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  • Subject area(s): Marketing
  • Price: Free download
  • Published on: 14th September 2019
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  • Number of pages: 2

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• Political Analysis:

Production of accessible luxury goods is mostly outsourced to low-wage, Asian pacific countries. Even though outsourcing led to lower costs, there are factors that contributes to instability in production in those countries. There is a probability for backlash against the outsourcing arrangement which many of these luxury companies hold. There could have also been trade restrictions or high tariffs in these countries, which would have caused a delay in the importing of materials.

• Economic Analysis

The industry was very susceptible to economic conditions given that handbags and accessories were considered luxury goods. Since the industry products are not necessities, consumers are able to forfeit purchasing them in economic downturns, in order to allocate more money to necessary goods. There was a 0.6% annual decline between 2006 and 2010, noting the weak economic circumstances throughout those years. Developing markets in China and other Asian markets was anticipated to cause luxury goods sales to increase to $350 billion by 2015.

• Social Analysis

As the middle class income segment grew larger, the accessible luxury market became more prevalent. Middle-income consumers were encouraged through marketing to reward themselves with luxury goods for their hard work. Although middle-income households could not afford traditional luxury items on a regular basis, they were able to afford accessible luxury products. This led to a rise in sales for this segment of the market.

• Technological Analysis

E-commerce had come to play a large role in the sales of luxury goods. Online sales began to grow at a faster rate than the rest of the market. Online sales had growth of 28% in 2013, which accounted to nearly $14 billion. A large part of luxury marketing and advertising is done online or through television ads. Data mining through websites gives these retailers access to consumers' online habits and allows for them to better target these buyers. As technology advanced, more consumers used technology as a way to purchase luxury goods because it was efficient.

• Environmental Analysis

The industry did not have much environmental concerns to deal with, although consumers have been becoming more economically aware and responsible. Leather or fur goods could have been a concern for some consumers who support PETA, or were against using genuine leather or animal fur in products

• Legal Analysis

Much of the production of luxury goods was sourced to countries with lower wages. The labor laws of foreign countries could prove to be an issue in the future. As the luxury goods market became more globalized, these companies had to deal with different rules and regulations. Counterfeit products greatly affected the luxury goods market; patent and trademark laws came into play here so that the companies were able to protect their products.

-Five Forces Analysis

Rivalry Among Competitors: Strong

There were many competitors in the luxury goods and accessories market. As the demand for accessible luxury goods increased, there began to be more competition among existing brands. This was especially seen as traditional luxury brands began to introduce diffusion lines. Consumers of accessible luxury products enjoyed a relatively low cost of switching between competing brands. There was very little monetary cost of switching between brands. If a consumer had loyalty to a particular brand that is the only thing they would be giving up. In addition, while the number of competitors increased in size and production ability, the rivalry became stronger.

Threats of Potential New Entrants: Moderate

The barriers to entry were moderate. Preexisting luxury brands that desired to start a diffusion line would find barriers to entry lower than a startup brand. Customers in the accessible luxury market tend to stay loyal to brands that they know and trust. Brand recognition and reliability keep customers coming back to these accessible luxury brands. New entrants in the market would find it difficult to achieve this level of recognition and loyalty immediately. There were also large capital requirements for new entrants including high costs for distribution, manufacturing, and marketing.

Threats of Substitute Products: Moderate to Strong

The threats of substitute products for the traditional luxury market were moderate, while the threats for accessible luxury products were strong. Imported counterfeit products are one of the readily available substitutes. Consumers who wanted the look of a luxury good but did not have the money to pay for one were willing to substitute an authentic luxury good for a counterfeit one. Another substitute for consumers was buying a non-name brand product. Charming Charlie's, Target, and other retailers offered handbags and accessories that were much less expensive than a luxury accessory. Other substitutes for consumers included saving money, or spending their money elsewhere, such as on a family vacation. Although there were some substitutes for luxury products, none of the available substitutes would typically satisfy the target market for traditional luxury products. Accessible luxury products, on the other hand, were easily substituted, especially during economic downturns.

Bargaining Power of Suppliers: Low to Moderate

Production of accessible luxury products was generally outsourced to countries with lower wages. Companies risked receiving lower quality products if they switched to different suppliers, which gives suppliers some leverage. Products are generally sourced to different regions to disallow for inflation on raw materials and labor. The uniqueness of the products being manufactured was a factor that could determine the bargaining power of the suppliers. For example, suppliers of items used in haute couture had more bargaining power than suppliers of items used in accessible luxury products.

Bargaining Power of Buyers: Low

As the middle-income segment of the population grew, there were an increasing number of buyers relative to the number of suppliers in the industry. The traditional luxury segment is still very reliant on the top 1% of the economy. Buyers were uneducated about a company's costs, which gives them less bargaining power. One buyer could not determine prices of products or haggle with the company on the price. In addition, industry goods were differentiated from company to company, which prevented consumers from looking to different outlets for the same products.

-Industry Driving Forces:

Growth Rate:

The accessible luxury segment of the industry grew quickly. Consumers could buy brand name products for prices that they could afford. As the demand for affordable luxury goods increased, the number of providers of these goods increased as well. Since prices of these products were lower, this caused there to be higher volumes of products sold. This resulted in the luxury goods market becoming more reliant on this segment of affordable luxury.

Increasing Middle Class

As the middle class became more prevalent in the world, the demand for luxury goods increased. The middle class was the target market for many accessible luxury brands. As more and more people became wealthier, they acquired more discretionary income. Many middle-income consumers decided to spend this discretionary revenue on luxury goods. Many middle-income consumers used the “trade up, trade down” spending approach as well in order to afford these luxury products. This approach consisted of consumers balancing their expenditures by using money saved from shopping at lower priced stores for necessities to allow for more flexible spending on luxury products.

Increasing Globalization:

The luxury goods market experienced substantial growth in global markets. It was expected that the Asia-Pacific region would be the biggest in the world for luxury products by the year 2018. There were developing markets in these countries in the Asia-Pacific region due to growth in affluence and in the standard of living of citizens. These market growths were expected to increase sales for the luxury goods market. China had luxury goods sales of $32 billion in 2010 and could possibly become the largest market for luxury goods in the future

-Key Success Factors:

Strong Brand Reputation and Image:

Due to the patterns and distinguishing style, Vera Bradley products were very recognizable. The distinguishing products allowed customers to represent their style and personality. Through these differentiated products and reasonable prices, Vera Bradley was able to create a base of loyal customers. Since Vera Bradley had numerous products, these loyal customers often purchased products as gifts for friends or family, who in turn became loyal customers to the brand.

Product Variety:

Vera Bradley had a very large assortment of products. The company distinguished itself from other competitors by having different patterns on numerous products. Its product development team utilized their research of fashion trends and customer preferences and developed products that consumers enjoyed. The introduction of new, trendy patterns is what kept loyal Vera Bradley customers returning.

Multi-Channel Distribution:

Vera Bradley presented a wide variety of purchasing options for their products. These options included department stores, full-line stores, online, outlet stores, and specialty retailers. These numerous purchasing options made the products accessible for consumers. This distribution model utilized by Vera Bradley allows for the greatest exposure for the company brand.

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