markets. In his first interview since taking charge of Gucci in November, Lee mapped out his strategy to double sales in seven years to more than $4 billion, a goal set by Robert Polet, president and ceo of parent Gucci Group, after the tumultuous departure of creative director Tom Ford and ceo Domenico De Sole. "Gucci's transition is behind, the dust has settled," Lee said in the minimalist gray, black and white offices of the brand's headquarters here. "We're moving very fast because we have so many things going on." Seeking to grow the business in what he described as "a luxurious way," Lee said Gucci also would focus on jewelry, eyewear and fragrances, increasing the ready-to-wear assortment and launching advertising campaigns for each of the product lineups. The plans have "thrown people off because it sounds like a staggering number," Lee said. "In reality, it means a 10 percent annual growth. The first quarter of this year we grew 19 percent, which is double the pace we need and testifies to the brand's strength." Lee, a 42-year-old native of San Francisco who started his career as an assistant buyer at Saks Fifth Avenue, became president and managing director of the brand in November. He moved from his spot as ceo of Gucci Group's Yves Saint Laurent fashion house after the ouster of Giacomo Santucci. Lee was named ceo of the Gucci brand this month. He has overseen the promotion of Frida Giannini to creative director for women's rtw and men's and women's accessories, which meant the departure of Alessandra Facchinetti two weeks after her second runway show in the post-Ford era. Lee said that in terms of retail expansion, Gucci is late compared with its rivals in tackling markets such as China, India, South America and Eastern Europe. (Arghavan, 2000, 7-9) At least 10 new stores are to open in China in three years to complement the existing seven, along with new units in New Delhi, Bombay and Ho Chi Minh City in Vietnam, by yearend. Mexico City is in the pipeline for February 2006 while a space in Macau, the Las Vegas-style gambling megacenter in eastern Asia, is to open in 2007. New Gucci stores also will crop up in the U.S. with openings slated this year for Westchester County, N.Y., and Chevy Chase, Md., in November and Naples, Fla., before Christmas. "Next year, we'll open in San Diego, where we don't have a store, though I believe it's the sixth-largest city in America," Lee said, adding that his team also is checking out Prague and Warsaw. "The U.S has been our most established market since the Fifties, though I wouldn't say a saturated one.Our competitors are already in Mexico and India and are ahead in China, but we still have potential and PPR is very supportive." Gucci will revamp existing stores in established markets to make sure store location and size are appropriate, and invest in replacement stores in West Berlin, Barcelona and Hamburg, Germany, by the end of 2006. "One of Gucci's great strengths is that it's balanced geographically," Lee said. "In terms of sales, we witnessed double-digit growth across the board: Japan, Asia, the Pacific, America and Europe." Parallel to the retail rollout is the new store concept that Lee is developing with Bill Sofield, a New York architect who spearheaded the first makeover in 1997 with Ford. The aim then was to give the stores the same sense of must-have opulence that pervaded the products. "The existing store concept has been incredibly successful, but I would also say unbelievably copied, so it's time for us to move on," Lee said. "We want to show Gucci's evolution with this state-of-the-art concept conceived for the next 10 years." Reluctant to disclose specifics or the company's retail investment, he described the blueprint as sexy and modern, but warmer, brighter, richer and more natural in terms of materials. "We'd like to incorporate natural light and to occasionally find a way to leave a window open, because it's nice when in Paris or New York to look out the window and know where you are," he said. The makeover will be unveiled in fall 2006, when Gucci is to open a 10,000-square-foot flagship in Ginza, Tokyo, and a replacement store in central Hong Kong. In the eight-story Ginza building, four floors will be selling space and the rest will be events space, an art gallery and a rotating photo archive from Milan. "Ginza won't be the largest store, but the goal is to make it the most luxurious one," Lee said. Other major cities will be revamped in 2007 and 2008, a sensible move since 70 percent of Gucci's revenue comes from its 200 directly operated stores, while the balance derives from exclusive doors such as Neiman Marcus, Bergdorf Goodman and Saks Fifth Avenue. Counterbalancing the cost of the retail plan is the fact that Lee is convinced that Gucci has plenty of fertile turf on which to keep blooming. From a product standpoint, Lee noted that Gucci's core business -- leather goods and shoes -- can continue to grow because it propelled first-quarter business as the respective categories registered 31 and 26 percent gains. "It's quite remarkable because those are our most established and mature areas," he said. One segment poised to expand is fine jewelry. "Jewelry has grown a lot in the past five years, especially in Japan, so there's a big opportunity to balance out Europe and America," Lee said. Giannini, a jewelry fanatic herself, is developing styles to woo a more international clientele. White gold and diamond chokers, rings and earrings featuring butterflies, dragonflies and horse bits and floral motifs crafted with yellow gold and precious stones were presented with the cruise collection. Giannini will likely put jewelry on the runway in September when she makes her rtw fashion show debut. Jewelry also is getting a dedicated print ad campaign, set to break in November and featuring lavish gems shot on a black backdrop. "We wanted to show abundance, richness and luxury," Lee said. And outsourcing or the massification of the brand isn't in the cards. (Lysons, 2000, 168-74) "Some competitors and some press have stirred up rumors that we're going to massify or cheapen the brand, change the distribution or do something stupid," Lee said. "Well, we're not. We're not adding licenses or doing children's wear because we're looking to grow in a luxurious way." Gucci is dedicated to a Made In Italy strategy and everything is manufactured there with the exception of the Swiss watches. "That's not going to change because it's an intrinsic part of Gucci's heritage to which we're completely committed," Lee said. He cited the just-launched La Pelle Guccissima, the labor-intensive line of accessories with special relief and embossing techniques, as being emblematic of Gucci's drive for quality. (Catry, 2003, 3-14) "We launched early in Japan, in mid-July, and the response has been great, totally on target with our first-week sales projections," he said. With a sophisticated eye for quality and a strong marketing sensibility, Lee seems to have taken the Gucci transition in his stride. His career includes stints at Cidat USA, Giorgio Armani and Jil Sander America Inc. He joined Gucci in 1996 and witnessed the brand's comeback under Ford and De Sole. His relationship with PPR appears even-keeled. "My main relationship is with Robert Polet," Lee said. "I don't have day-to-day Franois-Henri Pinault, but I can say he is terribly supportive as a shareholder and understands what we're doing." For Lee, the big change is having full freedom to run the company. And, unlike De Sole, Giannini and men's wear designer John Ray report to him. "Frida and John have total autonomy and freedom to design what they desire," Lee explained. "That said, we have meetings to discuss the brand, strategies and our goals because they are very involved in understanding Gucci and the rules of the company." Referring to the exodus of managers in the post Ford-De Sole period, Lee said: "There was a transition and a lot happened in these past 18 months. People who didn't see themselves projected into the Gucci future left, but at the same time others got promoted internally, which always creates a great energy." Lee is unfazed by questions about the ability of Giannini and Ray to match Ford's talent for generating media buzz. He said Gucci's best moments over the years were when the media hype and commercial clout coalesced. "I don't think it's either/or, but about balance," Lee said. "In accessories, we go from limited editions and precious skins to canvas because we need them all. On the other hand, if we do $2 billion in sales that means that there is certain commerciality in running a business with 200 stores. I don't think that is a bad thing." He added that Ford's blockbuster collection a decade ago soared on iconic symbols such as the bamboo bags, the bit and the double G logo. "I wouldn't say that what Gucci stood for was a particularly intellectual exercise or avant-garde and complicated," he said. "It was great fashion, appropriate for the brand." In terms of media plans, changes are in the works. "We want to be more dynamic in terms of quantity of campaigns and imagery, which is a big change from the past when, going back a year, we really only had the main fall" collection, Lee said. Aside from a dedicated campaign for La Pelle Guccissima and the jewelry, images with the fashion show, rtw and accessories will run in September and October, while November and December will be focused on cruise, rtw and accessories. Shot in Los Angeles by Craig McDean, the fall campaigns have a reportage and lifestyle feel with models interacting as in paparazzi shots. "The last 10 years for Gucci have been an exciting and incredible time," Lee observed. "It's legend what happened to this company, to this brand, which grew so fast and dynamically. We're so big that people assume that to grow more we have to destroy the brand also because in the history of Gucci there were moments of ups and downs. But it's just envy." References Arghavan Nia; Judith Lynne Zaichkowsky,Do counterfeiting devalue the ownership of luxury goods. 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Prentice Hall. 168-74 Quelch, John A. & Nueno, Jos Luis, The Mass Marketing of Luxury, Business Horizons, Nov-Dec 1998 p.61-68 Roberts, Kevin & Lafly A.G (2005) Lovemarks. The Future Beyond Brands, Powerhouse Books, NY Papers. 131-40 Schmitt, Bernd & Simonson, Alex (1997), Marketing Aesthetics. The Strategic Management of Brands, Identity and Image, Free Press, New York. 220-27 Silverstein, Michael J. & Fiske, Neil (2003), Luxury for the Masses, Harvard Business Review, Apr2003, Vol. 81 Issue 4, p48-57 Silverstein, Michael J. & Fiske, Neil (2005) Trading Up, Portfolio (Penguin Group), New York. 155-63 Appendix Legend for Chart: A - 2001 B - 2000 C - 1999 D - 1998 A B C D Sales (dollars) 2258.5m 1236.1m 1042.5m 975.4m Net income (dollars) 336.7m 330.3m 195m 175.5m Income as % of sales 14.91 26.72 18.71 17.99 Employees 9223 7908 2806 1954 Source: Hoover Company Profiles. Read More