Chanel is a premium fashion brand with global recognition. It was established in 1909 by Gabrielle Chanel, a French fashion designer. It operates 310 stores in major cities in France, UK, USA, China, among other countries. The brand thrives on its exclusivity and high quality. Most of its customers associate it with high social and emotional value. Due to its premium prices, most of the brands clients belong to the upper and middle classes.
Porters Five Forces Analysis
Competitive rivalry within the industry
Competitive rivalry in the premium fashion market is relatively moderate. Chanel has many competitors including Versace, Hermes, Burberry, Prada, Gucci, Versace, Hermes, among other brands. Statista (2017) ranks Chanel fourth behind Louis Vuitton, Hermes, and Gucci as the most valuable luxury fashion brands. These brands are earning higher margins since competition in the market is based on quality and exclusivity and not price. Besides, luxury brand customers rarely switch brands despite the low switching costs.
Threat of substitutes
The threat of substitute products in the luxury fashion market is relatively low. Most of Chanels and other luxury fashion brands customers are high-end customers. These clients prefer high-end luxury and value affluence, exclusivity and social value. Once they start associating with a brand, they maintain it unless there are significant changes in quality, among other attributes that attracted them to the brand.
Consumers do not base their consumption decisions on price thus making the threat of substitutes low. However, the industry has been facing the problem of increased counterfeit brands. Counterfeit brands have been striving to improve their quality and mislead customers. Chanel has already sued some of the sellers for selling fake products. Counterfeits are a threat to the luxury brands since they sell at lower prices. Some consumers may be tempted to switch to counterfeit products especially if they cannot identify whether a product is counterfeit or original.
Bargaining power of customers
Most of Chanel sales are made directly to customers through the various Chanel stores. It sells other products such as watches and handbags through wholesalers, but ready-to-wear clothes are mostly sold at its stores. This implies that it sells to individual customers who do not order large quantities like wholesalers. Thus, the bargaining power of Chanel ready-to-wear products customers is low.
Chanel has positioned itself as an exclusive and premium brand. It attracts customers who want exclusivity and affluence. So long as it maintains the quality of its products, the bargaining power of customers will continue to be low.
Bargaining power of suppliers
Suppliers are essential to the success of Chanel and other luxury fashion brands. The bargaining power of suppliers is low since Chanel, and other luxury brands have acquired most of their suppliers. There has been a trend in the industry where luxury fashion brands purchase tanneries, flower growers, and other suppliers to secure access to quality raw materials. Chanel has long-term relationships with its suppliers and strictly control their operations to ensure consistency in the quality of its products. For instance, in 2016, Chanel acquired four of its silk suppliers to control the supply chain (Wendlandt, 2016).
Threat of new entrants
Chanel and other luxury fashion brands face a low threat of new entrants. It requires a substantial amount of capital to start up a luxury fashion business. Besides, brand recognition is the most critical factor to most middle and high-income customers. Success in the luxury fashion market would require celebrity endorsements, highly competent and experienced designers, among other factors. These make it difficult for many it challenging to start a new business and challenge the established brands in the market.
Analysis of Chanels Marketing Strategy
Chanel emphasizes on high quality to maintain the brands exclusivity. It has invested in its pool of talented designers known as Paraffection. Its designers are led by the creative director, Karl Lagerfeld, who is a renowned fashion designer. While it incorporates creativity and innovation in all its designs, the brand maintains the traditional know-how and legacy from Gabrielle Chanel such as designing clothes that defy social norms. The black and white packaging also makes the brand unique. To maintain consistency in product quality, it has acquired most of its suppliers.
Chanel is a premium brand hence it charges higher prices for its products. Its target market consists of high-end customers who are ready to pay higher prices provided the quality is high. It has maintained its premium pricing and avoided price reductions despite competitive pressures. Its customers associate higher prices with premium quality hence the pricing strategy perfectly fits the profile of its target market.
The brand operates 310 stores in major cities around in the USA, Europe, and Asia. The stores are only found in places associated with the wealthy. For instance, it stores are in New York, London, Miami, Tokyo, Boston, Amsterdam and Los Angeles, among other cities. It strategically limits the number of stores to maintain its exclusivity and image as a premium brand. Despite a strong social media presence, the brand does not sell its products online. It is yet to embrace e-commerce for fear of losing its exclusivity.
Chanel promotes its products through several means and media. It advertises in luxury fashion magazines such as Vogue, Marie Clara, among other magazines and journals. It also runs TV commercials featuring celebrity endorsements. Celebrity endorsement is essential to attract its target market. Celebrities that have endorsed the Chanel Brand include Lucia Hiriart, Carole Bouquet, Nicole Kidman, Marilyn Monroe and Keira Knightley, among others. Its creative director, Karl Lagerfeld, is also a celebrity. It also markets its new offering through the social media and fashion shows in elegant places.
Strategies to Improve Chanel Ready-to-Wear Sales
E-commerce has become critical to business operations in the modern era. Most firms in various industries have embraced e-commerce. E-commerce enables firms to reach a wider market since it has no geographical limitations. It also enhances customer convenience since they do not have to physically visit a firms stores to buy products of their choice. However, online sales are a challenge to luxury fashion brands as they are concerned about maintaining exclusivity.
Chanel should improve its website and set up mobile apps to enable its customers to buy goods online. This will not have a significant impact on its exclusivity. Its sales are likely to fall in future years if it does not enable online sales. Louis Vuitton and Gucci, two of Chanels leading competitors, are already selling their products online and this has not affected their image negatively. Online sales will also help Chanel access other markets such as Brazil, Africa, among other emerging markets. Its stores are limited to major cities in North America, Europe and some parts of Asia. E-commerce is more feasible than opening stores in those areas. The expansion into emerging markets through e-commerce would also help Chanel boost its revenues since the markets in Europe, and North American is getting saturated.
Most high-end customers like shopping while travelling to different parts of the world. Chanel should tap into this market by establishing stores in or close to worlds famous tourist destinations and major airports.
Dealing with counterfeit products
Counterfeit products are a big problem to Chanels success. Counterfeits are selling at lower prices and have the potential of taking a share of current Chanels market. It can deal with counterfeit products by investing in quality improvements through innovation and creativity. This will ensure the ready-to-wear clothes continue to be unique from other competing brands. A counterfeit is not a significant threat if the original has identifiable features that the counterfeit lacks. Its strategy of acquiring suppliers to control the supply chain and other production processes can also make it reduce the threat of counterfeit products. Chanel can also invest in creating awareness among its customers to help them identify counterfeit products. Besides, taking legal action against wholesalers selling its counterfeit brands can help it neutralize the impact of these counterfeits.
Social media and integrated marketing communication
Chanel should leverage its strong social media presence to enhance the effectiveness of marketing communication. It should integrate marketing communication media. For instance, it should also run the TV commercials and newspaper ads on social media to get the views of its customers. This can help identify areas for improvement and to assess the effectiveness of its marketing communication.
Chanel should stick to its premium pricing and avoid the temptation of introducing low-cost products. Since 1909, the brand has maintained its exclusivity, and this should not change. Charging lower prices would compromise the brands image among its target market. It should focus on keeping its high quality standards. High quality will always justify premium pricing. Based on Porter's Five Forces analysis, high prices will not make Chanels customers switch to other brands.
Statista. (2017). Top 10 luxury brands worldwide 2017 | Statista. Statista. Retrieved 2 January
2018, from https://www.statista.com/statistics/267948/brand-value-of-the-leading-10-most-valuable-luxury-brands-worldwide/Wendlandt, A. (2016). Chanel snaps up four companies to secure high-end silk supplies. U.S..
Retrieved 9 February 2018, from https://www.reuters.com/article/us-fashion-chanel/chanel-snaps-up-four-companies-to-secure-high-end-silk-supplies-idUSKCN10222T
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