Gucci Case
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Substitutes and Complements
Fashion is personal and close to the body that there are very few close substitutes that can replace the feeling of prestige and class emulated by that jacket or that leather bag. Extravagance fashion shows are at the heart of the marketing of these luxury brands to stay hot. The threat of substitutes is low; On the contrary, Gucci excel at being the substitutes and complements of other luxury goods such as watches, jewelry, etc. rather than the other way around.
Low supplier bargaining power
Merging in a multi-brand group PPR mitigate the risk of big investments and save money through economy of scales in advertising, I.T., distributions, raw materials, etc. Managers of individual brands are able to share know-how and best practices.
Being the “taste-maker”, Gucci solely control what to produce or to replace, implying the demand of production from Gucci is very elastic. Having many factories competing for Guccis order (the prestige of being Guccis supplier means more downstream industry orders), the supply of production is inelastic. Gucci will enjoy this advantage as long as the name stays desirable.
Buyer bargaining power
Luxury product is by definition about excess, meaning the demand is elastic. However, Gucci is able to set retail prices because consumers of luxury goods rarely demand lower prices. They do not want to “down grade” the image of class and wealth that they are buying into.