Slide 1 – Title

Luxury goods industry - Porter's five forces model

Slide 2

Porter’s Five Forces model for the luxury goods industry

The particular model shows the five forces that firms are likely to face in their
industry (Hill and Jones 2012). An industry which is characterized by high pressures
in regard to all categories included in Porter’s model, competition is quite high, a fact
that needs to be taken into consideration by the firms that are interested in entering
the specific industry (Hill and Jones 2012).

The graph included in Slide 2 shows the Porter’s model, as applied in the luxury
products industry.

Slide 3

Bargaining Power of Customers

Due to the Internet, customers have become more demanding in regard to the
information provided to them for the ‘quality and price of luxury products’ (Deloitte
2014, p.10) - H

In addition, customers in the industry are likely to have ‘higher expectations’

(Deloitte 2014, p.10) as of the quality of the luxury products; this trend also has been
related to the potential of customers to search online for the exact characteristics of
the luxury products (Deloitte 2014) – H

The Social Media has empowered consumers in all industries, including in the luxury
goods industry; because of the feeling that they can secure the support of many other
people in regard to their rights, as consumers, customers in the luxury brand industry
have become more powerful to influence the industry’s strategies (Deloitte 2014) – H

Customers in the luxury brand industry seem to prefer ‘online purchase’ (Deloitte
2014), a fact that needs to be taken into consideration by the managers of the luxury
brands (Deloitte 2014) - H

1
Slide 4

Bargaining power of Suppliers

The number of the industry’s suppliers tends to be continuously decreased due to the
acquisition of the relevant firms by most powerful luxury brands (Luxury Society,
2012) - H

Certain countries prefer to focus on luxury products based on local materials; India is
an example (Luxury Society 2012) - L

Suppliers who have access to fine materials/ pieces have become quite valuable, as a
result of the industry’s turn to timepieces (Luxury Society 2012) - H

Slide 5

Pressure from Substitute products

Since 2012 an important trend has appeared in the luxury goods industry: emphasis is
given to ‘fine jewellery’ (Luxury Society 2012, par.13) and not on ‘seasonal
accessories’ (Luxury Society 2012, par.13). Louis Vuitton has been the luxury brand
that first supported this trend; Richemont Group, the owner of popular brands such as
Cartier, had followed (Luxury Society 2012) - L

Popular luxury brands have taken action against those who try to develop cheap
substitutes of their products; for example, in a relevant lawsuit the courts ordered the
owners of a series of websites that have developed such activity to pay an amount of
$100 million to Hermes (Luxury Society 2012) - L

In any case luxury products are, by their nature, related to costly materials; the high
cost of these products prevents those who would like to create substitute products of
low price (Luxury Society 2012) - L

Slide 6

Competition

The industry’s competitors would have to face the following challenges:

a) continuous turbulences in markets worldwide; downturns in the performance of

markets have been proved as able to affect the buying power of the industry’s
customers (Paton and Sanderson 2014); only the brands that can secure high quality,
innovation and uniqueness of their products are able to secure their market position -
H

2
b) exchange rates tend to change constantly; this phenomenon causes delays to the
industry’s growth (D’Arpizio 2013) - L

c) in 2012, a major part of the industry’s growth, about 28%, was achieved through
‘online sales’ (D’Arpizio 2013, par.11) - H

d) the industry’s complexity has been increased (D’Arpizio 2013), a fact that has
resulted to the increase of competition (D’Arpizio 2013) - H

Slide 7

New Entrants

The rate of development of the luxury goods industry is satisfactory but unstable; the
strong turbulences in the international market are considered as the key reason for this
phenomenon. The industry’s high instability would discourage new entrants to enter
in the luxury goods industry (Blog Euromonitor 2013) - L

Also, the increase of the popularity of timepieces, i.e. on luxury products that can
have a long life, has led to the increase of luxury products based on costly materials;
new entrants would find it difficult to compete in the industry since the capital
available for responding to the industry’s manufacturing costs would be high (Paton
and Sanderson 2014) - L

The industry is characterized by the dominance of specific brands; new entrants

would have to invest high amounts in order to establish their position in their market
(Paton and Sanderson 2014) - L

Slide 8 – Assessment of the industry’s attractiveness

For now: the industry seems to be quite attractive

In 2-3 years: the industry’s growth would be stable

In 10 years: the attractiveness of the industry would be assessed by checking the

economic performance of markets worldwide at that period of time; in any case, risks
are expected to be increased, especially due to high competition and the extremely
high power of customers

3
Slide 9

References

D’Arpizio, C. (2013) “Luxury Goods Worldwide Market Study Fall 2013.” Bain &
Company. Available at http://www.bain.com/publications/articles/luxury-goods-
worldwide-market-study-fall-2013.aspx

Deloitte (2014) “Global Powers of Luxury Goods.” Business Report. [online]

Available at
http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Consumer-
Business/gx-cb-luxury-2014.pdf

Hill, C. and Jones, G. (2012) Strategic Management Theory: An Integrated Approach.

10th ed. Belmont: Cengage Learning.

Luxury Society (2012) “8 Trends That Defined The Luxury Industry in 2012.”
[online] Available at http://luxurysociety.com/articles/2012/12/8-trends-that-defined-
the-luxury-industry-in-2012

Paton, E. and Sanderson, R. (2014) “Luxury brands eye trends for 2014.” Financial
Times [online]. Available at http://www.ft.com/cms/s/0/2abf5816-6f53-11e3-bc9e-
00144feabdc0.html#slide0