Luxury Brand Management Hugo Boss

Universit della Svizzera italiana
Faculty of Economics Faculty of Management Sciences
Luxury Brand Management: Hugo Boss Corporate Strategy
Master Thesis Roberto La Rocca 08-986-515 Master in Management
Thesis Supervisor: Erik Larsen Academic Year: 2009-2010 Submission Date: June 2010
Table of Content
ABSTRACT INTRODUCTION CHAPTER 1: An Overview of The Fashion and Luxury Industries 1.1 - The Fashion System 1.2 - The Luxury Fashion Industry 1.3 - Luxury Brand Management CHAPTER 2: Hugo Boss Corporate Strategy 2.1 - Founding & Organizational Structure 2.2 - Products 2.3 - Business Model 2.3.1 - Value Proposition 2.3.2 - Targeted Segments of Customers 2.3.2 - Communication and Distribution Channels 2.3.4 - Value chain organization 2.3.4.1 - Innovation in The Hugo Boss Value Chain 2.4 - Hugo Boss Internationalization Process 2.4.1 - American Dream 2.4.2 - Chinese Expansion 2.4.2.1 - Success Factors of Luxury Brands in China 2.4.3 - Indian Horizons CHAPTER 3: Applied Strategic Models 3.2 - Hugo Boss SWOT Analysis 3.1 - Porters Five Forces Model 3.3 - Financial Analysis 3.4 - Risk Assessment Analysis CONCLUSIONS 48 54 60 68 72 18 19 23 23 24 26 27 29 31 37 41 43 45 7 8 10 5 6
Tables and Figures Index

Tables
Tab. 1 Competitive Models in The Luxury Fashion Industry Tab. 2 Retailers Type in The Luxury Fashion Industry Tab. 3 Distribution Channel Types Tab. 4 Direct Distribution Channel Format Tab. 5 Indirect Distribution Channel Format Tab. 6 Customer Profiles in The Luxury Industry Tab. 7 International Growth Paths 8 11 13 15 16 24 32
Figures
Fig. 1 Hugo Boss Number of DOS Over Time Fig. 2 Hugo Boss Brands Fig. 3 Hugo Boss Brands Shares of Sales Fig. 4 Hugo Boss Current Brand Positioning Fig. 5 Hugo Boss Brand Positioning in The Long Term Fig. 6 Hugo Boss Value Chain Fig. 7 Hugo Boss Global Presence Fig. 8 Adaptation & Efficiency Trade offs for Multinational Firms Fig. 9 Hugo Boss Investments Over Time Fig. 10 Hugo Boss Mid-Term Sales Target Fig. 11 Per Capita Growing American Household Income Fig. 12 Flying Geese Model Fig. 13 Hugo Boss Distribution Channel Fig. 14 Hugo Boss Sales Evolution Over 2008 Fig. 15 Euro Exchange Rates Over 2007/2008 Fig. 16 Hugo Boss Investments 2008 Fig. 17 Hugo Boss Investments Overview of The Last Five Years Of Operations Fig. 18 Hugo Boss Share Price Performance Fig. 19 Hugo Boss Risk Management 65 66 68 14 19 20 21 22 27 31 34 35 36 38 41 50 51 52 65
to my family
Abstract
Globalization effects spill over to all sectors of the economy blurring boundaries between luxury and fashion. We are currently referring to a world where eye stimulation is predominant. Behind the idea of luxury, we find three hidden words: creativity, exclusivity and total quality. Accordingly, in the past decade it was observed that customer interest focused on luxurious experiences rather than merely on luxurious products. Clothing is the industry that gets closest to the idea of luxury applied to daily life situations. Consumption preferences in the fashion industry have always been influenced by social and consumers cultural backgrounds. This is even more important when we consider luxury goods and their symbolic value. Nowadays, some companies operating in the luxury fashion industry extend their offers to broaden their customer bases by lowering prices to enhance accessibility. Other firms manage to leverage the marketing mix, design and communication of their product in order to be included in the masstige1. Competition in the luxury fashion industry is therefore increasing. Moreover, considering the current economic recession, an interesting question to consider is why people buy the clothes that they do, especially if they are expensive. What makes one suit different from another suit? Is there really any particular difference that might alter the socio-economic aspect of the individual who purchases a specific suit? This study aims to indirectly investigate some possible answers presenting Hugo Boss luxury brand strategy at a corporate level.
1 It is composed of all firms whose offer is designed to fit quality, visibility and appearance of luxury goods, yet marketed with the price of non-luxury goods. (Corbellini & Saviolo, 2009)
5
Introduction
Fashion and culture have held a mutual-influencing relationship over the course of time. The industrial revolution, from the 18th to the 19th century, showed us the rise of middle classes over aristocracy and the consequent codification of grey suits as businessmen suits. The womens rights revolution prepared the ground work for Coco Chanel pioneer dresses which evolved into Giorgio Armani tailleurs creating the businesswoman stereotype by the end of the 1980s. Then it was the time for jeans and t-shirts with silver screen testimonials made by the likes of James Dean and Marlon Brando. In other words, clothing represents a mean to express the self and communicate a certain cultural status. It is now clear that the way you dress does affect your life. Some companies anticipated all these trends and industry characteristics through an ongoing market analysis, positioning as premium brands in the luxury industry. Therefore, the aim of this study is to analyse the organizational model of Hugo Boss as representative of successful firms operating in the luxury fashion industry. Starting from a description of the fashion and luxury systems, an understanding of the general luxury brand management will be provided. Secondly, by presenting Hugo Boss strategy at corporate level through an analysis of its organization, products and business model, it will be possible to define the roots of success for the German firm operating as a luxury fashion brand. Emphasis is also given to the Hugo Boss internationalization process within the American, Chinese and Indian realities, as they constitute central levers that need to be managed for a prosperous future. Finally, this case study includes a number of strategic and managerial models: a description of Hugo Boss Porters Five Forces Analysis, SWOT Analysis, Financial Analysis and Risk Assessment Analysis will also be presented.
1 - AN OVERVIEW OF THE FASHION AND LUXURY INDUSTRIES

1.1 - The Fashion System
Societies evolve along with fashion. Consumers now require more customized products than in the past and it has become more difficult to meet their expectations. The luxury fashion industry bloomed in the eighties and is now facing unfavourable conditions. Positive results start coming from countries like India and China which are part of the BRIC2. These countries are developing very quickly and consumer needs are characterised by different motivations in comparison with other developed countries. Focusing on Western luxury fashion companies, we observe the importance to differentiate in order to preserve growth. More often, these companies are called to decide on a trade off between differentiation and the need to boost their core values to enhance customer loyalty. Indeed, it is becoming more a matter of line extension versus brand name and luxury fashion companies must not forget how the latter is their most critical success factor. Companies operating in the fashion system face a product life cycle whose length is shorter in comparison with other industries. In 2006, Kotler and Keller underlined how fads life cycles are shorter than fashions and how fashions is shorter than basic products. The implementation of changes in fashion are usually related to seasonal motives and more often product life cycle is modelled by Planned Obsolescence which pushes firms to control their product turnover. Nowadays, its not uncommon to notice how High Street stores propose a new collection on a monthly basis. The total look3 collapsed and fast fashion4 is increasingly assuming importance on a global scene.
2 Acronym for Brazil, Russia, India and China. As reported by Goldman Sachs in 2003, these four countries combined together are expected by 2050 to be wealthier than current major economies. 3 It should be intended as the look of a person who is entirely dressed by a single brand.
7
1.2 The Luxury Fashion Industry

In 2003, Silverstein and Fiske estimated the luxury market size at $350bn per year with an annual growth rate of 10%. At the time, Tilley (2001) had defined the luxury market as the one with the fastest growth rate all over the world. This is consistent with peoples desire to show off which fosters the demand for goods with statusconferring characteristics (Ziccardi, D. (2001); Echikson, W. (1995)). Therefore, in comparison with other goods presenting comparable functions, luxury goods are able to charge a price premium (Bagwell, I. & Bernheim, B. (1996); Mc Kinsey Corporation (1990)). It is worth explaining what luxury means in order to better define which industry this case study is targeting. Luxury specialists have attempted to give a clear definition of what a luxury brand is, but this is not an easy task (Kapferer, J. N. (1997a)). Luxus is the Latinism for indulgence of senses, regardless of cost. Luxury goods consumption reflects the current cultural values rooted in our society where ostentation is broadly accepted as a must (Phau, I. & Prendergast, G. (1998)). The Rarity Principle (Dubois, B. & Paternault, C. (1995); Mason, R. M. (1981)) suggests that when everybody is able to purchase a specific brand, the luxury component is eroded. Considering this assumption, Hugo Boss can be classified as a luxury brand since not everybody can afford its products. Salvo Testa, expert in Fashion & Design lifestyle Management at the Bocconi University, classifies four pure competitive models in the luxury fashion industry.
Tab. 1 Competitive Models in The Luxury Fashion Industry
Model
Affordable Fashion
Segment
Woman, Apparel, Accessories
Competitors
Mission
There is no Codification of competitors fashion tendencies predominance American & Premium Man, Casual & Northern Europe Value for money Brand Jeans, Accessories brands 4 Its a current trend characterized by fast changing stocks which often mean added sales as customers frequently come back to visit the store
8
Exclusive Luxury High Fashion
Man, Elegant Woman, Accessories Woman, PAP, Accessories
French luxury brands International Designer
Affirmation of Brand Heritage Imposition of new tendencies
Source: adapted from Salvo Testa, Fashion, Luxury and Lifestyle, SDA Bocconi
The abovementioned four classes are classified according to the degree of luxury contained. Starting from Affordable fashion brands and moving on to High fashion brands, we observe an increment in terms of quality, price premium and brand image importance. Although it is possible to identify these four macro-categories, it is not easy to set their own boundaries and clearly make a distinction between some Affordable fashion brands and some Premium brands as well between some Exclusive luxury brands and High fashion brands. Sometimes they are characterised by features owned by another competitive model and they give birth to hybrids whose mission is to preside crossing consumer expectations. Heres an attempt to classify some famous brands into the four competitive models mentioned above. Affordable fashion includes names such as Diesel and Miss Sixty. Premium brands are Geox and Replay. An example of Exclusive luxury is given by Armani and Zegna. Prada and Gucci are part of the High Fashion competitive model. Hugo Boss fits best under the Premium Brand. Indeed, customers perceive the German brand as a distributor of male-oriented products, whose quality is mirrored in the premium price. However, as time passes, Hugo Boss tends to show some features typically owned by Exclusive luxury and High fashion brands. Its mission is spreading and growing toward these last two models in order to enlarge the customer base and evolve into the next level of the luxury scale. Luxury fashion industry is increasing in complexity and the real challenge for companies operating in this environment is currently acquiring the capabilities to manage these challenges.
1.3 - Luxury Brand Management

In the first place, it is worth mentioning how luxury fashion firms take advantage of the so-called country branding5. Just like Versace reflects Mediterranean lifestyle, Hugo Boss can brag that its Made in Germany label is a symbol of innovativeness, precision and elegance. The country of origin (Made in) serves two main functions: It allows brands to better develop their internationalization processes due to the intrinsic quality owned by products coming from particular places. On the other side, this label also helps protect national product consumption.
Due to outsourcing practices, todays meaning of Made in has spread so far from its original significance that it is now hard for customers to clearly define what it is. Multinationals operations, having subsidiaries all over the world, contribute to create confusion regarding this issue which is usually solved by the paradigm the product is born in the factory but what the client buys is brand (Klein, N. 2001). Corbellini and Saviolo (2009) define a luxury brand as a coherent system of excellence. Here we present the set of characteristics shared by luxury brands. High price Imaginary and storytelling Tradition and heritage Selective distribution Exclusive communication Superior service Selective distribution Innovation and creativity
Fashion designers want their brands to be clearly positioned in customers minds. In order to achieve this result, brand equity has to be determined. In 1993 Keller suggested that this value of brand is built upon brand knowledge which comes from brand awareness and brand image. Thus, perceptions reflected in brand associations and memory anchors constitute the two main drivers to create strong brand equity. 5This type of branding strategy exploits national values, culture and history to confer unique characteristic to products. The major advantage of country branding is that it is impossible to be imitated.
10
Even though there is a shared set of features among luxury brands, there are four main components creating brand identity. This can be defined as the brand positioning inner essence which is exteriorized by product aesthetics. It is modeled on the following four drivers: heritage, style, retail & distribution channels and communication. A description of each one of them is provided: Heritage: refers to the companys long tradition and history of brand and its importance relies on the fact that it cannot be imitated. People, place of origin, products and legend are blended together to communicate a sense of uniqueness. Style: refers to the importance of creating a code of stylistic rules through which the brand can be easily identified and positioned in customers minds. Retail & Distribution Channels: there are two kinds of retailers in the luxury and fashion industry6:
Tab. 2 Retailers Type in The Luxury Fashion Industry
Non Specialized Retailers

Department Stores (e.g. Lafayette) Wide range of products No brand predominance
Specialized Retailers
Specialty chains or vertical chains as they market their own brand (production is outsourced) Wide geographical presence Large players (e.g. H&M) Self standing POS Specialized in
Hypermarkets (e.g. Carrefour)
They combine features of supermarkets and
Independent stores
6 Classification based on Aspinall, K. (1997)

11
department stores Business model focuses on high volume low margins sales Mail order retailers (e.g. Otto Versand) Orders placed via phone or internet Products dispatched to a specific address Concept stores (Destination boutiques)
one product line
Individual multibrand stores Unique retail concept: shopping experience pushed beyond the mere purchase They combine store loyalty to brand loyalty
Source: Adapted from Managing Fashion and Luxury Companies, Corbellini & Saviolo (2009).
Since 2000, the general trend has been concentration. In the last decade, a drastic reduction of Independent stores and Departments has been observed in favor of the expansion of Specialty chains. Choosing the correct distribution channel and store format is critical, especially in the luxury fashion industry where timeliness and visibility are important to achieve a successful distribution strategy. This can be implemented through two different methodologies: direct and indirect. Following, is the distinction between these different methodologies:
12
Tab. 3 Distribution Channel Types
Direct Channel
It is the luxury firm that manages the distribution channel through DOS or franchise
7
Indirect Channel
The luxury firm does not control the distribution channel but it cooperates with retailers in the Short Indirect Channel and with both distributors and retailers in the Long Indirect Channel to deliver its offer Short Long
Manufacturer
Manufacturer Retailer
Manufacturer Distributor Retailer Consumer
Consumer
Consumer
Whilst in the Short Indirect Channel the company has to deal primarily with Concept stores and Department stores. In the Long Indirect Channel the firm mostly engages in operations with distributors in order to frame the distribution, price and payment structure for a given area. Often, this second option regarding the indirect channel is the only feasible way in a developing market since the company expanding into new markets does not know much about them. This theory works greatly in the early stages of international expansion when firms need to gather as much information as possible before committing a lot of resources in developing direct channels of distribution. Of course, evidence shows that there is no one best way and often distribution channels are the result of different practices blended 7Directly Operated Stores
13
together. Hugo Boss distribution policies are based on two points. The first one explains how Hugo Boss chooses directly operated stores in order to develop a globally consistent image of its brand. Indeed, de Chernatony and others (1995) found that consumers have expectations to find the same brand core concept8 wherever they go. The following figure illustrates how the number of directly operated stores has increased over time.
Fig. 1 Hugo Boss Number of DOS Over Time
Source: Hugo Boss Annual Report 2008
The second point refers to the strong-tie relationships with its trading partners in order to maintain control on the quality of the offer delivered. Another approach called Transnational seems to be gaining importance. It refers to the development of distribution via Internet and travel retail. The former is in an early stage of growth for luxury fashion companies that usually propose limited editions of products on their websites to avoid conflicts and confusion with the other existing distribution channels. Nonetheless, it has become clear that positive customer experience on e-purchases reflects increases in physical stores and therefore 8 Keller, K. L. (2003) defines core concept as the added value positioning in customers mind of a certain brand.
14
companies are investing in order to improve the usability, emotional and experiential side of their interfaces. On the other hand, travel retail refers to retailing inside airports to exploit customers willingness to purchase luxury goods before catching their flights. Travel retail is based on space concessions given by the Airport Authority to those who pay a sales percentage in exchange. It is now fundamental to analyze which retail format better suits a companys intentions:
Tab. 4 Direct Distribution Channel Formats
Type
Flagship Store (All brand products)
Description
The companys biggest store
Location
Worldwide presence, big cities
Dimensions Personnel Management

The brand hires and manages sales people Huge: from 200 to 5,000 sqm
Self standing store (Large selection of brand products) Shop-inshop (Main brand products)
Independent, directly owned and operated Independent, directly owned and operated
High streets, airports, malls
The brand hires and manages sales people
70-200 sqm
Directly operated
Department stores, malls
Sales people are dedicated
50 -120 sqm
15
Tab. 5 Indirect Distribution Channel Formats
Type
Corner9
Description
Retail space personalized with the brand image
Location
Department stores No independent entrance No walls Department stores
Personnel Management
Sales people can be dedicated
Wall unit Retail space organized as a wall
No dedicated sales people
Open sale
No brand personalizati on Retail space with multibrand offers
Lower level of a Department store
No dedicated sales people
From the first abovementioned format to the last one, it is evident how firms lose their control over the possibility to affect the brand image perception. Through the harmonization of distribution policies, integrated multichannel management focuses on avoiding misinterpretations of a firms brand image. Whatever format is chosen, luxury fashion stores are also integrating bazaar display in order to improve customer shopping experience through fun. Hugo Boss carries out programs to train employees on product and sales techniques. Personnel is therefore taught about wearability and provided with books explaining how to conduct business in the 9 Its also growing importance the concept of partnership corner where producer and retailer cooperate to maximize their sales.
16
German firm. This is part of a proactive10 approach toward customers that can be synthesized with CRM (Customer Relationship Management). It is continuously growing in importance as a customer-oriented approach has proved to be effective considering luxury fashion customers profiles. CRM itself is part of a broader concept. This is Market-Driven Management and it aims to establish customer loyalty in order to develop long-term relationships as it has been proved that is cheaper to retain current customers than seek for new ones. Communication:
In the luxury fashion industry, communication relies on aesthetics. Messages are delivered with the aim of positively influencing brand awareness, brand image and the companys reputation. Strategic objectives and brand strategy have to be integrated with the communication plan to benefit from the effort put in developing it. Indeed, fashion companies are in control of numerous activities regarding the communication system. Luxury fashion companies invest a great amount of money to monitor the activities of media, their public relations and advertising campaigns after the launch of a new product. Firms are striving to keep up with the general trends in communication. While advertising is more expensive and not always as effective as in the past because customers suffer of information overload, points of sales are called to evoke brands values to enhance customers shopping experiences.
10 Being proactive means producing the desired outcome with consistent actions rather than react to something after it is happened
17
2 - HUGO BOSS CORPORATE STRATEGY

2.1 - Founding & Organizational Structure
According to Hamel and Prahalad (1994) there are two main kinds of strategies to compete in a market. The alternative is between strategies that are environment-led and strategies that are resource-led. The former reflects the alternative Fit where firms take advantage of market opportunities adapting resources to them. Instead, Resource-led strategies refer to stretch organizational resources and competences in order to create value for money. Since firms are generally limited in their resources in the early stages of their activity, they often start to run their business according to the first approach. This was the case of Hugo Boss, which was founded in 1923 in Metzingen, Germany and since the sixties it has built its brand image around mens suits. However, over time, the need for differentiation pushes companies toward a resource-led approach. Today, indeed, the Germany based premium-clothing manufacturer is known worldwide for its wide range of highquality products, which combine European design and fibers coming mainly from Italy. In 2008 Hugo Boss annual sales amounted to 1,686 million. A flat hierarchy constitutes the basis on which Hugo Boss corporate culture is built. In this structure, the Supervisory Board and the Managing Board tightly cooperate to strengthen the enterprise value. The latter reports to the former on corporate strategy, business operations, and monitors changes in financial figures through monthly reports. These regular reports together with regular meetings with analysts, telephone conferences, ad-hoc announcements displayed on the company website and annual shareholders meetings keep up with the need for transparency.
18
2.2 - Products
The product range implies different kinds of clothing: business, leisure, sport and evening. The companys offer also includes accessories, perfumes, eyewear and shoes for both men and women. Following is a visual structure of Hugo Boss umbrella strategy for its two main brands and Baldessarini:
Fig. 2 Hugo Boss Brands
TheHugo BossGroup
BOSS HugoBoss
HUGO HugoBoss
Baldessarini
BOSS Selection
BOSS Black
BOSS Orange
BOSS Green
Source: Adapted from Hugo Boss Annual Report 2008
HUGO Hugo Boss differs from BOSS Hugo Boss for its avant-garde and projection toward trendsetters. Buyers of HUGO Hugo Boss are characterized by self-confidence and the collection is open to both men and women. Instead, BOSS Hugo Boss represents the core of the Hugo Boss Group. This label includes BOSS Selection, BOSS Black, BOSS Orange and BOSS Green.
19
BOSS Selection: menswear and accessories, BOSS Selection combines the best workmanship practices and materials on the market BOSS Black: the focus is on menswear, womenswear and accessories characterized by elegance. Business suits are predominant within BOSS Black BOSS Orange: offers casual menswear, womenswear and accessories through unusual colors, materials and details BOSS Green: also called Golf collection. This provides menswear and accessories focalized on sports
Since its establishment in 2004, the brand Baldessarini does not include Hugo Boss in its name. However, it represents the top luxury fashion brand under the Hugo Boss group. Its offer includes shoes, fragrances and various accessories. Figure three shows how Boss Black leads the shares of sales within the Hugo Boss group:
Fig. 3 Hugo Boss Brands Shares of Sales
The current strategy sees Hugo Boss brands positioned in this way:
20
Fig. 4 Hugo Boss Current Brand Positioning
Source: Hugo Boss Annual Press Conference Presentation 2009
The Hugo Boss Group aims to redefine the positioning of its brands in order to better fit in customers minds and exploit a clearer brand image. Indeed, the current brand positioning shows how Hugo Boss brands overlap and this might have negative consequences by confusing costumers. In fact, these overlaps are not only related to the fashion characteristics of each brand, but also to their prices. This situation has to be changed as soon as possible since it might degenerate in the cannibalization of Hugo Boss brands. In order to succeed, Hugo Boss is striving to leverage its marketing mix in both established and emerging markets. Figure five shows the future positioning of the German brands:
21
Fig. 5 Hugo Boss Brand Positioning in The Long Term
This is an important step towards worldwide brand consistency. Having this brand architecture is essential to reduce risks related to brand positioning and allows Hugo Boss to create a starting point on which to develop effective and efficient future strategic plans.
22
2.3 - Business Model

Fashion business models are characterized by four different building blocks: Value Proposition Targeted segments of customers Communication and Distribution channels Value chain organization
2.3.1 - Value Proposition

Todays fashion industry requires customized ways of approaching customers, products, markets and communication. Single product strategies result to be obsolete and firms are striving to offer a specific value proposition that suits a specific segment of a specific market. Premium brand firms operating in the luxury industry are usually specialized in only one product at the beginning of their business. Over time, product specialization is substituted by product range extensions. Hugo Boss value proposition relies on a differentiation strategy where high prices, high quality and strong brand image are the main characteristics. Industries like the fashion one are characterized by cycles that have to be anticipated through forecasts in order to provide the needed degree of innovativeness. Facing innovation in terms of strategic proposition means being able to assess the value for the customer (Christensen C. (1997)). Through innovation, fashion firms are fighting to survive the competition and it seems that almost everybody has understood the importance of creating new avenues towards success, but only some are able to do so. Those companies are the ones capable of offering new ways to satisfy existing or emerging needs through a competitive customer value proposition.
23
2.3.2 - Targeted Segments of Customers According to Porter, positioning entails all those activities through which it is possible to achieve sustainable competitive advantage and at the same time preserving what is distinctive about a company (Porter, M. E. (2008)). By carrying out different activities from those of competitors or delivering them in a different way, companies are able to succeed by adding value to customers through a unique positioning. Hugo Boss as Premium Brand results in being more accessible than Exclusive luxury brands and High fashion brands, especially to younger customers. It is the hedonistic consumption theory proposed by Groeppel and Bloch (1990) that justifies luxury goods consumption. These kinds of goods exercise stimuli on customers who show emotions that are forbidden to other categories of goods. The following is an illustration of customer profiles in the luxury industry:
Tab. 6 Customer Profiles in The Luxury Industry
Type
Conspicuous consumption
11
Description
Consumers buy luxury goods to show-off. Consumption patterns are explained by the traditional components (Leibenstein, H. (1950)): Snob effect: The cheaper it is, the less I buy and viceversa. Bandwagon effect: I buy what people I respect do
Selective extravagance
Here price-sensitive/luxury cultured middle class members experience Rocketing: large amounts of money are spent on few
11 It was Rae (1834) to argue that this kind of consumption is driven by selfexpression and vanity motives.
24
expensive luxury goods Fractional ownership Self-treating Consumers status symbol is put apart in favor of sharing the cost of luxury goods Consumers buy to satisfy their personal pleasure and they are admired by other people for their refined taste Early adopter Conspicuous austerity Innovation is what drives consumer behavior Large sums are spent on luxury goods that communicate strong ethical values and simplicity Omnivore/univore R. M. (1996)) Higher classes (Omnivores) have more lower classes (univore) show limited tastes (Peterson, R. A. & Kern, cultural tolerance and various tastes whilst
Hugo Boss positions itself on different customer profiles according to the market development status it is in. With a look at established markets, Hugo Boss customers can be grouped in three main customer profile categories: selective extravagance, self-treating and conspicuous austerity. This is because customers tastes change and get more sophisticated over time. However, considering the German brand internationalization process, it has been observed that Conspicuous Consumption customers constitute the majority in developing countries. Indeed, in emerging markets where Hugo Boss is heavily investing for their growth potential, customers show different needs. Traditional consumption drivers push emerging markets customers to buy in order to show off.
25
2.3.3 - Communication and Distribution Channel Following a strategy with a narrow competitive scope and differentiation of offers, Hugo Boss competitive advantage is built on the combination between its unique value proposition and the brand image rooted in customers minds. Hugo Boss customers are led to believe that the higher the price, the higher the quality. Although fashion industries are characterized by high volatility and variability, Hugo Bosss competitive advantage is sustainable to the extent which the company mixes innovation in processes, products and strategies in order to deliver what customers want. They expect high prices and high quality and Hugo Boss knows it. For this reason, one of the secrets of success is to under-promise and over-deliver through specifically designed advertising campaigns, especially in emerging market such as China. Being supported by public relation offices throughout the world, the headquarters in Metzingen coordinate Hugo Boss corporate communication. Transparency policies are enforced through publications, reports and press conferences. Media planning activities are tightly monitored by the parent firm which gives directions about what message has to be transmitted to customers. Collaboration with lifestyle magazines, partnerships with celebrities and sponsorships to enhance brand visibility allow to build a strong corporate identity for the entire Hugo Boss group. On a more practical side, premium brands do not usually carry out production and retailing while Hugo Boss does it. The German companys know-how covers both commercial and industrial aspects. This is another characteristic that makes Hugo Boss a hybrid closer to Exclusive luxury and High fashion brands in terms of unique offers delivered to customers. Hugo Boss distribution and communication strategy is based on more than 1,300 monobrand shops spread all over the world, which allow the company to develop an intimate interaction with its customers. Retail identity is so built on four different elements: space planning, merchandising, store design and visual communication. Each of them contributes to create a consistent brand image. Notwithstanding, regional and market differences have to be considered. An explanation of the different Hugo Boss distribution policies in its competitive environment will be provided further on in the report.
26
2.3.4 - Value Chain It was Porter in the Eighties who developed the value chain approach in order to maximize activities that create values and minimize costs of unproductive operations.
Fig. 6 Hugo Boss Value Chain
NewCollection Development
Material Procurement
Manufacturing
Sales& Distribution
Customer Service
Source: Adapted from relevant information within Hugo Boss Annual Report 2008
New collection Development This step of the value chain takes place in Metzingen (Germany), where the headquarters are situated. Innovation is a key component for developing new collections and Hugo Boss also utilizes machines under patent protection. Seasonal change influences all the steps in a fashion companys value chain and therefore it is important to forecast international fashion trends for a multinational operating in luxury goods such as Hugo Boss. During this step, goods are improved within an existing brand and new ones are developed to widen the offers range. Last but not least, prototypes and showroom expositions are an integrant part of this process which is coordinated by utilizing modern software. Material Procurement This step involves procuring the fibres necessary for the production of Hugo Boss products. The fibres come from over 1,000 suppliers with which Hugo
27
Boss also holds partnerships in order to deliver machines and develop new manufacturing techniques. As timeliness is extremely important to Hugo Boss value chain, services are characterized by fast replenishments and ongoing deliveries. Manufacturing After trading partners have placed their orders, Hugo Boss starts to manufacture sample collections developed in the first step of the value chain. As the Germanybased firm grew internationally, new production plants were opened over time therefore delocalizing. Sales & Distribution: Sales and Distribution of Hugo Boss luxury goods are carried out through their established distribution networks. As previously described in the Communication and Distribution Channels of this study, it has to be reminded how independent multi-brand stores have been substituted by the growth of vertically integrated chains characterized by international networks of directly operated stores in luxury. Customer Service: The value chain circle is completed by Hugo Boss attention to its customer service. In the luxury fashion world, customer service historically meant delivering something special to customers. From the moment of purchase, Hugo Boss store operators are trained to gather feedback from their customers in order to improve their service. In 2001, de Chernatony argued that employees play a crucial role as brand builders. Indeed, Nueno and Quelch (1998) highlight the importance of developing a strong customer relationship management cycle. In other words, high levels of customer service impact positively on the point-ofsales system as they bring more contact opportunities with the customers and improve cross-product sales.
28
2.3.4.1 - Innovation in Hugo Boss Value Chain Taking a look at the fashion pipeline from yarn to distribution, we notice the complexity of these mutual-influencing processes. Indeed, whilst the fibre industry is characterised by capital/research intensive approaches, apparel making features labour intensive propositions that go along with innovative perspectives brought from upstream actors of the pipeline industry. Firms successes are tightly related to excellence throughout the fashion industry pipeline. Innovation, cooperation and flexibility are the three pillars on which multinationals like Hugo Boss build their success: Innovation: Innovation processes results are gained through interactive approaches where success is multi factored (Cooper R. G. & Kleinschmidt E. J. (1988)). In 1994, Utterback stated that there is not a linear process, science nor technological dominance guiding innovation, but it qualifies itself as the mutual interaction between internal and external companys factors. Unlike the past, Hugo Boss development drives have moved focus on the combined effect of technological efforts and customer-oriented practices. Thus, the major advantage is the ability to avoid product shortsightedness, focusing the customer value proposition on each of the elements composing the business model. Research and development expenses within the Hugo Boss Group amounted to 49 millions in 2008. These costs are split among the Operational Technical Development center and the Technology & Service center. Cooperation is a must. Cooperating firms can avoid duplication of effort allowing some savings in terms of money12. Thus, physical proximity qualifies itself as an important factor boosting innovation. For instance, Hugo Boss recently opened new offices in Ticino, Switzerland. This choice was driven by the necessity of being located near an important fashion district, in this case 12 Assuming that research costs are the same for both firms, a formula is given by the research cost function: r(xi) = x2i/2, i = 1,2. If the R&D intensity is xi = 10, then the research budget r(xi) = 102/2 = $50. If the R&D intensity doubles to xi = 20, the budgetary expense climbs to 202/2 = $200. A doubling of R&D effort therefore leads to a quadrupling of the R&D cost. Pepall et. al., (2008)
29
the Milan metropolitan area, yet exploiting Swiss legislation in order to get some cost advantages. At Hugo Boss, cooperation means also strong-tie relationships with its technology partners and its large network of key suppliers in order to develop technological knowledge and competences able to foster innovation in material quality. Managing complexity is a problem that can be better addressed by smallmedium size companies as they can exploit their flexibility to be more reactive to environmental changes. It has already been mentioned that success has different facets and the ability to combine them together is the key to manage large organizations in high-velocity changing markets. Having adopted a global strategy that takes into consideration geographical differences and adopts accordingly to them, Hugo Boss is able to integrate all its value chain activities into a smooth flow. Toward this extent, the company implemented the Columbus Project. It consists of the development of software like SAP to monitor and optimize all the value chain activities and processes.
30
2.4 - Hugo Boss Internationalization Process

Established in Germany, Hugo Boss has grown as a Premium luxury brand firstly in Western Europe and throughout the world at a later stage. The dynamics of fashion and globalization pushed Hugo Boss towards the exploration of new unexploited markets. The following figure shows Hugo Boss global presence according to the data reported in its 2008 report:
Fig. 7 Hugo Boss Global Presence
There are different reasons why firms enter foreign markets: resource seeking, market seeking, labor seeking, knowledge seeking and competition matching. Starting its internationalization process, Hugo Boss mainly sought market opportunities and low labor costs. In order to control its growth path, Hugo Boss adopted a global strategy. Bartlett and Ghoshal (1998) advanced four different strategies a firm can adopt while growing internationally: multidomestic, global, international and
31
transnational. In order to understand why Hugo Boss opted for a global approach, a brief description of the main features of each one of these strategies is provided:
Tab. 7 International Growth Paths
Type
Time Period
Decision Making Decentralized Centralized Local
Main Advantage responsiveness Cost efficiency through
Subsidiaries Management Subsidiaries independency Subsidiaries dependency firm
Multidomestic Pre-war period Global Seventies Eighties
economy of scale from parent International Fifties Sixties Only core competences centralized Transnational Current trend Integrated and Interdependent Efficiency & Responsiveness Transfer of knowledge Subsidiaries dependency from parent firm Interdependen cy among subsidiaries which can act as CoE13
Source: Bartlett, C. A. & Ghoshal, S. (1998) Managing Across Borders: The Transnational Solution, Harvard Business School Press.
13 It stands for Center of Excellence. It is a subsidiary which may allow the beginning of a second phase on internationalization for a multinational company as it carries out the same activities of the parent firm.
32
The multidomestic approach qualifies itself as the right opposite of the global approach. While a global approach allows firms to exploit experience curve effects, a multidomestic approach is better suited to meet customized demands as it can count on a higher degree of local responsiveness. Thus, while a global approach lacks local responsiveness, a multidomestic approach fails to exploit experience curve effects. In the end, these two approaches both exhibit advantages and disadvantages. Therefore, in order to address these two models drawbacks, the transnational approach was created. It is an integrated network of firms where knowledge is transferred from headquarters to subsidiaries and vice versa. Nonetheless it allows combining together both the advantages of the two older models discussed above. Then, the question would be Why did Hugo Boss opt for a global approach and not one of the others? The answer is linked to the need for brand consistency. It is true that the main advantage of implementing a global strategy is efficiency due to centralized activities. It is also true that the decision to implement a global strategy for a luxury fashion multinational is forced by the importance of implementing a consistent brand image throughout its customer portfolio. In order to do this, Hugo Boss observed that the main dimension to focus on was efficiency. In the following figure, the X axis represents the degree of adaptation which is higher in multidomestic and transnational approaches than in international and global ones. The Y axis refers to the degree of efficiency which is higher in global and transnational strategies than in international and multidomestic ones:
33
Fig. 8 Adaptation & Efficiency Trade offs for Multinational Firms
Global Strategy
Transnational Strategy
International Strategy
Multidomestic Strategy
Source: International Management, Professor Ciabuschi, class material
This is consistent with the tightly monitored subsidiaries of the global approach proposed by Bartlett and Ghoshal and it also reflects the centralized way in which things are done in Germany. In fact, German tradition and cultural values have played an important role in defining Hugo Boss style. It is worth mentioning though, that a slightly different variant of this model has been applied within Hugo Boss. Indeed, the German firm has always kept an eye on the differences in its markets with the aim to provide a sales strategy able to suit them. After all, in order to treat everybody equally, you have to treat them differently. Along with this, global sales are organized in three main regions: Europe, USA and Asia/Pacific. Consequentially, a regional director has been assigned to each of them. In the last two decades, the German brand focused its attention on spreading its customer base. As reported in figure nine, more investments have been approved in
34
North America, Asia and Eastern Europe as the growth rate of these markets is higher than Western Europes14:
Fig. 9 Hugo Boss Investments Over Time
While sales in the US reached an increment of 12% in 2008, China is the main focus for the future and the long-term aim is to increase to 50% the total shares of sales outside the European continent according to what is described in the next figure. This mid-term target is shown in the figure below:
14 In 2008 the organization for Economic Cooperation and Development (OECD) reported the following growth rate: China 9%, India 7.3% and Europe 3.2%.
35
Fig. 10 Hugo Boss Mid-Term Sales Target
Considering the importance of non-European markets in Hugo Boss future strategy, the next section of this study will respectively provide an analysis of the American, Chinese and Indian luxury fashion markets.
36
2.4.1 - American Dream

Geographically isolated from Europe and without any particular tradition recalling aristocratic values, the Made in USA was associated with concepts such as assembly lines and mass-production in its early clothing-industry development stage. Only during the roaring twenties15 new retail approaches developed opening the market to luxury goods and their consumption. Nowadays, the majority of US consumers tend to buy products which embed an American style. Neither Italian excellence, nor French creativity is the main driver of Americas consumption patterns. Brands whose origins incorporate American values are the ones most likely to build a positive image in customers minds. Considering this brief description of the American luxury fashion market, it is straightforward to question how Hugo Boss, a German brand, is able to deliver what customers want in the US. Although the United States suffered the blast of the international economic crisis which exploded in 2007 more than other developed countries, Hugo Boss America registered a positive variation in its sales percentage. This result is given by the combination of different socio-economic trends which affect the American society. Following is an analysis of these variables: Higher incomes than in the past: As shown in figure 12, households now dispose of more money to satisfy their desires with luxury goods. The rich are getting richer and according to Leonhardt (1997), these people have experienced a 21% growth in their income since 1980.
15 Era of economic prosperity driven by the US and later spread in Europe with the name of Golden Twenties. It brought new consumer goods in a new dynamic society. It ended with the Black Tuesday in 1929.
37
Fig. 11 Per Capita Growing American Household Income
Source: US Census Bureau
Since some of these households are characterized by totally different tastes in comparison with the other people belonging to the same consumption category, it is likely to observe the development of market niches that can be better satisfied by luxury fashion firms. Increased home equity: Low mortgage rates combined with home
ownership fostered the spread of wealth among American householders. Indeed, the compounded effect of the abovementioned variables confers consumers more money to spend on luxury and non-luxury goods. Low-cost retailers: Consumers have more money to spend as retailers of mass proportions like Costco or Wal-Mart offer the lowest prices on the market. They therefore have their margins reduced and this translates into more financial resources to purchase other goods such as luxury ones. Businesswomen: The US Census Bureau reported that the number of married working women increased from 30% to 62% in a period of time estimated between 1960 and the new millennium. In 2010 this percentage in even higher and women are also covering companies prestigious executive positions. Indeed these jobs traditionally tend to be a mans
38
prerogative and it is even more impressive that, nowadays, a quarter of married women earn more than their masculine counterpart. Changes in the family structure: Another important trend to observe is how people tend to get married later in their life in comparison with past traditions. US Census Bureau data show that the average age of marriage was around 21 years in 1970. In the new millennium the same source reports that this age has risen to 25 years. Young people are more willing to experience the world and more young people want to do it alone. This choice allows them to save more money to dedicate to ones own satisfaction. Increase in the number of divorces: In almost twenty years from 1973 to 1995 the likelihood for a marriage to end in divorce rose from 20% to 33%. When a divorce occurs, peoples consumption changes totally. More money is invested on personal care to change ones own self-image. For example, after a divorce, it has been proved that women tend to spend more on shoes, often satisfying their need of newness with an expensive luxury good. Higher education: The current American society shows higher educated, open-minded and adventurous individuals than in the past. This new era is reflected in the eleven million Americans who took a trip to Europe in 2000 against only three million in 1970. Exposing themselves to new sets of stimuli, Americans are developing more complex tastes that, more often, are met by sophisticated goods such as luxury ones. Emotional awareness: Todays consumers are pushed by media and more generally by the world they live in to think that luxury goods can help them in managing their emotional status and get them through their everyday lives. Indeed, the need to establish and deepen relationships as well as the need to individuate ones own style can be satisfied by using luxury goods to improve the expression of the self.
39
After having considered the salient aspects characterizing American society, it is possible to define some strategic points to focus on in order to develop the luxury fashion industry in the United States. Customers as experts: Consumers tend to consider themselves knowledgeable about the product they are going to buy. They more often show interest in products technicalities and are careful about brand heritage that has to be therefore enhanced through ad-hoc policies by luxury firms. Positive elasticity of demand through ongoing innovations: It can be pursued as long as the luxury product provides technical, functional and emotional benefits to the buyer. Thus, a luxury product cannot be obsolete and it must always show innovative features. Accordingly, these products will be able to differentiate themselves from their competitors. Customer Relationship Management: Ongoing feedback from early adopters is necessary to improve future action plans. Core customers have to be maintained loyal to the brand as they provide the first source of postpurchase feedback and contribute to enhance ones own brand image through positive word-of-mouth. In the end, it can be said that even though it is true that the majority of people in the US buy brands incorporating mainly American values, new levels of openness are influencing the traditional consumption patterns. The economic recession is just a short-term trend overwhelmed by other socio-economic long-term trends such as the ones described above. Multinational companies like Hugo Boss have to be proactive in meeting these favorable trends towards the spread of luxury goods. Frequent feedback and tight customer relationships are the means on which it is possible to build ones company brand heritage strength and earn higher margins through the sale of high-quality and exclusive products.
40
2.4.2 - Chinese Expansion Hugo Boss decided to spread its production and some operations to the Asian continent. In order to understand where the luxury fashion multinational is moving, a brief description of the Chinese economy is presented. The pioneers who firstly expanded their activities in East Asia were looking for low-cost production advantages. None of them had thought that this ongoing process would have led to an uncontrolled increase in local consumption up to the point of fostering incredible growth levels for emerging countries such as China. The Flying Geese model explains this. Firstly developed by Akamatsu Kaname (1935), it has been afterwards revisited by numerous researchers. Kojima Kiyoshi, 2000, in his article The flying geese model of Asian economic development points out how technology spreads directly from developed countries to follower ones through the delocalization of production. In figure 12 a visual explanation of the model and its potential implications in the long run is proposed: Fig. 12 Flying Geese Model
41
This model has been applied to describe the two-phase process which led to tremendous changes in the clothing industry as we currently know it. The first phase takes place during the fifties and sixties and has Japan, US and Germany as its main actors starting their internationalization growth paths in Hong Kong, Taiwan and South Korea16. In order to give a sense of the FDI17 of the three industrialized countries listed above, it is worth looking at the following data: Hong Kongs exports increased by 365% in ten years from 1980 to 199018. Losing their low labor-costs attractiveness, Hong Kong, Taiwan and South Korea became important hubs from which the second phase described by the Flying Geese model started. Among the new actors, Malaysia, Vietnam, the Philippines and Thailand, China took the lead of the Asian economic growth. Today China has the monopoly of world silk production and it has become the pole which luxury fashion multinationals look at.
16 S.R. Khanna, Structural Changes in Asian Textile and Clothing Industries: The Second Migration of Production, Textile Outlook International, Economist Intelligence Unit, September, 1993. 17 Foreign direct investment 18 GATT, International Trade, 1992
42
2.4.2.1 - Success Factors of Luxury Brands in China

The Chinese market is characterized by a high degree of complexity where consumers show different consumption attitudes and power accordingly to their values and lifestyle. Saviolo (2007) argues how there are two main factors worth considering in order to understand Chinese luxury consumption : Display Brand consciousness vs. Brand awareness Whilst in Western countries luxury is becoming more intimate, Chinese consumers are more eager to display their wealth. Indeed, Chinese culture promotes expressions of personal achievement and success. Tse (1996) argued that the more individuals show-off in China, the more peers of the same social class tend to experience the need to behave accordingly. Thus, showing-off seems to be the main current driver of Chinese luxury good consumption. However, it is important to consider how customer behavior changes over time since China is developing and it is not a static economy but a dynamic one. In China, luxury consumers possess brand consciousness but low brand awareness. In other words, they are not able to distinguish between American or European luxury brands. This negatively affects multinationals whose brand image is strong and it could be exploited by expanding into new markets to start new internationalization patterns. In order to make up for this brand confusion, firms operating in the luxury fashion industry have to highly invest in advertising. Currently, the general rule to invest to spread brand awareness in China is the more you spend, the more successful you are. Brands like Zegna and Louis Vuitton entered the Chinese market in the early nineties of the past century gaining a sort of first mover advantage. Considering these two assumptions, there are five general aspects to look at in order to be successful in the current Chinese luxury-clothing industry:
19

43
Location is critical to build awareness: While advertising on lifestyle magazines is essential in well-developed countries, this is not widely diffused in the Chinese luxury market. Of course it will be an important step in the next phases of the luxury market development, but up to now, visibility through Hugo Boss directly operated stores is the crucial mean to build brand awareness where missing. Brand image has to be built on cultural values and lifestyle: In order to build a positive brand image which lasts over time, luxury companies such as Hugo Boss are called to associate their products to one countrys cultural values and lifestyle. Indeed, an effective way to impact on the Chinese society is planning exhibitions and events able to show the historical heritage of the luxury firm. Retailing is the mean to create brand experience: As competition increases, the importance of retailing in the emerging Chinese luxury market is highlighted. Well-planned retail experiences able to confer a sense of uniqueness to the customer are the key to communicate successful value propositions and build intimate long-term relationships. For this reason, retail academies are a reality in emerging countries in order to train employees towards CRM approaches in the luxury fashion industry. DOS portfolio: Managing the number of directly operated stores recently opened in China is a focal point for brand image improvement. Luxury fashion firms need to have a clear understanding of the development status of their strategies, their markets and their customers needs. It is only when this analysis has been carried out that firms can efficiently decide on the number of directly operated stores which should be opened. Substantially, everything depends on a deep cost-benefit analysis whose variables are moving in a highchange context. Costumer profile: China is one of the few countries were men consume more luxury goods than women. Consumers also tend to be young with the majority of them in their thirties20. Hugo Boss can exploit this demographic trend as its image is mainly associated to power and masculinity.
20Source: http://www.time.com/time/magazine/article/0,9171,1647228,00.html
44
2.4.3 - Indian Horizons

In 2006, Fareed highlighting how India, member of BRIC, is challenging Chinas growth with its disorganized yet high-velocity changing market. In 2003, Wilson and Pusushothaman categorized India as the twelfth economic power in the world. This position is bound to change and India will be the third largest economy in the world by 2050 as Goldman Sachs researches predict. Indian society is built around young people: 65% of the total population still has to turn 26 (Populier, A (2006)). According to Ravindranathan (2007), two hundred million Indians speak English and, as stated by the Internet and Mobile Association of India in 2006, almost twelve million are Internet users. Skilled and low-cost workers make India the New Silicon Valley. As a result, India gives opportunity to over a hundred Fortune500 companies to establish their research and development activities there. An attractive country for multinational firms eager to expand internationally, it is now also tempting when it comes to luxury. If luxury fashion consumers in China embrace a show-off attitude toward luxury goods typical of the early stage of their consumption, the Hindustan Times Luxury Conference in 2007 describes the concept of luxury in India as even younger than the Chinese one, something that just entered Indians lives and is definitely there to stay. In 2004, McKinsey and Company reports the size of the Indian luxury market at $454 million. However, there were some constraints that, until few years ago, multinational brands like Hugo Boss faced as they entered the Indian market: Compatibility with the Western lifestyle: As said, the luxury fashion market is relatively young and not everybody who can afford to spend a great deal of money on one luxury good was willing to adopt a Western brand. Custom duty fees: Up to 2005, tariffs for multinationals eager to export their product in India were up to an average of 33%. This led to the dilemma of reflecting these additional costs on customers or not. Missing infrastructures: Various Indian realities coexisted in an inadequate environment often missing established and working communication avenues.
45
Lack of direct control on distribution: Up to 2006, Indian law prevented multinational companies investing in India to gain a majority stake which would have allowed them to directly control their own distribution network.
Even though some of these problems still linger today, a great deal of work has been done to address them. In 2006, Indian law established that the majority of stake can be gained through collaboration with local businesses. This decision positively influenced the amount of money invested by multinational firms in India. Indeed, they could finally directly monitor their own distribution chain. It has been argued how important this is in order to develop a solid and respectful brand image in countries that just went to know what luxury is. Contemporaneously, taxes to export luxury goods in India were decreased to a 12.5% value added tax. The combined effect of these two Indian laws paved the way to increase foreign direct investments in Indian retail. A direct consequence has been the indirect growth of Indian infrastructures. As communication channels improve, the shopping malls networks get wider. Sharma (2007) highlighted how more than 600 malls are going to open in the upcoming years in India. However, the shop-in-shop formula could not always reveal itself as the best option to promote ones company offer. Independent brand stores can better answer the need for visibility and retail space than the shop-in-shop alternative. However, even though India is part of the so-called BRIC and multinationals might be tempted to venture in this young luxury market, there are some crucial factors that influenced Hugo Boss choice to slow down its expansion in India. Currently, the abilities to deal with Indian bureaucracy, to take advantage of partnerships with local businesses, to choose the right location and form to distribute and make visible ones own product offer to the Indian audience might require extremely high investments to match an extremely complex market. Therefore, timeliness to enter the Indian market appears as the main variable for Hugo Boss. Indeed, even if foreign direct investments have been allowed since 2006, the German brand mainly holds distribution offices in India. Through this strategy, Hugo Boss provides its offers to local retailers and accurately select where its next directly operated store is going to be run. More information that is
46
crucial to succeed in such a young market can be collected in this way and second mover advantages can be gained on the Indian infrastructures.
47
3 - APPLIED STRATEGIC MODELS

3.2 - Hugo Boss SWOT Analysis
The following graphical representation of Hugo Bosss SWOT analysis anticipates the detailed description of each of its components and the relation between StrengthsWeaknesses and Opportunities-Threats.
Strengths
- Worldwide presence - Wide range of products - Effective distribution channels - Sustainable practices
Weaknesses
- Low brand awareness in emerging markets - 2008 debt due to increases in investments
Opportunities
- Expansion in emerging markets - E-retailing
- Strong brand image recognition in established markets - 330 directly operated stores and over 1000 franchise stores - Social networks & Online sales - Internationalization process in developing countries - R&D activities - Differentiation focus strategy - Established markets - Outsourced activities
- Spread brand awareness through advertising campaigns in emerging markets - Increase logistic capacity - Increase the number of shops
Threats
- Negative spillover effects - Brand image inconsistencies
- Future goals do not match current brand image21 - Consumers buying power might be lowered by economic recession - Euros appreciation - Overload of information combined to less time at customers disposal
Threats Adam Smith said: The world is flat22. Sectors are more interconnected than in the 21Matthiesen,I.&Pau,I.(2005)
48
past and this translates into negative and positive externalities. Thus, when one sector suffers a crisis, it is likely that it will be spread to other sectors too ending up in an overall economic recession. Negative effects spill from one sector to another: increases in the energy sector price affect agricultural products and therefore the necessary raw materials for the textile industries. A vicious cycle is easily formed and this finally results in significant private consumption drops. Moreover, the differentiation focus strategy implemented by Hugo Boss pushes the company to differentiate even more over time to broaden its customer base. This strategy reflects Hugo Boss future goals but there is no alignment between them and the current brand image in some countries. For instance, research has shown that Hugo Boss is still seen mainly as a manly brand in Australia even though the corporate goal is to broaden their brand image perception (Matthiesen, I. & Pau, I. (2005)). Lastly, there might be the temptation for Hugo Boss to partly outsource its activities. This might imply some cost advantages but at the same time it means a loss of control over activities that are an integral part of the value chain and are the base for developing a competitive advantage within a differentiation focus strategy. Opportunities While Western Europe is facing a difficult economic situation, other markets such as Eastern Europe, India and China have been proved to be very dynamic during the past years. In the interaction pattern between market growth and market share developed by the Boston Consulting Group, these markets mostly occupy the position of question marks. Indeed, their penetration is relatively recent and only who entered those markets in the early nineties is starting to make profit and sees his or her business as a little Star characterized by both high market growth and share. In order to make this transition occur, multinational companies operating in the luxury fashion industry are called to spend heavily in advertising in order to spread their brand awareness. Once they will get to the Star stage, they will benefit of experience curves which reduce costs over time. Not only the physical world is changing but also the IT sector has merged with other globalization trends. Social Networks qualify themselves as a potential mean to spread brand awareness and 22Smith,A.(1776)
49
enhance brand image. Nonetheless, e-retailing is spreading as a differentiation alternative to integrate the physical retail experience for customers. Even though it is more difficult to sell a luxury good on the web because they usually require major emotional involvement, the great growth potential of e-retailing is pushing companies towards planning and investing more on e-boutique environments and experiences. Strengths Hugo Boss has a wide product range: menswear, womenswear, accessories, fragrances, eyewear and shoes. If you have a good product, this does not automatically imply success. Hugo Boss knows this and it built a strong and effective distribution channel in its established markets and it is also aiming to develop its distribution policies in emerging markets. The Germany-based company can count on a worldwide presence with its 330 directly operated stores and over 1000 franchise stores. Fig. 13 Hugo Boss Distribution Channel
The implementation and development of Hugo Boss distribution policies contributed to positive sales trends in 2008. Here is a figure describing sales evolution of the German brands during the same year:
50
Fig. 14 Hugo Boss Sales Evolution Over 2008
Moreover, Hugo Boss has established a strong brand image in its already developed markets. Another strength Hugo Boss possesses is related to its R&D activities that confer the company an ongoing stream of new technology to lower cost of production and new man-made fibres to fulfil their mission of delivering high innovative products. This is possible only through tight cooperation with suppliers and scouting in other sectors to foster the innovation potential. Last but not least, Hugo Boss shows high care for sustainable practices consequentially meeting current and future market trends towards social responsibility. Weaknesses The Euros appreciation negatively influenced European tourism in 2008 and more generally in the last years. Looking at the following data, it is possible to observe Euro exchange rates with countries where Hugo Boss operates from 2007 to 2008:
51
Fig. 15 Euro Exchange Rates Over 2007/2008
Another weakness is related to the need for high investments in emerging countries since there is spread brand consciousness but low brand awareness. In emerging markets whoever investing more in visibility and advertising to create a strong brand image in customers minds is going to take the lead in the long run. Indeed, brand awareness influences purchase decisions by impacting on consumers perceptions (Alba, J. et al. (1991)). Therefore, consumers behave according to the knowledge they possess (Engel, J. F., Blackwell, R. D & Miniard, P. W. (1993)). As regards established markets, it has been observed how customers are victims of information overload and lower time at their disposal. This has to be a stimulus to deliver more effective and efficient messages to customers.
SWOT Analysis Assessment SW Internal Analysis Hugo Bosss strong brand in established markets, low brand recognition is opposed in emerging markets. Thus it is worth highlighting that Hugo Boss has to deal with brand inconsistency problems as it is not easy to maintain the same worldwide image for a multinational company. This is especially the case of luxury fashion firms whose
52
success is in good part based on their image. In order to overcome these issues, communication plans have to be drawn so that customers are reached with effective and efficient information. These plans are constantly supported by the latest innovations in terms of processes and products. Indeed, research and development activities play a proactive role in contributing to the companys success in both established and emerging markets. OT External Analysis Economic crises are just temporary and cyclic events however their negative effect can be mediated by the companys strategies. In this sense, Hugo Boss aims to exploit positive environmental trends. Most recently, one of these trends can be summarized in the internalization processes which are based on the individuation of new customer segments whose luxury needs are unfulfilled in emerging markets. Here, regulation policies are sometimes hard to deal with because of the presence of information asymmetry. The SWOT analysis represents a valid tool to highlight important aspects on Hugo Bosss strategy. However, its results must be read together with the findings of Porters Five Forces Model presented in the following section in order to lower the degree of subjectivity.
53
3.1 - Porters Five Forces Model

The following analysis has been elaborated considering both established and emerging luxury fashion markets in which Hugo Boss operates. That is because there are important differences between the two in terms of customer needs. An analysis focusing on the Chinese markets growth considered as a symbol of emerging markets is presented. Bargaining power of suppliers Established markets: High switching costs of suppliers Medium/low availability of substitute inputs No threat of forward integration
Traditional relationships between luxury firms and suppliers are ruled by mutual trust and reliability. For this reason it is evident how suppliers switching costs in the luxury fashion industry might be higher than in other industries. However, since Hugo Boss is an innovation boosting firm throughout its value chain, it can count on a wide network of suppliers and it is always looking for new partnerships through scouting in other sectors. There are two kinds of fibres in the fashion industry: natural and man-made. The main advantage characterising man-made fibres is related to their possibility of exploiting economies of scale. Man-made fibres are not scarce resources as they are not subject to any availability constraint. It is therefore straightforward to understand the importance of having different and innovative suppliers to scoop competition.
Emerging markets: High switching costs of suppliers Medium/low availability of substitute inputs No threat of forward integration
54
There are no big changes for Hugo Boss considering its relationships with suppliers within developing countries. After all, the Germany-based brand shows the same commitment to deliver its quality all over the world. Barriers to Entry Established markets: High capital requirements High learning curve advantages High product differentiation
Barriers to entry in the luxury fashion industry are very high. High investments throughout the value chain are needed in order to deliver the quality customers expect. For example, designers contribution, raw materials and distribution channel-related expenses can be prohibitive for the majority. Moreover, it is hard to build a new strong brand image because of the already existing established brands that can exploit their heritage and history to make the cut. For the abovementioned reasons Hugo Boss does not have to fear new entrants in the premium segment of the luxury fashion industry. Emerging markets: High costs to build brand awareness
Barriers to entry are lower in established markets than in emerging markets. According to the theory proposed by Maslow (1943), luxury-related needs enter developing countries later than commodity-related needs. Barriers to entry are often and mainly linked to an industrys life stage. Being among the first luxury fashion companies to enter China in 1995, Hugo Boss is now gaining profits from its investments. At the time though, Hugo Boss could not count on the same high barriers to entry characterizing the already established markets where it runs its activities. The main reason is that Chinese consumers had good brand consciousness and low brand awareness as previously discussed in this study. In other words, whoever would have taken the first move in terms of retail openings and aggressive advertising, would have gained a first mover advantage in a long-term perspective and would also have
55
avoided the barriers to entry increasing over time. Bargaining Power of Buyers Established markets Medium/low price sensitivity as brand identity is established Medium switching costs
According to luxury industry general trends, Hugo Boss customers are mainly characterized by low price sensitivity. This is lowered by the customers perception of brand quality and image following the rule the higher the quality and brand image are, the lower price sensitivity is. Knowing this, luxury firms anticipate their customers behavior and set high prices reflecting their product quality. Of course, the emotional side of customer shopping experiences is amplified and brand image is transferred to buyers who incorporate the shared values just purchased with the product. Emerging markets High price sensitivity as brand identity is not established Low switching costs
In developing countries, price sensitivity is decreasing but it is still higher than in established markets. Moreover, buyers switching costs are lower as brand images awareness is still spreading. However, Hugo Bosss prices remain as high as the ones in established markets as it contributes to form a strong association between product quality and price. This creates a victorious circle that solves brands image awareness issues within a long-term strategy Threats of substitutes Established markets Medium/low buyer propensity to substitute
56
Substitution is a remote option for the majority of buyers of the Hugo Boss brand. This is where the importance of brand image stems from: it enhances loyalty and avoids threats of substitutes. These threats may present different prices accordingly to the luxury competitive model they are in. An example of a substitute with a higher price than Hugo Boss would be Gucci and one with a lower price would be Diesel. In both cases customers stylish preferences and loyalty have to be taken into account. Emerging markets Medium/high buyer propensity to substitute
In the early phases of the luxury fashion industry development, substitution might be theoretically higher than in established markets. However, in the early phases it is hard to find substitutes, as there are not many competitors daring to start investments in an emerging market such as China during the mid nineties. These potential substitutes will become latecomers who will lose the so-called first-mover benefits. Rivalry and Industry Competitiveness Established markets Low industry growth High brand identity High product differentiation Diverse and numerous competitors
The luxury fashion industry is in its maturity life stage. New entrants do not have space to successfully run their activities as fierce competition is already established in the market. Incumbents brand image and identity are hardly imitable for newcomers. Hugo Boss qualifies itself as one of the major players in the Premium sector of the luxury fashion industry and it is striving to broaden its customer base while building customers loyalty through customer relationship management practices.
57
Emerging markets High industry growth Low brand identity Medium/low product differentiation Small number of competitors
Baby luxury markets present a lower degree of rivalry than established ones. However, firms able to foresee high levels of growth are usually willing to commit a higher percentage of resources in comparison to established markets in order to prevent competition to enter later stages of development.
Industry Attractiveness The bargaining power of suppliers is broadly the same in both established and emerging markets and it specifically depends on ones firm to be able to create a differentiated network of partners to collaborate with. This allows companies operating in the luxury fashion industry to get the necessary inputs to deliver customers expected quality. At the same time, this is not easy to develop. Barriers to entry are generally higher in established markets than in emerging ones. However, in both realities it seems the market is bound to be split among those companies who have financial resources and, most important, brand heritage to keep up with competitors. At the same time, switching costs and their related influence on the power of buyers and buyers propensity towards substitutes are positively correlated to Hugo Bosss customers loyalty. This shows higher values in established markets than in emerging ones. Rivalry and industry competitiveness is higher in established markets as they have a low industry growth. Indeed, where the luxury fashion industry is still in its first stages of its development, low brand awareness implies a small number of competitors which are striving to spread their brand image.
58
Implications from the overall assumptions bring this study to assess the overall degree of industry attractiveness as low. With regard to established markets and their incumbents, Internet qualifies itself as the future to boost an industry with too many players and a low growth rate. Instead, with respect to both types of markets, financial resources are not the main variable which denies the entrance to new potential companies. Unique values and emotions communicated by established brands seem to be the hardest assets to be imitated and the crucial point on which success is built.
59
3.3 - Financial Analysis

In 2008, Hugo Boss reported financial results that confirmed its best year in its history. However, restructuring activities (mostly concerning the Managing Board) pushed Net Income toward a recession in comparison with fiscal year 2007. The Hugo Boss financial analysis starts observing trends in the Income Statement, then it focuses on the data reported within the Balance Sheet and it concludes with comments regarding the Cash Flow Statement. Financial ratios are also considered and justified as integration of the analysis.
Income Statement
Group sales were affected by a positive variation of 3% from 2007 incrementing to 1,686.1. Since Gross Profit is determined by Sales minus Cost
60
of materials including changes in inventories, the elimination of some inventories lowered the value of Gross Profit. However, Gross Profit 2008 is higher than in 2007. This is so due to three main factors: incremented sales, the optimization of production processes and last but not least the weakness of the U.S. dollar in respect to the Asian market. Other net operating income and expenses were characterized by two main changes. The first one refers to the positive impact of the lease agreement termination of the DOS on 5th Avenue in New York City. This change also implied a decrement in Depreciation/Amortization from the previous year of operations. The second important change refers to the negative impact of costs related to the opening of 54 new DOS throughout the world. This also influenced Personnel expenses which increased by 18% from 2007. The greater part of these expenses can be attributed to Extraordinary expenses in the organizational structure and more specifically related to changes in the Managing Board. Just like Extraordinary expenses, Earnings before interests and taxes dropped by 14% from 2007. The Net Financial result mainly relies on the augmented interests coming from higher financial debts. Accordingly, a lower Earning before taxes can be observed in comparison with 2007. Due to changes in German law, 2008 taxes were calculated at 25% and not 27% as in 2007. This change impacted positively on the Net income that decreased by a good 27% in comparison with the previous year. Consequently, both common and preferred earnings per share declined in 2008.
61
Balance Sheet Structure
From the 2008 Balance Sheet structure here presented it is possible to observe that total assets increased in comparison to 2007. Although the Assets structure remained almost unchanged, the same cannot be said for Liabilities. The visually noticeable changes are due to the economic downturn (which impacted negatively on the equity market as explained later on the Return-on-equity section of this study) combined with the new investments carried out by Hugo Boss during 2008 through a five-year loan agreement with financial institutions.
Cash Flow Statement
The Cash Flow Statement is reported according to International Accounting Standards 7. In the above table, a situation where the total amount of Cash Flow
62
coming from Operating Activities in 2008 was significantly higher than 2007 is illustrated. The Operating Cash Flow measures cash flows coming directly from a companys core operations. That is in line with the results provided in the section Strengths of the SWOT Analysis regarding Hugo Boss sales positive trends. The Investing Cash Flow increased in 2008 in comparison with the previous year and this is in line with the increase in investments as explained later on during the analysis of the Debt-to-equity ratio. As regards the Financing Cash Flow one must note that although Hugo Boss opened a line of credit with partner banks and paid special dividends to its investors, this cash flow did not show big changes from the previous year. In 2008, the overall change in cash and cash equivalents reports a positive value in comparison with 2007.
63
Ratio analysis
Equity-to-assets The first ratio exhibited above, gives a measure of the shareholders residual claim on the total amount of the company assets in the case of its liquidation. The higher the shareholder equity ratio, the more they might receive from the companys liquidation. Within the Hugo Boss group, a significant percentage decrease has been observed from 2007 to 2008 in terms of Equity-to-assets ratio. This negative variation is due to both increases in the total assets value and decreases in the shareholders equity in 2008. The payment of a special dividend strongly impacted the equity ratio downturn by lowering the share price and therefore the shareholders equity. Debt to equity The debt-to-equity ratio gives an understanding of the percentage of debt and equity that has been used to finance the companys assets. The huge difference registered in 2008 compared to 2007 is due to high investments in research and development, logistic capacity and the effort to increase the number of own retail shops.
64
Fig. 16 Hugo Boss Investments 2008
These investments required the company to open a line of credit to finance its activities. The following figure shows how Hugo Boss capital expenditures have been increasing over time:
Fig. 17 Hugo Boss Investments Overview of The Last Five Years Of Operations
65
Asking for financial help in order to invest is risky as the cost of debt financing might result higher than the potential return of investing money in profitable activities. In the worst scenario, wrong planning leads to bankruptcy and leaves shareholders empty handed. Even though financial markets are not experiencing an easy period, partner banks seem to trust Hugo Boss and its strategic development therefore conceding their valuable cooperation. Return on equity This ratio reveals Hugo Boss profitability. In other words, it describes the profits gained on each dollar invested by the German firm. The positive increase of ROE is linked to the lower values in terms of Net Income and Shareholders equity registered in 2008 in comparison with 2007. Actually, a positive increase of ROE due to a decrease in the abovementioned values is only possible when the Shareholders equity is lower than Net Income. That is what happened to Hugo Boss and the following figure shows the drop in common and preferred share price performance within the luxury fashion multinational in 2008:
Fig. 18 Hugo Boss Share Price Performance
66
Since shareholders equity is linked to the share price performance, it is easy to understand why the formers value suffered a sharp decrease in 2008. The share price performance emerging from the figure above can be generalized to all sectors. This is related to the economic recession which sparked in 2007 in the United States. Therefore, uncertainty and volatility on the equity market negatively influenced DAX and MDAX23.
23DAX is the leading index in Germany and it lost about 40% during 2008. The MDAX is the index where preferred shares are listed and it reported a loss of over 43% in 2008.
67
3.4 - Risk Assessment Analysis

Hugo Boss risk management is focused on analyzing and evaluating both potential external and internal risks. This process is partially transferred to insurance companies through ad-hoc agreement contracts. Risk management follows the frame shown below.
Fig. 19 Hugo Boss Risk Management
External Risks Macroeconomic Risks: Macroeconomic variables negatively influence Hugo Boss sales forecasts. In order to address this issue, Hugo Boss has optimized its processes through the Columbus Project. Nonetheless, internationalization processes reveal themselves as an important strategy to spread the risk on geographical areas which are far away from each other and therefore should be less affected by negative spillover effects of an economic recession. This choice of expansion might imply some country-related risks. However, it is necessary to point out that most of the countries in which Hugo Boss operates are characterized by either stable or growing economic realities. This leads us to the conclusion that this risk should be considered irrelevant.
68
Sector risks: These kinds of risks are an integral part of the luxury fashion business, especially in todays fast changing world. There is a need to be extremely accurate in examining future trends and develop new collections accordingly. In order to cope with this type of risk, Hugo Boss exploits the synergies of multiple design teams and in-depth qualitative analysis of its target customers.
Environmental risks: It is also important not to underestimate the likelihood of environmental catastrophes. For instance, the Turkish Hugo Boss production site is positioned on an active seismic area. Relocation possibilities were considered but in order to keep gaining advantages from their positioning in Turkey, the Hugo Boss Group transferred as much risk as possible to insurance companies.
Internal Risks Strategic risks: Since Hugo Boss positive financial performance is tied to its brand image, consistency all over the world is needed. In order to ensure high levels of consistency, a centralized management approach coordinates all the relevant decisions concerning the core of Hugo Boss. This type of system, which is coherent with a global strategy in the Germany-based firm internationalization process, reduces the related Investment & Cost Risks. Indeed, when the parent firm tightly controls core activities, it is easier to keep up with a homogeneous worldwide brand image. Therefore, market and customers responses to Hugo Boss activities have to be collected and analysed. Moreover, product quality has to be constantly monitored while quality standards have to be strictly met throughout the value chain.
Financial Risks: Variations in degree of liquidity, interest and currency exchange rates are part of the game. In order to address the solvency issue, a three-year financial plan is integrated through monthly liquidity plans.
69
Furthermore, this risk is reduced by the opening of a line of credit which ensures financial flexibility to the company. However, this implies interest rates which might change over time. A team of analysts continuously monitor these changes using derivative financial instruments. The risks related to exchange rates have already been discussed in the Weaknesses section of the SWOT analysis.
Operational Risks Procurement-related Risks: Hugo Boss utilizes high quality materials for which suppliers play an extremely important role. In order to reduce procurement-related risks, Hugo Boss depends on different suppliers who have to be respectful of the companys social standards and sustainability plan. Adopting this policy, Hugo Boss is able to cope with custom fees, bargain with suppliers and trade limitations. All the materials are then stored in a few locations to control costs and centralize their management and consequentially avoid inventory risks. Sales Risks: Hugo Boss always strives to keep high levels of loyalty among its customer base. Considering its global presence and the ongoing research for entering new markets, this kind of risk seems to be low and mostly influenced by the economic downturn. Bad Debt Risks: The Hugo Boss internal audit department controls the extent to which bad debts are characterized by a significant degree of danger. Risk levels are positively influenced by macroeconomic variables and therefore a higher risk in terms of bad debts is expected in the imminent future.
Organizational Risks IT Risks: Hugo Boss adopted multi-level security systems in order to avoid information technology-related risks. As every day new IT risks may arise, it is hard to assess their constant relevance within Hugo Boss.
70
Legal Risks: Since these risks are too dangerous and too delicate to be treated by the different subsidiaries, it is up to the central firm in Metzingen to regulate the legal aspects of operations. This centralization has been proved to be effective and therefore legal risks are low. For the same reason, liability risks are also low. Personnel Risks: Risks related to personnel may arise from employee management processes. Hugo Boss has training programs to educate employees according to its corporate culture and to reduce the risk of failures in its hiring processes.
71
CONCLUSIONS In todays developed countries, consumption is moving from material to immaterial goods. Major symptoms of these trends are the greater parts of income channelled into education, travel, body care and entertainment. Consumers are currently asking for material goods whose core is represented by the unique relationship they can offer through status-conferring characteristics which is hard to find in the product surface. Brand has clearly become the real adding-value aspect for customers and is increasingly becoming a symbol of quality. Moreover, the fashion industry is one of those sectors where the immaterial side of product has been exalted the most: brand and innovation content have always prevailed on the mere qualitative aspect of products. Therefore, the greatest challenge is to keep worldwide brand consistency to exploit brand heritage and history. Considering all the differences between emerging and established markets, the analysis shows the difficulties multinationals such as Hugo Boss face in planning strategies aiming to achieve both local responsiveness and global efficiency. Indeed, this result is even more complicated to achieve within the luxury fashion industry because of the tight correlation between fashion and societal culture. As multinationals are striving to increment their businesses through investments in emerging countries, it is of crucial importance to understand environmental trends. Through a global strategy approach open to adapt to geographical differences, Hugo Boss has been successfully implementing internationalization processes in emerging countries. This allows them to make up for the low growth rate of already established markets. Above all strategic risks undermine the Germany-based firm in its quest for the gold. Countermeasures have been adopted and mostly rely on Hugo Bosss innovation practices which are also part of Hugo Bosss customer relationship management. The formula High price for high quality combined with the Hugo Boss brand heritage allows the company to be among the world leaders in its industry where fierce competition characterizes the premium segment of the luxury fashion.
72
REFERENCES
Alba, J. et. al. (1991) Memory and Decision Making, Handbook of Consumer Theory and Research, Prentice Hall, Upper Saddle River, NJ. Aspinall, K. (1997) Long Term Scenarios for the EU Textile and Clothing Industry OETH. Bagwell, I. & Bernheim, B. (1996) Veblen effects in a theory of conspicuous consumption, American Economic Review. Bartlett, C. A. & Ghoshal, S. (1998) Managing Across Borders: The Transnational Solution, Harvard Business School Press. Christensen C. (1997) The Innovators Dilemma, Harvard Business School Press, Cambridge MA. Cooper R. G. & Kleinschmidt E. J. (1988) Resource allocation in the New Product Process, Industrial Marketing Management. Corbellini, E. & Saviolo, S. (2009) Managing Fashion and Luxury Companies, ETAS, Milano. de Chernatony, L (2001) A model for strategically building brands, Journal of Brand Management. de Chernatony, L. et al. (1995) International branding: Demand- or supplydriven opportunity?, International Marketing Review. Dubois, B. & Paternault, C. (1995) Observations: Undertaking the World of International Luxury Brands: The Dream Formula, Journal of Advertising Research. Echikson, W. (1995) Luxury steals back, Fortune. Engel, J. F., Blackwell, R. D & Miniard, P. W. (1993) Consumer Behavior, Harcourt Brace Jovanovich College Publishers, Dryden Press, Orlando, FL. Fareed, Z. (2006) India Rising, Newsweek. Hamel, G. & Prahalad, C. K. (1994) Competing for the future, Harvard Business School Press. Internet and Mobile Association of India (2006) 32 per cent Active Internet Users Rely on the Internet as the Primary Source of Information and for Research, Press Release. Kaname, A. (1935) Wagakuni yomo kogyohin no susei [Trend of Japans wooden product industry], Shogyo Keizai Ronse (Journal of Nagoya Higher Commercial School).
73
Kapferer, J. N. (1997a) Managing luxury brands, The Journal of Brand Management. Keller K. L., (1993), Conceptualising, Measuring and Managing CustomerBased Brand Equity, Journal of Marketing. Keller, K. L. (2003) Brand synthesis: The multidimensionality of brand knowledge, Journal of Consumer Research. Kiyoshi, K. (2000) The `flying geese model of Asian economic development: origin, theoretical extensions, and regional policy implications., Journal of Asian Economics 11: 375-401. Klein, N. (2001) No Logo, Flamingo. Kotler, P. & Keller, K.L. (2006) Marketing Management, 12th edition. Upper Saddle River, NJ: Pearson Education. Leibenstein, H. (1950) Bandwagon, Snob and Veblen Effects in the Theory of Consumers Demand, The Quarterly Journal of Economics. Leonhardt, D. (1997) Two-tier Marketing, Business Week. Mason, R. M. (1981) Conspicuous consumption A Study of Exceptional Consumer Behavior, Gower Publishing Company. Maslow A. (1943) A Theory of Human Motivation, The Psychological Review, vol. 30. Matthiesen, I. & Pau, I. (2005) The Hugo Boss connection: Achieving global brand consistency across countries, Journal of Brand Management. McKinsey Corporation, (1990) The luxury industry: An asset for France, McKinsey, Paris, France. Nueno, J. L. & Quelch J. A., (1998) The Mass Marketing of Luxury, Business Horizons. Pepall L., Richards D., Norman G. (2008) Industrial Organization: Contemporary Theory and Empirical Applications. 4th Ed Blackwell Publishing. Peterson R. A. & Kern, R. M. (1996) Changing Highbrow Taste: From Snob to Omnivore, American Sociological Review. Phau, I. & Prendergast, G. (1998) Asias brand of conspicuous consumption Research Directions, Business and Economics for the 21st Century. Populier, A. (2006) Summit Made in Italy, Agre International. Porter, M. E. (2008) The Five Competitive Forces That Shape Strategy, The Harvard Business Review.
74
Porter, M. E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. Rae, J. (1834) The Sociological Theory of Capital, Macmillan, New York. Ravindranathan, C. P. (2007) English advantage India, The Hindu Business Line. Saviolo, S. (2007), China Strategy for International Luxury Brands, Harvard Business Review China. Sharma R. T. (2007) Luxury Malls to Hit India Soon, Business Standard. Silverstein, M. J. & Fiske, N. (2003) Luxury for the masses, Harvard Business Review. Smith, A. (1776) The Wealth of Nations. Tilley, R. (2001) How to spend it: The worlds luxury goods retailers make East Asia their new battleground, Asia-mc. Tse, D. (1996) Understanding Chinese people as consumers: Past findings and future propositions, in Bond, M. H. (ed.) The Handbook of Chinese Psychology, Oxford University Press, Hong Kong. Utterback J. M. (1994) Mastering the Dynamics of Innovation, Harvard Business School Press, Boston MA. Wilson, D. & Pusushothaman R. (2003) Dreaming with BRICs: The Path to 2050, Global Economics Papers. Ziccardi, D. (2001) Recession-proofing your luxury brand, Brandweek.
75

Luxury Brand Management Hugo Boss

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Luxury Brand Management Hugo Boss

Загружено:

Авторское право:

Доступные форматы

Universit della Svizzera italiana

Faculty of Economics Faculty of Management Sciences

Luxury Brand Management: Hugo Boss Corporate Strategy

Master Thesis Roberto La Rocca 08-986-515 Master in Management

Tables and Figures Index

1 - AN OVERVIEW OF THE FASHION AND LUXURY INDUSTRIES

1.2 The Luxury Fashion Industry

Tab. 1 Competitive Models in The Luxury Fashion Industry

Exclusive Luxury High Fashion

Man, Elegant Woman, Accessories Woman, PAP, Accessories

French luxury brands International Designer

Affirmation of Brand Heritage Imposition of new tendencies

1.3 - Luxury Brand Management

Tab. 2 Retailers Type in The Luxury Fashion Industry

Non Specialized Retailers

Hypermarkets (e.g. Carrefour)

They combine features of supermarkets and

6 Classification based on Aspinall, K. (1997)

one product line

Tab. 3 Distribution Channel Types

Manufacturer Distributor Retailer Consumer

Fig. 1 Hugo Boss Number of DOS Over Time

Source: Hugo Boss Annual Report 2008

Tab. 4 Direct Distribution Channel Formats

Dimensions Personnel Management

High streets, airports, malls

The brand hires and manages sales people

Department stores, malls

Sales people are dedicated

Tab. 5 Indirect Distribution Channel Formats

Wall unit Retail space organized as a wall

No dedicated sales people

No brand personalizati on Retail space with multibrand offers

Lower level of a Department store

No dedicated sales people

2 - HUGO BOSS CORPORATE STRATEGY

Fig. 2 Hugo Boss Brands

Source: Adapted from Hugo Boss Annual Report 2008

Fig. 3 Hugo Boss Brands Shares of Sales

Source: Hugo Boss Annual Report 2008

Fig. 4 Hugo Boss Current Brand Positioning

Source: Hugo Boss Annual Press Conference Presentation 2009

Fig. 5 Hugo Boss Brand Positioning in The Long Term

Source: Hugo Boss Annual Press Conference Presentation 2009

2.3 - Business Model

2.3.1 - Value Proposition

Tab. 6 Customer Profiles in The Luxury Industry

Fig. 6 Hugo Boss Value Chain

2.4 - Hugo Boss Internationalization Process

Fig. 7 Hugo Boss Global Presence

Source: Hugo Boss Annual Report 2008

Tab. 7 International Growth Paths

Decision Making Decentralized Centralized Local

Main Advantage responsiveness Cost efficiency through

Subsidiaries Management Subsidiaries independency Subsidiaries dependency firm

Multidomestic Pre-war period Global Seventies Eighties

Fig. 8 Adaptation & Efficiency Trade offs for Multinational Firms

Source: International Management, Professor Ciabuschi, class material

Fig. 9 Hugo Boss Investments Over Time

Source: Hugo Boss Annual Report 2008

Fig. 10 Hugo Boss Mid-Term Sales Target

Source: Hugo Boss Annual Report 2008

2.4.1 - American Dream