COMPANY ANALYSIS & PROBLEM IDENTIFICATION MARKETING MANAGEMENT BMKT601 TABLE OF CONTENTS Contents 1. EXECUTIVE SUMMARY3 2. FAST FASHION4 3. ENVIRONMENT ANALYSIS4 3. 1. Political Factors4 3. 2. Economical Factor5 3. 3. Social Factors6 3. 4. Technology Factors6 4. INDUSTRY ANALYSIS6 5. H&M8 6. STRATEGY10 7. SEGMENTATION11 8. TARGETING13 9. POSITIONING14 10. CONSUMER BEHAVIOUR15 11. MARKETING17 12. SUPPLY CHAIN22 13. CONCLUSION24 14. BIBLIOGRAPHY25 1. EXECUTIVE SUMMARY
The fashion industry is evolving to ever faster incorporate catwalk design to high street stores, with strong competition within an oligopoly market. The ever increasing speed of product supply within the industry allows competitors to frequently change strategies to suit observed trends in consumer behaviour. Hennes & Mauritz stands as one of the forefront competitors within the fast fashion retailers, characterised by a wide geographical presence spanning 38 countries and a turnover of ? 127 billion in 2010. This being said, the company still experiences strong forces that hinder growth and ven the maintenance of market share. Predominantly H&M is following a market penetration growth strategy; however, the company also focuses on product development, when introducing unique apparel such as the collaborations with iconic designers, and a diversification strategy when taking new products aimed at a new market, such as the H&M home ware line. H&M’s target market is people aged between 15 and 40 years of age, who are interested in fashion, beauty and spending money on trendy clothes, however also provide for children, cosmetics and home ware assortments.
The company recognises though, that the most profitable and popular segment within its market lies in females aged between 15 and 25. H&M provides for two types of shoppers: a necessity based shopper and a fashion enthusiast whose self-opinion is largely based on social response to dress and appearance. It achieves this through offering a wide range of products that suit the demands on quality, design, and affordability of both types of shoppers. H&M’s mission statement is clear: “quality and fashion at the best price”, in order to achieve competitive advantage.
Current economical influences have led to this strategy proving more successful, with the recession hitting the disposable income of most households in the UK and especially within H&M’s target market. In response to the financial hardship, many consumers are switching to value retailers with many claiming they will continue to purchase cheaper products even when the national economy shows signs of recovery. In order to prevent raising prices, H&M has had to outsource production and control costs effectively, especially with increases in VAT also affecting profitability.
Additionally, H&M has developed an effective advertisement strategy with campaigns designed to show current season designs and prices, utilising all forms of medium including TV, magazines, posters and endorsements. Nevertheless, there are still areas for improvement within the company: improving responsiveness from less successful segments, such as men’s clothing, and product awareness and consumer loyalty, as found in the Mintel 2011 report. 2. FAST FASHION
Fast fashion describes the nature of the majority of high street clothing retail in that designs move from catwalk to store in the shortest possible time in order to encapsulate current trends and changes to consumer behaviour. This strategy was founded on a manufacturing model known as ‘quick response’, developed in the USA; the industry requires responsive manufacturing capabilities and an extremely efficient and productive design force to exploit current and developing trends and meet the demands of the consumer. The fast fashion strategy has been employed by market leaders H&M, Zara and Top Shop.
The first of the components of a fast fashion system, the short production and distribution lead times, is essential for matching fluctuating demand with supply. Short lead times are made possible through localised production, inventory monitoring technology and expected distribution methods. Inditex, which owns Zara and is also the world’s largest clothing retailer, delivers new products to its stores twice a week whilst H&M is only capable of designing, manufacturing and distributing new products in three weeks by comparison (Cachon and Swinney2011).
The second component of the fast fashion system, the product design, is made fast through in depth analysis of consumer behaviour and industry tastes in order to identify unexpected fads and reduce lead times. Benetton for example, employs a group of “trend spotters” and designers throughout Europe and Asia in order to analyse market movements and also pay close attention to popular fashion shows. 3. ENVIRONMENT ANALYSIS PEST stands for Political, Economic, Social and Technical and is a tool used to analyse external factors affecting company performance and aid in monitoring trends in the external environment (Kotler and Armstrong, 2010). . 1. Political Factors Politics has a profound effect on business in the UK, and plays a critical role in developing any business strategy. Should related political factors fail to be considered there can be resultant loss in profit and elimination of the best market strategy as an option; Simkin et al. (2006) point out that a national political environment can influence the way organizations work. This would include the standard rate of VAT rising from 17. 5 % to 20% in 2011 in a governmental effort to cut deficits, which in turn had severe effects on company pricing and costs strategy.
The legislation that most affects the European market is the European Union Law Registration, Evaluation and Authorisation of Chemicals (REACH) which regulates the importation of goods containing chemical substances. The European Chemical Agency must be consulted when importing goods containing more than 0. 1% of a Substance of Very High Concern (SVHC). H&M uses a chemical management system to ensure that none of its products contain a SVHC, and that the company adheres to REACH legislation. Figure 1: PEST diagram. 4. 2. Economical Factor The economic environment has considerable influence on consumer behaviour.
Kotler and Armstrong (2008) suggest that changes in economic variables including income, cost of living and interest rates will affect the market place. It was found in a June 2011 BBC report that high energy prices and living costs were leading to consumers spending less money. Due to the increasing costs of raw materials, such as cotton, and the wage inflation in Asia, clothing retailers also suffered reduced profits. Mintel stated that H&M experienced a 15% reduction in profits, which can be justified by the reduction in consumers’ disposable income (Monk, 2011).
The report also found that 51% of consumers are not willing to spend on clothing. As Kotabe and Czinkota (2001) point out, the factors that most influence consumer spending are future expectations and income level. This can be observed when inflation rates are rising, and yet salaries are remaining the same, leading to individuals having to cut spending. This in mind, H&M is likely to see further declines in profit, especially with George Osborne, Chancellor of the Exchequer, predicting that the UK is to face another recession. 4. 3. Social Factors
Theoretically, social factors should influence company strategy in order to optimise consumer relations and profitability. According to Simkin et al (2006), the public are becoming more concerned with companies’ ethical behaviour and Corporate Social Responsibility. This has been reflected in the change of companies’ focus, including H&M, towards the environmental and social issues, specifically child labour, wages, recycling and social development projects. The issue of the UK’s aging population is likely to alter the needs and demands of the public, and companies may need to change strategy to protect profitability. . 4. Technology Factors As Armstrong and Kotler (2008) state, the “Technology environment is perhaps the most dramatic force shaping the marketing environment”. This is clear with the introduction of online stores and the provision of information over the internet. Mintel suggested that H&M’s improvement of its website has enabled customers to shop more easily, and therefore this could entice further customers to shop with the brand (Monk, 2011). 4. INDUSTRY ANALYSIS 5. 5. PORTER’S 5 FORCES Figure 2: porter’s 5 forces diagram. 4. 1. 1. Barriers to Entry
The fashion industry has a number of barriers to entry. Larger companies invest heavily into brand awareness through strong marketing; this in turn gives them an advantage when expanding to new locations compared to smaller, less famous, companies. Another barrier to entry is the difficulty a new company faces in differentiating its products from the competition, largely due to the size and saturation of the fashion market. A contributing factor towards this would be relationships held with suppliers, which takes a number of years to develop.
It takes time for larger companies to develop strong relationships with their foreign suppliers, and new entrants are not likely to find any shortcuts. The strong barriers to entry have caused an oligopoly within the market with existing brands competing against each other for control of market share. The only reassuring factor for entrants wanting to compete in the market is that there is a lot of legislative protocol surrounding fashion, the manufacture of products and working standards. 4. 1. 2. Threat of Substitutes
The threat of substitution within the fashion industry is acute. The main companies within the market combat this through brand development and a strategy towards developing customer loyalty. Fashions quickly change, and though certain characteristics remain the same, the different companies’ products must also change in accordance. Substitution can be limited, though, through competitive pricing and enhanced product quality. 4. 1. 3. Buyer Power The consumer has the power to choose: choose between companies based on prices, styles and quality.
Due to the fashion industry being such a competitive market, there are likely to be many stores that offer similar products, and therefore create choice. The consumers, or buyers, have a very powerful influence and strongly determine the profitability of companies competing within the fashion industry causing reputation to be of the upmost importance to retailers. 4. 1. 4. Supplier Power The benefits of cheap labour have led to the fashion industry sourcing products from abroad. Suppliers businesses, however, are dependent on the emand of global brands and therefore have limited bargaining power and influence on the market. Consumers’ expectations regarding corporate social responsibility, however, have meant that companies are offering fairer deals towards suppliers, with improved wages, working conditions and often social support. The relationship between a company and its suppliers can affect a company’s loyalty; however, with every profit driven organisation, decisions are often cost related; again diminishing the power that suppliers possess. 4. 1. 5. Competitive Rivalry
As mentioned, the fashion industry follows an oligopoly structure, and is considerably large. There are a lot of competitors providing similar products and working within the same segments. These companies also offer similar customer services and appealing store environments to one another. These similarities have led to the severe investment into advertisement and sponsorship in order to increase brand identity and product awareness. Finding a method of differentiating the company from competition is of the upmost importance to solidify future revenues and profits. 5. H&M
H&M was established in Vasteras, Sweden, in 1947 by Erling Persson. In the beginning the purpose of the shop was personified in its name ‘Hennes’, being the Swedish word for ‘hers’, as only women’s clothes were sold there at the time. In 1968, Persson acquired Mauritz Widforss, a hunting and gun store in Stockholm; it was from this time that men’s clothes were introduced to Persson’s stores and the company was given a new name, Hennes & Mauritz, or H&M as it is commonly known today. In the following years the company expanded continuously, especially after 1982 where it grew at an even greater pace.
Currently H&M holds an international presence in 25 European markets with over 2,206 stores in 38 different countries; the company also turned over ? 127 billion in the year to November 2010 (Monk, 2011). Figure 3: H&M: Sales As % Of Clothing Specialists’ Sales In The UK, 2006-10 (Monk, 2011). The rapid growth of H&M has been predominantly due to its store expansion; through the opening six months of 2010/11, it had opened another 102 stores and closed 11 taking its total to 2,297, of which 56 were franchises.
The management plan to add another net 250 stores throughout the remainder of the year, with the UK, China and the US being its main expansion zones. This being said 2011 is proving tough and comparable sales have been weak. H&M Mission Statement “Fashion and quality at the best price” is more than just words: “Quality means carefully testing everything before it hits the shops, from jeans to lipstick. But it also means H&M is a fashion house in its own right, with its own trends”. We do not copy”, says head of design Margereta Van Den Bosch, “With over a hundred in-house designers, we create our own fashion” (H&M Publicity, 2011). It is crucial for H&M to identify the most profitable target market to provide them with manufacturing, distribution, communication and economic mix that betters the company’s competition. It is also necessary to provide for the differing needs of consumers from different countries, this combined with the managerial orientation is the optimal way of influencing the businesses profitability.
H&M cannot merely act retrospectively through the observation of sales results, but through the analysis of psychological and social factors that are likely to influence future consumer behaviour. H&M considers this during the development of its communication strategies that will increase the interest towards the brand and its products. 6. STRATEGY Ansoff’s Matrix Ansoff’s matrix is a marketing tool that is widely used to help companies in their choice of growth strategy through studying the type of market, new or existing, the product, new or existing, as shown in figure 9 below (Kotler and Armstrong, 2010).
A suitable strategy can be devised based on these four outcomes. H&M is most of its operations maintain the market penetration strategy. H&M constantly brings new product designs to its shops. It employs current line’s extensions and variety of colours, sizes and styles. Basically, the general apparel is the business main operational scheme. However, now and again H&M is trying to implement other strategies, mainly because the company operates within the fashion industry and it is crucial to provide novel and innovative products ideas to keep consumer interested in the brand.
Figure 4: Ansoff’s Matrix Using Ansoff’s matrix, H&M currently adopt a product development strategy, hence H&M have to be innovative and pro-active towards the changing tastes of the market in order to ensure that this strategy is successful. The company’s successful collaborations with designers such as Jimmy Choo, Karl Lagerfeld, Stella McCartney and most recently Donatella Versace have ensured that H&M’s innovativeness is appreciated by the consumer (Monk, 2011). This plan cleverly offered customers designer items at a fraction of the price, very suitable to the current economic climate.
H&M have not solely focused on the product development strategy as they have also used diversification to expand into new markets; such as the introduction of their home ware range. It is possible for H&M to continue with this strategy further with perfumes, possibly through collaborations. This strategy is likely to be far more risky for the company however, as H&M has no experience within these fields. The lack of public awareness in relation to H&M’s home ware range could identify weaknesses in advertisement strategy that are not leading to product awareness.
It would be crucial for H&M to alter this in order for their diversification strategy to prove successful. 7. SEGMENTATION Segmentation is when the market is divided and categorised. Market can be divided into demographic, geographic, psychographic and behavioural demands and characteristics of the consumer. This market division enables companies to devise products, or services, and meet the needs of specific groups (Kotler and Armstrong, 2010). Additionally, segmentation aids in marketing as it is more effective to communicate, advertise and promote to people in similar groups as it is possible to predict the response.
Companies can then target groups that are perceived to have the least differences in demands. It is important though for companies to ensure that the segment is large enough to ensure profitability. H&M mainly segments its market based on demographic and psychographic factors. 7. 1 Demographic This specific segmentation method involves categorising people in relation to age, gender, family life cycle, family size, social class, education, religion, education and occupation (Kotler & Keller, 2009).
H&M’s preferred segment are females aged below 40, however its best-selling segment remains females between 15 and 25 years of age (Monk, 2011); this suggests that by focusing on the rest of the segment group H&M would likely increase sales. Consumers are facing difficulties in relation to affording clothes however, and as Mintel reports “The percentage of UK consumers agreeing that they buy new clothes every season fell (for the third year running) in 2010” (Monk, 2011). 5-25 year old remains the dominant purchasing segment for H&M, since the are the most likely group to spend money on fashion apparel every season. This group enjoy shopping as an experience, regardless of current economic strain. It main consumers, as can be seen in figure 5, are people belonging to the C1 – upper middle class. H&M is also targeting males under 30. However, though Mintel’s report on UK retail found that over half the population are not interested in clothes, and of this 61% were male. There are therefore additional difficulties in enticing this segment to purchase more garments.
Smaller segments that H&M provide for are babies and children, ranging from the age groups 0 to 18months, 18months to 8 years and 9 to 14 years, pregnant women and plus sizes, called Big is Beautiful (BIB). Despite having many segments, H&M are well aware that some are considerably more profitable than others. Figure 5: H&M: Change in shopping behaviour in the last six months, by gender, age and socioeconomic group, July 2011 Base: 1,524 adults aged 16+ 7. 2 Psychographic The psychographic method of segmentation involves grouping people by their psychological or personality related traits, lifestyle or values.
According to the VALS framework of segmentation, H&M’s main segment are experiencers, being “young, enthusiastic, impulsive people who seek variety and excitement and, therefore they spend a comparatively high proportion of income on fashion, entertainment, and socialising”, as state Kotler and Keller (2009). Furthermore, H&M very much targets those interested in current fashions and trends from the catwalk. H&M meets the needs of this group by offering quality clothing at an affordable price, and being able to introduce new and innovative designs frequently (H&M, 2011).
H&M also benefits from operating in 38 different countries, offering strong opportunities for expansion and a development of global market share. 8. TARGETING The success of the brand is dependent on satisfying the broad variety of consumer profiles; H&M is required to identify the key reasons and priorities of target group that lead to the purchase its products. An understanding of target group priorities and demands is linked to the study by Maslow of the classification of human needs, illustrated in his pyramid, which is very significant in analysing target group profiles and consumer motivation (Kotler and Armstrong, 2010).
SELF ACTUALIZATION AUTONOMY AND ACHIEVEMENT EGO-SELF-ESTEEM NEEDS POWER, RECOGNITION, PRESTIGE SOCIAL NEEDS LOVE AND BELONGINGNESS NEEDS SAFETY NEEDS SECURITY, SHELTER, STABILITY PSYCHOLOGICAL NEEDS AIR, WATER, FREEDOM FROM DISEASES, CLOTHING SELF ACTUALIZATION AUTONOMY AND ACHIEVEMENT EGO-SELF-ESTEEM NEEDS POWER, RECOGNITION, PRESTIGE SOCIAL NEEDS LOVE AND BELONGINGNESS NEEDS SAFETY NEEDS SECURITY, SHELTER, STABILITY PSYCHOLOGICAL NEEDS AIR, WATER, FREEDOM FROM DISEASES, CLOTHING Figure 6: The Maslow’s Classification of Human Needs.
There are two main behavioural trends within H&M’s target group consumer behaviour: those who search for practical yet affordable clothing and those who wish to acquire a wide variety of clothes each season to follow trends but cheaply. These two groups are distinguished further by the following descriptions: Practical Consumers Practical consumers perceive clothes as necessities in order to fulfil being dressed. This need is just a physiological matter included in Maslow’s basic level, or primary needs. They may, however, seek to purchase items under certain aesthetic personal taste.
Even though, fashion is perceived as a basic need and does not affect their psychology or social status. Fashionable and Trendy Consumers Fashionable and trendy consumers search for clothes as a source of recognition of self-fulfilment, reinforcing their self-esteem and the satisfaction of one’s ego. Maslow classifies these needs within the category of self-actualisation due to the belonging to a social collective in which they want to feel integrated and accepted. In this case, clothing goes beyond practical matters and basic psychological needs.
The fashionable and trendy consumers’ deficit consist of the need to feel attractive in order to feel self-confident, keeping a high-esteem status or achieving a prestige, charisma or reputation. In this scenario, an individual is aware of their portrayal to the surrounding public and their appearance has an effect on their psychological state. 9. POSITIONING The fast fashion industry is a particularly competitive environment, meaning that the companies require ways of differentiating themselves from the crowd to ensure identity and customers’ loyalty and respect.
Furthermore, their strategies must focus on building up a strong corporate image that is true to this established brand identity. Following the principles of Corporate Branding, a successful brand, such as H&M, possesses uniqueness and differentiation towards its competitors. H&M intends to position itself among competition according to their philosophy to deliver ‘quality and fashion at the best price’. Perpetual map illustrates H&M on the price and quality arches with its main competitors. Is it clear that H&M differentiates from other supplier through it low price and good quality position.
Figure 7: The Quality/ Price Perpetual Map. Corporate branding, however, does not only refer to the position of H&M in the market, through a well-established corporate identity H&M can aim to attain a special position within the conscience of the consumer. In basic, to beat the competition, companies have the choice of either providing superior quality or price. In the case of H&M, however, supplementary services are offered to ensure receiving more feedback from the consumer. Through this strategy, H&M adds value to its image, overcoming the fact that a low price strategy a necessity in order to compete. 0. CONSUMER BEHAVIOUR The perception of fashion varies among different generations, younger people usually favour a higher quantity of, cheap, lower quality and ‘trendy’ clothes in comparison with older generations who tend to prefer purchasing less apparel, but of higher quality. In fact, most of the older consumers see fast fashion as a waste of money and time. Mintel’s research into the UK’s fashion retail exposed that the clothing sector was an above average performer in 2010 compared to other markets. 2011, however, has been much more difficult for fashion retailers and consumers (Monk, 2011).
The recession has clearly benefited value fashion retailers; consumers are looking to reduce their clothing spending and therefore are shopping more often in value clothing stores. Also, nearly half of respondents claimed that they did not intend to change the amount they spent on clothing in the coming year. “I shopped in the cheaper retail outlets before the recession and I will continue even when the recession is over. I think the cheaper outlets have probably found that they have won over a lot of new customers. ” 45-54 year old C2DE female (Monk, 2011).
Customers who very often visit H&M outlets do so in the search of fashionable dresses and accessories at vastly affordable prices. These consumers will not purchase a pair of heels from brands like Jimmy Choo, yet have no hesitation in buying a similar pair at H&M, paying only ? 40. The appealing mixture of affordability and the latest fashion designs make people rush towards H&M outlets, despite this there is no significant sense of brand loyalty. Typically 3 out of 10 consumers shop at five or more outlets, and this is especially true for younger age groups.
Figure 8: Where consumers have purchased clothes in the last 12 months, by repertoire of number of outlets, July 2011. Base: 1,522 adults aged 15+. (Monk,2011). The continuous spending of the young buyers that ‘buoy’ fast fashion during and after the recession, in that they kept the cheap clothing industry afloat. Despite this, this group of younger consumers are now facing an unprecedented squeeze due to economic and political factors. In 2012 fees for undergraduate courses will increase significantly by two thirds of the current fees. Also, the average weekly rent in England and Wales rose by 1. % in August 2011, with annual rent inflation running at 4% according to the LSL Property Services. Furthermore, the 20. 8 per cent of unemployment rate among the 16-24-year-olds threatens a negative impact on spending habits and fashion market growth (Monk, 2011). 11. MARKETING Product Product Life Cycle The life cycle for the fashion industry is fairly short. Since the 1980s a typical life cycle for fashion apparel has four stages: introduction and adoption by fashion leaders, growth and increase in public acceptance, mass conformity (maturation), and the decline and obsolescence (Kaiser, 1997).
The fashion cycle is moving faster than ever, driven by technological development and innovation, and globalization. Fashion has its life cycle; and fast fashion retailing alike. Figure 9: General Fashion Cycle Model from ‘The Social Psychology Of Clothing’’ By Susan Kaiser. The life cycle of fashion products is displayed in the diagram above and consists of three stages: an introduction stage, acceptance stage and regression stage. However, the cycle’s length and shape changes through the different kinds of fashion.
Taking into account the relative length of the acceptance stage, there are four kinds of “fashion” including classics, moderate fashion, fast fashion and fads. Figure 10 illustrates the four kinds of “fashion” and their positions in respect to life cycle (Kaiser, 1997). Figure 10: The Acceptance Cycle of Fad, Fast Fashion, Moderate Fashion and Classics. In the diagram above, fast fashion is located between moderate fashion and fads. A fad is defined as a short-lived fashion that suddenly becomes popular and quickly disappears (Solomon & Rabolt, 2009). Moderate fashion, often cyclical, is a style common in a moderate period. * Product Portfolio The product portfolio is a tool broadly used in analysing market position of a company’s product lines in comparison with those of competitors. One of the most popular approaches to portfolio analysis is the Boston Consulting Group (BCG) matrix (Babette and Fleisher, 2008). The BCG divides product lines into four main groups. Cash Cow are the products that produce the largest market share for companies; the product is in a maturity stage and produces large profits, yet there is limited growth available. Products that contribute large market share and show signs of fast growth are called ‘stars’.
The “Big is Beautiful” (BIB) concept of H&M for women in larger sizes is a star, where H&M faces nearly no competition. Another star is the teenager lines, where the company’s market share is the biggest in the market. Despite problems relating to the aging population, adult fashioned clothing is becoming popular with younger consumers. The ‘question mark’ products refer to products that provide little market share however are showing strong signs of growth; finally, there are products that are defined by a slow market growth, the called dogs of the ompany; this tends to be characterised by men’s clothing for H&M. Figure 11: Boston Consulting Group Matrix. STARS QUESTION MARK DOGS CASH COWS MARKET GROWTH MARKET SHARE BIB TEENS CHILD WOMAN MATERNITY COSMETICS MAN HOMEWARE STARS QUESTION MARK DOGS CASH COWS MARKET GROWTH MARKET SHARE BIB TEENS CHILD WOMAN MATERNITY COSMETICS MAN HOMEWARE COMMUNICATION Marketing is the key driver of fast fashion, ensuring consumer interest promptly after the time of creation. This is achieved through the promotion of fashion as a fast, low priced and disposable commodity.
It is important for companies to differentiate themselves from such a competitive market through offering the latest trends and supreme quality, which Zara does very well. H&M’s strategy towards gaining competitive advantage is to offer “quality and fashion at the best price” and importantly communicates this effectively to consumers with a range of advertising methods. Although the recession has impacted company strategies, H&M dramatically increased their advertisement budget in 2010; as with TK Maxx and New Look (Monk, 2011l).
It was found that the top 25 companies raised their aggregate advertisement expenditure by 26% in 2010, representing a bounce back from two years of reductions. Opposing this, H&M’s competitor Zara has a very limited advertising. Advertising H&M communicates its business concept through a variety of advertising campaigns around the world, designed to inform customers of new products. H&M’s advertisements are differentiated by a focus on clarity towards simply the product and price, acting as enticing invitations for consumers (H&M Facts, 2011).
Brand identity is established through a range in forms of communication from free magazines, social media interactions and traditional methods of communication, being television, billboards and posters. Current advertisements are aimed at evoking an emotional response from consumers, depicting love, friendship and family. This makes consumers relate to the campaign and thus to the brand. The marketing of H&M has enabled the company to convey its positivity; the advertisements do not aim to convey one specific product, but rather a package lifestyle and fashion attitudes.
There is an emphasis on diversity, with new models being featured each season from different cultural backgrounds, aiding in relating to a larger range of consumers. Designer Collaborations Every year H&M launch a number of major campaigns which are complemented by additional smaller campaigns, this increased the interest for new collections and the brands appeal towards consumers. Since 2004 H&M has also strategically collaborated with several world-famous designers and fashion icons.
These collections positioned the brand as a fashion house and improved consumer opinions relating to the brand but at the same time benefit the designers through additional publicity and appreciation, a sensible move proving a win-win situation for both parties (Schultz, Antorini, & Csaba, 2005). Celebrity Endorsements The use of celebrity endorsement has proven to be a very effective way of introducing fashion products to the market. The use of celebrities in advertisements enables the brands to further appeal to the consumer; the popular appeal of celebrities drive the sale of fashionable clothing significantly for brands.
H&M are looking to further appeal to customers with a body wear range designed by David Beckham, to be introduced in February 2012; this may in turn help to boost H&M’s trailing male segment (Chan, 2011). Direct Communication To be competitive in the market, and to increase their product availability, H&M communicate directly with consumers through social networks such as Facebook and Twitter, and the YouTube channel. Moreover, the company has developed an iPhone application in 2010 which further enables direct communication with the consumer (Monk, 2011).
Through utilising improvements in technology, H&M will be able to develop promotional programs in response to specific consumer behaviour. Also, H&M incorporates semacode to their adverts; consumers are then able to purchase goods with their mobile phone by scanning the semacode bars. The incorporation of such developments in technology is crucial to H&M’s competitiveness and future profitability. H&M aims to be recognised as an innovative company amongst its competitors, encompassing the current technological trends of retailing (H&M Facts, 2011). * Price
Price is unique in that it is the only element of the marketing mix which generates revenue, whereas other elements incur costs. Price is not to be confused with value, which is the amount of money which is considered to be a fair equivalent for a product or service. In the modern marketing environment companies often have many competitors, particularly in a fashion industry which is of an oligopolistic nature. H&M therefore, is dependent on their pricing strategy being right, especially as the recession has caused consumers to face greater price sensitivity and attraction to lower prices.
H&M attempts to gain a competitive advantage and maximise its market share through adopting a value pricing strategy; H&M’s prices reflect this objective and corresponds to the company mission statement. Ensuring good value naturally leads to consumer loyalty and should attract a large number of value-conscious consumers. Figure 12: The Quality/ Price Matrix How can H&M maintain such low prices in relation to competitors? One of the reasons is the optimisation of economies of scale, utilising the company’s scalability whilst controlling distribution costs.
H&M is also very serious about maintaining its pricing and would sacrifice profit in the case of economic and political factors influencing the market. The increasing cotton prices around the world, driven by supply shortages, are causing severe financial difficulties to clothing manufacturers and retailers. In 2010 H&M reported an 11% fall in profits over the final three months in relation to the increasing cost of raw materials. More expensive clothing brands passed these increases in costs to the customers; H&M, wary of its value-for-money image, chose to take the margin hit.
H&M Chief Executive Karl-Johan Persson said “Instead of passing on these cost increases to customers, we chose to strengthen our price position in order to build further on our strong market position for the long term”. Also, Persson stated that the company is not planning on cutting of usage of cotton unless customers were to demand an increase in other materials. 12. SUPPLY CHAIN Inbound Logistics There is no indication of inbound logistics as all of H&M’s productions are outsourced. This requires tight and regular management control over all suppliers.
As the retailer has no direct control over the purchasing and receiving of raw materials for the production, it is essential for them to employ managerial officials to monitor and evaluate the inbound logistics flow. This official, plus auditing, adds to costs experienced by H&M. Operations H&M focuses on outsourcing production; therefore it uses around 700 independent suppliers across the world. Despite having significant costs advantages of outsourcing, the production is based on mass production resulting in basic end products.
The drawback of this is that many competitors enter the market with specialising into production processes which attract customers because of the quality and differentiation. Zara; the closest competitor of H&M, for instance, is highly vertical integrated, running its own manufacturing facilities and producing only limited goods. This certainly gives Zara full control over its manufacturing as well being fast responsive to market trends. However, in the case of H&M, the retailer lacks sometimes of quality assurance, because of its indirect control over production and therefore other competitors are favoured.
Outbound logistics H&M possesses a longer lead time compared to Zara. It takes H&M an average of two weeks for fashion sensitive garments and up to six months for more basic garments. It can be agreed with H&M’s 2003 annual report, that ‘short lead time is not always the best, since the right lead-time is a matter of bringing price and quality in balance. ’ (H&M annual report, 2003) In order to sell the manufactured products immediately which are carried out under mass production, the excessive inventory is stored in warehouses so that it is available upon request or placing order.
H&M has distribution centres in each continent where it has its production offices. However, the products get out of favour shortly due to the increased competition and fast changing market trends. Consequently, the products will be sold under price reductions and other promotional actions. 13. CONCLUSION 13. 1. SWOT The internal analysis is an assessment of the strengths and weaknesses of H&M. These strengths and weaknesses indicate how successfully H&M can take opportunities and avoid harm arise from threats in their industry environment. STRENGTHS Wide Geographical Presence
Competitive Value Pricing Strategy Wide Product Range Exclusive Designers Collaborations Broad Marketing Communication Large Target Group WEAKNESSES Low Customer Loyalty To The Brand. Long Lead Time Compared To Rival Zara. High Number Of Competitors And Substitutes. OPPORTUNITIES Further Expansion Spending Trends Shift Towards Value Retailers Technology Advances Corporate Tax Decrease Good Image Through Social Responsibility THREATS State Of The Economy – Double-dip Recession Competition And Substitutes (Price Wars) Fast Changing Economy STRENGTHS Wide Geographical Presence
Competitive Value Pricing Strategy Wide Product Range Exclusive Designers Collaborations Broad Marketing Communication Large Target Group WEAKNESSES Low Customer Loyalty To The Brand. Long Lead Time Compared To Rival Zara. High Number Of Competitors And Substitutes. OPPORTUNITIES Further Expansion Spending Trends Shift Towards Value Retailers Technology Advances Corporate Tax Decrease Good Image Through Social Responsibility THREATS State Of The Economy – Double-dip Recession Competition And Substitutes (Price Wars) Fast Changing Economy 13. 2. Recommendations: Areas To Focus On
H&M operation and advertising effort is concentrated mostly on females 15-25 years old, what leaves the rest of segments underperformed. Also, when analysing the company product portfolio, the vast part of H&M’s products are characterised by low popularity among buyers. Generally, despite of H&M large products range, in most of the cases H&M does not maintain that excessive market share. H&M main consumers segment is characterised by low brand loyalty. Buyers are driven to the H&M’s stores due to its good competitive pricing strategy rather than emotional attachment to the brand itself.
On the other hand, marinating a good value pricing strategy could be impossible for H&M if economy fall in further recession. H&M will not be able to absorb another Raw material price rise or VAT increase, therefore it prices will have to rise and this would cause H&M loss of its ‘good value price’ image. H&M’s lead time tends to be too long compared to main competitor, Zara. H&M also lack of quick responsiveness to the vast changing market trends regarding new fashion designs. 14. BIBLIOGRAPHY Babette, E. , Fleisher (2008). Analysis without paralysis. 10 tools to make better strategic decisions.
Parsons education: New Jersey. Baker, R. (2011). H&M launches ethical fashion brand. URL: http://www. marketingweek. co. uk/sectors/retail/hm-launches-ethical-fashion-brand/3025566. article Retrieved: Nov 2011 Barnes, L. , Lea-Greenwood, G. (2006). Fast Fashion. Journal of fashion marketing and management. . Volume 10. URL:http://books. google. co. uk/books? id=E2btlKDHEIoC&pg=PT7&dq=Liz+%26+Gaynor+2006,&hl=en&ei=NennTrjFHcfd8QOm-92bCg&sa=X&oi=book_result&ct=result&resnum=1&ved=0CDUQ6AEwAA#v=onepage&q=Liz%20%26%20Gaynor%202006%2C&f=false retrieved: Nov 2011.
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