Using Porter's Five Forces model to analyze Dior

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Dior is a luxury firm established by Christian Dior in 1946 in France. The products ranged from designing and retailing handbags, and other accessories, cosmetics, shoes, jewelry, and fragrance for women. The brand Dior Homme and Baby Dior is designed for men and children, respectively. Products are found both online and offline in many countries around the world. Dior is trade on the Euronext with stock ticker: CDI. As of Dec 31^st, 2017, the company’s revenue totaled EUR 43,666 million, net profit was EUR 5,753 million. On the balance sheet, total assets were EUR 72.8 billion and equity was EUR 32.7 billion. Porter’s Five Force Model is a commonly used model to analyze a business through aspects such has threat of new entrants, threat of substitutes, bargaining power of customers, bargaining power of suppliers, and industry rivalry. This paper analyzes the rivalries, bargaining power of customers, and the threat of new entrants to show that Dior is in a competitive position to be profitable for years into the future.

Dior’s rivalries are other luxury firms that produces leather products, cosmetics, footwear and etc. In this oligopoly market, competitive is fierce because other brands such as Dolce Gabbana, Hermes, Calvin Klein, Chanel, Gucci, Burberry, Ralph Lauren, Parada, Hugo Boss, Estee Lauder, and etc. are also attracting many customers and taking market shares. Different brands are all doing everything they can to attractive new customers and retain existing customers. New products are being designed out every day and celebrities fight for a chance to become the firm’s spokesman. Fans will follow their celebrities to buy products.

The bargaining power of customers is medium because on the one hand, they are flexible to choose other brands of handbags or cosmetics; on the other hand, those who favor Dior like their design and become loyal to them. The customers are usually grown ups with a significant amount of capital to spend. Those who purchase luxury products care less about the price of a product and they can buy many products regardless of their actual demands. Since luxury products are not necessities, when customers are rich, they can buy as much as they want. When buying Dior products, they may also contribute to the revenue of its competitors. However, there is another group of customers who are very loyal to the Dior brand and buys Dior for collections. So, with different kinds of customers, the bargaining power of customers overall is medium.

The threat of new entrants is also medium because the technology needed to produce the products and to enter the industry is low. Anyone with access to the skills associated with production, the resources of the top quality raw materials can enter into the industry. However, the problem is customer acquisition. Those who stick to Dior instead of changing to other brands often have a strong loyalty towards Dior and is unlikely to favor the designs of other brands. There taste and preference is hard to change. So, whether new entrants can thrive in this industry remains questionable.

The business strategy that Dior utilized to generate higher returns for their investors is to first maintain top product quality. The second one is to expand more diverse product lines to cover all sorts of luxurious demands. The third strategy is to use its brand recognition to attract loyal and new customers. The fourth strategy is to expand internationally, cater to the international market while preserving its own flavors, while innovating to catch up the most fashionable trends.

In short, Dior is a strong player in the luxury goods market. Even under the high competition, the firm still has a medium bargaining power of customers and a medium threat of new entrants. With top quality products and high customer loyalty, Dior is considered to be at a competitive position in the market.

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