Business IA - Chanel Pricing Strategies (PDF)

WHAT FACTORS INFLUENCE THE PRICING STRATEGIES OF LUXURY BRANDS LIKE CHANEL IN THE FASHION INDUSTRY IN THE UK Candidate name: Alice Abbriano Supervisor: Mr. Micheal Dalton Subject: Business...

WHAT FACTORS INFLUENCE THE PRICING STRATEGIES OF LUXURY BRANDS LIKE CHANEL IN THE FASHION INDUSTRY IN THE UK Candidate name: Alice Abbriano Supervisor: Mr. Micheal Dalton Subject: Business Word count: Table of Contents 1. Introduction 2. Analysis ○ 2.1. SWOT Analysis ○ 2.2. STEEPLE Analysis ○ 2.3. Ansoff Matrix 3. Conclusion 4. Supporting Documents Introduction Chanel is a prestigious luxury brand well-known for its exquisite haute couture, ready-to-wear clothing, and a wide range of high-end accessories. Established by the iconic designer Coco Chanel in 1910, the brand has cultivated a reputation that epitomizes luxury, sophistication, and timeless elegance.1 Over the decades, Chanel has not only created iconic products like the Chanel No. 5 fragrance and the classic Chanel 2.55 handbag but has also become a symbol of status and refinement in the fashion world. This Internal Assessment (IA) centers around Chanel's pricing strategy, particularly in the competitive landscape of the UK market. The luxury fashion industry is characterized by rapid changes in consumer preferences and purchasing behaviors, necessitating that brands like Chanel continuously adapt their strategies to maintain their elevated status and appeal. As they navigate this dynamic environment, luxury brands must balance the preservation of their prestigious image with the need to be responsive to evolving market conditions. This study seeks to address the research question: What factors influence the pricing strategies of luxury brands like Chanel in the fashion industry in the UK? To answer this question, we will explore various elements that impact Chanel's pricing decisions, including shifts in consumer behavior, fluctuations in economic conditions, and competitive pressures from both high-end and fast-fashion brands. The analysis will provide insight into how Chanel strategically manages to uphold its exclusivity and luxurious reputation while simultaneously responding to the changing demands of modern consumers. This examination will be framed within the key concept of change, highlighting the significant transformations in the market landscape that luxury brands must navigate to thrive in a highly competitive industry. Through this study, we aim 1 Chanel. (n.d.). The history of the House of Chanel. CHANEL. to demonstrate the complexity and multi-faceted nature of pricing strategies in the luxury sector and how Chanel exemplifies these principles in practice. Analysis 2.1. SWOT Analysis Introduction to SWOT Analysis SWOT analysis is a powerful strategic planning tool that enables organizations to identify and assess the internal and external factors influencing their business. The acronym stands for Strengths, Weaknesses, Opportunities, and Threats. By examining these elements, companies can develop targeted strategies that not only capitalize on their strengths but also address their weaknesses, seize new opportunities, and mitigate potential threats. For a luxury brand like Chanel, conducting a thorough SWOT analysis is essential for crafting effective pricing strategies to uphold its prestigious image while remaining adaptable in a fiercely competitive market landscape. Strengths Chanel's foremost strength lies in its unrivaled brand identity and rich heritage. As one of the oldest and most recognized luxury brands globally, Chanel evokes a sense of nostalgia, glamor, and status that resonates deeply with consumers. The brand enjoys a substantial level of loyalty and recognition, which is pivotal in maintaining its market position. Furthermore, the exclusivity associated with Chanel allows it to command premium pricing, thereby creating a perception of higher value among discerning customers who seek prestige and quality. Additionally, Chanel’s commitment to producing high-quality products reinforces its positioning as a leader in the luxury segment. From meticulously crafted haute couture garments to iconic accessories like the classic Chanel handbag, every product reflects superior craftsmanship and attention to detail. This dedication to quality not only strengthens consumer trust but also fosters an environment where customers are willing to pay a premium, thereby bolstering the brand’s profitability. Weaknesses Despite its numerous strengths, Chanel faces significant weaknesses, particularly concerning its high price point. While premium pricing reinforces exclusivity, it can also alienate potential customers in a diverse market, limiting access to a broader consumer base. As luxury consumers evolve, the brand must be cautious about becoming too insular and missing out on valuable segments of the market. Another notable weakness is Chanel's dependency on a select few signature products, such as the iconic Chanel No. 5 perfume and the classic Chanel handbag. This reliance could restrict the brand's appeal to consumers who are increasingly looking for innovation and variety. If Chanel is unable or unwilling to diversify its product offerings, it risks losing relevance in a fast-changing fashion landscape where new trends and consumer preferences emerge rapidly. Opportunities Chanel has numerous opportunities to explore, particularly in emerging markets where a growing middle class is increasingly seeking luxury goods. By targeting these regions, the brand can expand its customer base and tap into new revenue streams. Additionally, the rapid growth of e-commerce presents a significant opportunity for Chanel to enhance its online presence. By leveraging digital platforms, the brand can reach a broader audience and provide exclusive online collections, attracting younger consumers who prioritize convenient shopping experiences. Moreover, embracing sustainability and ethical practices could position Chanel favorably among conscious consumers.2 Developing products that emphasize eco-friendliness and social responsibility may enhance brand loyalty and attract new customers who value these attributes in luxury brands.3 Threats The luxury market is becoming increasingly competitive, with a plethora of brands vying for consumer attention. Fast-fashion competitors pose a significant threat to Chanel by offering trend-driven products at lower price points, challenging Chanel's market share and pricing strategy. Additionally, as the luxury segment adapts to economic fluctuations, downturns can diminish consumer spending on high-end products, further complicating Chanel's pricing strategy. Furthermore, the rise of online shopping means that consumers have broader access to various brands, making it essential for Chanel to maintain its differentiation and value proposition in an oversaturated market. The challenge lies in balancing the rich heritage and exclusivity of the brand with modern consumer expectations and competitive pressures. Conclusion The SWOT analysis underscores the intricate balance Chanel must maintain between its strengths and weaknesses while navigating the opportunities and threats present in the market. By strategically leveraging its brand heritage and commitment to quality, Chanel can refine its pricing strategies to sustain its luxurious image while adapting to changing consumer preferences and market dynamics.4 2 The 2019 ethical fashion report. (n.d.). 3 Building loyalty through convenience. Loyalty in the fashion industry. (n.d.). 4 J.P. Morgan. (2023, April 27). Luxury market outlook: J.P. Morgan Research. Luxury market outlook | J.P. Morgan Research. Limitations of Sources This analysis relied predominantly on secondary sources, including industry reports, market analyses, and competitive insights. While these sources provide valuable information, they may not fully capture the internal dynamics of Chanel's pricing strategies or the nuanced decision-making processes within the brand. Future research could benefit from primary data collection to gain a more comprehensive understanding of Chanel's strategic approache 2.2. STEEPLE Analysis Introduction to STEEPLE Analysis STEEPLE analysis examines the Social, Technological, Economic, Environmental, Political, Legal, and Ethical factors that influence a business. For luxury brands like Chanel, these external elements significantly impact pricing strategies. Social Factors Social trends, such as the shift toward sustainability and ethical consumption, influence luxury brands. Consumers are increasingly seeking brands that align with their values, prompting Chanel to integrate sustainable practices into its supply chain. This shift may require adjustments in pricing to accommodate eco-friendly materials and production methods. Technological Factors Technological advancements5, particularly in digital marketing and e-commerce, have reshaped how luxury brands engage with consumers. Chanel's digital presence must be 5 Luxury goes digital: All about the technology trends of 2022 | santandrea top properties. (n.d.-a). robust to attract tech-savvy consumers, potentially requiring investments that influence pricing strategies. Online exclusives may also justify premium pricing. Economic Factors Economic conditions directly affect consumer spending on luxury goods. During times of economic growth, consumers are more likely to invest in luxury items. Conversely, economic downturns necessitate strategic pricing adjustments, such as promotional sales or limited-time offers to stimulate demand. Environmental Factors Environmental concerns are becoming increasingly relevant in the luxury sector. Chanel has initiated various sustainability programs that may lead to higher production costs, impacting pricing. Consumers are willing to pay a premium for products that demonstrate environmental responsibility, providing an opportunity for Chanel to effectively implement such strategies. Political Factors Political stability and trade policies can significantly affect luxury brands. Tariffs on imported goods can increase costs, necessitating a careful approach to pricing. Chanel must remain informed about international relations, particularly in markets where it operates. Legal Factors Compliance with labor laws and regulations is vital for maintaining Chanel's reputation. Any legal issues could affect the brand's public image, influencing consumer perceptions and market demand, subsequently impacting pricing strategies. Ethical Factors Ethical considerations around labor practices and sourcing materials are paramount. Consumers increasingly seek transparency in how products are made. Maintaining ethical practices may increase production costs, requiring Chanel to adjust its pricing strategies accordingly. Conclusion The STEEPLE analysis reveals the multifaceted factors influencing Chanel's pricing strategies. By understanding social trends, technological developments, and economic conditions, Chanel can proactively adjust prices to remain aligned with market demands and consumer expectations. Limitations of Sources: The sources used for this analysis included governmental reports and industry publications, which may not cover localized market variations. 2.3. Ansoff Matrix Introduction to Ansoff Matrix The Ansoff Matrix is a strategic tool used to evaluate growth strategies through four quadrants: Market Penetration, Market Development, Product Development, and Diversification. Chanel can utilize this framework to understand its pricing strategies in relation to market opportunities. Market Penetration In the context of market penetration, Chanel focuses on increasing its market share within existing markets. Competitive pricing strategies may be employed during seasonal promotions or limited-time offers to attract new customers without compromising brand image. This strategy allows the brand to engage with a broader audience while maintaining its luxury status. Market Development Chanel can pursue market development by targeting new geographical regions or consumer segments, such as younger audiences or emerging markets. Pricing strategies in this quadrant may involve competitive pricing or exclusive offers to establish presence and attract initially cautious consumers. Product Development Chanel’s commitment to product development can lead to new product lines or limited-edition collections.6 Premium pricing strategies may be appropriate for these exclusive offerings, reinforcing the luxury brand's prestige and appealing to its affluent customer base. Diversification Chanel can explore diversification by entering new markets or adopting entirely different product lines. Pricing for these new ventures would need careful consideration to balance perceived value with market expectations. Conclusion The Ansoff Matrix illustrates the various growth strategies available to Chanel and how these strategies influence pricing decisions. By selecting an appropriate quadrant, Chanel can align its pricing strategies with its overall business objectives, ensuring continued success in the competitive luxury market. Limitations of Sources: The sources for this analysis were limited to company reports and interviews that may not fully encompass strategic plans across all markets. 6 Author links open overlay panelAxel Hund a, a, b, Highlights A review of 227 articles integrating insights from eight different disciplines. A new conceptualization and definition of digital innovation. Linking central concepts to the new conceptualization of digital innovation. Organizing cross-discipli, & AbstractWhile research has produced valuable insights about digital innovation. (2021, November 19). Digital Innovation: Review and novel perspective. The Journal of Strategic Information Systems. Conclusion In conclusion, the research question—What factors influence the pricing strategies of luxury brands like Chanel in the fashion industry in the UK?—has been thoroughly examined through various analytical tools. The SWOT analysis revealed the strengths and weaknesses Chanel must navigate to maintain its competitive edge while adapting to market changes. The STEEPLE analysis highlighted the external factors that significantly impact pricing strategies, underscoring the importance of social trends, technological advancements, and economic conditions. Finally, the Ansoff Matrix provided insight into the growth strategies available to Chanel, illustrating the dynamic interplay between market opportunities and pricing decisions. While this study provides valuable insights, limitations exist regarding the depth and reliability of sources. Future research could benefit from primary data collection, offering a more comprehensive view of consumer perceptions and behaviors. Overall, understanding the factors influencing pricing strategies is vital for luxury brands like Chanel to thrive in an increasingly competitive and evolving marketplace. Bibliography Chanel. (n.d.). The history of the House of Chanel. CHANEL. https://www.chanel.com/us/about-chanel/the-history/ Building loyalty through convenience. Loyalty in the fashion industry. (n.d.). https://www.merkle.com/en/merkle-now/articles-blogs/2023/loyalty-in-the-fashi on-industry.html J.P. Morgan. (2023, April 27). Luxury market outlook: J.P. Morgan Research. Luxury market outlook | J.P. Morgan Research. https://www.jpmorgan.com/insights/global-research/retail/luxury-market The 2019 ethical fashion report. (n.d.). https://media.business-humanrights.org/media/documents/files/documents/Fashi onReport_2019_9-April-19-FINAL.pdf Luxury goes digital: All about the technology trends of 2022 | santandrea top properties. (n.d.-a). https://santandreatopproperties.com/en/news/luxury-goes-digital-all-about-the-t echnology-trends-of-2022/ Author links open overlay panelAxel Hund a, a, b, Highlights A review of 227 articles integrating insights from eight different disciplines. A new conceptualization and definition of digital innovation. Linking central concepts to the new conceptualization of digital innovation. Organizing cross-discipli, & AbstractWhile research has produced valuable insights about digital innovation. (2021, November 19). Digital Innovation: Review and novel perspective. The Journal of Strategic Information Systems. https://www.sciencedirect.com/science/article/pii/S0963868721000421