TALLINN UNIVERSITY OF TECHNOLOGY
Faculty of Economy
Department of Business Administration
Chair of Organization and Management
PRADA – EVOLUTION OF THE LUXURY BRAND
Research paper in Strategic Management
Supervisor: Lecturer Alar Kolk
TABLE OF CONTENTS
Abstract ........................................................................................................................... 4
Introduction .................................................................................................................... 5
1. Backround of luxury goods and fashion industry ................................................... 6
1.1. Luxury goods industry ........................................................................................... 6
1.2. Luxury fashion market........................................................................................... 8
1.3. Luxury fashion brand ............................................................................................ 9
2. The evolution of Prada’s business model ............................................................... 12
2.1. Prada’s business models ...................................................................................... 12
2.1.1. Early years (1913–1989) – search for a differential ..................................... 12
2.1.2. Beginning of Prada-Bertelli reign (1978-1989) – time for expansion.......... 15
2.1.3. The Golden Age (1990-2006) – growth, aspiration and acquisitions........... 22
2.1.4. The Present (2007-2011) – technology flows in .......................................... 31
2.2. SWOT analysis of Prada’s business strategy ...................................................... 39
3. Prada’s future business model suggestion – „The exclusive Prada’s experience
with AMEX PRADA” .................................................................................................. 43
Conclusion ..................................................................................................................... 48
The PRADA Group is one of the world’s leaders in the design, production and
distribution of luxury handbags, leather goods, footwear, ready-to-wear apparel,
accessories, eyewear and fragrances.
The Group owns some of the most prestigious international brands: Prada, Miu
Miu, Car Shoe and Church’s and operates more than 70 countries through 358 directly
operated stores, 30 franchise stores and a network of selected high-end multi-brand
stores and luxury department stores.
This paper examines the business model evolution of their company as well as
focuses more on their first historical brand – Prada, which is strongly connected with
the establishment of the company and taking us back to the very beginning of their first
strategic decisions. Prada is one of the most innovative fashion brands that is able to re-
define the norm and set new trends.
Thorough analyse through different periods of the company’s business and
strategies will be exposed through this paper, revealing companies strenghts and
weaknesses as well as strategic decisions that were made from the early 1920’s until
Every company’s ultimate success or failure is based on its long-term direction,
strategic moves, and business approaches. The better a business’ strategy is the more
likely competitive success is achieved in the market place.
Prada’s distinctive features and prestige derive from its particular industrial
process management which allows the Group to offer its customers products of
unequalled quality, creativity and exclusivity. Today, these values have transformed a
family business into a major player in the luxury market worldwide.
The aim of this paper is to look closely at the different periods of the Prada
Group’s business model development to examine the nature and development of the
luxurious Italian brand Prada and different change stages that characterise its
evolutionary phases as well as management choices and competitive approaches.
The research paper is divided into 3 main chapters. The first chapter gives the
reader short overview of the concept of luxury goods and fashion industry as well as
providing the reader with information about luxury branding and the main crucial
elements for creating a luxury fashion brand.
The second chapter focuses of analysing Prada’s business growth through time,
starting from its establishment in 1913, carrying on to the time, when business
expansion started (1978-1989). The third subchapter describes further growth of the
business as well as aspiration and acquisitions taken place during that period (1990-
2006). The last subchapter analyses the transformation of the company from 2007 until
2011. The business model evolution and strategies will be concluded in the last chapter,
where Prada’s SWOT analysis is presented.
In the final chapter of the research paper the authors present their opinions and
suggestions for the company’s new future business model.
1. BACKROUND OF LUXURY GOODS AND FASHION
1.1. Luxury goods industry
Luxury goods are one of the most profitable and
fastest-growing brand segments. (Berry 1994)
The luxury goods market is significant not only
because of its market value, but also its rate of
growth – which has in the past 10 years
significantly outpaced other consumer goods
Thus luxury goods are products or
services that have attractive stories (history) and
are expensive, high-quality, sensual, unique and
available for a limited few. Luxury is neither a
product, an object, a service nor is it a concept or a lifestyle - it is an identity, a
philosophy and a culture (Okonkwo 2009).
Within the luxury offer, there is an ever-expanding offer of luxury categories.
Luxury industry basically consists of five bigger sectors (International University of
Monaco 2010; Moore, Fionda 2009):
arts de la table
fashion and apparel (couture, ready-to-wear)
perfumes and cosmetics
Nowadays luxury is manifested in a wide range of products, fulfilling every
imaginable need of the consumer, for example tourism, hotels, spas, food, cars, arts, real
estate, private banking, airlines, home furnishing and also education (International
University of Monaco 2010, Amatulli & others 2011). Although many products appear
to be essential to their owners, the selection often has less to do with function and more
to do with status (Bruce & others 2004).
Vickers et al (2003, 462) indicate, that until this time that the “...most widely
accepted typologies have in common the idea that luxury goods products are
modifications of a base product that involves satisfying consumer needs.” Luxury is
identified in terms of its psychological value, its function as a status symbol and as a
highly involved consumption experience that is strongly attached to a person’s self-
concept. (Moore & Fionda 2009)
The rate of growth of luxury goods market has been driven by a variety of
factors, the most significant of which has been the increase in the number of high-net-
worth individuals with an appetite for luxury brand consumption. The luxury goods
suppliers have developed strategies that seek to better service consumer demand.
Traditionally been described as top-of the-range products, the market of luxury
goods has been rapidly growing in the past two decades, due to rise in standards of
living and increasing consumer product knowledge (Vickers & others 2003, 459-460;
Berthon & others 2009, 45-46).
According to Bain & Company (2011) luxury goods sales are expected to be
around €191 billion in 2011, up ten percent from €172 billion in 2010. The industry
encompassed eight main product categories: luxury apparel, accessories, leather goods,
shoes, jewelry, watches, perfume and cosmetics. Apparel will experience eight percent
growth in 2011, driven by both menswear (nine percent) and womenswear (seven
percent). Perfumes and cosmetics consumption will grow by three percent globally,
with much of that growth found in emerging markets such as China and Brazil.
Accessories (including shoes and leather goods) will grow by 13 percent in 2011, as
consumers often rely on these products as an entry to luxury consumption. Hard luxury
(jewelry and watches) is delivering the strongest growth for 2011, however, with 18
percent estimated for 2011. Increasingly, consumers are shifting their hard luxury
purchasing from unbranded to branded items, and purchasing these branded products in
The post-crisis world of luxury goods has proven that luxury’s mature markets
are still relevant, both in absolute terms and in growth rates. Bain & Company expects
10 percent growth in Europe and 12 percent growth in the Americas for 2011 at
constant exchange rates, although the weakening Euro eats into these growth rates by
three to four percent. Japan yields the biggest surprise in terms of growth. It remains
luxury’s second market with five percent growth at constant exchange rates for 2011.
Developing market growth (China, 35 percent; Brazil, 20 percent; Middle East, 12
percent) is still notable and remains a priority for brands. (Bain & Company 2011)
1.2. Luxury fashion market
Luxury fashion accounts for the largest proportion of luxury
goods sales, with around 42 percent share. (Moore & Fionda
2009: 348) Fashion luxury goods are comprised of apparel,
accessories, handbags, shoes, watches, jewelry and perfume,
for which just the mere use or display of a particular brand
brings prestige to the owner and functional utility becomes a
side issue. (Amatulli & others 2011)
Many have argued what are the determinants of
purchasing tension for fashion luxury goods and the answer
lays external and social and interpersonal motivations of consumers. External
motivations concern those cases where the goal is essentially that of publicly displaying
luxury so as to affirm the consumer’s status while internal motivations relate to luxury
consumption based on emotions, state of mind and subjective sensations related to an
individual’s self-perception. Today you are not what you wear, but who you wear.
The biggest main traditional luxury fashion markets are Europe and USA, but
also China has shown a great increase in consumption of luxury fashion goods and that
market is growing in time. (Gao & others 2009, 515) Increased wealth accumulation
across the globe over the last decade has enabled more consumers than previously to
buy luxury goods and that has led to increased numbers and types of luxury firms and
products. (Okonkwo 2007)
Many studies have suggested that branding of luxury fashion goods is more
complex than other sectors by virtue of the speed of change within the sector as well as
the scale and number of fashion items that are marketed using a single luxury brand
name. (Moore & Fionda 2009)
The other aspect supporting luxury fashion is that the marketing of fashion
goods is typically more complex and costly as a result of differences in product
numbers, operating scale and the tendency for luxury fashion companies to take direct
control of the distribution of their goods within markets. As such, these costs and the
complexity of managing the marketing of this category of luxury goods have previously
been shown to exceed those of the other luxury brand categories. (Moore & Birtwistle
1.3. Luxury fashion brand
There are many definitions of luxury which mentioned earlier is associated with
extravagance, prestige and elitism, but there are few of the luxury brand. Luxury brands
have heightened status that affords an opportunity for their owners to charge premium
prices. Luxury brands possess a desirability that extends beyond their function and
provides the user with a perceived status through ownership. (Moore & Birtwistle 2006)
There is no corresponding delineation of what constitutes a luxury brand.
Moreover, there is no clear understanding of their dimensionality, and no rigorous
conceptualization of the different types of luxury brands. They are generally treated as
homogenous — a luxury brand is a luxury brand.... Researchers and authors tend to
leave the definition implicit. (Ervynck & others 2003)
One thing is sure, consumers tend to use brand as a quality indicator and they
are very loyal to the idea that every well-known brand has to be of good quality. (Husic
& others 2009)
Jean-Noel Kapferer (1993) has identified a list of attributes of luxury brands -
quality, beauty, sensuality, exclusivity, history, high price, and uniqueness.
There are different key components that identify the luxury fashion brand
dimensions. The main key indicators that build up the management of a luxury brand
are marketing strategy, endorsements, product integrity, iconic products/design, flagship
stores and store brand concepts, premium pricing and culture and heritage. (See Figure
It is important for a luxury brand to value brand’s cultural values and as well as
company spirit and personality. Marketing strategy in this circle includes focusing
strongly on fashion shows, store windows displays, PR activities, product packaging,
and sponsorship. Communication strategy must be highly visible; also personality and
consumer group support is essential as well as celebrity endorsement.
Figure 1. A model for luxury fashion branding
Source: Moore & Birtwistle 2006, with author’s modifications.
Products must be of high quality, credibility and excellence and product
manufacture must be controlled (product integrity). It is also vital that a luxury brand
has its own iconic products and recognisable symbols. Products and design should be
innovative, creative and unique. Also the designer can be used as PR face of the brand.
The development of a network of flagship and directly operating stores (DOS) in
tandem with controlled retail and wholesale brand distribution and superior service are
also crucial elements of a successful luxury brand as well as the last component –
premium pricing, which is a defining and non-negotiable dimension of luxury fashion
These attributes are crucial for creating a luxury fashion brand in the context of
the luxury fashion market. The greater the emphasis placed in these characteristics, the
greater is the fashion orientation of the luxury brand.
The process of creating and maintaining the luxury fashion brand is an
extremely complex activity that requires continual planning, investment of resources,
consistent marketing and management decision making to generate the possibility of
2. THE EVOLUTION OF PRADA’S BUSINESS MODEL
2.1. Prada’s business models
2.1.1. Early years (1913–1977) – search for a differential
The company was started in 1913 by Mario Prada and his brother Martino as a luxury
goods shop called Fratelli Prada (English: Prada Brothers). It was situated in the
prestigious landmark Galleria Vittorio Emanuele II in Milan, Italy. The arcade has a
very good strategic location and has been linked with high-end retailing since its
opening in 1877. This was one of the factors that helped Prada claim premium market
positioning right from the beginning. (Moore 2010)
Initially, the Prada shop sold leather handbags from Austria, English steamer
trunks, Hartman luggages made in America, leather accessories, beauty cases, luxury
accessories (crystal, tortoise, and shell accessories) and articles of value (silver from
London as well as now obsolete articles made from exquisite materials). Mario Prada
travelled throughout Europe in order to familiarize himself with those materials and
elements, which would build his essential concepts of style and luxury.
He was an attentive and refined observer of the signs of his time, as well as an
inventor and precursor. His search for the rarest, most precious materials as well as the
use of the most sophisticated techniques, allied with an insatiable curiosity and an
innovative nature, were at the base of his creations (Reference Answers 2011).
Therefore, due to its premium location, exclusively designed goods, which were
handcrafted using fine materials and sophisticated techniques, Prada rapidly became a
point of reference for European aristocracy and the most elegant members of the haute-
bourgeoisie in Europe.
Photos: Interior of Prada’s first shop, trademark logo, official appointment letter from
the Italian Royal Household.
In 1919 Prada was appointed “Official Supplier to the Italian Royal Household”.
It gave Prada the privilege to incorporate the House of Savoy’s coat of arms and knotted
rope design into its trademark logo, still present there today. The House of Savoy ruled
Italy for 85 years from 1861 until the end of WWII (Badkar 2011). Very soon the Prada
store in Galleria Vittorio Emanuele II becomes a favourite port of call for the most
elegant and refined members of the whole European aristocracy and upper classes.
When the signature Prada suitcase, made from heavy, cumbersome walrus skin,
proved to be ill suited for air travel that became more popular in 1930’s and made a
boom in 1950’s, Prada concentrated on designing exquisite leather accessories and
waterproof handbags (Grosvenor 2011). But in addition to that, we should keep in mind,
that it was also due to wartime (WWII 1939-1945) and the shortage of materials that
made Prada search for alternatives.
In 1950 Prada launched a special type of nylon - made of a fine, twisted weave,
appearing as precious as silk, obtained through a special chassis - which is the result of
a long research and development of production techniques, technology and innovative
materials. This fabric becomes an icon and sets the trends of fashion in the years to
Interestingly, Mario Prada did not believe that women should have a role in
business, and so he prevented female family members from entering into his company.
Ironically, Mario's son harboured no interest in the business, so it was his daughter
Luisa Prada who took the helm of Prada as his successor, and ran it for almost twenty
years. Her own daughter, Miuccia Prada, joined the company in 1970, eventually taking
over from her mother in 1978 (CarolineDaily 2011). Her most important decision before
actually owning the company was in 1977 when Miuccia Prada and Patrizio Bertelli, a
Tuscan businessman active in the national and European markets with several high-end
leather goods companies, started their partnership, laying the foundations for Prada’s
development. Patrizio Bertelli set up I.P.I. spa to consolidate the production resources
that he had built up over the previous ten years, including those of Sir Robert and
Granello. In the same year, I.P.I. spa obtained an exclusive license from Miuccia Prada
to produce and distribute leather goods bearing the Prada brand name.
The following Figure 2 describes Prada’s business model during the Early years
of their business:
Importation (U.K) Personal assistance
PARTNER VALUE PROPOSITION
VALUE PROPOSITION CUSTOMER
NETWORK “High quality luxurious
“High quality luxurious
SEGMENTS Aristocracy and
Raw material and upper class (Europe
Products: upper class (Europe
luxury items Products: and US travelers
Trunks, bags, suitcases and US travelers
suppliers Trunks, bags, suitcases mostly)
(incl. I.P.I. Spa)
KEY RESOURCES DISTRIBUTION
Material Stores in Milan (1)
Stores in Milan (1)
COST STRUCTURE REVENUE
Production related costs,
Production related costs, FLOW
stores Sales of goods
Sales of goods
Figure 2. Prada’s business model during the Early years (1913-1977)
Source: Compiled by authors.
During the period of the Early years (1913–1977), the business model of Prada
is quite simple and at the beginning of its expansion. They offered high quality
luxurious products to aristocracy and upper class travellers that found their way to
Milan, which was already at that time an important travel destination.
Regarding the distribution, then in the first era Prada remained a domestic
business with one store in Milan that was little known outside of Italy. With its reliance
upon imported finished goods, mainly from England, Prada’s product range as well as
brand identity was indistinguishable.
Since sales of those luxurious (mainly imported) indistinguishable goods were
their only source of revenue, finding and keeping their customers was crucial.
Therefore, as to the clientele, due to the field and nature of their business, customer
relations and personal approach played an important role since the very beginning.
Prada paid close attention on developing good relationship with their customers and
offering personal touch.
Meanwhile Prada tried to set itself apart from competitors by enlarging their
capabilities. As Helfat (2003) has stated in his analyses about capability lifecycle, crises
(in Prada’s case shortage of raw materials after WWII and tightened competition with
Gucci) could motivate companies to improve their level of capability. It was Prada's
first step from zero-level capabilities to dynamic capabilities. So in in 1950’s they
launched a special type of nylon and started expanding product range. However,
engaging new dynamic capabilities is not always successful, it depends of each firm and
its competitive context (Winter 2003). Unfortunately, despite moving from zero-level
capabilities to dynamic capabilities, no clear distinction and competitive advantage
came before Miuccia took the lead of the company with Bertelli beside her.
In the Early years Prada still mainly stayed reliant on importation and produced
few products themselves. Key resources (material, staff, know-how) started playing
more relevant role in the end of the first era and in the future. By switching from
importation to fully production based business, raw material suppliers and know-how
grew in importance. It made Prada more in control of their business also regarding the
cost structure, sine as mentioned above, in the Early years they were reliant largely of
importation and the high prices of those luxurious goods.
2.1.2. Beginning of Prada-Bertelli reign (1978 – 1989) – time
Over the years, the Prada name gained increasing renown and prestige. The Group saw
a turning point in the development of its activities at the end of the Seventies, when
Miuccia Prada, Mario's grand-daughter, launched a partnership with Patrizio Bertelli, a
Tuscan businessman already involved in the leather goods sector with Granello and Sir
Robert. This partnership combined creativity and business ideas to start a new era.
Prada at that time was still mainly a leather goods manufacturer. The sales were
up to U.S. $450,000, but the company had actually been struggling financially for
several years. Competition from other fashion houses like Gucci began to have its
effect. When Miuccia inherited the company in 1978, she turned things around and
steered the House of Prada towards the world of haute couture (Grosvenor 2011).
But this change was not easy. In fact, Miuccia had initially distanced herself
from the family business since it was not as important to her as the goals she had set for
herself. She received a degree in political science, followed by a 5 years long period of
study at the Piccolo Teatro di Milano in preparation for a career in acting (mime). By
her mid-20s she was a committed participant in the political activities of the 1970s in
Milan. In the light of her education and interests it is perhaps clearer why she was rather
reluctant to take over the company. Miucca has said herself that Patrizio Bertelli was a
great support to her at that time: "If I hadn't met him, I probably would have given up -
or at least not been able to do what I have done" (Craven 2011).
However, although her qualifications did not seem appropriate, her sense of
fashion was unmistakable. She was taught to value quality materials and craftsmanship
since an early age. Miuccia was attracted to these same values (luxury, sophistication)
as her grandfather Mario, but after inheriting the company she could integrate her own
design philosophy to Prada’s products by which she enriched and expanded her
With Bertelli beside her, Miuccia was allowed time to implement her creativity
onto design. He also advised Miuccia - and she followed the advice - on better decisions
for Prada. It was Bertelli’s advice to discontinue importing English goods and to change
the existing luggage styles (Cultureoptical 2011).
It can be said that the Bertelli-Prada combination was a match made in business
heaven and played a crucial role in Prada’s future development. Miuccia has said in an
interview: "He [Bertelli] energized me. He inspired me. He was a manufacturing and
merchandising man, and I found his ideas exciting. ... And he made me see the creative
side of business, of commercial activity. We became co-muses ... inspiring each other.
That situation still exists." (Heller 2003)
Without a doubt, both Miuccia Prada and Patrizio Bertelli influenced the
outcome of the brand a great deal. Therefore, to understand the core of Prada and its
functioning, one must understand the character of its two key persons: designer Miucca
Prada and CEO Patrizio Bertelli. Because about the same time as she took the helm of
the Prada label, Miuccia married Patrizio Bertelli who not only supported her as a
husband and partner, but also became the business manager.
Bertelli became responsible for managing this balancing act. Miuccia Prada is
the head designer, but Bertelli oversees everything the company's designers do. And
when he and Miuccia disagree then the yelling begins. This type of management is
unusual in a fashion. CEO, typically, the business brains leave the creative to the
creatives. Bertelli "is very much into the product," says Patrizio di Marco, a senior
executive at Louis Vuitton and former president of Prada's U.S. operations. "He can
redo completely a collection of bags in an afternoon." As unusual as a CEO-designer is,
what really makes Bertelli stand out is that he knows how to push fashion to the edge -
think Lucite shoes and rubber dresses - and also to sell it” (Goldstein 1999).
In the 1980’s Miuccia Prada began to develop and market an innovative line of
fashion accessories eventually followed by a line of ready-to-wear clothes and footwear.
Her first footwear collections (in 1979) combined classicism with elements of the avant-
garde in such styles as spectator oxfords and embroidered and bejewelled suede
In a magazine article, she was quoted as saying that her designs had freedom of
movement, freedom from definition, and freedom from constriction. Bohemians, the
avant-garde, the beatniks had been constant motifs in her designs. Her philosophy of
dress also includes aspects developed and influenced by her own free-spirited
personality. (Reference Answers 2011)
Photo: Prada’s first footwear collection in 1979
Bertelli recognized that the appeal of such products (footwear, clothes) was
wider than that of walrus leather goods and exactly what the struggling business needed.
Till beginning of the 80’s Prada remained domestic business with only one store. For
the future outlook and better competitive advantage, that needed to change. In 1983,
Bertelli began to open more Prada stores. Second outlet in Via della Spiga in Milan, a
sleek and minimal place that could not have been more different from the baroque
design of the original store, was opened. This store represents the new image of the
brand, combining traditional elements with a modern architectural setting, and
introducing the pale-green colour, which will become Prada’s stores’ symbol around the
world. (Badkar 2011)
Photos: Prada’s first and second store in Milan
Since sales were down, Miucca expanded into luxury tote bags and backpacks in
black with flat classic lines, made from nylon. She began making waterproof backpacks
out of Pocone (Grosvenor 2011). Prada's nylon bags that were processed to resemble
silk were a huge success. Its backpack became a sensation once it was launched in 1984
Photos: Miuccia Prada, classic Prada backpack, Patrizio Bertelli
In 1985 Miuccia released the "classic Prada handbag" - black, originally
unlabelled, hard-wearing, but finely-woven nylon handbags, that became an overnight
sensation. Its sleek lines and craftsmanship exuded an offhand aura of luxury that has
become the Prada signature. The bag was functional and sturdy, practical and
fashionable. The high price tag (retail prices starting at around £250) that accompanied
the handbags caused an onslaught of designer knock-offs, which only helped to make
the genuine Prada articles more in demand. More importantly, seen on Jerry Hall and
Marie Helvin, Prada bags were established as the accessory of choice for supermodels
and fashion editors all over the world. Even later, the logo on these initially unlabelled
black nylon backpacks and tote bags was not as obvious a design element as those on
bags from other prominent luxury brands such as Louis Vuitton. It tried to market its
lack of prestigious appeal, including the apparel, was its image of "anti-status" or
"reverse snobbery.” The bags were originally sought after by the fashion-conscious as
antistatus. This image became growing as Prada’s competitive advantage.
Now that Prada had two exclusive stores in Italy, they knew they needed to
expand internationally. From 1986, new stores were opened in New York and Madrid,
followed by London, Paris and Tokyo.
In the 1980's, other labels were creating designs that played on sexuality. Frilly,
lacy, brightly coloured garments that were low cut on top and short on the bottom were
popular. Prada hit the runway in 1988 with its pret-a-porter collection, with elegant,
simple pieces featuring clean lines, luxurious fabrics, and basic colours. The fashion
world took notice, and Prada's popularity skyrocketed (Grosvenor 2011).
Photo: presentation of the Prada’s autum/winter 1989 collection
The collection was created for intelligent women that appreciated clean line,
luxurious fabrics and basic colours. Prada became the declaration of antistatus. (Seabra
2011) One admiring fashion journalist described Prada's clothes as "uniforms for the
slightly disenfranchised". (NYTimes 2011)
Miuccia's personal beliefs and her education probably ascribed to her
convictions about fashion industry. She says that female designers are successful
because they know how to express in clothing what contemporary women truly feel. If
we look at Prada’s designs, we see clearly that they are not preoccupied with sex appeal,
but rather stress the functionality and comfort, the quality of materials. (Reference
Interestingly, Miuccia Prada is known to say that designing clothes is silly, and
yet it's her love of clothes that has got her this far. As a student, she wore Courrèges and
Yves Saint Laurent while handing out communist flyers at protest marches. Those
frocks, still in her closet, inspire her signature radical-chic combo of high-end couture
and everyday industrial. Her ability to create trends out of unlikely garments and
accessories--from bowling bags to olive green polyester--inevitably sends competitors
running back to their drafting tables. Three seasons ago, she launched the frumpy '50s
housewife look, which would rule other designers' runways for several seasons. In
February she stunned the colour-happy fashion industry with an all-black collection.
This means that for now at least, black is the new black. (Betts 2005)
The following Figure 3 describes Prada’s business model at the beginning of
Prada-Bertelli reign (1978-1989):
R&D Personal assistance
“High quality luxurious CUSTOMER
PARTNER products made of SEGMENTS
NETWORK innovative materials” Upper class (Europe,
Raw material and US and Japan)
luxury items Products: leather goods, Fashionistas
suppliers footwear, accessories, Models, mostly
Material Stores in Milan (2) +
Know-how DOS in New York,
Madrid, London, Paris,
COST STRUCTURE REVENUE
Production related costs, FLOWS
stores Sales of goods
Figure 3. Prada’s business model at the beginning of Prada-Bertelli reign (1978-1989)
Source: Compiled by authors.
As mentioned earlier, Bertelli-Prada combination was a match made in business
heaven and played a crucial role in Prada’s future development.
By late 70’s, beginning of 80’s the competition with other luxury brands like
Gucci became more intensive. Prada and Gucci had many similarities between them:
both were founded in the early 20th century in Italy within important commercial and
travel destinations (Prada in Milan, Gucci in Florence), each focusing on travel
accessories for upper class. However, during the early years of Miuccia Prada and
Patrizio Bertelli co-operation Prada managed to create one very important distinction:
the image of anti-status among upper class intellectuals.
Another important strategic move was expanding its product line and fully
relying on its own production. By doing so, Prada controlled fully its cost structure and
established the growth platform – new modern and distinctive product line (backpacks,
handbags made from nylon, women clothing) which was critical element for the future
international development of the brand. By end of 1980’s Prada had its own factories
and a large network of third party suppliers based across Italy. Prada was able to extend
its brand presence into adjacent product categories with relative speed and ease.
Global competition can give the company an edge in reputation and credibility.
In the high-fashion industry, a firm significantly benefits from a presence in Paris,
London and New York in order to have the image to compete successfully for example
in Japan. (Porter 1980). After securing production and product line, Bertelli started
expanding their business internationally, choosing very strategic global locations at the
same time: Paris, Madrid, London, Tokyo and New York. Prada’s development of
network of “experience-branded” flagship stores, in addition with controlled retail and
wholesale brand distribution, are discriminating elements of the luxury fashion brand.
2.1.3. The Golden Age (1990-2006) – growth, aspiration and
By the 1990's, Prada was a leading force in fashion and the establishing of the “growth
platform phase” continued. The garments and accessories were sophisticated, smart and
extremely high quality. Luxurious fabrics and simple styles, mostly in blacks, browns,
greys, greens, and creams, became Prada’s signature look.
Prada’s Fashion House popularity skyrocketed the fashion world because of its
clean lines, the House of Prada designs reflecting the feminine worker aesthetic, which
made it quite unique in contrast to other fashion brands. (Fashion Wear Today 2011)
Five years after the launch of the womenswear line, the Prada brand was
extended to shoes, fashion accessories and menswear.
In 1993, the company sought to extend the coverage of its business through the
launch of Miu Miu as a diffusion brand. Named after Miuccia’s nickname, the second
line – comprised of ready-to-wear, leather accessories and shoes, was targeted at a
younger, fashion-forward female customer. The collection and brand are less expensive
that the mainline collection and with a more vibrant colour identity. More flowing
shapes and earthy colours and prints set this collection apart, although the simple
designs and classic appearance continued the quality of the Prada label. (Prada Group
2011). During that period, leading fashion stockists were recruited as wholesale
stockists and an international retail network of stores was rolled-out. (Moore & Doyle
2010, 921) Today, Miu Miu is an increasingly important component of Prada Group’s
Soon after that, the push for growth was given even further pace when Prada
Leisure & Sportswear line was created the same year. The line provided Prada with
the opportunity to showcase its technical dexterity through the use of advanced
performance fabrics created through complex production techniques. Sold within Prada
mainline stores, the line provided a vehicle for the business to engage in sports
participation and sponsorship. (Moore & Doyle 2010, 921) The line was followed by a
first men’s collection line (ready-to-wear, footwear and accessories).
Photos: Miu Miu, Prada’s Sport label collection and first men’s collection line
In 1993 Prada also received the Council of Fashion Designers of America award
for accessories. The same year Patrizio and Miuccia created an exhibition space called
“Milano Prada Arte”, which soon became a project called “Fondazione Prada”. The
purpose of this project was to gather the most challenging mental provocations of our
time in art, architecture, cinema, philosophy and culture in general and combine it to
one big “customer experience”. (Fondazione Prada 2011)
During that time sales were at US$210 million, with clothing sales accounting
for 20% (expected to double in 1995). Prada won another award from the CFDA, in
1995 as a "designer of the year" 1996 witnessed the opening of the 18,000 ft² Prada
boutique in Manhattan, New York, the largest in the chain at the time. (Prada Group
In 1997 Patrizio decided to try a new marketing move as he started to
sponsorship the “Prada Challenge for the America’s Cup 2000” sailing team. The boat
“Luna Rossa” won the Louis Vuitton Cup in Auckland, New Zealand in 2000.
By 1998, Prada’s sales were reckoned at $31.7 million. Patrizio took charge of
the growing business in the United States. He was successful in having the Prada bags
prominently displayed in department stores, so that they could become a hit with
fashion editors. Prada's continued success. Miuccia and Bertelli led the Prada label on a
cautious expansion, making products hard to come by. Another store in Milan opened
the same year.
By this time, the House of Prada operated in 40 locations worldwide, in which
20 of them were in Japan. The company owned eight factories and subcontracted work
from 84 other manufacturers in Italy.
In 1998, the first Prada menswear boutique opened in Los Angeles. During this
year, Prada was determined to hold its leading portfolio of luxury brands as its biggest
competitors – Gucci Group and LVMH. Prada’s main strategy during these times was
stock actions and co-operation.
An early indicator of Prada’s ambitions was evidenced in its acquisition of just
9,5% of interest at US $260 million of Gucci shares in the summer of 1998. Analysts
began to speculate that Bertelli was attempting a takeover of the Gucci group. The
proposition seemed unlikely, however, because Prada was at the time still a small
company and was in debt. (Fashion Wear Today 2011) The idea for Prada was to
participate in a defiant alliance with the mighty Louis Vuitton Moët-Hennessy (LVMH)
group to secure Gucci.
Prada sold its shares to LVMH the following January at a profit exceeding $100
million. (The M&A Journal 2002) LVMH had been purchasing fashion companies for a
while and already owned Dior, Givenchy, and other luxury brands.
But that did not stop Prada and LVMH collaborating once more in a luxury
brand alliance. In 1999 they joined again forces with LVMH to purchase 51% stake in
fashion world-known Rome-based luxury goods company called Fendi (25,5% share
belonged to Prada – worth $241.5 million). Prada took on debts of Fendi, as the latter
company was not doing well financially. These acquisitions elevated Prada to the top of
the luxury goods market in Europe with revenue more than $2 trillion. (Moore Dooyle
2010) Later (in 2001) Prada sold its Fendi share stake to LVMH again.
Perhaps encouraged by the conglomerate development activities of Prada’s near
rivals (Gucci and also LVMH), Prada decided to take strategic move and develop its
own multi-brand strategy to enhance, support and compliment the Prada and Miu Miu
brands. First independent acquisition was a 51% stake in German-based company called
Helmut Lang’s (for $40 million) in March 1999. This purchase was then followed by its
securing of a 75% stake in same year in the Jil Sander Company (Prada paid over $105
million to have the full control). According to The New York Times (1999), the
acquisition would provide Prada with a stronger foothold within the German market (as
Jil Sanders was born in Germany) and would provide an opportunity to combine stores.
The authors think that it also provided access to the design and creative talent of the
brand’s founder as she remained to be the head of the company. Bertelli became the
head of Jil Sander’s supervisory board. But the success was short lived, as Jil decided to
leave the company in 2004.
Prada’s acquisition of shoe brands proved to be more successful. In September
1999, Prada also secured ownership of English shoe company called Church’s (for
£106 million) and historic Italian brand called Car Shoe – known for its famous
patented driving moccasins, characterized by a soft sole with black rubber studs. This
was a great strategic acquisition as both companies were well established and enjoyed
an excellent reputation for quality and sophisticated elegance. These two acquisitions
also provided access to complimentary design, technical and production skill set that
would develop the Prada core shoe business. A joint venture between Italian eyewear
manufacturer Luxottica and Prada was also formed that time to produce Prada eyewear.
Prada wanted to become a leader in the eyewear industry.
Photos: Church’s, Car Shoe and Prada Eyewear
Despite apparent success, the company was still in debt. Prada’s mergers and
acquisitions slowed in the 2000’s. However, in 2000, Prada signed a loose agreement
with Azzedine Alaia to produce skin care products. Different products were introduced
in the United States, Japan and Europe.
As an international company, operating an ever-expanding network of stores,
Prada faced an important challenge. Company realised that expansion may also provide
for a redefining of the brand and came to the idea to introduce two kinds of stores: „the
typical and the unique“. Its unique store concept, they named the Epicenter store and
the first store in New York Soho district was opened in 2001 in collaboration with
designer Rem Koolhaas. The idea of this project was to rethink the concept of shopping
with a new approach, and to experiment innovative interactions with customers and to
create a meeting space that would contribute to the cultural landscape of the location
through the hosting of concerts, exhibitions and other public events. Koolhaas was
commissioned to review trends in global shopping, provide new concepts of new retail
tools and apply these to new kinds of stores. A total of three stores were created to be
distinct from the „GreenStore“ typology.
Photos: Prada’s first Epicenter in New York
In 2003 Prada signed an agreement with Spanish fragrance house PUIG Beauty
& Fashion Group for the production and worldwide distribution of the feminine and
masculine fragrances. The same year, second Prada’s Epicenter was opened in Tokyo
(probably Prada’s most important market in terms of revenue), designed by Swiss
architects Herzog & de Meuron. (Prada Group 2011) The six floor building includes
retail sailing space, lounges and public events space.
Photos: Prada’s second Epicenter in Tokyo
Prada had managed to gain such a high level of international renown that it
captured the attention of literature and the movie industry (the best-selling novel “The
Devil Wears Prada” was published also in 2003, followed by a movie of same name in
2006). (Prada Annual Report 2010)
The third Epicenter, designed by Rem Koolhaas again, was opened in 2004 in
Beverly Hills, Los Angeles. One of the most distinctive features of this store is that the
storefront is completely open, protected with an air curtain only and open directly on to
Photos: Prada’s third Epicenter in Los Angeles
In 2005, Prada decided to try its hand in film industry by presenting a short film
“Thunder Perfect Mind” at the Berlin Film Festival. This short movie was sensational
marketing ad that increased Prada’s brand value a lot.
In 2006, Prada’s first masculine fragrance was launched. By that time most of
the labels that Prada had bought, were sold. Also the movie “Devil wears Prada” was
launched that gained world-wide attention to the brand.
Having sought to establish a luxury brand conglomerate in the late 1990’s, the
inability of Prada to secure its commercial success for its highest profile acquisitions
required that they radically tidy-up its balance sheet by selling their non-profit making
businesses. Prada sold 45% stake of the Church’s & Company brand to private equity
fund Equinox, also Jil Sander business to British equity firm ChangeCapital Partners
and finally Helmut Lang brand to Japanese company called Link Theory Holdings. But
more radical action was required to reduce company debt. To reduce the debt directly, a
5 % stake in Prada was sold to Banca Intesa for €100 million in 2006. As Prada sought
to recover from the debt, it has focused upon protecting, maintaining and developing its
core businesses and decided to invest more to its core brands - Prada, Miu Miu and
Figure 4 will conclude Prada’s business model during the Golden Age. (See
Figure 4 below).
By the end of the 1990’s, Prada had transformed from being a marginal,
domestic and small-scale firm to a multi-national, multi-segment business with a
reputation as a leading influence upon fashion trends and consumer taste.
During 1990-2006 we can see that the companies target customers were both
women as much as men, who belonged to the upper middle class.
Strategy of differentiating the product or service offering creates something that
is perceived industrywide as being unique (Porter 1980: 37). Prada used the approach of
differentiating its customer service with Epicenter project. Re-thinking the whole
concept of stores and investing in innovative Epicenters not only increased the sense of
Prada’s brand exclusivity and value proposition, but it also reinforced the diverse and
intriguing aura of the brand. The stores significantly contributed to advancing thinking
of retail store design.
That innovation also contributed to customer relationship, because the
innovative shopping experience and excellent service started to exceed clients’
expectations by providing an insight into the personality and soul of the company,
which assists in the development of a working relationship.
Production, R&D RELATIONSHIPS
Combining fashion & fine
arts, globalization, Innovative shopping
marketing, stock actions service
PARTNER “Smart, sophisticated, CUSTOMER
NETWORK luxurious high quality products SEGMENTS
Raw material and with innovative shopping Upper middle class,
luxury items suppliers, experience“ celebrities,
Luxottica, Azzedine fashionistas
Alaia, Puig Beauty & Products: leather goods, women’s
clothing, footwear, accessories, Men&women
and designers backpack,
Miu Miu, Car Shoe, Church’s
Sport line, men’s collection,
skin care, eyewear, fragrances DISTRIBUTION
KEY RESOURCES CHANNELS
Staff Stores in Milan +
Material DOS in NY, Madrid,
Know-how London, Paris,
8 factories & 4 Tokyo, Japan, LA
COST STRUCTURE REVENUE
Production related costs, FLOWS
DOS, marketing Sales of goods, stock actions
Figure 4. Prada’s business model during the Golden age (1990-2006)
Source: Compiled by authors.
The multi-brand strategy and new products line (sport, men’s collection, skin
care, eyewear and fragrances) offered clients a wide range of exclusive and quality
products to choose from and even more clients became loyal and keen on Prada.
New transformation gave the business confidence and appetite to enter a further
phase of development – to become a global luxury conglomerate as new store in Japan,
Los Angeles were opened. The creation of the exclusive distribution network enabled
not only to make considerable profits, but also to control the decor, products and
services in all its stores.
Prada’s capabilities enlarged and they knew how to combine fashion & fine arts
(by creating Fondazione Prada project, co-operating with film industry etc.).
During this period, Prada actively used the strategy of merge and acquisitions.
According to Baghai (2008) merge and acquisitions are the most dynamic, also difficult
strategic activities firms can undertake, but in modern times this is one of the major part
of business growth. Bekier and others (2001) stress that mergers and acquisitions pay
off, constant attention to revenue needs is crucial. Too many companies lose their
revenue momentum as they concentrate on cost synergies or fail to focus on postmerger
growth in a systematic manner. Success is determined by the ability to protect revenue
and to generate growth just after a merger. Prada managed the strategy well and it
helped the company to gain power on the luxury fashion market as well money to pay
To increase brand awareness and a luxury fashion brand proposition, the
company started to use every field of communication – advertising, visual
merchandising, publications, architecture, store design (as mentioned above) and
sponsorships. Prada’s book and movie (released in 2003 and 2006) helped the company
to gain even more global attention and that lead the way to networking strategy, where
people talked about Prada and wanted to wear more Prada. That a bit led the way to
mass marketing. The more users, the more momentum behind the product, such that
company’s producing complementary goods or services would be attracted to the mass
of users. (Chesbrough & others 2007) That happened to Prada as well, even though
Prada did not market to the masses intentionally.
During this period, Prada formed many intra-industrial strategic alliances –
parnerships between firms which decide they can better pursue their mutual goals by
comgining their financial, managerial, technologial, financial as well their distinctive
competitive advantages. (Gulati 1998) Together new products and new value
proposition were created as well as entering to new markets was made possible and
benefitial for each party. Some of industry-level factors that drive companies to form
strategic alliances include the extent of competition, the stage of development of the
market, and demand and competitive uncertainty. Numerous studies have shown that
there are quite high failure rates of alliances. Prada has closely watched all the
necessary aspects of the magical formula for alliance success that Gulati stresses (1998):
flexibility in management of the alliance, building trust with partners, regular
information exchange, constructive management of conflict, managing partner
Moreover, strategic partnering have helped Prada to contribute to manufactoring
process as by the end on 2006, Prada had 8 factories & 4 local manufactures, which
fastened the production side not understimating the design and quality of the products.
2.1.4. The Present (2007-2011) – technology flows in
Exploiting the potential of a strategic brand alliance, Prada collaborated with LG
to launch the Prada mobile phone. Within the first year of launch in 2007, more than
one million units were sold, providing Prada with lucrative and much needed revenue
from the license agreement. (Zibreg 2009)
In December 2008 Prada launched its second smart phone – LG Prada II or LG
KF900. The second LG Prada phone looked almost the same as the previous phone, but
had ultra-thin QWERTY keyboard that slides out beneath the screen, 3G and Wi-Fi
accessibility, full HTML browser among other improvements. (Zibreg 2009) They also
made the PRADA Link (model: LG-LBA-T950), a special Bluetooth watch to
accompany the phone. It has been designed to let you see who’s calling by glancing at
your wrist, as well as reading text messages without fishing the handset from a bag or
pocket (Elite Choice 2008).
Photos: LG Prada II phone and Prada Link watch
Successful partnership continues as Prada and LG Electronics renewed their
exclusive mobile phone partnership, the two companies will develop the PRADA phone
by LG 3.0, for launch in early 2012 (LG Newsroom 2011). Chang Ma, vice president of
marketing strategy at LG Electronics' mobile communications division, said the
partnership with Prada provides LG much-needed insight to the luxury goods market.
Two companies collaborated on every aspect of the phone's development—from design
to functions to marketing. (Solomon 2009)
Prada has never used a good deal of conventional marketing, but is well-known
for collaborations with architects, designers, filmmakers and photographers worldwide.
For example Prada premiered its first animated short film, „Trembled Blossoms“ in its
Epicenter stores in 2008. The film depicts a lush, slightly scandalous, landscape of
flowers and nymphs that evokes Miuccia Prada’s vision blending suggestions of Art
Nuveau, Liberty, Aubrey Beardsley and Hieronymus Bosch. (Prada Trembled Blossoms
Premiere 2011) The imaginative short film „ represented dreamlike situations inspired
by the Spring 2008 collection (Fashion Week Daily 2008). Prada has also used film
students and already famous filmmakers to create short films inspired by its products.
That is Prada’s first step towards open innovation! Open strategy balances the tenets of
traditional business strategy with the promise of open innovation. It embraces the
benefits of openness as a means of expanding value creation for organizations.
(Chesbrough 2007). Prada noticed the potential value of external resources that are not
owned by the firm and that created value for the firm.
To promote its brand essence, Prada book was has published in 2009 presented -
706-pages covering 30 years of its innovations and experiments in fashion, art,
architecture, cinema and communications. Miuccia Prada and Patrizio Bertelli declare:
"The purpose of the book is to retrace and represent the multivalent aspects of Prada
from fashion to communication, from the pursuit of excellence to technological
advancement, from architecture to art. All these qualities work together to compose
Prada's engagement in the world of ideas and innovations, as it has always considered
fashion, luxury and style as an overarching project beyond the continuous production of
clothes, shoes and bags." (Senatus 2011)
Photos: Prada Book and a picture from “Trembled Blossoms”
Prada’s globalization capability was supported by localization or in other words
glocalization – globalization with localisation at the same time. This was expressed by
launching “Prada Made in...“ lineup that featured collections from around the world.
Photos: “Prada made in…” collection
Researches have brought up the incompatibility between luxury and Internet, since one
characterized by exclusivity and other by inclusivity. For brands in the mass market, the
purpose of communication is visibility. Accordingly, the Internet appears to be the
media that consumers use the most. Conversely, the luxury market has to show an
image of selectivity and rarity. (Geerts & Veg-Sala, 2011, 81-82) On the one that fact is
true, but on the other hand Internet today is THE information source so any business
that wants to be successful, has to be in the Internet. Brands have to stay in step with
their times to avoid becoming outmoded.
Even since recently most luxury brands kept away from the Internet. Versace
and Prada did not have corporate websites until 2005 and 2007, respectively (Okonkwo
2009, 302). Since then Prada has been actively developing the website, in 2009 May
online store was launched in Europe and in 2010 July in the USA. The merchandise in
the online store is limited to leather goods and eyewear, Prada Group COO Sebastian
Suhl Since told that „...the e-store had shown very encouraging growth.“ Currently
Prada e-store is available in 19 countries. E-commerce doesn’t make Prada unique,
though, because competitors are catching up aswell and big players in luxury such as
Louis Vuitton, Ralph Lauren, Versace, Gucci and others also have e-commerce set up.
On the 24th of June 2011 Prada launched on the Hong Kong Stock Exchange.
Prada was the first Italian company to list in Hong Kong and it's demonstrating the
importance of the Asian markets to luxury brands right now. Prada's choice of Hong
Kong as a listing venue was controversial at home in Italy, but owner and designer
Miuccia Prada said that the decision was an easy one, given China's relevance as a
major economy and its voracious appetite for luxury products. China's consumption of
luxury goods is forecast to grow 18 percent annually to about $27.5 billion by 2015,
from about $12.2 billion in 2010. (Barreto 2011)
Prada raised about $2.14 billion from the initial public offering (IPO), with a
majority of shares coming from existing stock owned by Miuccia Prada, and others in
the company. The IPO's aim was to pay down debt and fund expansion. Right now
Prada Group has 358 directly operated stores aims to have about 550 directly operated
stores by the end of 2013. (Zargani 2011)
Let’s take a closer look to the Prada group’s results in 2010. Net revenue was
€2.017 billion which is 31.8€ higher than the year before. EBIT (earnings before
interest and taxes) amounted to €418.4 million in 2010. 79% of the net sales came from
Prada brand, another 17% from Miu Miu and Church’s, Car Shoe together with other
brands contributed only 4 percent. Biggest net sales among the product lines came from
leather goods – 50,3%. Footwear and clothing both have a share of about 24%. Prada
started with leather goods and it still is the most important product line.
43% of the €2 billion net revenue came from Asia (Japan and Asia Pacific). This
determines the fact that Asia is the most important market for Prada and its importance
will most likely grow even more. Second largest market is Europe, including Italy –
41,8% of the net sales in 2010. Europe has historically been the biggest market for
Prada. Now the Asia has exceeded Europe and will most likely grow in importance in
the near future.
Most of the sales came from directly operated stores in 2010 – 70,8%. Prada is
actually trying to increase this percentage - right now Prada Group has 358 directly
operated stores aims to have about 550 directly operated stores by the end of 2013
To sum up - the main brand for the group is still Prada, giving 79% of the net
sales. The most important product line is still leather goods. Directly operated stores
bring in 70% or the net sales. Europe and Asia are both important markets, but Asian
market is growing faster and it already is slightly more important to Prada Group.
Asian countries, especially China, are placed in a strategic position in Prada's
new expansion plan and half of the new stores will be located in Asia. Prada had 38
stores in China and they have announced plans to open 50 new stores in China in the
next three years. (China Retail News 2011) Importance of Asia, especially China can be
explained by the simple facts: market growth in China in 2011 was 3% when factoring
in spending in Mainland China and spending by Chinese tourists abroad, luxury
consumption by Chinese people is now just over 20 percent of the global market (Bain
& Company 2011). That is one fifth of the whole luxury market.
Source: Prada Annual Report 2010
36 Compiled by authors
The following Figure 5 illustrates Prada’s business model from 2007 until 2011:
Production, R&D, RELATIONSHIPS
Combining fashion & fine
arts, globalization, Personal assistance
marketing, stock actions Innovative shopping
Combining fashion experience
PARTNER NETWORK CUSTOMER
Raw material and luxury SEGMENTS
luxurious high quality products
items suppliers, Upper middle class,
with innovative shopping
Luxottica, Puig Beauty & celebrities,
Fashion, architects and fashionistas, men &
Products: leather goods, women’s
LG and men’s clothing, footwear,
accessories, backpack, sport line,
skin care products, eyewear,
KEY RESOURCES mobile phones DISTRIBUTION
Staff, material, CHANNELS
know-how 358 DOS ,
11 factories & 4 Franchise (30)
COST STRUCTURE REVENUE FLOWS
Production related costs, Sales of goods, stock actions
Figure 5. Prada’s business model from 2007-2011
Source: Compiled by authors.
Focus of the business model has been Asia. China comprises 20% of the world’s
luxury market, therefore it is very reasonable that Prada’s initial public offering took
place in Hong Kong in 2011. IPO brought in $2.14 billion to support Prada’s continuous
Strong partnering with LG led to two consecutive luxury smart phones and third
one will be launched in 2012. This partnering led to totally new products for Prada and
also showed its capability to combine technology with fashion. Fashion firms are
willingly accepting intra-industrial collaborations as well as inter-industrial partnerships
– as Prada has with LG. LG obtains the improved global connectivity to mainstream
luxury and innovative markets, and Prada expands its influence into an innovative
technology-related market identified as creative trendsetter. These kind of inter-
industrial partnerships are referred to as „co-marketing alliances“. In a co-marketing
alliance, by partnering a fashion and non-fashion brands, two brands may become a part
of each other’s association, which ultimately leads to an incremental positive attitude.
Based on both brand’s own speciality, these brands technologically cooperate in
developing a new product (Prada is in charge of designing and LG takes on
manufacturing), and sell it at each brand’s store.
Partnering with other companies has become more important than ever. Pierre
Dussage and Bernard Garrette (1999: 8) found that the specific characteristics of
strategic alliances (multiple decision-making centres, constant bargaining, and clashes
of interest) inevitably make cooperation an unstable form of industrial organization.
This observation is confirmed by several statistical studies of alliances. In one such
study, which examined the fate of 880 alliances, K.R. it was found that only 40%
survived four years in existence and that fewer than 15% lasted longer than a decade. In
the light of these facts Prada has been very successful regarding co-operation, because
the company has had decades long partnering going on with raw materials suppliers,
manufacturers, cooperation with LG has been prosperous for five years and new LG
Prada smart phone will be launched in 2012. Authors consider Prada’s cooperative
strategy to be sustainable and profitable to all sides.
It is very important to choose a strong brand with great equity to secure a
successful match-up perception in co-marketing alliance. Ahn and others (2010: 17)
have suggested through their research that it is quite difficult to create profitably
successful fashion collaboration between partners in the same industry. It is more
important to discover the alliable product category in terms of the match-up perception.
Most of the marketing in 2007-2011 was done by linking Prada with culture and art, for
example in the form on different short movies inspired by Prada products and Prada
book. Prada has never used a good deal of conventional marketing, so this means that
Prada’s way of marketing still works for them. Globalization capability was supported
by fusing it with localization – the result was “Prada Made in...“ line-up that featured
collections from around the world.
The Group’s decision to invest in the expansion of its retail network proved to
be a winning one. Investment in new stores, the appeal of the products offered and
decisive action taken in terms of efficiency, while safeguarding the prestige of the
brands, made it possible to achieve volumes of sales and income not previously seen in
the century long history of the Group. The growth rates achieved were among the
highest recorded in the worldwide luxury goods market.
According to W. Chan Kim and Renée Mauborgne (2005: 4-5), there are two
kinds of markets, called red oceans and blue oceans. Red oceans represent all the
industries in existence today. This is the known market space. Blue oceans denote all
the industries not in existence today. This is the unknown market space. In the red
oceans, industry boundaries are defined and accepted and the competitive rules of the
game are known. Here, companies try to outperform their rivals to grab a greater share
of existing demand. Blue oceans, in contrast, are defined by untapped market space,
demand creation, and the opportunity for highly profitable growth. In blue oceans,
competition is irrelevant because the rules of the game are waiting to be set. (Kim,
Mauborgne 2005: 4-5)
To set a company on a strong, profitable growth trajectory in the face of these
industry conditions, it won’t work to benchmark competitors and try to outcompete
them by offering a little more for a little less (Kim, Mauborgne 2005: 27). Authors’
view is that Prada right now is doing business in Red Ocean, meaning that luxury
fashion market is very well-known market space and has quite a lot of competitors, they
all fight for their market share. Differences in marketing or product design don’t really
set them apart. What Prada should do, is find an untapped market space in the luxury
market – its own blue ocean, where competition is irrelevant, because there aren’t any
2.2. SWOT analysis of Prada’s business strategy
To summarize the evolution of Prada’s business strategies as well as Prada’s
current position on the luxury fashion market, authors have drawn up the main
strengths, weaknesses, opportunities and threats of the company’s business upon which
new innovative suggestions for the future business strategy can be made. (See Figure 6)
- design/quality/heritage; product portfolio - competitors have a stronger brand value
and are more aggressive
- dynamic capabilities
- too scattered business model
- controlled distribution and production,
globalization - few iconic products
- marketing strategy and skills - high cost structure
- intra-industrial; inter-industrial alliances
- increase brand value through value - growing debts
adding (new value proposition), innovation - loosing luxury brand value
- new strategic partner - competitors growth is faster
- concentration on certain products and - unsustainable partnerships
- counterfeits and copying
- gaining competitive edge over
Figure 6. SWOT analysis of the company’s business strategy
The core strength lies in the design, uncompromising quality and the heritage
that represent the best of Italian culture and tradition with a unique style and
sophisticated elegance. Prada has a wide range of product segments: leather goods,
clothing, footwear, fragrances and accessories. According to the company’s annual
report (2010), 50.3% of total net sale comes from leather goods and about 48.9% from
clothing and footwear. Through time, Prada has always been strategically innovative
(from materials to innovative store concepts and strategic alliances).
Prada has developed constant capability enlargement from launching special
type of nylon, innovating new designs and innovative store concepts. Prada’s innovative
approach and quality standards also apply to distribution as well as production. Prada
has developed a strong network of directly operated stores (DOS) that provide a direct
relationship with customers as well as franchise stores, that gives them the opportunity
reduce financial risk, but at the same time controlling the distribution really carefully.
Prada tends to go beyond conventional solutions to anticipate and satisfy consumer
tastes and needs to create a strong relationship with customers (from products to
innovative shopping experience).
Prada is also represented in selected high-end multi-brand stores and luxury
department stores that guarantee a number of points of sale in prestigious locations in
key markets and immediate comparison with the competition. As for production, Prada
products are made in 11 state-of-the-art facilities in Italy and through a network of
external sub-contractors – all of them selected for their craftsmanship skills. This
system enables close control of the overall production process and guarantees the
utmost quality and highest level of flexibility.
Prada’s marketing strategy has also been strong, including fashion shows, strong
and innovative merchandise as well as Epicenters project and they also have their own
E-store. Special projects carried out in fields other than Prada’s core business form an
important part of the Company’s communications strategy, highlighting the many
different facets that identify the brand. Film production has also helped Prada to gain
success. They put great emphasis on PR activities and sponsorship and avoid strongly
mass marketing as they are exclusive luxury brand. Prada has even let film students and
filmmakers to make movies inspired by its products – strategy towards open-innovation.
Through different periods Prada has always co-operated with different
companies and entered into inter-industrial as well as intra-industrial alliances (LG).
Prada is also known for well-known for collaborations with architects, designers,
filmmakers and photographers worldwide.
If we look at the weaknesses, we see that according to different brand analytics
competitors have a stronger brand value and are more aggressive on marketing to the
mass markets (even though being a luxury brand). The threat at this point is that
competitors just grow faster and take a better position at the market and Prada’s luxury
brand value is in threat. Prada’s opportunity here is to increase their brand value through
value adding (new and innovative value proposition). They have the opportunity to
think of something that would gain them a competitive edge over competitors. Maybe a
new value proposition (product or service) or even new strategic alliance will give them
The authors also have an opinion that Prada’s business might be too scattered –
even though they have a wide range of luxury products, they have actually only few
iconic products, mostly leather goods and clothing. The same goes with managing
different brands. The solution could be in concentration on certain products and brands.
Also the cost structure of the business is quite high and as Prada still have debts the
threat can be even more growing debts so arranging over the product and brand
management as well as looking into where to increase profit and reduce cost is essential.
In luxury fashion market, there is constant threat of counterfeits and copying as
there is no copyright protection. Counterfeits can lead to tarnished brand image and
increased expenses. For this purpose, Prada invests in worldwide trademark protection
and in monitoring the market in order to take tough measures against counterfeiters of
trademarks and designs. What concerns copyrighting, there is nothing that Prada can do
to reduce the risk as this is the constant process of the luxury fashion market – fashion
designers are actually quite often inspired by other designers and take over some of their
ideas and amplify it further.
3. PRADA’S FUTURE BUSINESS MODEL SUGGESTION
– „THE EXCLUSIVE PRADA’S EXPERIENCE WITH
As it is seen from previous Prada’s business model SWOT-analysis, one of the biggest
weakness Prada has is that its main competitors (Armani, Gucci, Louis Vuitton) have a
stronger brand value. Prada’s goal should be to become the most powerful Italian brand
by 2017 (present ranking according to MPP Consulting (2011) is 3rd with $4439
million, after Ferrari and Gucci) and to gain once more a high ranking in Interbrand’s
top 100 most powerful brands (last position in 2009 87th place, before that 2008 91st
place) (Interbrand 2008). This would give strength to Prada’s “brand equity” as a
fashion brand’s desirability must be accompanied by equally strong appeal and
recognition. In addition, Prada needs to revitalize the brand and expand its global grip
while preserving and deepening its genuine identity and core values. A proposition of
doing that will be explained further on in this chapter.
Prada has tried to produce quite large range of products to different segments
and managed quite non-profitable sub-brands. Every brand has costs for their upkeep.
Car Shoe and Church’s offer footwear, but Prada itself offers shoes, too. Therefore one
could say that in some cases Prada is competing with its own sub-brands. Since the two
small brands only contribute 4% to the Prada Group’s revenue and offer similar
products, we suggest Prada to sell Car Shoe and Church’s brands since these are niche
brands, which demand more upkeep costs than bring profit and selling them can reduce
the company’s debts. According to Prada’s annual report (2010), especially Car Shoe
revenues continued falling (-2.8% in comparison with 2009) as well as in previous
years. Prada should focus more on Prada and Miu Miu and products like clothing,
leather goods and footwear, but it is still vital to keep accessories, eyewear and
fragrances – as they are lower priced and reachable for the target group with average
income. The revenues gained from selling these brands shall be used to strengthen
Prada’s global brand image and to provide an even better customer relationship by
focusing on increasing investments on its most valuable customer.
The authors consider Prada’s most valuable customer to be from upper middle
class to high society, aged 35 to 60, who is fashion-conscious and appreciates high
quality products, exclusivity, culture and art events and luxury traveling. (See Figure 7)
Personal assistance with this segment is crucial for Prada.
Prada’s competitive edge over its competitors is unique design, company’s
heritage and historical background as it is one of the first luxury fashion brands on the
Italian luxury market and relationship with culture and art. Prada’s customers are mostly
traveling around and buying products from different distribution stores all over the
Culture and tourism were two of the major growth industries of the 20th century,
and towards the end of the century the combination of these two sectors into ’cultural
tourism’ had become one of the most desirable development options for countries,
regions but also companies. (Richards, 2009) Even today cultural tourism is one of the
largest and fastest-growing global tourism markets. According to the World Tourism
Organization’s (UNWTO) statistical overview international tourism grew by almost 5%
in the first half of 2011 totalling a new record of 440 million arrivals. Results confirm
that international tourism continues flowing. By the end of the 2011, worldwide tourism
is expected to grow about 4-5% (UNWTO World Tourism Barometer 2011).
For re-enforcing customer relations and increasing brand value by focusing on
Prada’s roots and core values and customers interests (fashion, culture, art and travel),
we suggest Prada to create new value proposition by providing the customer the
“Exclusive Prada travel and lifestyle experience” which combines providing Prada’s
existing and new potential customer with luxury travel, fashion and cultural related
services and privileges all over the world. The experience could consist:
Luxury travel and service privileges (personal travel assistance for travel
planning and arrangements, 24-h travel service, car rental and hotel benefits,
free access to VIP lounges at airports etc.)
Cultural events (reserved tickets for various cultural events such as exclusive
theatre plays, opera, movie, music and awards festivals).
Fashion events and service privileges (exclusive seats at Prada’s annual
fashion shows, benefit points that customers can cash in at Prada stores all
over the world).
The suitable partner for realizing Prada’s aspirations is unique and powerful
service company - American Express (AMEX). AMEX is the only company with a
strong, global presence across the entire payments chain and has premium network for
high-spending card members. (American Express 2012)
AMEX offers four different types of personal cards: American Express Green,
Gold and Platinum and Centurion Cards. From these Platinum Card is the most suitable
for Prada’s clientele. On one hand because of its limited access according to income and
assets ($3250 income + $121923 reserve) and on the other hand due to its wide range of
benefits for people belonging to upper middle class and high society. The benefits that
Platinum Card offers are mostly travel-, purchase- and entertainment-related.
In co-operation with AMEX new card “AMEX PRADA” will be released. This
card will include all AMEX Platinum card benefits as well as Prada’s new value
proposition benefits related to fashion and culture (mentioned above). (See Figure 7)
Who can get the card - almost anyone who matches the criteria of AMEX platinum card
as well as Prada’s loyal customer, according to their annual purchase volume.
Figure 7. AMEX PRADA exclusive card and its benefits.
Source: compiled by authors.
Since AMEX is globally known and very secure partner, this alliance will also
deepen customers trust towards Prada. Greater trust will keep the existing clientele.
Also, the alliance will bring Prada new customers with high incomes, who are interested
in fashion, travel and culture and who could become potentially Prada’s loyal customer.
Through additional luxury travel, culture and fashion services offered, better customer
relationships will be created. It will also increase brand value in general. This
partnership will provide Prada with additional source of revenue: firstly, because the
bonus system motivates clients to buy more Prada’s products; secondly, from paybacks
to Prada from additional financial turnover that the card creates to AMEX.
What is more, this alliance would create an important network and reduce
transaction costs. According to Jarillo (1988) long-term alliances between effective
partners will establish trust, network and lover transaction costs.
For AMEX this strategic alliance will bring new clients with high income who
are gladly willing to pay annual fee of $300 for AMEX PRADA. By diversifying
customer segment they will increase awareness of their brand and services in Asia and
Europe. Co-branding will re-enforce their premium brand image as well. Exclusive
Prada travel and lifestyle experience sets the company apart from its competitors and
follows the main idea of the Blue Ocean Strategy – find an untapped market space.
To bring customer closer to Prada heritage and brand, Prada could organize a
campaign called “Back to Prada’s roots”. The campaign could be held twice a year in
Milan, simultaneously with Fashion Week. With this campaign, also AMEX PRADA
card owners will gain great value when they travel to Italy or buy Prada’s products. The
advantages proposed are exclusive tickets to fashion and cultural events, parties related
with fashion week and double AMEX Prada points for each Prada product bought. In
addition, educational seminars on Italian fashion industry-related topics will be held –
available to everyone and Prada will also set up historical exposition in Fondazione
Prada to show the evolution of the brand and its core values.
As for the main marketing strategy, we recommend Prada to continue focusing
on fashion shows, innovative store branding and PR. Prada should keep sponsoring
sport events related to high-class society, like sailing, golf and tennis to be associated
with healthy luxurious lifestyle and to always be presented in elite events to create
positive brand associations. (See Figure 8)
By 2013 there will be 550 distribution stores. Authors suggest increasing the
share of franchises from 10% to 13%, also raise the franchising fee to increase profits as
well as keeping only the strongest at the market who will gain the competitive edge. E-
store will remain an important distribution channel and connection platform with
customers. At the moment Prada’s e-store is available in 19 countries – this figure
should also be increased in order to offer Prada e-shopping to a bigger audience.
Production, R&D, RELATIONSHIPS
globalization, marketing, stock Personal assistance,
actions innovative shopping
Continuing globalization experience,
Combining luxury with AMEX PRADA
fashion, travel and culture
PARTNER NETWORK VALUE PROPOSITION
Raw material and luxury „The Real Prada’s experience – CUSTOMER
items suppliers, Luxottica, high quality products, SEGMENTS
Puig Beauty & Fashion, innovative shopping experience Upper middle class,
and luxury travel & lifestyle High society
AMEX with AMEX PRADA“ Age: 35-60
Products: bags and other leather
goods, women’s and men’s
clothing, footwear, accessories,
KEY RESOURCES eyewear, fragrances DISTRIBUTION
Material Benefits from AMEX PRADA DOS (539),
Know-how E-store, Franchises
Partners (11), new stores in
Egypt, Peru, India
Sales of goods, stock
actions, paybacks on
costs, DOS, marketing
Figure 8. Prada’s potential future business model, compiled by authors
Prada Group operates in more than 70 countries, but there are still some
potential markets yet to conquer. According to Business Insider's Mamta Badkar (2011)
there are 12 countries where customers are about to noticeably increase
spending. Among these countries we suggest Prada to open stores in Egypt, Peru and
India. Egypt's retail market is expected to grow 10% over the next five years with over
80.4 million people gaining in purchasing power. India has a population of over 1
billion and they are getting wealthier and wealthier, organized retail in India which only
accounts for 7% of the retail market is expected to jump to 20% by 2020. Peru has seen
rapid economic growth over the last five years and will most likely grow even more.
Through this research paper, authors studied the evolvement of Prada’s company
by analysing the evolution of the company’s business model and current business
strategy. In the end, authors suggested a new business model for their future business.
As the analysis of Prada’s evolution from a single store business to a major
global brand indicate, the „system“ of fashion retailing has become complex in response
to changing consumer tastes, and extended competition base and advances in marketing
technology. The company has made quite many significant improvements in its
business performance through different periods. Words that describe their business
development through years are constant innovation (materials, products, customer
experience, new value propositions), close customer relationship, dynamic capabilities,
constant quality control (design, production, distribution), globalization, aspiration and
acquisitions, strong marketing, intra- and inter-industrial partnerships and luxury brand
By analysing Prada’s business strengths, weaknesses, opportunities and threats,
authors made suggestions for Prada’s future business. First, Prada should strengthen its
brand value and sell its non-profitable sub-brands Car Shoe and Church’s. That way
Prada can focus more on Prada & Miu Miu brands. To add value to Prada’s existing
customer and to gain more loyal customers the authors suggested that Prada could
create strategic alliance with a global company American Express (AMEX). In co-
operation new card – AMEX PRADA will be released which offers Prada’s clients a
wide range of fashion, luxury travel and culture related benefits. Also a new strategic
marketing proposal “Back to Prada’s roots” was introduced. As for continuing
globalization process, authors suggested Prada to enter new markets – Egypt, Peru and
India, because the retail markets are expected to grow in these countries over the next 5
to 10 years.
Consistent business management decisions and innovative approaches are
crucial for the company’s future business in order to keep its luxury exclusivity and
position among the most preferred luxury fashion brands in the luxury fashion market.
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Evolution of Prada Business Model - MBA Futuris Business Model Innovation Conference 2012