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Essay on case of finance 3

Decent Essays
Emerging Markets: High Fashion Fights Recession
1. Using the five forces framework, how would you characterize the competition in the luxury goods industry?
Threat of Substitutes
There is relatively no threat of substitution in the luxury goods industry. This is mainly because of the quality and price of substitutes, and the cost of switching to the consumer. The price of counterfeit goods that copy the luxury goods causes there to be a positive monetary cost in switching but there is a loss of prestige as luxury goods are characterized as having a persona, paucity, that are accompany by a performance of a quality product with unique design, extraordinary capability and innovation. There is no comparison between luxury goods and the
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The cost of switching for consumer is low; it is more an emotional cost for consumers as they are extremely brand loyal. Therefore there is a high pressure on firms to remain relevant with consumer’s preference and trends. Firms also sell their products in select retail outlets therefore these outlets have some control over the industry as they directly impact sales.
Competitive rivalry within the industry
There is a strong level of rival among few large firms in the luxury industry. The firms have differentiated strategy and some although it is not an industry practice offered reduced prices during the Great Recession to improve their sales, some firms were not able to survive and declared bankruptcy. There is a high exit barrier as it is difficult for firms to recover their investment.
Porter Five Force
Intensity
Threat Of Substitute Products
Low
Threat Of New Entrants
Low – Medium
Bargaining Power Of Suppliers
Low
Bargaining Power Of Customers
Medium
Competitive Rivalry Within The Industry
Medium – High

2. How much bargaining power did consumers as buyers have during the Great Recession?
The fall consumption during the period of the Great Recession 2007-2009, had an adverse impact on the luxury goods industry and meant that firms had to place more emphasis
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