Chanel and the Little Black Dress - Essay Example

Strategic Management Chanel and the Little Black Dress Introduction This essay analyses Chanel, the introduction of the little black dress and the reasons why it made an enormous difference to the company. It also analyses the strategies of the company with respect to Porter's theories and tries to understand the reasoning behind the strategies. Company Overview Chanel is a well-known name in fashion. It is headquartered in Neuilly-sur-Seine, France, is privately owned and does not release any financial information. Its product line broadly includes designer clothes, cosmetics and watches and jewelry. The Company's products like the Chanel No 5 perfume and the introduction of the little black dress created a milestone in fashion history. Clothing by the company is available in both ready to wear formats and haute couture. The firm has about 100 boutiques worldwide, more than 35 of which are in Japan. (Source datamonitor.com- Chanel) Company history Gabrielle "Coco" Chanel was the founder of the company. She started small, opening a milliner's shop in 1909. Chanel opened her first fashion boutique in 1913. Her designs were known for their simplicity and the differentiation from the fashions that existed at that period. She basically used men's fabrics and jerseys and created simpler, comfortable clothes along boxy lines that became very popular. Her most famous perfume, Chanel No 5 debuted in the 1920s and was the first perfume that combined natural substances with chemical aldehyde and was an instant hit. She introduced the "little black dress" in 1926, which became a signature piece and was embraced universally. Alain and Gerard Wertheimer acquired the Chanel Company in 1954.Coco Chanel died in 1971. Ready-to-wear fashions were not introduced until 1978, after Coco Chanel's death. Karl Lagerfeld took over haute couture design in 1983 and ready-to-wear design in 1984. Since then Chanel has grown with acquisitions, newer designers and celebrity endorsements. (Source http://www.coololdstuff.com/coco.html) Porter's Competitive Theory Michael Porter suggested that for an organization to be successful and obtain a competitive advantage they should follow either one of three generic strategies of Cost leadership, Differentiation or have Niche strategies. Cost Leadership is based on the principle of maintaining lowest costs in terms of manufacturing, marketing and distribution and passing on the benefits to the customer and garnering market share due to offering the lowest price. However this strategy is vulnerable to even slight increases in the cost structure. Having a Niche Strategy means catering to a specified product segment with a specialized product. However, having a very focused marketing mix makes it vulnerable to cope with sudden changes in customer trends. Product differentiation is a strategy that induces the customer to pay a little more for the same product category due to a perceived value by the consumer who is convinced to pay a little more for quality. Chanel markets itself as a premium brand and has an invaluable brand image that has placed the brand in the high echelons of the fashion industry. This has created a prestigious brand value to it and coupled with its famous quilted fabric that doe not rip or tear easily, has allowed it to claim expensive price tags for its products. The Appeal of the "Little Black Dress" Chanel operates in the fashion and designer clothing industry. The introduction of the "Little Black Dress" was an extraordinary step for Chanel on the road of success. It still occupies an envious position of being credited as a "wardrobe staple" to this day. The design school advocates simple formulated design, that is simple as it is explicit, arrived at after consideration of all the forces in the environment both internal and external. It also offers a prominence of the "architect" role to the CEO that Chanel played with aplomb when formulating designs. Inspiration derived from the ability to read consumer preferences and developing a product that would cater to a large range of consumers is often a strategic advantage. Every successful strategy would always have some form of innovation. Innovation serves to pull the company from stagnation and allow it to respond to the changing dynamics. This is especially true of the fashion industry where trends change often and fads are made appear and disappear randomly. The LBD was an innovation of luxury and comfort in the midst of prevailing tight corsets and long petticoats. It did not take too much persuasion for the people to be carried away by this, due to the comfort and luxury it offered. This also exemplified the design school philosophy of presenting a competitive edge to the company that launched the product. Another great reason this strategy succeeded was its projected simplicity. Echoing the design's schools penchant for simplicity, the company was able to drive home the fact that the LBD was simple, elegant and could be dressed up or down to justify the occasion of usage. It was also a blank canvas that allowed the consumer to add her own individualistic effects to reflect her personality. This served to bring in a wider appeal to an extended market segment that translated into better sales and revenues. A classic dress that belies the passing of time and changing fashions is definitely a selling proposition. The LBD was all about being functional without compromising quality. Strategically, functionality of the product promises longevity and endurance. Its ability to perform as an investment and work long term with versatility will be a purchasing incentive. The fact that Chanel was not afraid to experiment and come up with a product so differentiated from the prevailing products as well was an edge. At that point in time, there was no similar products and therefore there was void that this could fulfill. There was a lot of thought put into the new launch and this was timed at a period where comfort was not high on the list in the attributes of the outfits. The Little Black Dress succeeded because it delivered on what it promised. It was made out of a fabric that flowed, like a jersey and it was adept at hiding flaws and highlighting assets. No matter how well promoted the product its success would depend ultimately on quality. The LBD worked because its simplicity did not deter its qualitative elegance. (Source website http://www.newurbanobserver.com/new-urban-news.phpid=170) Competitive Analysis This sector is geared towards a high-income, high purchasing-power consumer and therefore price is not a concern here. The whole strategy is about building up a brand image that makes it a prestigious product to own. The luxury goods are a premium products targeted at very wealthy individuals and therefore sustaining an established brand image and an impeccable quality for the discerning consumer become key requisites. Michael Porter's analysis of the five forces that drive competition within an industry can be applied to Chanel to facilitate understanding of the existing scenario. Porter identifies the five forces that ultimately determine the long run profit attraction of a market or market segment comprising of industry competitors, potential entrants, substitutes, buyers and suppliers. (Porter, 1980) The intensity of rivalry among existing competitors The following companies are the major competitors of Chanel. LVMH or Mot Hennessy Louis Vuitton is one of the world's largest luxury goods companies, with brands that are bywords for the good life and everything showy. LVMH product lines include spirits, perfumes, cosmetics, watches, jewelry and the famous fashion lines Givenchy, Kenzo, and Louis Vuitton Source http://www.hoovers.com/lvmh/--ID__41804--/freeuk-co-factsheet.xhtml. The Prada group's success comes from its upscale products that consist of apparel, shoes, and accessories for men and women. It also has a less pricey Miu Miu apparel line. Prada operates about 250 stores in 65 countries. Source http://www.hoovers.com/prada/--ID__56418--/freeuk-co-factsheet.xhtml. Gucci Group, an Italian company has a product line that comprise of handbags, shoes, ready-to-wear clothing, cosmetics, skin care, jewelry, and watches. Although constantly plagued by internal conflicts, Gucci has a strong presence in Japan. Gucci has about 200 company-owned and franchised stores worldwide. Source from website http://www.hoovers.com/gucci/--ID__46896--/freeuk-co-factsheet.xhtml. Christian Dior Couture is world renowned for its coveted haute couture, as well as luxury ready-to-wear fashion and accessories. It is major stakeholder LMVH. Christian Dior has more than 180 boutiques worldwide with plans to open more in the coming years. Source http://www.hoovers.com/christian-dior/--ID__92686--/freeuk-co-factsheet.xhtml. These players vie with one another in terms of style and prestige and employ celebrities and designers to gain and maintain market share. The rivalry is intense and the necessity to cater to changing trends adds to the complexity and requires strategic alertness and intelligence to lure the customer to its products. Pressure from substitute products This is a more focused market segment and the pressures from substitutes are low. However, some medium priced ranges may generate similar appeal by copying designs and their prices may set a different dimension to the purchase. The bargaining power of buyers High-end customers have specific needs for style and design, and their brand loyalties are pretty fickle if their perceived value changes. Their switching costs are low and therefore the buyer power is high. The bargaining power of suppliers Here the suppliers are required to maintain utmost quality that is a hallmark of the end products. Often the suppliers have to maintain good relationships in order that they leverage on the brand's credibility to survive. The threat of entry by new competitors Creating a quality and style brand image is a tough proposition for a newcomer. Barriers to entry are high considering that the presence of well established players in the market are present and have a specified brand image built and sustained. SWOT Analysis -Chanel Strengths Established strong brand in the fashion world, the concept of quality interwoven with its brand identity, and its established image of providing style and luxury with comfort in tune with the current trends are its painstakingly built reputable traits. It has a strong presence in the international market and Japan is one of its strongholds. It has a varied product line and has a strong distribution channel in place. Weaknesses There is a lot of competition among similar high-end operators. Luxury brands sales are the first to fall in case of downturns or poorly performing economies. Due to high competition, margins may decline impacting the bottom line Opportunities Trying to enter more international markets and especially emerging markets like India and China will be beneficial. Well-performing economies will counterbalance the recessive ones sufficiently insulating the company against downturns. Trying to build brand value products in each of the product lines will again support the overall growth. Threats The main threat will be the prevalence of the counterfeit products that mimic the logo and make their rounds as the genuine ones. (Appendix 1) The medium range players like Gap may suddenly decide to move up the scale and compete in the premium segment. Conclusion It must be remembered that no organization can accurately project whether its strategy would work or not. Trial and error is part and parcel of strategizing. The downside of the design school model is that it does not attach too much importance to the external environments. Coco Chanel was blessed with the foresight to see that after the war, there would be women who were on the move and the clothes they needed must be stylish and comfortable rather than restrictive and exaggerated. She believed that clothes should follow the natural line of the body and flow rather than try to fit their bodies within a regimented silhouette. This analysis led her to use the materials and fabrics traditionally attributed to men's clothes. At a time when black was predominantly a mourning color, she used it intelligently. The LBD hid stains and gave a slimming effect and functions as an all season ensemble. Comfort, elegance and style won over the consumer. Her ability to foresee, experiment and implement was a turning point for herself and the organization. (Eldelman, 1998) Appendix 1 Korean counterfeiters prefer Chanel Chanel was recently distinguished as being the most popular line among counterfeit goods producers. Countries such as China and Korea are the highest producers of fake goods, and The Korea Customs Service announced this week that of USD162.5 million worth of fake products seized last year, those bearing Chanel's logo accounted for USD23.5 million, more than any other brand. The amount was based on the prices for authentic Chanel products. Among other foreign fashion lines, Rolex was a close second, followed by counterfeits of Louis Vuitton and Nike. Those in the fashion industry attributed Chanel's leading position to its line of expensive handbags making them lucrative targets for fake goods makers. Among different items, watches were the most vulnerable to replication, with approximately USD 50.1 million having been confiscated. The national customs agency said in order to increase efficiency in its investigation of counterfeit goods, it would establish better lines of communications with trademark holders and authentic producers. Also, the Daejeon-based agency said it would regularly host conferences on related issues. 15 March 2006 Source from website http://www.fashionunited.co.uk/news/counterfeit.htm References Mintzberg, Henry, Ahlstand, Bruce, Lampel, Joseph Strategy Safari A guided tour through the wilds of Strategic management The Free press New York De Wit, Bob, Meyer, Ron (2004) Strategy Process, Content, Context An International Perspective 3rd Edition Thomson Learning Porter, Michael (1980) Competitive Strategy New York, Free press Nellis, Cynthia Little Black dress transcends fashion About.com [Online] Retrieved from website http://fashion.about.com/cs/dresses/a/littleblackdres.htm on April 9, 2006 Joseph, Aime Coco Chanel: Innovator and Icon [Online] Retrieved from website http://www.coololdstuff.com/coco.html on April 9, 2006 Liedtka, Jeanne M Design the "Secret Weapon" of Business March 17,2006 New Urban Observer [Online] Retrieved from website http://www.newurbanobserver.com/new-urban-news.phpid=170 on April 9, 2006 Eldelman, Amy H (1998) The Little Black Dress New York, Simon &Schuster Gucci Hoovers.com [Online] Retrieved from website http://www.hoovers.com/gucci/--ID__46896--/freeuk-co-factsheet.xhtml on April 9, 2006 Christian Dior SA Hoovers.com [Online] Retrieved from website http://www.hoovers.com/christian-dior/--ID__92686--/freeuk-co-factsheet.xhtml on April 9, 2006 Prada Hoovers.com [Online] Retrieved from website http://www.hoovers.com/prada/--ID__56418--/freeuk-co-factsheet.xhtml on April 9, 2006 LVMH Mot Hennessy Louis Vuitton SA hoovers.com [Online] Retrieved from website http://www.hoovers.com/lvmh/--ID__41804--/freeuk-co-factsheet.xhtml on April 9, 2006 Read More