Gucci

Bradley Morse

October 21, 2010

MGMT-401-01

Gucci Case Assignment

1. The Gucci Group’s strong financial backbone and high brand equity originated from the core products that built their business into an international, luxury retailer. Gucci was most successful with selling quality handbags, which set the platform for Gucci to grow into new markets, products and brands. Companies like Gucci should expand their best products into new markets; however, luxury retailers must keep their products exclusive to sustain their brand’s prestige. Managers should recognize that there is a finite market for their product and increasing returns to scale in regards to continuing growth as each product has a distinct life cycle stage. Thus, once a company has exhausted the growth potential of their primary products they must gradually expand into new brands to maintain growth rates and diversify into new products.

A multi-brand strategy is successful for a luxury retailer if the company can maintain their brand’s prestige, core products, and extend into complementary and profitable brands. Multi-branding can generate synergies within Gucci’s product-line and give Gucci an opportunity to move into selling items in segments that will have fast growth and higher margins than those in their current portfolio.

De Sole’s quote about the selling constraints in the handbag market are well warranted. Gucci cannot sustain growth in the same product segment at historical rates and if the company overextends, then their brand will be less exclusive and luxurious. Gucci should adopt a multi-brand strategy; however, the management should not forget about its core products that bolster the credibility of Gucci’s newer brands.

2. Gucci’s multi-brand strategy was not a homerun as projected in 2004, but many of Gucci’s other brands were quite successful by 2009. The Gucci brand still has the highest operating margin and most consistent revenues of all of the company’s...