The financial performance of The Body Shop (TBS) was less than stellar last year
The financial performance of The Body Shop (TBS) was less than stellar last year. In 2002 it only made 5.4ï¿½m in profit and if they paid dividends they were in the red, but they appear to have gained financially so far in 2003. (The Body Shop 2003:34) This report will explain the key market strengths of (TBS), and how the organization may take advantage of these strengths by concentrating on them and turning them into opportunities to improve financial performance and generally strengthen TBS’s business.
Because of the need for financial improvements, this report will concentrate on certain areas of the marking mix and the directions we believe the company should take in these areas. Recommendations will be both quantitative and qualitative. Some will have immediate financial rewards, while others will provide a long-term marketing strategy with emphasis on gaining market share which will improve long-term financial performance
Body – Choice
We chose segmentation targeting, positioning (STP) (see glossary) because they are strengths of (TBS) and play a critical role in the short and long-term financial position of (TBS). Since (STP) is the base of marketing and all its elements are interrelated, if any element fails the business will fail. Having survived for 27 years (Methven: 2003) clearly (TBS) did STP correctly and should capitalize on them. TBS is also more inclusive than exclusive in segmentation allowing for flexibility in obtaining market share. Although TBS is exclusively targeted toward women, 25-45, environmentally/socially conscious, of middle-income status who pamper themselves; they are also segmented to be successfully inclusive of other groups of women. For example those who are not environmentally/socially conscious, but fit the other variables and like (TBS) product, spending money on it.
We chose price because it “is the one element of the marketing mix that produces revenue, the other elements produce costs. Prices are the easiest marketing -mix element to adjust, product features, channels, and even promotion take more time. Price also communicates to the market the company’s intended value positioning of its product or brand.” (Kotler 2003:470) We also chose what we did through process of elimination of other topics based on costs as stated above as well as other factors. Let us explain. We did not choose branding because we believe it to be so closely related to the positioning element and also one of its strengths that when we talk of positioning we are talking about the brand. TBS’s brand already has brand differentiation and is deeply embedded in the minds of its target market, having brand recognition worldwide. Therefore, it needs no help. Communications we did not feel critical because they already have a good communication mix to reach target market. (See appendix)
We also felt that new-product development would be too lengthy to improve immediate finances since they are a company with a societal marketing concept (see glossary) who must consider the environment in making their product. Societal marketing holds that the organization’s task is to determine the wants, needs, interests of target markets and deliver desired satisfaction more effectively and efficiently than competitors in a way that enhances or preserves the consumer’s and society’s well being and will not improve immediate finances. (Kotler) Therefore, we picked STP in conjunction with pricing because we believe the strength of STP and their pricing as it is now can be used to bring more profitability to them.
The direction the company should take in STP is turn its strength of being more inclusive than exclusive in its segmentation along with the strength of its targeting and turn them into an opportunity to bring in net operational cash flows and position itself further in the minds of segments and targets with added services which will give more relevant benefit to their consumers. This can be accomplished in two ways. The first is by hiring a licensed clinician to give scheduled/unscheduled makeovers, and advice on make-up and other products. The service clinician must be differentiated by clothing wearing sterile apparel to give appearance of high quality service offered. This service will help sell their new make-up line as well as other products.
The second direction they can take to develop STP is as follows: Two of the major concerns of a business are the loss of a customer to a competitor and the loss of customer loyalty. (TBS) should consider a home delivery service. Potential advantages of this are maintaining and/or growing customer base, and enhancing their image of environmental and social concerns. Home delivery would potentially abate or lessen competition since the customer would not be in a shopping mall where many competitors are housed. The convenience meets need of target market to be pampered, and could potentially build more loyalty in target market, plus expand customer base.
The direction they need to go in regards to price is, not surprisingly, towards profit improvement. They are priced such that it allows them opportunity to increase price. When analyzing the data we collected on price and our target market it is clear that (TBS) is priced below the market level of their target market. Therefore, the price could be increased to be more in line with the target markets income level. Target customers will still buy product because it will still be at a lower price than competitive brands. (See appendix)
Of course when implementing a price increase caution must be used not to alarm target market. To make this increase less noticeable they should raise price in small increments with uneven price endings such as .92 or $1.09. The psychology of this approach is people generally don’t fuss over a dollar too much and a price that reads $26.90 will often be remembered by a consumer at 26.00 instead of more towards $27.00 as they tend to drop uneven amounts from the figure.
We find (TBS) to have a short-term need to move itself into a stronger financial position and have therefore given it direction on what marketing issues need to be critically addressed. It seems to be moving towards a better financial position in 2003. (TBS) has been successful at STP and it is critical that they adhere to and build upon them. Their pricing we have found to be below target market range. Therefore, (TBS) must continue to strengthen its (STP) by offering the clinician and home delivery service which will potentially be able to build more brand loyalty to its new make-up line as well as other products and expand customer base, increasing the life-cycle of its business.
Also if (STP) is strong the company will continue to have a steady stream of consumers that will make the price increases more favorable to the organization. The price increase issue should be done with caution, but definitely needs to be implemented as the company needs to build up its profitability in the short-term in order to take advantage of some of the long-term recommendations listed below. Do the increases selectively and gradually overtime to bring organization in sink with target market income level. Doing price increases in this way will allow for short-term and long-term cash flow to the organization.
* The home delivery service mentioned above should be done with vehicles which are environmentally friendly i.e. hybrid fuel users which are not, or much less, polluting. Save the fuel, pollute less, reduce the customer need to use fuel and pollute. It will require additional costs that could be covered by the price increase suggested below. This program will start slow as a test market exercise. Make it easy to do business, reduce the influence of the competition, maintain the corporate image, advertising with the vehicle, increased exposure to potential customers. This program would be well worth the investment, which might be estimated at $1,462,000 (20 cars $800,000, $150,000 logistics, $400,000 salaries and benefits for drivers, $52,000 for fuel, $60,000 for insurance).
* The Body Shop claims to sell one product every 0.4 seconds. This would mean on an average day they sell 216,000 products. One of the core products, lotion, is priced substantially under the medium priced competitor and even more substantially under the higher priced competitor. If they sell 216,000 products everyday and 30% of those are the core business, lotions, it would mean they sell 64,800 bottles of lotion everyday. This equates to 23,652,000 bottles of lotion a year. The price comparison (see appendix) would allow at least a $1 increase on the lotion. (Note: $1.00 used only for ease of demonstration.)
The increased profit is $23,652,000 because no cost incurred to raise this price. A selective price increase not an across the board increase; therefore not raising alarm with the consumer. This demonstration is for the short-run. For long-term they can selectively start raising the price on select products gradually over-time to achieve the actual target market price.
* The Body Shop should take a close look at the franchise business model. Companies franchise for three basic reasons, 1) they lack the financing to expand the growth, 2) they lack the know how to get a product to market, or 3) they want faster growth and positioning. As location-location-location is important in real-estate, positioning-positioning-position is important in marketing and branding product. In the beginning The Body Shop franchised for reasons one and three. Today, the Body Shop has franchise operations in key market locations, and it is apparent by the location of some company stores, they desire these key markets and locations as company owned facilities. They have surrendered key markets to franchises, and are now forced to compete, in effect, against themselves (The Body Shop brand).
Gaining cash flow, positioning, and brand recognition at the start is now having adverse effects on the cash flow today. The brand is selling but the corporate cash coffers are only realizing the distribution cost profit, not the consumer profit. Therefore, the recommendation here is to stop franchising and open only company owned stores from this point on. This is the short-term plan. The long-term plan in this area would be that when they obtain a better financial position that they start buying back franchises in key market areas making them corporate owned stores where they can realize consumer profit from stores.
* Since the Body Shop has a new line of Africa Spa salts and aromatherapy it would be a good idea that they do a joint venture with high end hotels where they do massages with oils etc. This would be especially good in the Asian culture were massage is big. However, one would have to be careful in doing this as massage parlors are not always above board and BS would not want to ruin its reputation. It would have to be very selective about who they hired.
* Companies need to evolve with changing needs in order to remain relevant to target market or the organization’s life-cycle will be shortened. As there is always a lag between generations this allows TBS time to explore product development and get something to market for the next generation. We chose not to write on product development in the paper as it has a lengthy life-cycle. However, a recommendation in this area is for them to explore a product line of vitamins containing natural ingredients for skincare etc and a natural candle line which both remain true to their product line and relevant to target market. It is a long-term recommendation as any product development would be.
* The Body Shop should in trying to promote more business for themselves find a way to promote fragrances. For instance, in the US one has only to walk by a Bath and Body Works Store to be drawn to it by all the alluring aromas. However, one walks by BS and only recognizes it by its branding and familiar look. No fragrances precede it. They could remedy this easily by using some of their aromatherapies to advertise fragrances so people who like the fragrances are drawn in by them.
* In staying with their mission to the environment the body shop could make cheaper cardboard containers refills for products.
* The Body Shop could sell a hotel sized product line to hotels to put in the rooms of its guests. This would stay in line with their targeted audience as people in these categories tend to take vacations in luxury hotels.
* A lotion should be added to the new line of (TBS).(See appendix) They currently only carry the body butter, which is moisture intense and more suitable for nightly application, whereas a lotion would be more of a relevant benefit to women for all day wear. This has potential to double a single product sale.
* Additionally an invigorating body spray carried in the new line with each fragrance would be a good addition to the line in that some people might simply like the fragrance and use it as a perfume. No lengthy product developments needed here or in above recommendation since new fragrances have been tested in the new line and lotion and spray formulations have been tested in the old lines. All they would need to do is combine the new line fragrance with the old lines formulations for lotion and spray. These two recommendations can allow better targeting and allow for immediate profit.