Five forces analysis of the luxury industry of leather ...



Five forces analysis

The Luxury industry of leather products

|Porter five forces |Intensity |

|Competitive rivalry |High |

|Bargaining power of buyers |Medium |

|Bargaining power of suppliers |Medium |

|Entry barriers |High |

|Threat of substitute products |High |

-Competitive rivalry within the industry[1]

• The structure of the industry is oligopoly,which means there are numerous and equally balanced competitors in producing luxury leather goods .Especially some famous big companies which have their brand equity.

• There have already exist many good brands which have long history and impressive brand stories behind it,such like Louis Vuitton,Chanel,Gucci,Dior.etc which have already occupied a large amount of market share and have good brand effect among customers.So it can be very hard to get the market share for the participants of the industry.

• Leather products of differentiation counts a lot.The target customers of the industry is the wealthiest people who purchase higher buying experience so the the goods need to be distinguished enough which influence their view towards the brand.

• High exit barriers.Emotional barriers,some brands may not break even but continue operating due to a small number of loyal customers.Also,the specialized supply chain components to produce leather goods are hard to sell or can’t be easy to put it into other usage[2]

-Bargaining power of buyers

• The bargaining power can be week,when the target customers have high brand loyalty and they tend to have high emotional switching costs ,which decide their consuming behaviors towards one brand.[3]

• The buyers of the industry has low concentration,and the bargaining power of the buyers is week.

• Because of the products of the luxury industry are unique designed and most of them are done in-house.(exam:LV)[4]So,the buyer has poor information about demand,actual market prices and even supplier cost so that the bargaining power is week.[5]

• But the bargaining power also can be strong when the target customers focus on the luxury itself,which means they just care about whether the products are luxury or not .And there are a lot of other alternatives like cars, watches.etc for them to choose from besides luxury leather products ,which also show the public their wealth and fame.

-Bargaining power of suppliers

• The bargaining power of suppliers is strong when the resources are special and only from some specific areas.exam.the leather of LV is resourced from the cattle from the northern Europe area.

• The bargaining power of suppliers is week when the resources are general and there are a lot of supplies to provide the material.

-Entrance barriers

• The barriers of the entrances are strong ,there already exist top brands in the industry.

• Hard to get the market share for new entrants,because of many competitors.

• Also the large amount of capital is needed enter the industry to make up with the brand equity.

• More and more exclusive access to suppliers and hard to get a market share.

-Treat of substitute products

• The target customers have many other choices (exam:different kinds,brands)to pursue the luxury products,the treat can be very strong.

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[1] Porter Competitive Strategy ch1 extract

[2]

[3] Maketing management p55

[4] Crossau (2013) p. 12

[5]

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