On October 24, 2014, The Wall Street Journal had a front-page article written by Manuela Mesco titled "Gucci finds its Brand of Luxury a Tough Sell." I chose to write about this article as it is directly related to the textbook team exercise assigned previously in our class. In that exercise we were given the task of determining whether a low cost strategy or a differentiation strategy would be most suitable given a company that is caught in the middle of both strategies and is loosing revenue.
One of the elements in the analysis of that exercise was determining the disadvantages of choosing a differentiation strategy. Many of these drawbacks are addressed specifically in Mesco's article, which focuses on the decreased earnings being experienced by Gucci, which has marketed its products using a differentiation strategy since its inception in 1921. There have been many internal and external events that have led Gucci down a tumultuous path over the past 93 years, including the loss of family member influence, near hostile takeovers, disagreements between investors and CEOs, Europe's protracted economic growth, Russia's sanctions on European products, and even the Chinese government no longer allowing luxury spending using government money.
In addition to all the above listed challenges, Gucci still has its fickle customers to satisfy.
One of the primary elements both team projects addressed regarding differentiation strategy was the advantage of having a product that was unique based on brand image, quality and distribution. Conversely, the downside to this strategic angle is exactly what Gucci has been facing. Neither team discussed the possibility of a company's brand, its highly sought after insignia, loosing favor. Why? Customer attitudes shift over time. In the mid 1990s, the Gucci logo on its bags garnered an easy $1000 price tag. Sometime around 2004,