Environmental Analysis

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Environmental Analysis

1 Question one
Using the five forces framework, how would you characterize the competition in theluxury goods industry?
Many turn to Porter's Five Forces model while trying to analyze or examine an industry or in a bid to determine how a new business would fit in a given industry given its competitors. The model is a tool used by businesses and companies to figure out how effective they can compete in the current market.Having a good understanding of the underlying causes of each of the competitive forces helps those in the luxury goods market to reveal the main source of the current profitability while at the same time providing a framework for influencing competition in the future. Competition in the luxury goods market is very high and each competitor is using all means available to remain relevant in the marketCITATION Jon13 p 24 l 1033 (Hoffmann and Coste-Manière 24). According to Porter, competition is driven by the structure of the industry and not necessarily whether an industry produces goods or services, mature or emerging, highly regulated or not. In order to maintain market share in the luxury goods market, companies create brand loyalties, strive to benefit from economies of scale and try to create exclusive access to suppliers and distributors. Luxury goods are not basic goods to households and thus consumer will always buy from the most famous brand which reduces the level of competition in the industry. There is also high capital requirement to venture into the industry which further limits new entrants who also face high retaliation from existing companies. Many brands in this industry have acquired suppliers in order to protect competitive advantage and protect themselves from future unexpected rise in supply costs. Small luxury brands have little barriers of distribution, however, the face pressure from powerful groups who prevent them from access...