Marks and Spencer - Part 4
Marks & Spencer is a well-known retailer in UK - Marks and Spencer introduction. Although it had its long-history, high-quality product, customer loyalty and successful performance before, it is experiencing a hard time nowadays. Therefore, there is a need to analysis the nature, scope and business environment of M&S, evaluate the strategies pursued and analyse whether its strategies could be sustainable. (Johnson, G, 1988)
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Marks & Spencer is one of the UK’s premier retailers of clothing, food, home ware and financial services with a worldwide reputation of high quality. It is also a global business with operations in North America, Europe, the Middle and Far East. In the USA the company owned the up-market preppy clothing retailer Brooks Brothers and the King’s Supermarket Chain. (Johnson, G, 1988) All M&S’ goods are manufactured to the company’s specifications and are sold under the exclusive St Michael brand name. The company differentiates itself ‘by serving the mass market with innovative, high quality goods and competitive prices’.
The core product area for M&S is clothing and it has dressed a substantial proportion of men, women and children in the UK for five generations from their underwear outwards. It has around 25% of the UK £15bn clothing market. In the 1960s, M&S sourced 99% of its products from the UK, and even by the 1990s still sources 70% of its products domestically, spending around £5.7bn a year.
M&S is also well-known for its high quality grocery selection. It takes 3%-4% of the £60bn UK food market.
M&S also sells a range of household products and furnishings, as well as becoming a major financial services supplier with 5.5million M&S charge cards holders.
Big organisations like M&S need to monitor the ever-changing business environment. ‘No company is an island, but exists in a sea of other organisations’ (Hartley, Palmer, 1999). M&S has seemed to lose its traditional business way in terms of intense marketing competition and rapid marketing changes. (Johnson, G, 1988)
The external environment comprises all of the forces and events that impinge on organisations. ‘A company that does not recognise a different international influence is unlikely to succeed’ (Naylor, 1999). As the macro environment is ‘undergoing tremendous and far-reaching change’ (Daft, Marcic, 2001), it is important to monitor the business macro environment through PEST analysis.
The organisation has always monitored its performance by first making clear objectives for
the business. Without clear objectives it is difficult to evaluate what a marketing plan is
trying to achieve or whether the plan has been successful. It is usual to translate marketing
objectives into quantifiable “result areas”, such as market share, market penetration or
growth of sales. Some of these may be further broken down into specific sales volumes,
value goals or geographical targets.( Lynch, R, 2000 ) Marketing objectives allow Marks and Spencer to have
a basis for evaluation which can then be analysed after a certain period of time. Each
department most make sure that the organisational activities are co-ordinated in such a way
that marketing objectives are met.
In order to point to the most critical issues the report is divided into several sections,
starting with an analysis of the broader macro and micro environment leading to focus on
internal organizational problems afterwards.
Strategic Business Audit
The Macro Environment
Due to lack of available information in this case, a very informative PESTEL framework, which is normally applied to analyze the macro environment, cannot provide great help in this discussion.
2.2 The Micro Environment
From the case, we can identify that “clothing” and “food” are the two major industries M&S is involved in. These two industries have the common feature of swift change. The pace of technological improvement and the speed of global communications mean more and faster change now than ever before. This trend, therefore, requires managers to react swiftly to adjust strategies which fit the changing business environment. Unfortunately, M&S seemed to have done this poorly, as analysts commented: M&S ignored the changes in the marketplace while its competitors quickly reacted to changes. The reasons should be analyzed by looking closer at the micro environment. (Lynch, R, 2000)
Before using the five forces model to analysis the micro environment, the market has to be segmented. However relatively few information for this aspect can be drawn from the case. We roughly breakdown the clothing market into three segments numbered from 1 to 3 to which the model will be applied (see illustration 2 on the next page):
Illustration 2 Proposed M&S Industry and Market Framework
A. Bargaining power of suppliers
Bargaining power of suppliers in most clothing segments is relatively low but when purchasing cloths from luxury designer firms, the bargaining power tends to be higher.
M&S previously had only British suppliers for its claimed reason of high quality, but later on it outsourced globally to lower the cost. M&S was no longer reliant on particular suppliers and therefore the bargaining power of suppliers is lowered.
M&S’ mass purchase also leads to lower the bargaining power of suppliers. (Lynch, R, 2000)
Bargaining power of buyers
Generally speaking, bargaining power of buyers is high. However buyers’ power in segment 1 is relatively low, while that in segment 2 and 3 is high.
Products in segment 1 are usually designed for the non-price-sensitive people who prefer quality and fashion.
People in favour of products in segment 2 and 3 are more price-sensitive. And normally they can choose from a variety of companies. Thus they have high bargaining power.
Threat from substitutes
Broadly speaking, threat from substitutes is very low. Only products from different segments might work as product to product substitutes.
In times of economic recession, people may shift from segment 2 to 3. And in times of economic development, people have more disposable income and accordingly more interest in products in segment 1 and 2 rather than 3.
This means that segment 2 has the threat of substitutes from both segment 1 and 3. Products of segment 1 and 3 normally do not directly substitute each other.
D. Threat from new entrants
Threat from new entrants is high in segment 1 and low in segment 2 and 3.
Brand name and high capital requirements build up high entry barriers in segment 1, which can efficiently protect existing firms from intense competition.
To provide high quality and the latest fashion for segment 1, capital is required for using superior materials, modern design, superior workmanship and sufficient expertise. Brand name is also an important competitive advantage for established firms due to the brand loyalty of people in this segment.
Meanwhile, low cost and low brand loyalty, resulting in low entry barriers in segment 2 and 3, provide more chances for potential entrants.
Rivalry among existing firms
It seemed that existing firms in the clothing industry do not compete as intensely as firms in other industries. In relation to segment 1 and 2, M&S suffers more from the competition of segment 3.
Competition in segment 3 comes from two aspects. Price-sensitivity feature of segment 3 is very likely to lead to a price battle which will finally squeeze out profits. A number of firms competing in segment 3 will erode M&S’ market share.
Further problem areas which need to be considered are in particular:
M&S is tied to a generalized view of the market due to a lack of proper segmentation. It might not need segmentation in early year since people had similar requirements and very few competitors could challenge its market leadership. However things have changed. Strong competitors emerged and different products have been required by customers. M&S’ failure to segment the market and to differentiate products resulted in shifting customers’ interests to other brands. Consequently M&S’ market share has been eroded.
M&S must target a segment or prioritize some segments. Different marketing strategies should be raised for each different segment so as to shield itself from competition.
Demand and Competition are the determinants of industry profit. Therefore, understanding, stimulating or even creating demand is of great importance for profitability. (Ansoff, H, 1987)
Understanding customer preferences and trends was deemed as a major reason of previous success. However, survey results of customer satisfaction in the late 1990s revealed that customers were more and more dissatisfied with product or service. This resulted from the fact, as frequently reported, that M&S no longer understood or reacted to its customer’s needs.
As technology develops and people care more and more about clothing fashion rather than only quality or price, the life cycle of the products in this industry tends to be short. That means, if the company does not pay sufficient attention to collect information from customers, products might be outdated soon. This would then require a swift managing change including new designs, new concepts and new materials to meet customer’s needs.
In addition to the product itself, value-added service is also an important part. The value of the product or service to customers should be created to appeal to customers. Furthermore, well working long-term relationships need to be established between the company and customers. This should greatly help to maintain them and to increase their loyalty to the brand. Salsbury’s proposal of customer-focused approach should be appreciated. Unfortunately, the fact not to segregate different items and to deal with customer complains poorly reveals that this approach seemed not to be implemented very well.
Potential changes in the future
There are some issues that will occur over the next decade which marks and Spencer has to take into account now in order to prepare for the future.
The external labour market
This is a market of potential employees for Marks and Spencer or any particular organisation to choose from when recruiting more workers. The employees are usually listed locally, regionally or nationally whom have the skills and experience required at a particular time.
The national labour market
When Marks and Spencer examine the supply of the labour market in the next deacde, a number of factors need to be taken into consideration:
· Trends in size/characteristics of the working population
· Competition for labour
· The overall level of economic activity
· Education and training opportunities
· The effect of government policies
Trends in the size/characteristics of the working population
The one factor that will definitely affect the human resource department of m&s is the changes in the age distribution of the UK population. To meet their human resource requirements, the company now have to look further a field when recruiting new staff, as there is now fewer school leavers and young workers available for employment. This may involve recruiting more women to balance out the organisations male to female ratio or more elderly employees to gain that further experience into the workforce.
Competition for labour
Persons of specific qualifications such as ICT may be offered more attractive wage packages than other members of Marks and Spencer’ workforce, as the competition for recruiting these rare potential employees is high. In other words – Organisations compete with each other by offering potential employees with rare qualifications high wage packages.
The overall level of economic activity
The demand for employees can be determined by whether the economy is in a boom or recession period. If there is a high demand for goods and services Marks and Spencer’ productivity will increase along with sales and profit. More demand for the products or services leads to a higher demand rate for employees. If the unemployment rate is at a low, the economy will be at a high. However, this factor can make it extremely difficult for human resource planners to recruit the right sorts of employees with the correct sorts of skills.
Education and training opportunities
With higher education opportunities evermore increasing – young people are seeking to gain more qualifications in order to advance to a higher paid occupation. Because over recent years the level of higher education opportunities has grown the level of skilled workers coming into the labour market has decreased. Young people appreciate the need for higher skill levels in order to compete in the job market.
The effect of government policies
Government legislation can affect the labour market in a number of ways. The government provides incentives to organisations to employ and train people. Where such incentives are available, they will reduce the costs of labour and therefore have implications for human resource planning.
The lifelong learning in this country (and in Europe) has meant the general skill levels of the working population have been improving. With new courses such as the AVCE (Advanced Vocational Certificates in Education) and NVQs (National Vocational Qualifications) being taken by an increased amount of people has led to a rise in skill level in the economy. The reasons for this happening are that the curriculum in schools makes it a necessity for pupils to attain the required grades in literacy, numeracy and information and communication technology skills for the future of the economy.
By giving organisations incentives to recruit young people and the unemployed, the government has given the economy a high increase in the supply of labour.
In an attempt to forecast the future we can look at the past and take heed.
Below is a quick analysis to identify data and forecast the possible future.
At present the labour party may implement action though bearing in mind that things can changes so drastically in politics and the next election is a minimum of 2 years away such prediction could easily to turn out to be false
Corporation tax is currently 30% for large firms. Tax credit is allowed for research and development
Employees of U.K firms will be liable for a 1% rise in national insurance contributions as such disposable income of consumers will be reduced and employees of firms may seek to reconcile such a loss with a pay raise (BBC online, Budget 2006: The experts view ‘ Wednesday, 17 April, 2002, 18:45 GMT 19:45 UK)
Current trends suggest that over the last 10 years there has been a large rise in the popularity of bulk buying with food items in particular being bought in bulk. Additionally there has been a increase in demand for convience food such as sandwiches and microwave meals.
The ever-increasing popularity of the Internet and the advent of broadband technology has resulted in many firms now offering online services allowing for home shopping.
The use of intricate computer systems has enabled firms to automate and accelerate many procedures previously done by hand. Linked system have also enabled easier account collection, statistical analysis and identification of demographic data
Grinblatt, M, 2001, Financial markets and corporate strategy, London, Irwin,
Johnson, G, 1997, Exploring corporate strategy, text and cases, 4e,
London, Prentice Hall
Lynch, R, 2000, Corporate Strategy, 2E, Hampshire, Pitman publishing,
McMenamin, 1999, Financial Management – An Introduction, London, Routledge,