1. What challenges does Coach face relative to pricing its vast product line?
2. Based on principles from the chapter, explain how price affects customer perceptions of the Coach brand.
3. How has increased competition at Coach’s price points affected the brand’s performance?
4. Will the plan proposed by current Coach Leadership be successful in reversing the brand’s slide in market share? Why or why not?
5. What recommendations would you make to Coach?
SOLUTION
1. The primary challenges faced by Coach are posed by increased competition, weaker economic conditions, a product line that is becoming increasingly broad and more complex, and a decline in exclusivity based on the brands increased popularity.
2. Perceptions of price are very psychological. Consumers consider price relative to what they are getting and relative to competitive offerings. Price can have an effect on perceptions of quality, but not always. In the case of Coach, it seems that historically, price has carried out that effect on quality. As Coach set its price at a level that was higher than most brands, but still attainable by most people, perceptions of quality were enhanced. As a premium brand with a premium image, that higher price also created an air of exclusivity. That image made the brand more desirable by more people.
3. For decades, Coach was in a class by itself. It was priced much higher than average brands, but much lower than haute couture designer brands. Thus, it faced little competition as a premium brand. Thus, the mere presence of other brands at the same price point will most certainly eat into its market share.
4. On the surface it would seem as though Coach’s plan will work. Consider the issues and how Coach is addressing them:
• High prices in tough economic times – introduced the lower priced “Poppy” line, a slightly lower quality product at a 30% lower price point.
• Market saturation – expand into other products, like accessories and men’s lines.
• Lost its fashion sense – hired a new creative director.
• Win back customers from other brands – positioning as a lifestyle brand.
• Damage done by discounted items – increasing the number of options at $400 or more.
Thus, it would appear that Coach has a good plan to address all the factors that have led to lower financial performance. However, it hasn’t really addressed one of the biggest issues—the fact that the brand has grown so much and is owned by so many takes away from its image as a premium brand. Their customers who simply will no longer buy because of this also, returning to its “glory days” means growing the brand and company at a higher rate. That kind of growth runs counter to the premium, exclusive image. Also, much of the former growth came from the expansion of discount outlets. Thus, it seems likely that Coach can stabilize its revenue dynamics and grow, but unlikely that it will ever grow at the dramatic rate it once did. International expansion is one area that may provide some greater opportunities for growth.
5. In order to maintain a premium image, it is likely that Coach will have to accept that it will grow slower for a time and may even have to decline somewhat. It must find ways to wean itself from the dependence on discounts. It should focus on international expansion as that type of growth will not affect its image of exclusivity in any given market.