Reference no: EM133393186

According to the article, there are a few firms in the luxury good industry that are still growing. One is LVMH, which recently took over the US jeweler Tiffany and co. Kernig and Hermes, which is the owner of Gucci, is still growing quickly according to the article as well. Both of these companies' sales increased by an average of 10% and 22% respectively. Some of the firms that were shrinking according to the article include Salvatore Ferragamo, Burberry and Tod, which fell in sales by 2%, 1.3% and 2.5% respectively. The conclusion the author reaches is that the bigger brands such as LVMH and Kernig and Hermes, which have acquired companies, and are faster growing, are doing much better than the smaller brands that aren't growing as rapidly such as Burberry and Tod's.

Advantages of scale can be defined as larger companies having an advantage over their competition due to the fact they can lower their costs, and pass their savings to their consumers, which gives them advantage over companies that cannot afford to lower their costs, and therefore, not pass any savings to their consumers. Advantages of scale manifest themselves by being able to produce more products for lower costs, which allows there to be more supply of products which allows consumers to gain access to purchase these products. Bigger companies can thrive with this because they know smaller companies will not be able to afford to operate at this capacity. You can tell when they are present when they become less vulnerable to external threats of outside competition, and continue to grow at a steady pace. In this case, LVMH and Kernig and Hermes are growing fast, and purchasing other companies on the way.

Some possible explanations for the economies of scale in the luxury goods industry is the fact that there is a third-party market that is able to sell the goods of both the smaller and bigger luxury goods. As mentioned in the article, there are digital channels that are used to sell the goods of these companies. In addition to digital channels, there are prime locations in bigger cities that allow for on-street shoppers to purchase goods as well. Bigger companies have leverage with landlords that put them in good locations. Another big reason for scales is the social media presence of these bigger companies. With the larger companies, they are able to invest more in building their brand online through ads and easy access for customers to purchase their products that they can create that advantage on social media as well. An explanation I can think of is just world of mouth and reputation of brands. Large brands such as Gucci and Louis Vuitton have a large advantage in the luxury industry because they have been big for a while. It also helps when they get celebrities always wearing their clothing and apparel lines in big public settings such as the Met Gala, Grammy Awards and other massive public settings.

QUESTION 1) Thinking about 'advantages of scale' and your review of the above passage, what fate do you see for firms that have not kept pace with cost advantages here face? Is there a way forward for them? Might there be a disadvantage or risk to firms enjoying an 'advantage of scale' that needs more discussion and exploration? On the balance, what role should 'advantage of scale' assume in a firm's scaling up and pricing efforts?

QUESTION 2) Keeping in mind the case discussion (located above), develop a brand profile (perhaps by identifying key product features and consumer factors) that could be used to spot opportunities product/service candidates ripe for expansion/development.