2006 IMBA Marketing Management

Taiwan Consumer LoyaltyTaiwan Consumer Loyalty Survey: Survey: COACHCOACH

Professor: Charles Trappey Professor: Charles Trappey 張力元張力元95933005 Debbie Liao 廖珮君94933018 Misha Lin 林宜縉94933011 Daniel Hsieh 謝光哲94933010 David Chung 鍾添坤

Coach – Interest in the American Brand

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2006 IMBA Marketing Management

Our interest in Coach as a case presentation theme arose not from our personal preference for the brand but from two separate articles that appeared first in the US edition of Business Week in Nov 2005 and the in the September issue of the Taiwanese Business Weekly magazine. The feature story was entitled “The Revival of a Second Line Brand.”

Looking back at the share prices of Coach, it increased almost 20-fold from its original IPO price of USD2 to almost USD45 at closing of markets on Dec 28, 2006 at the NYSE, it is not hard to imagine the interest this case will spark on marketers curious about its recipe to success.

Six years ago, Coach was a company in crisis, suffering both in revenue and profit. Six years from then, Coach has managed to earn itself a name as “The Legend in Wall Street.” Particularly impressive is its performance in Japan, where sales rose increased at a rate of 722% at a period of time when Japan was still in heavy recession. At the same period, sales in Taiwan increased 25 times.

Coach – An American HeritageCoach was founder in 1941 as a dedicated maker of handcrafted, high quality

leather goods for men and women for all occasions. Coach as a brand was inspired by a baseball glove when its founders became fascinated with the quality of work in the making of a baseball glove. It then sought to refine, soften and strengthen the leather to make handbags using only the top 10% of the leather.

Coach – The Design PhilosophyCoach used to be known as “the grandmother’s bag” due to its overemphasis on

the functionality. Now Coach emphasizes on the perfect balance between aesthetics and functionality. The size, shape, and inner lining and pockets are now carefully designed to provide maximum functionality and ease of use. In the manufacturing process, a special tanning process is employed to soften leather.

Coach – The CollectionThe Handbags collection make up the bulk of Coach bags where the new

aesthetics look played a vital role in its success. The business and travelers

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2006 IMBA Marketing Management

collection also account for the complete line of products Coach now offers and encompasses all applications the consumer can think of.

Coach – Brand Positioning and Market StrategyThe successful revival of Coach as a designer label bag lies in the thorough and

comprehensive implementation of its position of Coach as a an affordable luxury for chic and young professionals looking for an entry level designer bag.

The decision made by Chairman and CEO Lew Frankfort to transfer the production line to China to keep the manufacturing costs down was vital to its revival. This was a pivotal decision even LVMH is hesitant to make. Another successful strategy was Play in Peoria, Coach constantly introduced new bags into its merchandise mix to stimulate purchase and consumer behavior.

Finally, unlike other brands, Coach located its flagship stores in some of the world’s most expensive real estate locations whilst on the other hand remaining true to its corporate policy of prudence, by setting up shop in modest areas for its boutiques. In Japan for example, almost all Coach stores are located next to a Louis Vuitton boutique, probably a valid reason why Coach has enjoyed tremendous growth in Japan despite the economic recession.

The global product mix of Coach is mainly handbags, accounting for 67% of the product line, and women’s accessories, making up 23% of its product mix.

Sales in the US still accounts for a majority for Coach, around 75% while Japan , East Asia and the rest of the world account for 25% of its sales volume.

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2006 IMBA Marketing Management

Coach in Taiwan: For understanding the marketing strategy of Coach in Taiwan, we examine the

four P and make detailed comparison with two most popular brands: LV and Gucci. Another brand Hermes is compared selectively.

Product Logo, logo, logo. Yes, the core design of luxury products is only logo. Coach

used to emphasize the texture of the leather instead of brand logo, but for re-positioning in 2001, it has made changes and grand launched big C logo series to meet consumer needs. It is so called “signature collection”, and later it also launched mini signature collection with a smaller C logo as the patter.

LV starts the trend to re-design logo bags. It is famous by the brown and golden monogram pattern. And it later evolves to cherry blossoms (sakura) version and colorful monogram version for seasonal promotion, even there are reflective, flashy silver and golden lines in 2006.

Gucci is a conservative luxury brand that sticks on one kind of pattern, only changes with color and the shape of bags.

Comparing three brands, Coach has a very flexible design rule. It can offer varies product designs with logo or without logo, scrabble logo or formal logo, and it can change the colors even the textile from cotton, leather to knit and patch. Coach currently renovates the product line monthly to build up a very fashion young look.

As for the product lines, just like every brands, Coach provides bags, which is also the majority of goods sold, women and men accessories, wallets, shoes, hats, belts, key case, watch, scarf, gloves, sun glasses, clothes, even pet collar and pet bags. And the product lines are still extending such as iPod leather case.

Exhibit. Product design comparison Coach LV Gucci

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2006 IMBA Marketing Management

PricingFollow the clear global brand strategy, Coach in Taiwan price itself also a

bargain among luxury product market. The price for a mid-size handbag, which is usually the useful, entry item for brand users, is around NT$14,800. Other brands start the handbag from NT$20,000, even Hermes, one of the most wanted brand, prices its handbag at NT$300,000 up.

Take the average price of Coach as the benchmark of luxury brands, other brands are at least 40% more expensive than Coach. Even without discount sales promotion, Coach is very tempting to consumers who do not buy branded products often.

Exhibit. Pricing Index

5100 141 211

2027

-300

200

700

1200

1700

2200

Coach Gucci LV Hermes

NT$14,800 NT$20,800 NT$31,200

NT$300,000

2006 IMBA Marketing Management

* Source: Store survey; PChome online storePlace

The brand store geographic coverage is 50% weighted in northern Taiwan. Especially Taipei area. Refer to the exhibit below, Coach has 12 outlets in Taiwan so far, and 8 out of 12 are located in metropolitan Taipei. And comparing with other luxury brands, Coach owns most stores and is followed by Gucci.

All of the luxury brands prefer to listing in the department stores instead of the expensive flagship shops. It’s assumed that the flagship is operated as an image building place with huge investment, therefore, a huge department store, such as Shin Kong Mitsukoshi chain, that can ensure consumer traffic and maintain a super premium image for brands are highly chosen.

Exhibit. Brand store location and detail places table.Area/Brand N C S Total

COACH 8 2 2 12

LV 4 2 2 8

Gucci 7 1 2 10

Hermes 1 1 2 4

PromotionThe luxury brands do not count on TVC advertisement,

but more reply on the exposure for print ads on fashion magazine, such as BAZAAR or COSMOPOLITAN.

LV likes to use super stars and famous models to Gisele Bundchen, Uma Thurman, and Jennifer Lopez. Its initiatives stimulate some other brands like Chanel (Nicole Kidman for Chanel No. 5 ) to follow up. As for Coach, it uses Mandy Moore to be the ambassador, and the celebrity is viewed as a

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Area North 22 Central 6 South 8

Brand TTL SKMA4

SKMA9

SKMTian-mu

SKMNanjing

BreezeCent

Taipei 101

Regent

SOGO

Takashimaya

AsiaWorld

Boutigue/Flagshi

SKM SOGO

Chungyo

Boutigue/Flagshi

TainanSKM

KSHanshin

Isetann

Boutigue/Flagshi

Coach 12 1 1 1 1 1 1 1 1 1 1 1 1 LV 8 1 3 1 1 1 1 Gucci 10 1 1 1 1 1 1 1 1 1 1 Hermes 4 1 1 1 1

2006 IMBA Marketing Management

second line, also she does not present the luxury image for Coach. It is because Coach needs to be differentiated as a younger, American style brand.

Actually the biggest investment for the players in the industry is the celebrity relationship building. A lot of investment for PR activities. Like anniversary parties of any kind of events, or sponsor free bags for movie stars to movies pioneers.

Back to the brand image build in stores. Its worth to mention that Coach takes a friendly approach. The store design in Taiwan is consistently in a white and bright tone to shorten the distance from consumers.

Brand Magazine Survey in TaiwanThere is a “Brand” magazine introduce luxury brands and collection monthly,

and it has conducted a “Who’s buying designer brand” survey from 2005.10-2005.12. The total sample size is 4,732 people. We decided to screen out some useful data for our case study and field research.

The survey shows that the brand owner profile is: mainly female (91%), age 26-35 years old (48%), and lives in Northern Taiwan (59%). The most purchase item is bags (67%) and often purchase brand product in Xin-yi area (35%). Therefore, we decided to design questionnaires and execute the field survey accordingly.

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Mandy MoorePop Singer in USAMandy MoorePop Singer in USA

Internet,57%

MG Reply,43%Source

Male, 9%

Female,91%

GenderInternet,57%

MG Reply,43%Source

Male, 9%

Female,91%

GenderSource

Male, 9%

Female,91%

Source

Male, 9%

Female,91%

Gender7th, 34%

6th , 49%

5th , 12%

Others,8%

Age (Graded)

26-35yr (born between MingGuo 60-69 year)

7th, 34%

6th , 49%

5th , 12%

Others,8%

Age (Graded)

7th, 34%

6th , 49%

5th , 12%

Others,8%

Age (Graded)

26-35yr (born between MingGuo 60-69 year)

Shoe, 8%

J ewery, 4%

Watch, 7%

Clothes, 13%Others, 1%

Bag, 67%

Purchase Type

Shoe, 8%

J ewery, 4%

Watch, 7%

Clothes, 13%Others, 1%

Bag, 67%

Purchase Type North,

59%Central,14%

South,24%

Eastern, 2%Other, 1%

Living Area North,

59%Central,14%

South,24%

Eastern, 2%Other, 1%

Living Area

Taipei101,13%

OutsideTaipei, 28%

A4,5%

A9,17%

SOGO, 9%

Others, 14%

Breeze Center,14%

Purchase Area

Taipei101,13%

OutsideTaipei, 28%

A4,5%

A9,17%

SOGO, 9%

Others, 14%

Breeze Center,14%

Purchase Area

2006 IMBA Marketing Management

Methodology and research flow diagram

As for the metodology, here are the steps which we have decided to follow :Step one  

Choosing the case, from an idea of knowing that COACH has been doing very well recently, such as, they have been opening new shops next to LV in Japan, and also the stock price has been rising, so, we decided to do the case study of COACH in Taiwan. S tep two

We have found the ‘‘Brands’’ magazine has the secondary data of brand bags. Step three  

We have formulated four hypothetical questions, as following: 1. For COACH bag owners, what other brand name bags have they also purchased before? 2. What is COACH owners’ willingness to repeat their purchase? What are the factors to motivate them to do so? 3. What are the Brand images of COACH in the eyes of COACH owners? 4. Is there any relationship between COACH owners’ income and their purchase budget?

Step four We have decided to use the Qualitative research (In-dept interview) as our

research method; Step five

Design the questionnaire, with a purpose of screening and selecting the right target consumers, we have decided to narrow down the target interviewers, the ages between 26 – 35 years old, who lives in Grand metropolitan area in Taipei and who also is a COACH owner, Step six

The personal interview, we went to Hsin – Yi area looking for the interviewers, we also have used telephone and via e-mail to collect the data; Step seven

Coding, then input the data in the Excel spreadsheet, and then analyzes data to answer the questionStep eight

Report the results and present the case.

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2006 IMBA Marketing Management

As for the questionnaire, we have tried screening and selecting the COACH owners! We have to divide the questionnaire into three sections, in section A, we tried to get the COACH owner’s profile where we can find the demographic information, such as: their age, marital status, educational level and if they live in Grand Taipei area, and if they have any brand name bags. From this section we can screen and select the target interviewers, people from 25-35 years old who live in grand Taipei area, and who has brand name bags.

In section B, the questions were designed, with a purpose of finding out the COACH owners’ wiliness of purchasing COACH again, and beside the COACH, what are the others brand bag they would like to get? What is the Brand Image of COACH? In short, we try to obtain the voice of Consumer (VOC) here.

In section C, we tried to go deeper asking them with some more sensitive question, aiming to get their income and budget for buying the brand and try to analyze the relationship between the income and budget. And also asking why they do like band name bags?

We think there are two important factors needed to be considered are relevance and the feasibility check.

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1 2 3 4

5678

From an idea to Select “Coach” (They seem to run the business well with new shops)

Literature searchFind the secondarydata through a local magazine “Brand”

Formulate hypotheses “Coach” bag customers – who are they ?

Design questionnaires for screening and selecting the target customers

Select qualitative research as research method(In-depth interview)

Report the results and present the case

Coding of data, then transfer of data in the Excel spreadsheet.Data analysis to answer the questions

Collect data through personal interview at Hsin - Yi area, via telephone and e-mail interview

2006 IMBA Marketing Management

Questionnaire at a glance

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Owner ProfileCOACH®

OtherBrands

Buy by self? A gift?

Shared owners of COACH

Preference

Demography

Repeat Purchase

Preferred Brand Bag

Brand Bag Owners

Brand Image (20) Income and Budget

Brand Image (10) VOC

VOC: Voice of Customer

Will you continue to purchase COACH?Yes ____ No ____ Why? A) Price B)Style C) Preference for the brand D) PeerPressure E) Others:_________________

Name three adjectives to describe COACH. ____________________________________________________________

Gucci

2006 IMBA Marketing Management

Findings and Analysis

The Survey was done by interviews either at field visit or by email. In total, around 120 questionnaires was sent out, returned questionnaires were 83 (response rate 69.2%). In the returned questionnaires, there were 10 noted they don't have any branded bags (10/83, 12%). In those response questionnaires with brand bags, the age between 25 and 35 was 40 in number (40/83, 48.2%). Therefore, our analysis focus on the 40 questionnaires in this age group as defined beforehand.

Demographic Data Marital status: 25% (10/40) married, 62.5% (25/40) single, 12.5% unknown (5/40).Education level: Senior high – 0% (0/40), university or college graduates 42.5% (17/40), master degree above 25% (10/25) and unknown – 32.5% (13/40).

Answers to the hypothetical questions (1-4)1. For COACH bag owners, what other brand bags have they also purchased

before? This is to understand for COACH bag customers, what other brand bags they also have. In our survey, we found 60% of them also have LV and 45% Gucci bags. The data shows most of them have at least two brand bags.

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25.0%

7.5%

10.1%

14.3%

15.0%

17.5%

45.0%

60.0%

Others

Chanel

Celine

Hermes

Dior

Burberry

Gucci

LV

On-site ObservationCompare the Coach user (left) and Gucci user on the street. Coach user presents a casual, American style, which correspondent to Coach positioning. As for the Gucci girl, she’s very fashionable and a little bit aloof, just like other luxury brands’ image.Another interesting part is that we found that Gucci counterfeit products are too popular, and the Gucci girl wears a sandal to match her dress. It’s doubtful that she also brings a fake bag.

Based on our research data, the majority of true brand lovers do not buy counterfeit products.

Coach

2006 IMBA Marketing Management

2. What is COACH owners’ willingness to repeat their purchase? What are the factors to motivate them to do so? In our survey, 73% was positive to repeat purchase for COACH bags. In our questionnaire, we provided several choices to know if their repeat purchase was associated with certain factor, such as price (35% positive response), design (48% positive response), etc. However, when we explore the prediction factor to associate the repeat purchase, the most important single predictor is they buy COACH bags on their own. 70% of the COACH bag owners bought COACH bags themselves, that becomes the most strongest predictor reliably related to their willingness of repeat purchase.

3. What are the Brand images of COACH in the eyes of COACH owners?When we asked the interviewee to describe their feelings about COACH bags using three adjectives, we got some descriptions as below,

• Younger, handy and durable• Souvenirs of US trip.• Fashion, young and reasonable price• Romantic, cute and energetic• Young, inexpensive, and entry level version of brand bags.• Classical, magnificent and durable• Affordable, fashionable and elegant…These descriptions were analyzed to categorize into certain product attributes, which were summarized in the below chart.

When we compared the product profile of COACH bags to the characteristics of other brands they mentioned, it showed some overlapping characteristics such as stylish, handy and good quality. These are the common impressions shared

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0% 10% 20% 30% 40% 50%

Fashion

Classical

Younger

Good Quality

Fair Price

Handy

2006 IMBA Marketing Management

by COACH and other brand bags owners as shown in the following picture.

Price

Young

Design

Noble

Handy Stylish

Quality

012345

However, there were also some unique impressions that COACH bag owners mentioned not shared with the other brand bag owners such as young and fair price. Conversely, NOBEL is the impression that owned by the other brand bag owners but not COACH.

4. Is there any relationship between COACH owners’ income and their purchase budget? This hypothetical question is to understand the range of their monthly income and their brand bag purchase budget in general as well. In our survey, the monthly incomes of the majority (81%) were between NTD 40 - 100 thousands. Also, as shown in the bar chart of the following, more than half of the customers in this age group will spend NTD 20-30 thousands to purchase brand bags.

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LV, Hermes, Chanel…COACH

2006 IMBA Marketing Management

32%

3%3%

14%

49%

0%

20%

40%

60%

20-30 30-40 40-50 50-100 100-500

Counterfeit brand bags buying experience survey

Question: Have you bought counterfeit brand bags before? A) Yes, how many?___ B) No. Why ___________________________

NTD, thousands

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2006 IMBA Marketing Management

In our survey, there is an interesting finding regarding the counterfeit bags questions for COACH bag owners in age 25 through 35. 35% (14/40) answered they bought counterfeit brand bags before either bought one (most of them) or two. 2% did not answer that question, while 63% (25/40) said they never buy counterfeit brand bags. The reasons they don't buy counterfeit brand bags, 28% (11/40) – they felt unnecessary or just don't want to buy it; 15% (6/40) – don't like to buy counterfeit brand bags; 13% (5/40) – felt counterfeit brand bags are poor quality, and some other reasons such as they felt shame if buy counterfeit bags, never thought about it and nowhere to buy, etc.

Map of Coach Existing Brand Culture

Brand culture/

Story

Customers/

ProspectsInfluencers Current Brand Strategy

Reputation

Value

• Young, working

ladies looking for entry

level brand bags

• Price

• Style and

design

• Quality

• Affordable brand bag

• Only top 10% quality

leather used

Relationship

Value

• Interior design

of Coach stores

• Attitude of sales

personnel

• Word of

mouth

• A bag for all

occasions

• Majority of stores

located in northern Taiwan

Experiential

Value

• Warranty

• Popularity

acceptable by majority of

consumers

• Repair and

after sales service

• Comfortab

le leather touch

• Worldwide, uniform

service

• Friendly atmosphere

of outlets

Symbolic Value

• Classic Coach

“C” logo

• Easy to access

• Good

craftsmanship

• Durable,

stylish

• Celebrities

• Quickly update the

product line with fashion look

• Reinforce Legacy line

to enhance quality image

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SensibilitySensibility

2006 IMBA Marketing Management

Summary and Conclusion Based on the first hand data analysis, here is a short summary for four

hypotheses: 1. Affordable luxury items do generate brand loyalty and the loyalty is not affected

by lower price. 2. The affordable price of Coach bags make it attractive for consumers to purchase

the same brand, hence it reinforce the brand loyalty again and again. 3. In the eyes of Coach owners, the lower price (compared to other brands) does

NOT impact the value of the brand in a negative manner. 4. Income and spending on luxury items are directly proportional.

After the case study and the group discussion, it’s found that the key to the success of Coach lies in its thorough implementation of the fast turnover of its wide range of product lines, which also ties in with the current trend of fast fashion and affordable luxury.

Fast fashion, it’s a new concept in marketing. ZARA is the first business proved successful and Coach is another remarkable one. What is much more challenging for Coach is that it re-vitalizes the brand and changes the luxury brand industry only in six years. In Japan, Coach has become the rank 2nd sales company after LV in year 2005.

Coach demonstrates that how a good marketing strategy can be realized into a competitive industry. The old, conservative, out of fashion, sense approach is quickly changed to a young, trendy, emotional and tempting new look.

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SenseSense

Revitalize!!!

2006 IMBA Marketing Management

In short, Coach should keep fashionable, sensational, and emotional, plus all comes with quality claims. It’s a right direction to keep current strategy to win more market share for Coach.

But a dilemma, or call it a potential risk for Coach is: Coach needs to avoid becoming a more expensive, common brand, for example: another DKNY to consumer. It still needs to keep exclusivity of the luxury brand image by product quantity control, outlets place and quantities control and pricing control.

***END***

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Keep going on track!

2006 IMBA Marketing Management

Appendix: Translated questionnaireHi，We are International Master in Business Administration students at the National Cheng

Chi University. We are doing a research report for our marketing management course. May we ask you to spend 5 minutes to complete this questionnaire regarding consumer behavior of women with luxury or designer label bags?

Section A. 1.Your age group [ ]1961-1970 [ ]1971-1980 [ ] 1981-1990 2. Place of Residence _____ County/City

3. Marital Status[ ]Single[ ]Married

4.Education:[ ]Vocational School [ ]University [ ]Masters and above

5.[ ]Which brand of bags do you own?(Multiple choices allowed) A)None B)Coach C) Gucci D) Chanel E)

Dior (F)Louis Vuitton (LV) F) Burberry G) Hermes H) Celine I)LOEWE K)Others ____

Section B. Non-owners of Coach bag please skip Section B-1

1.[ ]Source of your Coach bag? (Multiple choices allowed) A) Purchased by myself B) Gift from a friend

C)Gift from a family member D)Others____________

1.1 For answer “A”: Did you specifically ask for this brand as a gift? Yes_____，No_____

2. [ ]Will you continue to purchase/specify Coach as a present ? Yes_____，No_______

Why? A)Price B)Style C)Preference for the brand D)Peer pressure E)Others: _________

3. [ ]Will you consider purchasing other bags aside from Coach?

[ ]Yes，because A)desire for other styles B)Other brands are cheaper C)Other brands bring higher

status symbols D)Others: _________________

[ ]No，because A) the price of Coach bags are relatively lower B)I like only the Coach design

C)Coach is not that rampant D)Others: ____________

4. [ ]If you don’t have any budget constraints, which brand of bags will you consider purchasing next? (Limit

your answer to one)______________________________

5. [ ]Use three adjectives to describe your ideal luxury or designer label bag. _________________________

6. [ ]Use three adjectives to describe Coach.______________________________________________

Section C.1.[ ]Your monthly income: A)None B)Under 20,000 C)20,000-29,999 D)30,000~39,999 E)40,000~49,999

F)50,000~Below 100,000 G)100,001~Below 500,000 F)Above 500,000

2.[ ]Your annual budget for luxury goods purchase

A)Below 30,000 B) 30,001~Below 50,000 C)50,001~Below 100,000 D) 100,001~Below 200,000

E)200,001~Below 500,000 F)Above 500,000

3.[ ]Why do you like designer label brands? (Multiple choice) A)Peer pressure B)Good quality/Sturdy/Good-

looking C)Gift to myself D)Increase self-esteeem E)Necessary for work F)Gift G)Fashion

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2006 IMBA Marketing Management

trend/Advertised by celebrities/News reports H)Others________________________

4.[ ]How do you feel when someone else is carrying the same bag as yours (Multiple choice) A)That must be

counterfeit B)She’s got taste C)She’s probably in debt for that bag D)Rich gal E)Others

_________________

5.[ ]Have you ever bought a counterfeit bag A)Yes，how many? ______ B)No，why not?

________________________

Thank you very much for your time ！ The questionnaire ends here! Have a lovely day ！

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