On November 12th, Michael Kors Holding Limited joined the S&P 500, replacing NYSE Euronext (4). The company’s spectacular growth following its IPO in December 2011 has proved to be more than a fad. The Kors brand has laid claim to the fast-growing and seemingly paradoxical niche of ‘affordable luxury’ as the global economy recovers from the financial crisis. The U.S. premium handbag and women’s accessories market is currently estimated to be $10.3 billion dollars (1), and in China, Bain & Co. estimates luxury goods sales to reach up to $21 billion this year (2). In the last three years alone, Michael Kors has already captured an estimated 16% of the market (1).
An M&A Checklist
Adapted from Marc Cosentino’s Case In Point, 8th edition (p. 42):
Mergers and acquisitions are closely related to market entry cases. Many of the same concepts apply, but there are several issues unique to M&A cases.
Market Entry Cases
Adapted from Marc Cosentino’s Case In Point, 8th edition (p. 40-42):
Cases involving entering a new market usually require two-part answers:
- Should we enter the market?
- How do we enter the market, and why?
They do not necessarily have to be answered in that order. Sometimes, uncovering the benefits and risks of the possible options for entry can change your answer to the first question.
Profit and Loss Cases
Adapted from Marc Cosentino’s Case In Point, 8th edition (p. 37-40):
The Profit and Loss case has several variations, but all of them deal with the central framework:
E (P = R – C) M
where E represents the economic situation and M describes the market and/or industry. Within the parentheses, we have Profit = Revenues – Costs.
Everlasting Light Bulb
Adapted from CIP, p. 84-85:
GE has invented a new light bulb that never burns out. It could burn for more than 500 years and it would never blink. The director of marketing calls you into her office and asks, “How would you price this?” What do you tell her?
KDC 2.0
After a long road trip on the HTML struggle bus, the conversion is finally complete. Let me know how you feel about the new format and look of the site!
You can also follow KDC on Twitter (@kdoescases) if you would like to stay up to date with the latest articles and bits that I’m reading. I also post notes regularly on my rougher, on-the-go online scratchpad @encyclo_k. Happy reading!
Growing Pains
As you may have noticed, KDC recently underwent a website revamp! Unfortunately, some posts were not able to make the transition as smoothly as others, so please excuse any cosmetic inconsistencies (e.g. wonky font sizes, alignment issues). I’ll be working to streamline the formatting over the course of the next few weeks. Thank you for your patience.
How to Raise Prices the Right Way
Speaking of raising prices, here’s a summary of strategies on how companies can cover rising costs by raising prices without losing customers. The full article from professors Kusum L. Ailawadi and Paul W. Farris can be found here.
Coca-Cola
Coca-Cola is trying to boost profitability domestically by raising its prices. It’s focusing on the grocery market, where the volume is high but the margin is low. What are the economics of raising prices, and is this a good idea?
— Marc Cosentino, Case In Point, p. 82-83
Good Luck Leaving Your Wireless Phone Plan
T-Mobile’s latest push to brand itself as the anti-contract wireless provider is a welcome move in a market where confusing and complex two-year contracts are standard practice. However, concerns such as network coverage and speed, data allowance plans, and phone offerings often prevent customers from switching providers. The Wall Street Journal provided the latest update on the state of the industry in its article Good Luck Leaving Your Wireless Phone Plan.
K Does Cases 