Gucci Group Freedom within the Framework Case Solution

In 1999, in order to avoid the hostile takeover of the Gucci group by a fierce competitor group, LVMH, the central management of the group decided to sell a considerable stake of their shares to a retail giant group, PPR. By 2004, PPR had acquired a majority shareholding in the firm and decided to control the group by taking over the top management. Chairman of the PPR group, Serge Weinberg, made some top level management changes and appointed Robert Polet as the new CEO of the Gucci group, along with a new Creative director and three in-house designers. Robert Polet inherited some of the biggest brands of the fashion industry. When he came in the portfolio comprised of Gucci, Alexander McQueen, Balenciaga, Bottega Venetta, Boucheron, Sergio Rossi, Stella McCartney, and Yves Saint Laurent (YSL). Polet, though did not bring anyone from outside and continued with the local team, but he brought a new vision to the group. His idea was to stay on the back-end and carry out supporting, monitoring and controlling activities and provide greater responsibility to the individual brand management. Polet never interfered in the decision making process, but made sure that the right decisions are made under the circumstances. He introduced new business development strategy where CEOs of individual brands were required to make three year business plan, carry out market researches etc. He gave CEOs a freedom to work on their own but warned them to respect the DNA of the brand. During the period 2004-2007, he and his team, which comprised of Alexis Babeau, the COO, Karen Lombardo, Head HR, Mimma Viglezio, head communication, made considerable progress, which was apparent in the group’s bottom line. Except YSL, all brands had become profitable and were moving in the right direction as per the initial plan designed by the central group management. Polet’s multi-brand strategy seemed to have worked in his favor as the group started deriving higher value from synergies among different brands. Since, all brands were high end luxury goods manufacturing handbags, ready to wear dresses, sunglasses, jewelries and other accessories, it allowed them to get better deals from suppliers, ad agencies, distributors etc.

Now, Robert Polet is facing a dilemma of how to move forward from here. Though, the group is performing well, but recession and economic crisis are readily becoming visible on the horizon. The growth of the fashion industry is expected to slow down as major markets will get severely affected. Polet is pondering how to further cash the value from the group. He feels with the efficient usage of the CRM system the brand can derive greater value. The idea of sharing customer information among brand and regions has appealed to him, but he is afraid that not only individual brand companies will strongly oppose his idea, but it will also be against his management philosophy of providing freedom to individual companies.

2. Why did Gucci create a corporate group of luxury brands? Why may the Gucci Group be worth more than the sum of its parts? 

i. The Philosophy behind a Multi-brand Group          

Gucci Group, first under the leadership of Domenico De Sole and Tom Ford, and then under Robert Polet acquired many small and medium sized luxury brands to make it a corporate group. Both leaderships believed in benefits of building a multi-brand group, which became readily visible when the company started performing well. First of all, this allowed the group to cover a larger share of the market covering a wide array of customers. Each brand Gucci, YSL, Balenciaga, Sergio Rossi, etc. stood for something different and catered different kinds of customers. For example, though, Balenciaga and Bottega Veneta both catered to high-end women with their ready to wear clothes, shoes, jewelry, handbags and other accessories, but their positioning was very different. Balenciaga was an urban brand whereas, Bottega Veneta promoted a classic image. This allowed the group to target customers having completely different tastes. Secondly, there are customers who prefer variety of brands in their wardrobe or, they are looking for a change and considering a new brand. A multi-brand strategy would also allow to cater such customers. In case, customers plan to switch, the group will be in a better position to attract them with another brand rather than letting them go to competitors. Third benefit that the leadership see in building a multi-brand group is of deriving higher benefits from the suppliers. For example, the Gucci group was in a position to get a better deal from the leather supplier by negotiating on behalf of all brands. In addition to this, another major benefit of this strategy is of providing support to weak brands from stronger brands by sharing of resources and expertise. In Gucci group case, Balenciaga, a well-established brand, provided support to YSL in producing leather goods. Balenciaga had a sophisticated structure and was making profits, which allowed them to share their production resources with YSL who was going through financial problems. Another case of sharing resources would be a market research carried out by one brand showed that women in a particular country prefer a classic brand rather than a modern brand. This would allow the group to use this intelligence and introduce the right brand in the right market. Moreover, another reason of creating a corporate group was to have the option of cross-promoting and cross-marketing their brands to customers. Individual brands would have reasonable information regarding preferences of customers. If that customer information is shared on a group level, it would allow other brands to promote and market themselves. This benefit would require the group to make sure that there is minimum cannibalization and sharing of information is not deteriorating for brands.

ii. Value of the Gucci Group

Whenever there is a corporate group holding multiple brands, it is not necessary that its value is equal to the sum of values individual brands. It can be more or less, as well. In the case of Gucci Group, it seems that the worth of the group is greater than the sum of individual brands. This greater worth can be attributed to multiple factors, which include management structure and strategy, parent company’s brand equity, financial performance of the group, value derivation from synergies among different brands etc. (Slavich, Cappetta, & Giangreco, 2013) Having a central management structure allows the Gucci Group to derive higher value from brands. Many of the administrative and operational tasks like financial planning, human resource management, investment decisions and media communication are being done at the central level allowing the group to act upon a bigger picture. For example, in Gucci group case, it is evident from the exhibit 6 and exhibit 7 portraying the financial performance of individual brands and the group that many brands have negative operating profits, which are as high as 32%, in case of YSL, yet the overall group has performed reasonably well from the financial aspect. The group has balanced its cash flows by assessing the need and performance of each brand. Another reason that the Gucci group is of higher worth than the sum of its individual brands is the brand equity of the parent company, PPR, a French based retail and luxury good company. In many cases, an individual company sometimes lack the financial resources or management expertise required to restructure the brand or pull it out of the crisis situation. The capability of the parent company to extend its assistance to an individual brand is not measured or valued all the time, but it plays a crucial role in the success of brand and overall group. This assistance can be in the form of management or financial support, consultation in law suits etc. 

Discuss the pros and cons of Gucci loyalty card. Should the different stores and regions share their customer information? Why or why not? Should the different brands of the Group share their customer information?

i. Pros and Cons of Gucci Loyalty Card

Loyalty card and loyalty marketing have been a popular phenomenon during the last two decades. Many companies around the world have made efforts to derive higher value from their customers by offering loyalty cards. In many industries, this marketing technique has produced fruitful results whereas, in others it has failed to make any impact and is often seen with suspicion. In any case, there are various benefits and drawbacks of offering a loyalty program especially in a high-end luxury goods industry.

ii. Disadvantages of a Loyalty Card

Gucci is a high-end luxury goods brand and its customers are rarely price conscious. Introducing a loyalty card program for its top customers would mean subsidizing products for them, which they would buy in any case. In addition, since Gucci already provided its top 5% customers with special benefits like an invitation to the fashion show, gala and other sophisticated events; therefore, offering a loyalty card would mean giving more benefits resulting in a higher customer retention cost. This would not be a feasible option from the financial perspective.

iii. Benefits of a Loyalty Card

A loyalty card program would allow the brand to keep updated information of its customers. This information can be used in improving the working and performance of the CRM system, which would not only assist in targeting customers in an efficient way, but would also provide an option of cross selling and cross marketing. In addition to this, since Gucci is not in favor of giving discounts on its products; therefore, an especially designed loyalty card could focus on intangible rewards and benefits that improve customers’ experience while shopping. According to (Dilger, 2011), even affluent customers value meaningful rewards. It does not have to be a discount reward as they already have adequate buying power. Affluent customer enjoys being recognized and being pampered while shopping. This improves their experience at the store and makes them value the brand.