Chanel Porter Five Forces Analysis

Published in Companies category by MBA Skool Team

Here is the Porter’s Five Forces analysis of Chanel that covers threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.

Threat of New Entrants:

The threat of new entrants in the Chanel Porter Five Forces Analysis can be explained as follows:

Chanel was started in 1910 in Paris, France, by Coco Chanel, one of the pioneers in modern fashion. The company has high brand equity being in the industry for over a century. Their logo is the two mirrored and intertwined Cs, representing Coco Chanel. Getting into this luxury fashion industry is extremely difficult due to high capital and resources. The product belongs to a niche market, and creating such a royal legacy would be difficult for a new entrant. The product sold by this house is highly differentiable and is famous worldwide.

The products are highly exclusive and have become a symbol of status among the affluent members of society. Their premium nature prevents the fashion house from producing it on a mass scale. An attempt to replicate this brand would be a humongous task due to its image in the minds of the customers. The company has high brand loyalty, and the house has specialized designers who design each product. The new entrants would also face many regulations and policies to comply with the norms of the countries they’re situated in.

Image: pixabay

Threat of Substitutes:

Below are the threats of substitute products of Porter’s Five Forces analysis of Chanel:

Chanel faces substitution from companies that are more premium. Luxury super-premium brands like Hermès, Balenciaga, Michael Kors, and Yves Saint Laurent become a substitute for companies in the same range as Chanel.

People who belong to the upper class would prefer these super-premium products. Another main substitute for Chanel could be cheaper knock-offs of the product. Chanel has often been used as a symbol of status. People who cannot buy its products often tend to buy the cheaper products in an attempt to stand out among peers. It might be difficult for a layperson to differentiate between the real and the fake. But people who have some knowledge about fashion and have an eye for such items can easily spot the difference. These substitutes are very cheap and are made of inferior material too. The products usually have the duplicate tweaked version of the Chanel logo.

Bargaining Power of Customers:

In the Chanel Porter Five Forces Analysis the bargaining power of the customers can be explained as:

The main customers of Chanel are mainly people within the age bracket of 18-50 with an annual income of $100,000 or higher. Though the company is a luxury brand, there are many other companies that fall in the same bracket. For instance, Gucci, Dior, Louis Vuitton, and Prada. Therefore, the switching costs are very low unless a customer is fixated on buying a particular Chanel exclusive product. The company also slashes or destroys its products, especially their seasonal products. This is done to prevent the product from reaching the masses, and the fashion house also does not hold stock clearance sales. Another issue that the brand faces is that the new generation of affluent people is deviating from leather-using companies like Chanel. They are more environmentally conscious and are animal lovers too.

These days rich people usually gift their children with products; therefore, they have entered into a new segment.

Bargaining Power of Suppliers:

Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Chanel:

Chanel had started buying many partners and suppliers in the late 1980s. At present, it has acquired niche fashion suppliers like Lesage and also has hatmaker Maison Michel, feather specialist like Lemarie, and glove maker like Causse. Chanel had also acquired many new manufacturers to strengthen its supply chain. It mainly manufactures in France, especially the ready-to-wear or haute couture collections. The brand has opened many manufacturing areas in Spain and Italy. Many of the exclusive items like high jewelry pieces are mainly made in Parisian Atelier located near Place Vendome. By acquiring suppliers and manufactures, Chanel has complete control over the entire supply chain. The bargaining power of suppliers reduces drastically. Chanel has moved only a part of their business online by selling beauty and skincare products, perfumes, and sunglasses. The clothing and accessorizing are still done in exclusive stores. Since the standardization of products is low in Chanel, changing suppliers would be relatively easier. Since the brand has most of the suppliers under control, the chances of forward integration are pretty low.

Competitive Rivalry:

The impact of key competitors in the Chanel Porter Five Forces Analysis is as follows:

Chanel is in the Haute Couture, high and fine jewelry, watches, eyewear, fragrance, skincare, and makeup. Chanel has many competitors like Gucci, Prada, Louis Vuitton, and Dior in the same price range. Some other companies which provide super-premium luxury products and have a price range above Chanel are Hermès, Balenciaga, Michael Kors, and Yves Saint Laurent. There is high competition among different brands to create more brand equity and increase switching costs. Individual segments of the brand have their respective market leaders. For instance, Ralph Lauren, Versace, Armani, and D&G are in the Haute Couture section. In the jewelry segment, there is Tiffany & Co, Bulgari, ; in the watches segment, we have Patek Philippe, Rolex, and Omega. There is Hermes, Caron Poivre, and Givenchy in the fragrance segment.

In the eyewear segment, there is Valentino, Vogue, and Versace.

To conclude, the above Chanel Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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