Case Study: Consumer's Bargaining Power

Consumer’s Bargaining Power - moderate to high

Level of Dependence on a buyer - The industry depends heavily on top-tier customers, which are the celebrities and are usually early adopters and can influence consumption of the masses.The industry is very driven by a small group of top-affluent consumers but these affluent buyers have no impact on the premium price since brand's positioning and appeals as an exclusive luxury brands due to its high quality products.

Number of buyers - The increasing number of buyers relatively to suppliers, rising wealth household of middle-class buyers in China. The concept of affordable luxuries are increasing in second-tiers city and satellite towns.

Switching Costs - The luxury industry who is based on

An example would be the embroiderers in France dropped from 10,000 in 1920 to 200 in the 2000’s.

Level of dependence on a supplier - A few important key components and materials are outsourced in the industry, brands relies on different countries for materials (i.e raw exotic materials) in basis of consignment.

Effective Substitute - The highly specialized atelier d‘arts‘ with a narrow scope of expertise are very hard to replaced because of their important role in the industry.

Switching Costs - The luxury industry is very dependent in quality of its materials and suppliers makes the switching costs very low because a past cooperation with the suppliers is very important. There is always a big risk in looking for a new suppliers due to the lower quality of product.

New Entrant - low to moderate

Capital Requirement - A new brand needs a high marketing and management costs because of several factors, since the industry is based on perception and emotion a new brand must develop an effective brand positioning and brand awareness. In doing so these factors need a high management costs which can be a hindrance for them to enter the luxury

These brand position themselves as affordable luxury.

Counterfeit goods from emerging markets like China or India.

Switching costs to customers - Nonmonetary switching costs, the loss of prestige if switch to high street or fast fashion brands

Quality of substitutes - The increased Internet accessibility of top luxury brand designs allow fast fashion brands to respond and copy trends within weeks after fashion shows.

The cheaper substitute and fast-fashion like Zara is not a big threat but still plays an important role of substitution because consumers rather than buying luxury brands found a substitution with the value for money reason is because of the economic crisis that reduce our dependency on the luxury industry.

Power of Competitors - High

Competitive Structure - The luxury market has an oligopoly structure: a few large luxury groups dominate like the top “Big Three” players (LVHM, Richemont, PPR Gucci)

Exit Barriers - The emotional barriers may not break even because of some brand continue to operate due to small number of extremely loyal