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C ASE 7-1

COACH—SELLING HANDBAGS OVERSEAS

Coach, Inc. is an American luxury leather goods company pri- Vuitton is that “We offer a well-made and stylish product . . . at
marily known for ladies’ handbags. The company started in 1941 less than half the price point of our European competitors.”1
as a family-run workshop based in a Manhattan loft. Now greatly Coach bags typically cost between $200 and $400, putting the
expanded, the company aspires to maintain high standards for brand at the top of the premium segment or the bottom of the
materials and craftsmanship. In 2008, faced with a severe eco- luxury segment. Occasionally, Coach sells higher-priced lim-
nomic slowdown in its core U.S. market, Coach decided to expand ited edition bags, but it mainly focuses on aspirational buyers.
its drive into Asia. A key market in this expansion drive is China. By keeping prices within that range, Coach hopes to build up
According to Ernst & Young, China bought more than $2 billion a loyal customer base. To keep the brand more accessible
worth of upscale products in 2008. This figure could rise to $11.5 than its European luxury rival brands, Coach makes its
billion by 2015. By the end of 2006, the country boasted 345,000 product in lower-cost countries while sourcing its raw mate-
U.S. dollar millionaires, one-third of whom were women. Coach rials from high-end mills and tanneries. As a result, Coach’s
expected China would make up over 4 percent of its sales by 2013 labor costs are a fraction of its European competitors’ costs.
as the retailer expanded into a hundred cities. It also announced
plans to acquire its own retail businesses in Greater China from
current distributor ImagineX to boost its market presence. Coach
planned to increase the number of stores there from 25 in 2008 to
80 by 2013. It intended to open its first flagship store in Shanghai
within the coming 12 to 14 months.
Coach hoped to replicate in China what it did in Japan (see
Table) by increasing its market share from just 3 percent in
2008 (compared to 30 percent for Louis Vuitton) to 10 percent
by 2013. Coach’s CEO Lew Frankfort explained how Coach
was able to grab shares from its European competitors in
Japan: “Many Japanese women told us they would rather
spend 60,000 yen ($578) for a Coach bag and spend the other
60,000 yen that they would save by not buying a European
luxury brand and use it to go to Thailand.” Coach especially
appealed to women under age 35. Older Japanese women
preferred carrying European luxury brands as a status symbol.

HANDBAG MARKET SHARES IN JAPAN Source: Coach flagship store in Hong Kong.

Company 2000 2008 Coach’s primary focus is on the female consumer because
“she tends to be brand-loyal, will go shopping whether the
Louis Vuitton 33% 27% stock market declines or not, and if she has a bad day at the
Coach 2% 12% office she may buy herself a Coach bag, where a man would
Prada >10% <10% have a double-scotch.”
Gucci >10% <10% Coach opened its first outlet in China in 2003. In May 2008,
Source: “Coach bets Chinese open the purse strings,” Wall the retailer launched a 9,400 square-foot flagship store on
Street Journal, May 30 to June 1, 2008, p. 28. Hong Kong’s Canton Road, one of the city’s main shopping
areas. Ian Bickley, president of Coach International, predicted
that the market for woman’s leather goods (excluding shoes) in
Lew Frankfort noted that Coach’s competitive advantage Greater China would more than double in the coming five
over other luxury leather goods companies such as Louis years, from $1.2 billion to $2.5 billion. His goal was to raise

1
“Handbag Brand Coach Plans Major Expansion in China,” http://www.iht
.com/bin/printfriendly.php?id=13302728.

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sales from the current $30 million (3% market share) to They are looking for ways to broaden their life and Coach is
$250 million (10% market share). one way. . . . There are some consumers who are extremely
A key factor to stimulate growth is the firm’s decision to wealthy, and hopefully our limited-edition product will attract
manage its own stores. In Japan, Coach took direct control of its them, but they are not our primary thrust.”2
retail stores in 2001—the right time to control the destiny of the The next frontier would be India, though for the time being
brand according to Bickley. Likewise, Bickley declared that “the that market was on the back burner because of infrastructure
time has come for us now in China to establish an in-store problems. Bickley observed: “In India, distribution networks
experience and build a brand” (BusinessWeek, June 4, 2008). and local partners are still learning a lot about the industry.
Describing the difference between the Chinese and U.S. There are no proven partners locally.”
consumer, Frankfort said: “In China, there’s a luxury con-
sumer that represents perhaps 0.05 percent of the population—
DISCUSSION QUESTIONS
very small but with enormous purchasing power. That’s not our
1. Will Coach be able to replicate its Japan success story in
primary target. Our target is the emerging middle class who
China? Why was the firm successful in Japan?
have gone to university and are now getting 30 to 40 percent
[pay] increases a year. . . . These women are trading up and 2. Reflect on Coach’s targeting strategy. What are the alter-
investing in plasma TVs and laptop computers and Coach bags. natives? Coach decided to focus on the emerging middle
class—do you agree?
3. Around the time that Coach announced its Asia expansion
Sources: “Handbag Brand Coach Plans Major Expansion in China,”
http://www.iht.com/articles/2008/05/29/style/coach.php; www.coach.
drive the global economy entered a deep recession. To what
com; “Coach Bets Chinese Open the Purse Strings,” Wall Street extent would the recession affect Coach’s strategy in Asia
Journal Asia, May 30 to June 1, 2008, p. 28; and “Coach Build Its (primarily Japan and China)? Will Coach need to revisit its
Brand in China,” BusinessWeek, June 4, 2008. plans? If so how?

“Coach Bets Chinese Open the Purse Strings,” Wall Street Journal Asia,
2

May 30–June 1, 2008) p. 28.

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C ASE 7-2

HYUNDAI CONQUERS EUROPE

Car companies spend huge amounts of money on advertising to opened a new 150,000-units capacity plant in Russia in 2011. On
promote their brands. However, Hyundai Motor, the Korean the marketing front, Hyundai became a sponsor of the World
carmaker, received an unsolicited boost to its image from Cup soccer, and hired German soccer icon Jürgen Klinsmann as
Volkswagen, one of its main competitors in Europe. A video brand ambassador. It also customized its product line to local
shot at the 2011 Frankfurt Motor Show shows Martin Winter- tastes by focusing on vehicle styles that are popular in Europe
korn, Volkswagen’s CEO, examining a Hyundai i30 compact. such as hatchbacks and wagons. In 2011, its market share jumped
Wowed by the car’s adjustable steering wheel, he observes to his from 4.5 to 5.1 percent, ahead of Toyota, Mercedes, and Volvo.
entourage: “Nothing rattles. Why can they do it? BMW can’t. Hyundai would also like to climb up the ladder by launching
We can’t.” The video posted on YouTube has been seen more more upscale vehicles. One example is the €42,290 ix55 sports
than 1.7 million times (http://www.youtube.com/watch? utility vehicle (Veracruz in the United States). This strategy of
v=YpPNVSQmR5c). One of the YouTube comments states: selling luxury cars at lower price points than its European rivals
“It’s always good to know your enemy. I’m guessing Mr. Winter- mirrors what Toyota did with its Lexus line and Nissan with
korn is thinking we have a tough fight ahead.” Infiniti, except that Hyundai is not building a new brand.
In the U.S. market, Hyundai and its sister brand Kia have
jumped to the number 2 spot among foreign car companies. In
2011, the company sold 1.13 million cars in the United States— DISCUSSION QUESTIONS
more than triple Volkswagen’s sales. Hyundai’s value propo- 1. Why is Europe so critical for Hyundai?
sition of reliability, quality, and long warranties enabled the 2. Hyundai is a relative latecomer in the European market.
company to double its global car sales between 2004 and 2011. Yet, the company has been growing fast with its market share
The company has now set Europe as a top priority. rising from 4.5 percent in 2010 to 5.1 percent in 2011. What
To implement its European strategy, Hyundai expanded the has been the magic formula behind Hyundai’s success so far?
capacity of its car plants in the Czech Republic and Turkey and
3. Hyundai planned to increase its European sales by about
25 percent to 5,000,000 cars by 2013. Part of its strategy is to
Sources: “The Contender,” Bloomberg Businessweek, January 30 to move up into higher price tiers. Do you agree with this strat-
February 5, 2012, pp. 21–22; and “Hyundai Set to Shift Up Gear in egy? Are there other strategic initiatives the company could
Drive for Expansion,” Financial Times, December 16, 2010, p. 26. pursue to achieve this target?
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Sources: “LEGO Is for Girls,” Bloomberg Businessweek, December 19 – December 25, 2011,
pp. 69–73; http://www.legofriends.com; http://en.wikipedia.org/wiki/Lego_Friends; “Why Do
Boys and Girls Have Similar Interests, But Very Different Toys? Toy Makers Still Behind in
Closing the Gender Gap,” http://adage.com/article/news/toy-makers-closing-gender-gap/
237154/.

4. LEGO decided to roll out LEGO Friends first in France,

DISCUSSION QUESTIONS
the U.K., and the United States. What criteria would you use
1. How do you assess the new LEGO Friends line expressly
to decide on the next wave of countries to introduce the new
targeted to girls? Is the toymaker on the right track? Why or
product range? Does the line have the potential to become a
why not?
global blockbuster?
2. How would you position the new line towards LEGO’s
5. For many of LEGO’s more traditional lines targeted
target (5+-year old girls)?
toward boys are co-branded (e.g., with Star Wars, Indiana
3. Where should the new line be shelved inside stores like Jones, Harry Potter). LEGO decided not to do this for the
Wal-Mart or Target? With other LEGO toys or with girl-ori- new line. Do you agree with this decision? Why or why not?
ented toys?

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C ASE 7-4

CROCS: LOVE THEM, HATE THEM

In the demi-monde of footwear, the term croc once stood for were mostly people who spent a lot of time on their feet such as
the reptile skin used in elegant footwear. Today, it’s synony- restaurant workers, nurses, and doctors. The Crocs epidemic
mous with an entirely different (and altogether vegetarian) soon engulfed the world as millions rushed to jump on the
phenomenon. In just a few years, the shoes known as “Crocs” Crocs bandwagon. Celebrities such as George W. Bush and
have spread around the world. Jack Nicholson have been spotted wearing the shoes. Crocs
In June 2002, entrepreneur George Boedecker used a wearers are almost evangelical about the shoes’ comfort. Crocs
company he had previously formed called Western Brands shoes have been awarded the American Podiatric Medical
to start up a shoe company that eventually became known as Association (www.apma.org) Seal of Acceptance. The
Crocs, Inc.6 Earlier that same year Boedecker had been AMPA took special note of the fact that Croslite “warms
approached by a Canadian firm, Foam Creations, to distribute and softens with body heat and molds to the users’ feet, while
a newly developed shoe. The peculiar new shoe was made from remaining extremely lightweight.”
a proprietary foam resin called “Croslite.” The shoes are called Crocs capitalized on several strengths.7 Kids like their
Crocs because they resemble a crocodile’s snout. Initially, the brightness, squishiness, and the holes in the front in which
shoe was marketed as a lightweight boating and outdoor charms can be placed. Parents like that the shoes are water-
footwear that featured slip-resistant and non-marking soles. proof, odor-free, and washer-safe. The Croc fad also benefits
The first model, the Crocs Beach, was unveiled in November from the appropriation of an ethnic look: the Dutch clog. Ugly
2002 at the Ft. Lauderdale Boat show, and the 200 initial pairs is acceptable especially when it is imported (not unlike Aus-
sold out immediately. Word of mouth spread. Early adopters tralian Ugg boots). In Rolling Stone Crocs even ran ads

6 7
www.crocs.com. http://www.slate.com/id/2170301/.
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proclaiming “Ugly can be beautiful.” The anti-bourgeois qual- suffered injuries after their shoes got entrapped in escalators.
ity of the shoes also has a certain appeal: Crocs are a bottom-up The U.S. Consumer Product Safety Commission has docu-
brand, embraced by ordinary people. They represent a kind of mented 77 soft shoe entrapments on escalators since January
rebellion. 2006 and issued a warning in May 2008. One family of a child
By June 2004, Crocs was able to acquire Foam Creations to whose foot was maimed in an escalator accident at the Atlanta
secure its manufacturing operations and the patent to the foam airport is suing Crocs for failure to put safety features in the
resin material that its shoes were made from. In October 2006 soft-holed shoes.10 The company maintains that the safe design
Crocs also bought Jibbitz, a manufacturer of accessories that and maintenance of escalators is the real issue. Yet it put
snap into the holes of Crocs. The Crocs franchise then contin- warning tags on its footwear. Japan’s Trade Ministry is looking
ued to grow in 2007 as its product line expanded to over 250 into several reports of people damaging toenails on Jibbitz
styles and retail points mushroomed to 200 worldwide markets accessories fixed to Crocs sandals. Following the incidents,
in Europe and Asia. CEO Ronald Snyder delivered a stunning Crocs Asia warned on its website that children should not wear
report card in 2007 of 139 percent growth and US$847 million oversized Crocs. “Jibbitz attached near the toes could harm
sales revenues, up from US$355 million in 2006. toes or toenails,” said the company on its Japanese website.11
While many regard the shoes as comfortable and colorfully In April 2008, Japanese and Philippine authorities asked the
decorated, the popularity of Crocs has also led to the inevitable firm to consider changing the footwear’s design because of
backlash. Many people regard Crocs as a fashion disaster or escalator incidents in their countries. Crocs promised to insert
even a disease. Crocs have been lampooned as “clown shoes” safety tags.
or even worse. A Washington Post article described the Crocs In recent days the allure of Crocs seems to be fading, at
criticism as follows: “Nor is the fashion world enamored of least in the United States. In 2008 U.S. retailers cut back on
Crocs. Though their maker touts their “ultra-hip Italian styl- orders as U.S. consumers spend less in the wake of the weak
ing,” lots of folks find them hideous.”8 One British journalist economy. One retail analyst pointed out that the Crocs brand
who had seen the shoes in South Africa described them as is not strong enough to command prices four times those of
“something crafted from a car tyre in a poverty-stricken local imitations. At Nordstrom stores, Crocs sell for $24.95 to
township and sold on street corners.”9 Two college students $69.95 each compared to as little as $5 for similar clogs on
based in Halifax, Nova Scotia, set up a website called www. Wal-Mart’s website. Luckily for the company, international
ihatecrocs.com with anti-Crocs rants and videos of the shoes demand is still rising: sales in the second quarter of 2008 rose
being burned or shredded. Crocs ranked No. 6 on Maxim’s 13 percent in Europe and 65 percent in Asia. One retail
“10 Worst Things to Happen to Men in 2007” listing. consultant noted: “It’s a fad, not an essential basic in the
Probably even more worrisome are growing negative consumer’s wardrobe . . . with the weak economy, consum-
reports on the shoes’ safety. Several wearers, mostly children, ers may not be interested in new Crocs this year.”12

8 10
http://www.washingtonpost.com/wp-dyn/content/article/2006/07/31/ http://www.foxnews.com/story/0,2933,419962,00.html.
AR2006073100890_pf.html. 11
http://www.just-style.com/article.aspx?id=101631.
9
http://www.dailymail.co.uk/femail/article-470904/Curse-Crocs-Why-mid- 12
http://www.rockymountainnews.com/news/2008/jul/25/crocs-shares-
dle-aged-men-wear-ugliest-shoes-invented.html. sink-grim-sales-news/.
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DISCUSSION QUESTIONS 3. One BBDO ad executive claimed that “Crocs may have
1. Explain why a “heinous synthetic shoe” (as described in a been successful, but it has never been a brand. The name itself
Slate article) conquered the world? is well established, but the equities are missing.” Do you
2. Sales in the United States are declining. Do you expect that agree?
Crocs will also lose momentum in the international markets 4. How would you target/position the Crocs brand in the
and why? Is the phenomenon indeed just a fad? international market (say Asia)?