Question 1 - Coach

1. What are the defining characteristics of the luxury goods industry? What is the industry like? In a modern life, the standard of living gradually improves, so people consider carefully to make right decisions when choosing specific type of good which not only meets their normal needs but also satisfies the higher expectation of them in their consumption. The concept of Luxury goods is given to indicate the commodities which respond to the high requirement. A luxury good is a product that gives great ease and adds pleasure, but is not absolutely necessary. In economics, it is stated that the luxury good is a good for which the demand increases more than proportionally as income rises, and is a contrast to a necessity good, for which demand grows up less than income. The luxury goods have more than necessary and ordinary characteristics compared to other products of their categories.

The characteristics of the luxury goods industry are classified into manufacturing, concrete and abstract characteristics. The manufacturing and concrete characteristics means the tangible value of products, which could be observed directly. On the contrary, the abstract characteristics equal intangible value, which seems to be one of the most important features that makes the difference of luxury goods. To be more precious, some defining attributes of the luxury goods industry involve superior quality, brand recognition and high income elasticity of demand.

The first point which would be considered is the superior quality. In the industry, the target customers are the segments who have much more higher expectations while deciding to consume a specific good. As a result, the manufacturers virtually use the most premium materials to ensure their products have the best quality as possible as they can. In addition, the luxury goods industry is characterized by brand recognition which refers to the identification of specific brand by its properties. On other words, a brand would have its own strategy to make it unique in the market. When people could distinguish a brand without being explicitly exposed to the company's name, but rather through visual signifiers like logos, slogans and colors, the brand recognition is most successful. In general, luxury brand relied on creative designs, high quality, and brand reputation to attract more customers and build the brand loyalty. About the elasticity of demand, the luxury goods industry is said to have high income elasticity of demand, which means that the wealthier people are, the more luxury goods they would buy. Moreover, the consumers’ choice of a luxury good is not only for their satisfaction but also to improve their self-esteem rather than for convenience. Thus, income elasticity of demand is not constant with respect to income and may change sign at different levels of income, which means a luxury good can be a normal good or even an inferior good at different income levels. The market for luxury goods includes three main categories: haute-couture, traditional luxury, and the growing submarket accessible luxury. Haute-couture, whose targets were very high-end “custom” product offering that catered to the extremely wealthy, was at the top of the market. Traditional luxury has leading brands including such fashion design houses as Prada, Burberry, Hermes, Gucci, Polo Ralph Lauren, Calvin Klein, and Louis Vuitton. Some of these luxury goods makers also broadened their appeal with diffusion lines in the accessible luxury market to compete with Coach and other lesser luxury brand. Luxury goods manufacturers believed diffusion brands’ lower profit margin were offset by the opportunity for increased sales volume and the growing size of the accessible luxury market and protected margins on such products by sourcing production to low-wage countries. Coach’s array of products included ladies handbags and leather accessories. Coach channels of distribution involved direct-to-consumer channels and indirect ones. It has full-price stores and factory store in U.S. Both of them were equally brand loyal, but there was a distinct demographic difference between the shopper segments. Therefore, the drastic change of luxury goods industry at different levels would affect significantly Coach’s retail distribution.