Bargaining there is an increasing trend of

Bargaining power of buyers

Luxury brands generally aim their target consumers at upper-income elite groups.
From the perspective of bargaining power of buyers, consumers have less initiative
compared with the side of brands. Because elite groups are individuals with low
Engel Coefficient, the proportion of non-essential consumption is relatively larger
and the price sensitivity of them is low. According to the report of Mckinsey,
there is an increasing trend of household wealth. Moreover, as”Veblen effect “states ,the
main consumer psychology of high consumption in luxury goods in current society
is to show off and comparisons. Further, considering these cases, targeting
consumers are more likely to be tolerant with the price of luxury goods.

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According to recent research on
global powers of luxury goods (Deloitte,2017) has shown that almost half of
luxury purchases are made by consumers who are travelling, either in a foreign
market (31 per cent) or while at the airport (16 per cent). It is obvious that
the process of making purchase decisions would be shorten significantly when
they dominated by hedonistic thought.

However, In the wake of the flourishing
Internet and network e-commerce innovation, searching online has become a
shortcut of consumers to get access to up-to-date information. In this way,
comparing price and getting discount information about considering products has
become easier than before. However, there is still very little danger for
backward integration from individual buyers because of dispersed buyer power.

 

Bargaining power of
suppliers

Chances that suppliers will start to make end
products are slim because there are high entry barriers to enter luxury
industry. What strengthens suppliers’ power is that some of products they
provide for Burberry are distinct and have no real substitutes. Burberry being knowledgeable
about the products they buy from their suppliers weakens suppliers’ strength.

Some of the
products Burberry purchases from suppliers are distinct and have no real
substitutes and that is something that strengthens power of suppliers. What
weakens suppliers’ strength is that Burberry is knowledgeable about products
they buy from them.

For Burberry it’s easier to switch suppliers of
materials such as leather, cashmere or cotton because they are numerous.
However things change when it comes to more advanced items. Craftsmen posses
certain skills which take a long time to master plus there is also a decreasing
number of craftsmen and they can charge more. 
Consequently it’s getting more difficult for Burberry to change them and
craftsmen have more negotiating power. Burberry risks getting lower quality
items by changing any supplier. Bargaining power of suppliers is therefore moderate.

Threat of market entry

The market entry of luxury industry is generally high. The first
barrier is the irreplaceability of
brand culture which is also unique selling point of a company. People normally make
a purchase decision based on intangible value of luxury brand and the brand
loyalty is strong, which mains the core competitiveness is impossible replicated
by fast fashion brands. Scarcity and exclusivity will always be a pillar of
luxury.

Furthermore, luxury is a capital-intensive industry. D’Arpizio, et
al (2016) stated that to maintain a good business operation, huge investments
and outlay are essential for establishing both tangible and intangible assets.
Apart from the expenses of manufacturing and advertising, they also need to pay
high rent of getting strong presence in famous department stores to promote
brand perceptions. All above barriers put forwards high financial requirements
to new entrants.

What’s worse, the profit margin of new entrants is generally low in
the luxury industry since established companies have more advantages on making
high profits through scale production and getting access to more finance
options. The new entrants are at a disadvantageous position in the cost
structure.

Threat of substitute
products

There is a growing number of low-middle price labels such as Asos, Bohoo
and Missguided. There are customers who are sensible to economic cycle and buy
from those brands. Their expertise is being really good at imitating higher
priced luxury items in brief time period. It takes them one to four weeks to copy
luxury products. (fashionunited)

 

Counterfeit
items from China which look like genuine products and it’s
challenging to differentiate them from authentic products are an additional. Premium
priced products diverge from mimicked products in the way upscale brands are
perceived. Luxury labels are a synonym of wealth and social status people
continue to buy them although fow-priced fake goods offer similar use. (NUS Investment Society, Consumer Industry
report on U.S. luxury goods) The highest threat of substitutes
is from rivals which offer productsts of equal or even better quality and purchasers
have minor costs switching them. Threat of substitutes is moderate.

 

Rivalry within industry

In the industry there are numerous competitors
and the rivalry within the industry in highly competitive with the presence of
various companies. Competitors differ in size and market share..

Apart from the impact on our traditional
brands within luxury industry derived from emerging brands, increasing
concentration degree and international expansion has been presented in luxury
industry. Friedman and Paton (2017) wrote in their article “The Luxury Arms
Race: Michael Kors and Coach Target Takeovers.”, the global luxury market has
long been dominated by three giants – LVMH Moët Hennessy Louis Vuitton, Kering
and Richemont. Coach and Michael Kors both of which recently acquired
luxury-leaning brands, telegraphed their plans to do more strategic
acquisitions in the future. The trend toward luxury brand consolidation was
mentioned frequently throughout this article. In this process, the
internationalization and globalization enlarges the scope and intensify the
severity of the competition.

 

Burberry’s strategy

Burberry is planning to remove their items
from certain shops that are not luxury and renovate their own shops. Companies
like Louis Vuitton has created their label and distinction on expensive leather
handbags and Burberry’s aim is to compete with brands like that. Burberry
thinks that by selling high-priced handbag they will be able to boost their
margins. For comparable products Louis Vuitton charges higher prices. The
company also making alterations in crucial employees. Their designer
Christopher Bailey who has been with the company for 17 years will be replaced
and they are looking for somoneone with extensive expertise in designing
handbags. (CNN)

 

Their aim is to turn the brand into a luxury
brand. They will expand their handbag offering because handbags create larger
margins than trench coats, which is Buberry’s signature item. Louis Vuitton has
bigger array of leather goods. They will reduce the number of the outlet
stores. By training in-store employees on leather goods and styling they want
to improve buyer’s experience and boost their efficieny. Making the most out of
digital media remains one of the goals. The british designer was one of the
first who entered a »see now, buy now« model which allowes custmoers to
purchase immediately after a fashion shows. That was a bold move and a very
different way of shopping and fewer chances for forgery. All this will result
in profitability. They expect revenue and operating margins will be stable over
the next two years and in 2021 they predict growth. (businessoffashion)

 

Louis Vuitton knows how to differentiate
itself. Louis Vuitton handbags are compared to Burberry’s higher in price.
Another thing that differs Burberry from Louis Vuitton is that Louis Vuitton
never has a sale, they never mark down prices because they believe all
customers should pay the same price for products.

 

How sustainable is
any competitive advantage?

One of the Burberry’s main competitive
advantages is that it is “British”. Many customers identify that as a sign of
quality, and many buyers want to purchase goods that are made in Europe, not in
China. The brand has also been around for many years and has built a tradition
and customers perceive it as a luxury brand. Burberry charging higher prices
for their products is a premium price strategy and consumers are willing to pay
high prices for luxury items. Burberry plans to train in-store employees
because a lot of customers very personal experience and employees must have
good knowledge about products.

What is changing in
the competitive landscape?

The future of luxury industry is forecasted
as digital. In the Global Powers of Luxury Goods 2017 published by Deloitte,
when asked how they see the luxury sector developing in their respective countries,
almost half (48 per cent) said that e-commerce. and m-commerce will become more
widespread, while over a third (37 per cent) feel that luxury products and
technology will become more closely linked. There is a shift from mainland
shopping to online and abroad shopping

 

There is a
strong social media impact on consumers. Burberry for example invites certain
media influencer to attend their fashion week, provide them with clothes and
accessories and those media influencers who often have millions of followers
post about the events on e.g. Youtube, Instagram, Snapchat, blogs. And many
media influencer make reviews or unboxing of their new purchases
self-willingly. Which certainly affects other consumers.

 

Reference

Deloitte,2017.
Global Powers of Luxury Goods 2017. online Available at:
Accessed 24 November 2017.

D’Arpizio, C., Levato, F., Zito, D., Kamel, M. and de Montgolfier, J.,
2016. Luxury goods worldwide market study, fall-winter 2016. Bain &
Company.

 

Vanessa F
& Elizabeth P., 2017.The Luxury Arms Race: Michael Kors and Coach Target
Takeovers. The New York Times, online
Available at:
Accessed 25 November 2017.

 

 

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