What were the essential components of Beiersdoft’s global expansion strategy for Nivea Under what circumstances would a ‘global-strategy-local execution’ approach
What were the essential components of Beiersdoft’s global expansion strategy for Nivea Under what circumstances would a ‘global-strategy-local execution’ approach
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Marketing
Management
Note: Solve any 4 Cases Study’s
CASE: I
Managing the Guinness brand in
the face of consumers’ changing tastes
1997 saw the US$19 billion merger of
Guinness and GrandMet to form
Diageo, the world’s largest drinks company. Guinness was the group’s
top-selling beverage after Smirnoff vodka, and the group’s third most
profitable brand, with an estimated global value of US$1.2 billion. More than
10 million glasses of the popular stout were sold every day, predominantly in
Guinness’s top markets: respectively, the UK, Ireland, Nigeria, the USA and Cameroon.
However, the famous dark stout with the
white, creamy head was causing some strategic concerns for Diageo. In 1999, for
the first time in the 241-year of Guinness, sales fell. In early 2002 Diageo
CEO Paul Walsh announced to the group’s concerned shareholders that global
volume growth of Guinness was down 4 per cent in the last six months of 2001
and, more alarmingly, sales were also down 4 per cent in its home market,
Ireland. How should Diageo address falling sales in the centuries-old brand shrouded
in Irish mystique and tradition?
The
changing face of the Irish beer market
The Irish were very fond of beer and even
fonder of Guinness. With close to 200 litres per capita drunk each year—the
equivalent of one pint per person per day—Ireland ranked top in worldwide per
capita beer consumption, ahead of the Czech Republic and Germany.
Beer accounted for two-thirds of all
alcohol bought in Ireland in 2001. Stout led the way in volume sales and
accounted for 40 per cent of all beer value sales. Guinness, first brewed in
1759 in Dublin by Arthur Guinness, enjoyed legendary status in Ireland, a
national symbol as respected as the green, white and gold flag. It was by far
the most popular alcoholic drink in Ireland, accounting for nearly one of every
two pints of beer sold. Its nearest competitors were Budweiser and Heineken,
which held 13 per cent and 12 per cent of the market respectively.
However, the spectacular economic growth
of the Irish economy since the mid-1990s had opened up the traditional drinking
market to new cultures and influences, and encouraged the travel-friendly Irish
to try other drinks. Beer and in particular stout were losing popularity
compared with wine or the recently launched RTDs (ready-to-drinks) or FABs
(flavoured alcoholic beverages), which the younger generation of drinkers
considered trendier and ‘healthier’. As a Euromonitor report explained: Younger
consumers consider dark beers and stout to be old fashioned drinks, with the
perceived stout or ale drinker being an old, slightly overweight man and thus
not in tune with image conscious youth culture.
Beer sales, which once accounted for 75
per cent of all alcohol bought in Ireland, were expected to drop to close to 50
per cent by 2006, while stout sales were forecast to decrease by 12 per cent
between 2002 and 2006.
Giving
Guinness a boost in its home market
With Guinness alone accounting for 37 per
cent of Diageo’s volume in the market, Guinness/UDV Ireland was one of the
first to feel the pain caused by the declining popularity of beer and in
particular stout. A Euromonitor report in February 2002 explained how the
profile of the Guinness drinker, typically men aged 21-plus, was affected: The
average age of Guinness drinkers is rising and this is bringing about the worrying
fact that the size of the Guinness target audience is falling. The rate of
decline is likely to quicken as the number of less brand loyal, non-stout
drinking younger consumers increases.
The report continued:
In Ireland, in particular, the consumer
base for Guinness is shrinking as the majority of 18 to 24 year olds
consistently reject stout as a product relevant to their generation, opting
instead to consume lager or spirits.
Effectively, one-third of young Irish men
and half of young Irish women had reportedly never tried Guinness. A Guinness
employee provided another explanation. Guinness is similar to coffee in that
when you’re young you drink it [coffee] with sugar, but when you’re older you
drink it without. It’s got a similar acquired taste and once you’re over the
initial hurdle, you’ll fall in love with it.
In an attempt to lure young drinkers to
the somewhat ‘acquired’ Guinness taste (40 per cent of the Irish population was
under the age of 24) Diageo had invested millions in developing product
innovations and brand building in Ireland’s 10,000 pubs, clubs and
supermarkets.
Product
innovation
Until the mid-1990s most Guinness in
Ireland was drunk in a pint glass in the local pub. The launch of product
innovations in the form of a new cooling mechanism for draft Guinness and the
‘widget’ technology applied to cans and bottles attempted to modernize the
brand’s image and respond to increasing competition from other local and
imported stouts and lagers.
‘A perfect head’ for canned Guinness
In 1989, and at a cost of more than £10
million, Guinness developed an ingenious ‘widget’ device for its canned draft
stout sold in ‘off-trade’ outlets such as supermarkets and off-licences. The
widget, placed in the bottom of the can, released a gas that replicated the
draft effect.
Although over 90 per cent of beer in
Ireland was sold in ‘on-trade’ pubs and bars, sale of beer in the cheaper
‘off-trade’ channel were slowly gaining in importance. The Guinness brand
manager at the time, John O’Keeffe, explained how home drinkers could now enjoy
a smoother, creamier head similar to the one obtained in a pub thanks to the
new widget technology:
When the can is opened, the pressure
causes the nitrogen to be released as the widget moves through the beer,
creating the classic draft Guinness surge.
Nearly 10 years later, in 1997, the
‘floating widget’ was introduced, which improved the effectiveness of the
device.
A colder pint
In 1997 Guinness Draft Extra Cold was
launched in Ireland. An additional chilled tap system could be added to the
standard barrel in pubs, allowing the Guinness to be served at 4ºC rather than
the normal 6ºC. By serving Guinness at a cooler temperature, Guinness/UDV hoped
to mute the bitter taste of the stout and make it more palatable for younger
adults, who were increasingly accustomed to drinking chilled lager,
particularly in the summer
A
cooler image for Guinness
In October 1999 the widget technology was
applied to long-stemmed bottles of Guinness. The launch was supported by a US$2
million TV and outdoor board campaign. The packaging—with a clear, shiny
plastic wrap, designed to look like a pint complete with creamy head—was quite
a departure from the traditional Guinness look.
The objective was to reposition Guinness
alongside certain similarly packaged lagers and RTDs and offer younger adults a
more fashionable way to drink Guinness: straight from the bottle. It also gave
Guinness easier access to the growing number of clubs and bars that were less
likely to serve traditional draft Guinness easier access to the growing number
of clubs and bars that were less likely to serve traditional draft Guinness,
which could be kept for only six to eight weeks and took two minutes to pour.
The RTDs, by contrast, had a shelf-life of more than a year and were drunk
straight from the bottle.
However, financial analyst remained sceptical
about the Guinness product innovations, which had no significant positive
impact on sales or profitability:
The last news about the success of the
recently introduced innovations suggests that they have not had a notably
material impact on Guinness brand performance.
Brand
building
Euromonitor estimates that, in 2000,
Diageo invested between US$230 and US$250 million worldwide in Guinness
advertising and promotions. However, with a cost-cutting objective, the company
reduced marketing expenses in both Ireland and the UK up to 10 per cent in 2001
and the number of global Guinness agencies from six to two.
Nevertheless, Guinness remained one of
the most advertised brands in Ireland. It was the leading cinema advertiser
and, in terms of advertising, was second only to the national telecoms
provider, Eircom. Guinness was also heavily promoted at leading sporting and
music events, in particular those that were popular with the younger age
groups.
The ultimate tribute to the brand was the
opening of the new Guinness Storehouse in Dublin in late 2000, a sort of Mecca
for all Guinness fans. The Storehouse was also a fashionable visitor centre
with an art gallery and restaurants, and regularly hosted evening events. The
company’s design brief highlighted another key objective:
To use an ultramodern facility to breathe
life into an ageing brand, to reconnect an old company with young (sceptical)
customers.
As the Storehouse’s design firm’s
director, Ralph Ardill, explained:
Guinness Storehouse had become the top
tourist destination in Ireland, attracting more than half a million people and
hosting 45,000 people for special events and training.
The Storehouse also had training
facilities for Guinness’s bartenders and 3000 Irish employees. The quality of
the Guinness pint remained a high priority for the company, which not only
developed pub-like classrooms at the Storehouse but also employed teams of
draft technicians to teach barmen how to pour a proper pint. The process
involved two steps—the pour and the top-up—and took a total of 119.5 seconds.
Barmen also needed to learn how to check that the pressure gauges were properly
set and that the proportion of nitrogen to carbon dioxide in the gas was
correct.
The
uncertain future of the Guinness brand in Ireland
Despite Guinness/DUV’s attempt to appeal
to the younger generation of drinkers and boost its fading image, rumours
persisted in Ireland about the brand future. The country’s leading and
respected newspaper, the Irish times, reported in an article in July 2001:
The uncertainty over its future all adds
to the air of crisis that is building around Guinness Ireland Group four months
ago…The review is not complete and the assumption is that there is more bad
news to come.
In the pubs across Ireland, the
traditional Guinness drinkers looked on anxiously as the younger generation
drank Bacardi Breezers, Smirnoff Ices or Californian wines. Could the goliath
Guinness survive another two centuries? Was the preference for these new drinks
just a fad or fashion, or did Diageo need to seriously reconsider how it
marketed Guinness?
A
quick solution?
In late February 2002, Diageo CEO Paul
Walsh revealed that the company was testing technology to cut the waiting time
for a pint of Guinness from 1 minute 59 seconds to 15-25 seconds. Ultrasound
could release bubbles in the stout and form the head instantly, making a pint
of Guinness that would be indistinguishable from one produced by the slower,
traditional method.
‘A two-minute pour is not relevant to our
customers today,’ Walsh said. A Guinness spokeswoman continued, ‘We have got to
move with the times and the brand must evolve. We must take all the
opportunities that we can. In outlets where it is really busy, if you walk in
after nine o’clock in the evening there will be a cloth over the Guinness pump
because it takes longer to pour than other drinks. Aware that some consumers
might not be attracted by the innovation, she added ‘It wouldn’t be put
everywhere—only where people want a quick pint with no effect on the quality.’
Although still being tested, the
‘quick-pour pint’ was a popular topic of conversation in Dublin pubs, among
barmen and customers alike. There were rumours that it would be introduced in
Britain only; others thought it would be released worldwide.
Some market commentators viewed the
quick-pour pint as an innovative way to appeal to the younger, less patient
segment in which Guinness had under-performed. Others feared that the young
would be unconvinced by the introduction, and loyal customers would be turned
off by what they characterized as a ‘marketing u-turn’.
Question:
1.
From
a marketing perspective, what has Guinness done to ensure its longevity?
2.
How
would you characterize the Guinness brand?
3.
What
could Guinness do to attract younger drinkers? And to retain its older loyal
customer base? Can both be done at the same time?
CASE: II The grey market
Introduction
The over-50s market has long been ignored
by advertising and marketing firms in favour of the market. The complexity of
how to appeal to today’s mature customers, without targeting their age, has
proved just too challenging for many companies. But this preoccupation with
youth runs counter to demo-graphic changes. The over-50s represent the largest
segment of the population, across western developed countries, due largely to
the post-Second World War baby boom. The sheer size of this grey market, which
will continue to grow as birth and mortality rates fall, coupled with its
phenomenal spending power, presents enormous opportunities for business.
However, successfully unleashing its potential will depend on companies truly
understanding the attitudes, lifestyles and purchasing interests of this
post-war generation.
Demographic
forces
Following the Second World War many
countries experienced a baby boom phenomenon as returning soldiers began
families. This, coupled with a more positive outlook on the future, resulted in
the baby boom generation, born between 1946 and 1964. Now beginning to enter
retirement, this affluent group globally numbers approximately 532 million. In
Western Europe they account for the largest proportion of the total population
at 14.9%, followed closely by 14.2% in North America and 13.5 % in Australia.
Table
1: Global population
aged 45-54 by region: baby boomers as a % of the total population 1990/2002
|
Baby boomers as a % total population
|
1990
|
2002
|
% point change
|
|
Western Europe
|
12.9
|
14.9
|
2.0
|
|
North America
|
9.9
|
14.2
|
4.3
|
|
Australasia
|
10.4
|
13.5
|
3.1
|
|
Eastern Europe
|
9.7
|
13.0
|
3.3
|
|
Asia-Pacific
|
7.8
|
9.8
|
2.0
|
|
Latin America
|
6.6
|
8.4
|
1.8
|
|
Africa/Middle East
|
2.6
|
2.3
|
20.3
|
|
WORLD
|
7.9
|
9.5
|
1.6
|
The grey market is big and getting
bigger. Between 1990 and 2002 the global baby boomer population increased by
41%. The rate of growth is predicted to decrease to 35% between 2002 and 2015.
Particularly noteworthy is the predicted increase in the proportion of baby
boomers in many Western European countries, such as Austria, Spain, Germany,
Italy, and the UK. In developed countries, according to the United Nations, the
percentage of elderly people (60+) is forecast to rise from one-fifth of the
population to one-third by 2050. The growth in the elderly population is
exacerbated by falling fertility rates in many developed countries, coupled
with a rise in human longevity.
The
influences and buyer behaviour patterns of baby boomers
The members of the baby boomer generation
are quite unlike their more conservative parents’ generation. They are the
children of the rebellious ‘swinging sixties’, growing up on the sounds of the
Beatles and the Rolling Stones. Better educated than their parents, in a time
of greater prosperity, they indulged in more hedonistic lifestyle. It has been
said that they were the first ‘me generation’. Now, in later life, they have
retained their liberal, adventurous and youthful attitude to life. Aptly termed
‘younger older people’ they abhor antiquated stereotypes of elderly people,
preferring to be defined by their attitude rather than their age.
Baby boomers are also tend to be very
wealthy. Many are property owners and may have gained an inheritance from
parents or other relatives. They have higher than average incomes or have
retired with private pension plans. With their children having flown the nest
they have greater financial freedom and more time to indulge themselves. Having
worked all their lives, and educated their children, many baby boomers do not
believe it is their responsibility to safeguard the financial future of their
children by carefully protecting their children’s inheritance. They are instead
liquidating their assets, intent on enjoying their later life to full, often
through conspicuous consumption.
Based on research conducted by
Euromonitor, the main areas of expenditure in the baby boomer market are
financial services, tourism, food and drink, luxury cars, electrical/electronic
goods, clothing, health products, and DIY and gardening.
Table
2: Global population
aged 45-54 in thousands by country: developed countries 2002-2015
|
Country
|
2002
|
2010
|
2015
|
%change
2002/2015
|
|
Austria
|
1,059
|
1,277
|
1,371
|
29
|
|
Spain
|
4,921
|
5,741
|
6,189
|
26
|
|
Germany
|
10,991
|
12,963
|
13,508
|
26
|
|
Italy
|
7,684
|
8,591
|
9,347
|
23
|
|
UK
|
7,786
|
8,731
|
9,388
|
22
|
|
New Zealand
|
521
|
607
|
613
|
21
|
|
Ireland
|
474
|
529
|
555
|
18
|
|
Switzerland
|
997
|
1,120
|
1,159
|
17
|
|
Australia
|
2,661
|
3,006
|
3,057
|
16
|
|
Greece
|
1,359
|
1,476
|
1,559
|
15
|
|
Canada
|
4,505
|
5,320
|
5,122
|
15
|
|
Netherlands
|
2,301
|
2,492
|
2,604
|
14
|
|
Portugal
|
1,334
|
1,438
|
1,511
|
13
|
|
Norway
|
612
|
640
|
678
|
13
|
|
Denmark
|
745
|
761
|
802
|
11
|
|
USA
|
38,951
|
44,140
|
42,207
|
8
|
|
Belgium
|
1,423
|
1,549
|
1,526
|
8
|
|
Sweden
|
1,206
|
1,179
|
1,233
|
2
|
|
Japan
|
18,344
|
15,661
|
16,459
|
-10
|
|
Finland
|
820
|
749
|
718
|
-12
|
|
France
|
8,266
|
7,626
|
7,292
|
-12
|
Figure
1 Global Baby boomer market: % analysis by broad sector 2002 (% value)
Note: sectors valued on the basis of
estimates by senior managers in major companies in each sector, consumer
expenditure and industry sector data.
Unsurprisingly the financial sector is
the largest in this market. Baby boomers are concerned with being financially
secure in their retirement. An ageing population, coupled with a rise in human
longevity, is giving rise to a pensions crisis across Western Europe. Baby boomers
are therefore right to be preoccupied with how they will maintain their
lifestyle over the long term. They are actively engaging in financial planning,
both before and after retirement. Popular financial service products include
endowments, life insurance, personal pensions, PEPs and ISAs.
Baby boomers have adventurous attitudes
with a desire to see the world. In their retirement foreign travel is a key
expenditure. Given their greater levels of sophistication and education, baby
boomers are much more demanding of holidays that suit their lifestyles. This
group is very diverse, with holiday interests ranging from action-packed
adventures to culturally rich experiences.
Baby boomers want to maintain a youthful
appearance in line with their youthful way of living. Fear of becoming
invisible is a genuine concern among older generations. This image conciousness
is reflected in their spending on clothing, cosmetics and anti-ageing products.
Luxury cars also a key status symbols for this group.
The home is another area of expenditure.
Once children have flown the nest, many baby boomers redecorate the home to
suit their needs. Electrical and electronic purchases are key indulgences among
these technologically savvy consumers. Gardening is another pastime enjoyed by
older generations. Health is also a priority. Baby boomers invest in private
health insurance and over-the-counter pharmaceutical products to maintain their
healthy lives.
Business
opportunities
The sheer size of the grey market, which
is getting bigger in many countries—characterized by consumers with disposable
income, ample free time, interest in travel, concern about financial security
and health, awareness of youth culture and brands and desire for aspirational
living—makes this market enormously attractive to many business sectors.
Pharmaceuticals, health and beauty, technology, travel financial services,
luxury cars, lavish food and entertainment are key growth sectors for the grey
market. However, successfully tapping into this market will depend on companies
truly understanding the attitudes, lifestyles and purchasing interests of this
post-war generation. Communicating with this group is a tricky business, but,
done right, it can be hugely rewarding.
When targeting the older consumer it is important
to target their lifestyle and not their age. Older people do not want to be
reminded, in a patronizing way, of their age or what they should be doing now
they are a certain stage in life. With an interest in maintaining a youthful
way of life these consumers are interested in similar brands to those that
appeal to younger generations. The key for the companies is to find a way of
making their brands also appeal to an older consumer without explicitly
targeting their age. One tried-and tested method of targeting this group is to
use nostalgia. Mercedes Benz used the Janis Joplin song ‘Oh Lord won’t you buy
me a Mercedes Benz’ to great effect despite the obvious irony in that the song
was written to highlight the dangers of materialism! Volkswagen’s new
retro-style Beetle has also been popular among this group. In the tourism
sector Saga Holidays, the leader in holidays for the over-50s, has changed its
product offering to reflect changing trends among this group. In line with the
more adventurous attitudes of many older consumers it now offers more
action-packed adventure holidays to far-flung destinations.
More recently, Thomas Cook has rebranded
it over-50s ‘Forever Young’ programme to reflect the diverse interest of its
target customers. Its new primetime brochure targets five distinct groups with
the following holiday types: ‘Discover’, ‘Learn’, ‘Relax’, ‘Active’ and ‘Enjoy
Life’.
Conclusion
The over-50s represent the largest
segment of the population across Western developed countries. This affluent
market is big and getting bigger. Having ignored it for so long marketers are
finally beginning to see the enormous opportunities presented by the grey
market. But conquering this market will not be easy. The baby boomer generation
is quite unlike its predecessors. With a youthful and adventuresome spirit
these ‘younger older people’ want to be defined by their attitude and not by
their age. Only time will tell whether today’s marketers are up to the
challenge.
 |
| What were the essential components of Beiersdoft’s global expansion strategy for Nivea Under what circumstances would a ‘global-strategy-local execution’ approach |
Questions:
1.
Why
is the grey market so attractive to business?
2.
Identify
the influences on the purchasing behaviour of the over-50s consumer.
3.
Discuss
the challenges involved in targeting the grey market.
CASE: III Nivea: managing an umbrella brand
‘In many countries consumer are convinced
that Nivea is a local brand, a mistake which Beiersdoft, the German makers,
take as a compliment.’
(Quoted on leading brand consultancy
Wolff-Olins’ website, www.wolff-olins.com)
An
ode to Nivea’s success
In May 2003, a survey of ‘Global Mega
Brand Franchises’ revealed that the Nivea Cosmetics brand had presence in the
maximum number of product categories and countries. The survey, conducted by
US-based ACNielsen, aimed at identifying those brands that had ‘successfully
evolved beyond their original product categories’. A key parameter was the
presence of these brands in multiple product categories as well as countries.
Nivea’s performance in this study
prompted a yahoo.com news article to name it the ‘Queen of Mega Brands’. This
title was appropriate since the brand was present in over 14 product categories
and was available in more than 150 countries. Nivea was the market leader in
skin creams and lotions in 28 countries, in facial cleansing in 23 countries,
in facial skin care in 18 countries, and in suntan products in 15 countries. In
many of those countries, it was reportedly believed to be a brand of local
origin—having been present in them for many decades. This fact went a long way
in helping the brand attain leadership status in many categories and countries
(see Table 3).
Table
3 Nivea: market positions
|
CATEGORY
|
Skin
care
|
Baby
care
|
Sun
protection
|
Men’s
care
|
|
|
COUNTRY
|
|||||
|
Austria
|
1
|
1
|
2
|
1
|
|
|
Belgium
|
1
|
1
|
3
|
1
|
|
|
UK
|
1
|
3
|
-
|
1
|
|
|
Germany
|
1
|
1
|
3
|
1
|
|
|
France
|
1
|
1
|
1
|
3
|
|
|
Italy
|
1
|
1
|
5
|
1
|
|
|
Netherlands
|
1
|
1
|
5
|
1
|
|
|
Spain
|
1
|
4
|
-
|
1
|
|
|
Switzerland
|
1
|
1
|
4
|
1
|
|
The study covered 200 consumer packaged
goods brands from over 50 global manufacturers. The brands had to be available
in at least 15 of the countries studied; the same name had to be used in at
least three product categories and meet franchise in at least three of the five
geographical regions.
In its home country Germany, too, many of
Nivea’s products were the market leaders in their segments. This market
leadership status translated into superior financial performance. Between 1991
and 2001, Nivea posted double-digit growth rates every year. For 2001, the
brand generated revenues of €2.5 billion, amounting to 55 per cent of the
parent company’s (Beiersdoft) total revenue for the year. The 120-year-old,
Hamburg-based Beiersdoft has often been credited with meticulously building the
Nivea brand into the world’s number one personal care brand. According to a
survey conducted by ACNielsen in the late 1990s, the brand had a 15 per cent
share in the global skin care products market. While Nivea had always been the
company’s star performer, the 1990s were a period of phenomenal growth for the
brand. By successfully extending what was essentially a ‘one-product wonder’
into many different product categories, Beiersdoft had silenced many critics of
its umbrella branding decision.
The
marketing game for Nivea
Millions of customers across the world
have been familiar with the Nivea brand since their childhood. The visual
(colour and packaging) and physical attributes (feel, smell) of the product
stayed on in their minds. According to analysts, this led to the formation of a
complex emotional bond between customers and the brand, a bond that had strong
positive under-tones. According to a superbrands.com.
my article, Nivea’s blue colour denoted sympathy, harmony, friendship and
loyalty. The white colour suggested external cleanliness as well as inner
purity. Together, these colours gave Nivea the aura of an honest brand.
To customers, Nivea was more than a skin
care product. They associated Nivea with good health, graceful ageing and
better living. The company’s association Nivea with many sporting events,
fashion events and other lifestyle-related events gave the brand a long-lasting
appeal. In 2001, Franziska Schmiedebach, Beiersdoft’s Corporate Vice President
(Face Care and Cosmetics), commented that Nivea’s success over the decades was
built on the following pillars: innovation, brand extension and globalization
(see Table 4 for the brand’s sales growth from 1995-2002)
Table
4 Nivea: worldwide sales growth (%)
|
Sales Growth
|
1995
|
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
|
In Million €
|
1040
|
1166
|
1340
|
1542
|
1812
|
2101
|
2458
|
2628
|
|
In per cent
|
9.8
|
12.1
|
14.9
|
15.1
|
17.5
|
16.0
|
17.0
|
6.9
|
Innovation
and brand extensions
Innovation and brand extensions went hand
in hand for Nivea. Extensions had been made back in the 1930s and had continued
in the 1960s when the face care range Nivea Visage was launched. However, the
first major initiative to extend the brand to other products came in the 1970s.
Naturally, the idea was to cash in on Nivea’s strong brand equity. The first
major extension was launch of ‘Nivea For Men’ aftershave in the 1970s. Unlike
the other aftershaves available in market, which caused the skin to burn on
application, Nivea For Men soothed the skin. As a result, the product became a
runaway success.
The positive experience with the
aftershave extension inspired the company to further explore the possibilities
of brand extensions. Moreover, Beiersdoft felt that Nivea’s unique identity,
the values it represented (trustworthiness, simplicity, consistency, caring)
could easily be used to make the transition to being an umbrella brand. The
decision to diversify its product range was also believed to have influenced by
intensifying competitive pressures. L’Oreal’s Plenitude range, Procter &
Gamble’s Oil of Olay range, Unilever’s Pond’s range, and Johnson &
Johnson’s Neutrogena range posed stiff competition to Nivea.
Though Nivea was the undisputed market
leader in the mass-market face cream segment worldwide, its share was below Oil
of Olay’s, Pond’s and Plenitude’s in the US market. While most of the competing
brands had a wide product portfolio, the Nivea range was rather limited. To
position Nivea as a competitor in a larger number of segments, the decision to
offer a wider range inevitable.
Beiersdoft’s research centre—employing
over 150 dermatological and cosmetics researchers, pharmacists and
chemists—supported its thrust on innovations and brand extensions. During the
1990s, Beiersdoft launched many extensions, including men’s care products,
deodorants (1991), Nivea Body (1995), and Nivea Soft (1997). Most of these
brand extension decisions could be credited to Rolf Kunisch, who became Beiersdoft’s
CEO in the early 1990s. Rolf Kunisch
firmly believed in the company’s ‘twin strategy’ of extension and
globalization.
By the beginning of the twenty-first
century, the Nivea umbrella brand offered over 300 products in 14 separate
segments of the health and beauty market (see Table 5 and Figure 2 for
information on Nivea’s brand extensions). Commenting on Beiersdoft’s belief in
umbrella branding, Schmiedebach said, ‘Focusing your energy and investment on
one umbrella brand has strong synergetic effects and helps build leading market
positions across categories.’ A noteworthy aspect of the brand extension
strategy was the company’s ability to successfully translate the ‘skin care’
attributes of the original Nivea cream to the entire gamut of products.
Table 5 Nivea: brand portfolio
|
Category
|
Products
|
|
Nivea Bath Care
|
Shower gels, shower specialists, bath
foams, bath specialists, soaps, kids’ products, intimate care
|
|
Nivea Sun (sun care)
|
Sun protection lotion, anti-ageing sun
cream, sensitive sun lotion, sun-spray, children’s sun protection, deep tan,
after tan, self –tan, Nivea baby sun protection
|
|
Nivea Beaute (colour cosmetics)
|
Face, eyes, lips, nails
|
|
Nivea For Men (men’s care)
|
Shaving, after shaving, face care, face
cleansing
|
|
Nivea Baby (baby care)
|
Bottom cleansing, nappy rash
protection, general cleansing, moisturizing, sun protection
|
|
Nivea Body (body care)
|
Essential line, performance line,
pleasure line
|
|
Nivea Crème
|
Nivea crème
|
|
Nivea Deodorants
|
Roll-ons, sprays, pump sprays, sticks, creams,
wipes, compact
|
|
Nivea Hand (hand care)
|
Hand care lotions and creams
|
|
Nivea Lip Care
|
Basic care, special care, cosmetic
care, extra protection care
|
|
Nivea Visage (face care)
|
Daily cleaning, deep cleaning, facial
masks (cleaning/care), make-up remover, active moisture care, advanced repair
care, special care
|
|
Nivea Vital (mature skin care)
|
Basic face care, specific face care,
face cleansing products, body care
|
|
Nivea Soft
|
Nivea soft moisturizing cream
|
|
Nivea Hair Care
|
Hair care (shampoos, rinse, treatment,
sun); hair styling (hairspray and lacquer, styling foams and specials, gels
and specials)
|
Figure
2 Nivea Universe
The company ensured that each of its
products addressed a specific need of consumers. Products in all the 14
categories were developed after being evaluated on two parameters with respect
to the Nivea mother brand. First, the new product had to be based on the
qualities that the mother brand stood for and, second, it ha to offer benefits
that were consistent with those that the mother brand offered. Once a new
product cleared the above test, it was evaluated for its ability to meet
consumer needs and its scope for proving itself to be a leader in the future.
For instance, a Nivea shampoo not only had to clean hair, it also had to be
milder and gentler than other shampoos in the same range.
Beiersdoft developed a ‘Nivea Universe’
framework for streamlining and executing its brand extension efforts. This
framework consisted of a central point,
an inner circle of brands and an outer circle of brands (see Figure 2)
The centre of the model housed the
‘mother brand’, which represented the core values of trustworthiness, honesty
and reliability. While the brands in the inner circle were closely related to
the core values of the Nivea brand, the brands in the outer circle were seen as
extensions of these core values. The inner-circle brands strengthened the
existing beliefs and values associated with the Nivea brand. The outer circle
brands, however, sought to add new dimensions to the brand’s personality,
thereby opening up avenues, for future growth.
The
‘global-local’ strategy
The Nivea brand retained its strong
German heritage and was treated as a global brand for many decades. In the
early days, local managers believed that the needs of customers from their
countries were significantly different from those of customers in other
countries. As a result, Beiersdoft was forced to offer different product
formulations an packaging, and different types of advertising support.
Consequently, it incurred high costs.
It was only in the 1980s that Beiersdoft
took a conscious decision to globalize the appeal of Nivea. The aim to achieve
a common platform for the brand on a global scale and offer customers from
different parts of the world a wider variety of product choices. This was
radical departure from its earlier approach, in which product development and
marketing efforts were largely focused on the German market. The new decision
was not only expected to solve the problems of high costs, it was also expected
to further build the core values of the brand.
To globalize the brand, the company
formulated strategies with the help of a team of ‘international’ experts with
‘local expertise’. This team developed new products for all the markets. Their
responsibilities included, among others, deciding about the way in which
international advertising campaigns should be adapted at the local level. The
idea was to leave the execution of strategic decisions to local partners.
However, Beiersdoft monitored the execution to ensure that it remained in line
with the global strategic plan.
This way, Beiersdoft ensured that the
nuances of consumer behaviour at the local level understood and that their
needs were addressed. Company sources claimed that by following the above
approach, it was easy to transfer know-how between headquarters and the local
offices. In addition, the motivation level of the local partners also remained
on the higher side.
The company established a set of
guidelines that regulated how the marketing mix of a new product/brand was to
be developed. These guidelines stipulated norms with respect to product,
pricing, promotion, packaging and other related issues. For instance, a
guideline regarding advertising read, ‘Nivea advertising is about skin care. It
should be present visually and verbally. Nivea advertising is simple, it is
unpretentious and human.’
Thus all advertisements for any Nivea
product depicted images related to ‘skin care’ and ‘unpretentious human life’
in one way or the other. The company consciously decided not to use supermodels
to promote its products. The predominant colours in all campaigns remained blue
and white. However, local issues were also kept in mind. For instance, in the
Middle East, Nivea relied more on outdoor media as it worked out to be much
more cost-effective. And since showing skin in the advertisements went against
the region’s culture, the company devised ways of advertising skin without
showing skin.
Many brand management experts have spoken
of the perils of umbrella management, such as brand dilution and the lack of
‘change’ for consumers. However, the umbrella branding strategy worked for
Beiersdoft. In fact, the company’s growth was the most dynamic since its
inception during 1990s—the decade when the brand extension move picked up
momentum. The strong yearly growth during the 1990s and the quadrupling of
sales were attributed by company sources to the thrust on brand extension.
Questions
1.
Discuss
the reasons for the success of the Nivea range of products across the world.
Why did Beiersdoft decide to extend the brand to different product categories?
In the light of Beiersdoft’s brand extension of Nivea, critically comment on
the pros and cons of adopting an umbrella branding strategy. Compare the use of
such a strategy with the use of an independent branding strategy.
2.
According
to you, what are the core values of the Nivea brand? What type of brand
extension framework did Beiersdoft develop to ensure that these core values id
not get diluted? Do you think the company was able to protect these core
values? Why/why not?
3.
What
were the essential components of Beiersdoft’s global expansion strategy for
Nivea? Under what circumstances would a ‘global-strategy-local execution’
approach be beneficial for a company? When and why should this approach be
avoided?
CASE: IV Pret a Manger: passionate about food
Introduction
Pret a Manger (French for ‘ready to eat’)
is a chain of coffee shops that sells a range of upmarket, healthy sandwiches
and desserts as well as a variety o coffees to an increasingly discerning set
of lunchtime customers. Started in London, England, in 1986 by two university
graduates, Pret a Manger has more than 120 stores across the UK. In 2002 it
sold 25 million sandwiches and 14 million cups of coffee, and had a turnover of
over £100 million. Buckingham Palace reportedly orders more than £1000 worth of
sandwiches a week and British Prime Minister Tony Blair has had Pret sandwiches
delivered to number 10 Downing Street
for working lunches. The company also has ambitious plans to expand further—it
already has stores in New York, Hong Kong
and Tokyo, and has set its sights on further international growth.
Background
and company history
In 1986, Pret a Manger was founded with
one shop, in central London, and a £17,000 loan, by two property law graduates,
Julian Metcalf and Sinclair Beecham, who had been students together at the
University of Westminster in the early 1980s. At that time the choice of
lunchtime eating in London and other British cities was more limited than it is
today. Traditionally, some ate in restaurants while many favoured that well-known
British institution, the pub, as a choice for lunchtime eating and drinking.
There was, however, a growing awareness among many people of the benefits of
healthy eating and a healthy lifestyle, and lunchtime habits were changing.
There was a general trend towards taking shorter lunch brakes and, among office
workers, to take lunch at their desks. For those who wanted food to take away,
the choice in fast food was dominated by the large chains such as McDonald’s,
Burger King and Kentucky Fried Chicken (now KFC) while other types of carry-out
food, such as pizzas, were also available.
Sandwiches also played an important part
in British lunchtime eating. Named after its eighteenth-century inventor, the
Earl of Sandwich, the humble sandwich had long been a popular British lunch
choice, especially for those with little time to spare. Prior to Pret’s arrival
on the scene, sandwiches were sold mainly either pre-packed in supermarkets and
high-street variety chain stores such as Marks and Spencer and Boots, or in the
many small sandwich bars that were to be found in the business districts of
large cities like London, Sandwich bars were usually small, independently owned
or family run shops that made sandwiches to order for customers who waited in a
queue, often out on to the pavement outside.
Dissatisfied with the quality of both the
food and service from traditional sandwich bars, Metcalf and Beecham decided
that Pret a Manger should offer something different. They wanted Pret’s food to
be high quality and healthy, and preservative and additive free. In the
beginning, they shopped for the food themselves at local markets and returned
to the store where they made the sandwiches each morning. Pret’s offering was
based around premium-quality sandwiches and other health-orientated lunches
including salads, sushi and a range of desserts, priced higher than at
traditional sandwich bars, and sold pre-packed in attractive and convenient
packaging ready to go. There was also a choice of different coffees, as well as
some healthy alternatives. Service aimed to be fast and friendly go give
customers a minimum of queuing time.
Pret
a Manger: ‘Passionate about What We do’
Pret a Manger strongly emphasizes the
quality of its products. Its promotional material and website claims that it
is:
‘passionate about food, rejecting the use
of obscure chemicals, additives and preservatives common in so much of the
prepared and fast food on the market today…it there’s a secret to our success
so far we like to think its determination to focus continually on quality—not
just our food, but in every aspect of what we do’.
Great importance is also placed on
freshness. Unlike those sold in high-street shops or supermarkets, Pret’s
sandwiches are all hand-made by staff in each shop starting at 6.30 every
morning, rather than being prepared and delivered by a supplier or from a
central location. Metcalf and Beecham believe this gives their sandwiches a
freshness and distinctiveness. All food that hasn’t been sold in the shops by
the end of the day is given away free to local charities.
Careful sourcing of supplies for quality
has also always been important. Genetically modified ingredients are banned and
the tuna Pret buys, for example, must be ‘dolphin friendly’. There is also a
drive for constant product improvement and innovation—the company claims that
its chocolate brownie dessert has been improved 33 times over the last few
years—and, on average, a new product is tried out in the stores every four
days. Aware that some of its customers are increasingly health conscious,
Pret’s website menu carefully lists not only what is available, but also the
ingredients and nutritional values in terms of energy, protein, fats and
dietary fibre for each item.
The level and quality of service from
staff in the shop is a critical factor. The stores are self-service, with
customers helping themselves to sandwiches and other products form the
supermarket-style refrigerated cabinets. Staff at the counter at the back of
the store then serve customers coffee and take payment. Service is friendly,
smiling and efficient, in contrast to many retail and restaurant outlets in
Britain where, historically, service quality has not always been high. Prêt
puts an emphasis on human resource management issues such as effective
recruitment and training so as to have frontline staff who can show the
necessary enthusiasm and also remain fast and courteous under the pressure of a
busy lunchtime sales period. These staff are usually young and enthusiastic,
some are students, many are international. The pay they receive is above the
fast-food industry average and staff turnover is 98 per cent a year, which
sounds high—however, this is against an industry norm of around 150 per cent.
In 2001, Pret had 55,000 applications for 1500 advertised vacancies.
Recently, Fortune magazine voted Pret one of the top 10 companies to work for
in Europe. According to its own promotional recruitment material, Pret is an
attractive and fun place to work: ‘We don’t work nights, we wear jeans, we
party!’ Service quality is checked regularly by the use of mystery shoppers: if
a shop receives a good report, then the staff there receive a 75p an hour bonus
in the week of the visit. Head office managers also visit stores on a regular
basis and every three or four months every one of these managers works as a
‘buddy’, where they spend a day making sandwiches and working on the floor in
one of the shops to help them keep in touch with what is going on. Store
employees work in teams and are briefed daily, often on the basis of customer
responses that come in from in-store reply cards, telephone calls and the
company website. The website, which, lists the names and phone numbers of its
senior executives, actively invites customers to comment or complain about their
experience with Pret, and encourages them to contact the company. Great
importance is placed on this customer feed-back, both positive and negative,
which is discussed at weekly management meetings.
The design of the stores is also
distinctive. Prominently featuring the company logo, they are fitted out in a
high-tech with metal cladding and interiors in Pret’s own corporate dark red
colour. Each store plays music, helping to create a stylish and lively
atmosphere. Although the shops mainly sell carry out food and coffee in the
morning and through the lunchtime period, many also have tables and seating
where customers can drink coffee and eat inside the store or, weather
permitting, on the pavement outside.
Growth
and competition
Three years after the first Pret shop was
launched another was opened and, after that, the chain began to grow so that,
by 1998, there were 65 throughout London. In the late 1990s stores were also
opened in other British cities such as Bristol, Cambridge and Manchester. Although
growth in the UK has been rapid—between 2000 and 2002 the company opened 40 new
outlets and there are over 120 throughout Britain—Pret’s policy has always been
to own and manage all its own stores and not to franchise to other operators.
In 2002, £1 million was spent in launching an Internet service that enables
customers to order sandwiches online.
Plans for international growth have been
more cautious. In 2000 the company made its first move overseas when it opened
a shop near Wall Street in New York. However, there were problems on several
fronts in moving into the USA. Metcalf is quoted saying, ‘As a private company
its very difficult to set up abroad. We didn’t know where to begin in New
York—we ended up having all the equipment for the shop made here and shipped
over.’ There were also staffing and service quality difficulties—Pret
reportedly found it difficult to recruit people in New York who had the
required friendliness to serve in the stores and had to import British staff.
Despite these problems, several other shops in New York have followed and, in
2001, Pret opened its first outlet in Hong Kong.
During the 1990s, coffee shops boomed as
the British developed a growing taste for drinking coffee in pavement cafes,
and competition for Pret grew as other chains entered the fray. Rivals like
Coffee Republic, Caffè Nero, Costa Coffee (now owned by leisure group
Whitbread) Aroma (owned by McDonald’s) and American worldwide operator
Starbucks all came into the market, as well as a number of smaller independents.
All these chains offer a wide range of coffees but with varying product
offerings in terms of food, pricing and style (Starbucks, for example, offers
comfortable arm-chairs around tables, which encourage people to linger or work
in a laptop in the store). In a London shopping street it is not uncommon to
see three or four rival outlets next door to or within a few yards of each
other. However, it quickly became clear that the sector was overcrowded and,
apart from Starbucks, some of the other chains reportedly struggled to make a
profit. In 2002 Coffee Republic was taken over by Caffè Nero, which also
eventually acquired the ailing Aroma chain from McDonald’s. Costa Coffee was
the largest chain overall with over 300 shops throughout Britain, while
Starbucks was expanding aggressively and aimed to have an eventual 4000 stores
worldwide.
The
future
As work and lifestyles get busier, the
demand for convenience and fast foods continues to grow. In 2000, some
estimates put the total value of the fast-food market in Britain, excluding
sandwiches, at over £6 billion and growing about £200-£300 million a year.
While the growth in sales of some types of fast food, like burgers, was showing
signs of slowing down, sandwiches continued to increase in popularity so that
by 2002 sales wee an estimated £3 billion. Customers are also getting more
health conscious and choosy about what they eat and, increasingly, want
nutritional information about food from labelling and packaging.
In January 2001, in a surprise move,
Pret’s two founders sold a 33 per cent stake in the company to fast-food giant
McDonald’s for an estimated £25 million. They claim that McDonald’s will not
have any influence over what Pret does or the products it sells, but that the
investment by McDonald’s will help their plan for future development. According
to Metcalf:
‘We’ll still be in charge—we’ll have the
majority of shares. Pret will continue as it does… The deal wasn’t about
money—we could have sold the shares for much more to other buyers but they
wouldn’t have provided the support we need.’
After a long run of success, Pret has
ambitious plans for the future. It hopes to open at least 20 new stores a year
in the UK. In late 2002 it opened its first store in Tokyo, Japan, in
partnership with McDonald’s. The menu there is described as being 75 per cent
‘classic Pret’ with the remaining 25 per cent designed more to please local
tastes. In other international markets, the plan is to move cautiously—Pret’s
first move will be to open more stores in New York and Hong Kong, where it has
already been successful.
Questions
1.
How
has Pret a Manger positioned its brand?
2.
Explain
how the different elements of the services marketing mix support and contribute
to the positioning of Pret a Manger.
Case V
‘Fast Fashion’: exploring how retailers get affordable fashion on to the
high street
The term ‘fast fashion’ has become very
much de rigueur within the fashion retailing industry. Retailers have to react
quickly to changes in the market, possess lean manufacturing operations, and
utilize responsive supply chains in order to get the latest fashions to the
mass market. Stores such as H&M, Zara, Mango, Top Shop and Benetton have
been tremendously successful in being responsive to the fashion needs of the
market. Excellent logistical and marketing information systems are seen as key
to the implementation of the ‘fast fashion’ concept. ‘Fast fashion’ is the
emphasis of putting fashionable and affordable design concepts, which match
consumer demand, on to the high street as quickly as possible. These retailers
get sought-after fashions into stores in a matter of weeks, rather than the
previous industry norm, which relied on production lead times ranging from six
months to a year. The concept of ‘fast fashion’ relies of a number of central
components: excellent marketing information systems, flexible production and
logistics operations, excellent communications within the supply chain, and
leveraging advanced IT systems. These components allow stores to track consumer
demand, and deliver a rapid response to changes in the marketplace. The results
are invigorating for fashion retailers, with ‘fast fashion’ retailers’ sales
growing by 11 per cent, compared with the industry norm of 2 per cent.
Within the fashion industry a number of
different levels exist, the exclusive haute couture ranges (made to measure),
the designer ready-to-wear collections, and then copycat designs by mass-market
retailers. Fashion has now gone to the high street, becoming more democratic
for the mass market.
The traditional fashion- retailing model
was seasonal, whereby retailers would typically launch two seasons: spring and
autumn collections. Fashion retailers would buy for these collections from
their supplier network a year in advance, and allow for between 20-30 per cent
of their purchasing budgets open to specific fashion changes in the market.
Typically, retailers would have perennial offerings that rarely change as well
as catering to the whims of fashion, such as basic T-shirts and jeans.
Now, through the ‘fast fashion’
philosophy, new items are being stocked in stores more frequently. These newer
product ranges stimulate shoppers into frequenting these stores on a more
regular basis, in some cases weekly to see new fashion items. Savvy brand-loyal
shoppers know when new stock is being delivered to their favourite store.
Through increased stock replenishment of new, fashionable items, consumers are
increasing their footfall to these stores, and furthermore these stores are
developing brand images as cutting edge, trendy, and fashionable. This
increased footfall, where shoppers regularly visit a store, eliminates the need
for major expenditure on advertising and promotion. Also the concept of ‘fast
fashion’ is helping to improve sales, conversion ratios within these stores.
Due to the limited supply of designs available, this creates an aura of
exclusivity for these garments, further enhancing the brands of these ‘fast
fashion retailers’ as leading fashion brands.
Famous for ABBA, Volvos and IKEA, now
Sweden has another international success story: H&M. The basic business
premise behind H&M is ‘fashion and quality at the best price’. The company
now has over 1068 stores in 21 countries. H&M sources 50 per cent of its
goods in Europe and the remainder in low-cost Asian countries. Sourcing
decisions are dependent on cost, quality, lead times and export regulations.
The lead times for items can vary from a minuscule two weeks to six months,
dependent on the item itself. H&M believes that having very short lead
times can be beneficial in terms of stock control, however it is not the most
important criteria for all items. Basic clothing garments can have lead times
running into months, due to consistent demand. However, items that are more
trend- and fashion-conscious require very short lead times, to match demand.
H&M is now also in the process of teaming up with prestigious designers
like Karl Lagerfeld to create affordable fashion ranges.
The firm utilizes close relationships
with its network of production offices and 700 suppliers. Unlike some other
clothing retailers, H&M outsources all of its production to independent
suppliers. The dyeing of garments is postponed until as late as possible in the
production process to allow greater flexibility and adaptation to the whims of
the fashion buyer. Items from around the world are shipped to a centralized
transit warehouse in Hamburg, Germany, where quality checks are undertaken, and
the items are allocated to individual stores or placed in centralized storage.
Items that are placed in this ‘call-off warehouse’ are allocated to stores
where there is more demand for the particular item. For example, if pairs of a
particular style of jeans are selling well in London, more jeans are shipped
from Hamburg to H&M’s London stores.
Table
6: Some of the key players in apparel industry
|
H&M
|
Next
|
Benetton
|
|
Originated in Sweden
|
Originated in the UK
|
Originated in Italy
|
|
Chain has 1069 stores in 21 countries
|
Has 380 stores in the UK and Ireland
and has 80 franchise stores overseas
|
Has a presence in 120 countries and
uses a retail network o 5000 stores
|
|
Originally called Hennes & Mauritz,
renamed as H&M. Sells women’s and men’s apparel. Doesn’t own any
manufacturing resources. Motto—‘Fashion and quality at the best price’.
|
Sells women’s wear, men’s wear and
homeware. The firm has a very successful catalogue business. Targets the top
end of the mass market, focusing on fashionable moderately priced clothing
|
Sell under brand name such as Benetton,
Playlife, Sisley and Killer Loop. Uses a network of franchises/partner
stores. Established huge brand awareness through its infamous ad campaigns.
|
|
Zara
|
Mango
|
Arcadia
|
|
Originated in Spain
|
Originated in Spain
|
Originated in the UK
|
|
Chain has 729 Zara
stores
|
Chain has 770 stores in
70 countries
|
Chain has over 2000
stores
|
|
Zara is the main part of
the Spanish Inditex group and is valued at nearly €14 billion. Operates under
the mantra of affordable fashion, and adopts the principle of market-driven
supply.
|
Operates a successful
franchise operation (more than half are franchises). The company specializes
exclusively in targeting the young female mid-market.
|
Operates several
different fascia, targeting different types of customer, with stores such as
Burton, Dorothy Perkins, Evans, Wallis, Top Shop, Top Man, Miss Selfridge and
Outfit. Owner Philip Green also owns BHS stores and Etam UK
|
Sourcing low-cost garments with quick
response times is a vital element of the concept. Many of the ‘fast fashion’
retailers utilize a vast network of suppliers, so that their stores are
replenished with latest designs. Some firms are entirely vertically integrated,
where the retailer owns and controls the entire supply chain. For example, Zara
buys its fabric from a company owned by its parent, Inditex, and buys dyes from
another company also within the group. Retailers source their goods from
countries such as China, North Africa, Turkey and low-cost eastern European
countries. If cost were the sole basis for supplier selection, then the vast
majority of products would be sourced from the Far East. However, the lead
times for delivery of goods are quite substantial in comparison to sourcing
garments in Eastern Europe (e.g. shipping goods from China can take sex weeks,
whereas from Hungary takes two days). As a result of this, retailers are using
a hybrid approach, sourcing closer to markets for more fashion-orientated
lines. The drive towards reduced lead times is allowing companies to be more
responsive to market changes. The benefits of such a quick response to market
changes are reduced costs, lean inventories, faster merchandise flow and closer
collaborative supply chain relationships.
The concept of ‘postponement’ is a key
strategy used within the fashion retailing industry. It is the delayed
configuration of a garment’s final design until the final market destination
and/or customer requirement is known and, once this is known, the garment is
assembled or customized. The material and styles are kept generic for a long as
possible, before final customization. A classic illustration of the concept of
postponement is its usage by Benetton. Colours can come in and out of
fashion. Benetton delays when its
garments are finally product differentiated, so that this matches what is
selling. For example, a Benetton sweater would be stitched and assembled from
its original grey yarn and then, based on feedback from Benetton’s distribution
network as to what colours were selling, the sweater would be dyed at the very
final stage of production. The concept of postponement allows greater inventory
cost saving, and increased flexibility in matching actual demand.
The production and logistics facilities
for these ‘fast fashion’ retailers are colossal in that each design may have
several colour variants, and the retailer needs to produce an array of garments
in a number of different sizes. The number of stock keeping units (SKUs) is
therefore staggering. As a result, companies require a very reliable and
sophisticated information system—for example, Zara has to deal with over
300,000 new SKUs every year. Benetton has a fully automated sorting and
shipping system, managing over 110 million items a year, with a staff of only
24 employees in its centralized distribution centres. Mango, another successful
Spanish fashion chain, also utilizes a high-tech distribution system, which can
sort and pack 12,000 folded items an hour and 7000 hanging garments an hour.
Many in the industry see Zara as the
classic illustration of the concept of ‘fast fashion’ in operation. The company
can get a garment from design, through production and ultimately on to the
shelf in a mere 15 days. The norm for the industry has typically run to several
months. The group’s basic business philosophy is to seduce customers with the
latest fashion at attractive prices. It has grown rapidly as a fashion retail
powerhouse by adopting four central strategies: creativity and innovation;
having an international presence; utilizing a multi-format strategy; and
through vertically integrating its entire supply chain. For the ‘fast fashion’
concept to be successful, it requires close relationships between suppliers and
retailers, information sharing and utilization of technology. Information is
utilized along the entire supply chain, according to the demand. It controls
design, production and the logistics elements of the business. Real-time demand
feeds the production systems.
Zara is part of the Inditex group of
fashion retail brands. This group adopts a multi-format strategy with different
store brands targeting different types of customers. Zara is its key
fashion-retailing brand. Zara opened its first store in 1975 in Spain and has
now become a fashion powerhouse, operating in four continents, with 729 stores,
located in over 54 countries. It has become very hip all over the world, for
its value for money and stylish designs. The chain is building large numbers of
brand devotees because of its fashionable designs, which are in tune with the
very latest trends, and a very convincing price-quality offering. Each of the
different store brands (outlined in Table- 7) needs to be strongly
differentiated in order for the strategy to work effectively.
Table
7 Number of Inditex stores by fascia
|
Zara
|
729
|
|
Pull and Bear
|
373
|
|
Massimo Dutti
|
330
|
|
Bershka
|
305
|
|
Stradivarius
|
228
|
|
Oysho
|
106
|
|
Zara Home
|
63
|
|
Kiddy’s Class
|
131
|
|
TOTAL
|
2265
|
Figure 3 Zara’s market-led supply
Zara does not undertake any conventional
advertising, except as a vehicle for announcing a new store opening, the start
of sales of seasons. The company uses the stores themselves as its main
promotional strategy, to convey its image. Zara tries to locate its stores in
prime commercial areas. Deep inside the lairs of its corporate headquarters, 25
full-scale store windows are set up, whereby Zara window designers can
experiment with design layouts and lighting. The approved design layouts are
shipped out to all Zara’s stores, so that a Zara shop front in London will be
the same as in Lisbon and throughout the entire chain. The store itself is the
company’s main promotional vehicle.
One of Zara’s key philosophies was the realization
that fashion, much like food, has a ‘best before’ date: that fashion trends
change rapidly. What style consumers want this month may not be same in two
months’ time. Fashion retailers have to adapt to what the marketplace wants for
the here and now. The company is guilty of under-stocking garments, as it does
not want to be left with obsolete or out-of-fashion items. The key driving
force behind its success is to minimize inventory levels, getting product out
on to the retail floor space, and by being responsive to the needs of the
market. Zara uses its stores to find out what consumers really want, designs
are selling, what colours are in demand, which items are hot sellers and which
are complete flops. It uses a sophisticated marketing information system to
provide feedback to headquarters and allow it to respond to what the
marketplace wants. Similarly, Mango uses a computerized logistical system that
allows the matching of clothes designs to particular stores based on
personality traits and even climate variances (i.e. ‘It this garment suitable
for the Mediterranean Summer?). This sophisticated IT infrastructure allows for
more responsive market-led retailing, matching suitable clothing lines to
compatible stores.
At the end of each day, Zara sales
assistants report to the store manager using wireless headsets, to communicate
inventory levels. The stores then report back to Zara’s design and distribution
departments on what consumers are buying, asking for or avoiding. Both hard
sales data and soft data (i.e. customer feedback on the latest designs) are
communicated directly back to the company’s headquarters, through open channels
of communication. Zara’s 250 designers use market feedback for their next
creations. Designers work hand in hand with market analyst, in cross-functional
teams, to pick up on the latest trends. Garments are produced in comparatively
small production runs, so as not to be over-exposed if a particular item is a
very poor seller. If a product is a poor seller, it is removed after as little
as two weeks. Roughly 10 per cent of stock falls into this unsold category, in
direct contrast to industry norms of between 17 and 20 per cent. Zara produces
nearly 11,000 designs a year. Stock items are seen as assets that are extremely
perishable and, if they are sitting on shelves or racks in a warehouse, they
are simply not making money for the organization.
In the course of one year alone, Zara has
been able to launch 24 different collections into its network of stores. After
designs have been approved, fabrics are dyed and cut by highly automated
production lines. These pre-cut pieces are then sent out of nearly 350
workshops in northern Spain and Portugal. These workshops employ nearly 11,000
‘grey economy’ workers mainly women, who may want to supplement their income.
Seamstresses stitch the pre-cut pieces into garments using easy-to-follow
instructions supplied by Zara. The typical seamstress’s wage in Zara’s workshop
network is extremely competitive when compared with those in ‘third world’
countries where other fashion retailers mainly outsource their production.
Furthermore, the proximity of these workshops allows for greater flexibility
and control, Zara achieves greater control over its supply chain through having
a high degree of integration within the supply chain. By owning suppliers, Zara
has greater control production capacities, quality and scheduling. This is in
stark contrast to Benetton, which is close to being a virtual organization,
outsourcing production to third-party suppliers and directly owning only a
handful of its stores, the majority being franchises or partner stores.
The finished garments are then sent back
to Zara’s colossal state-of-the-art logistics centre. Here they are
electronically tagged, quality control double-checks them, and then they are
sorted into distribution lots, ensuring the items arrive at their ultimate
destinations. Each item is tagged with pricing information. There is no
pan-European pricing for Zara’s products: prices are different in each national
market. Zara believes each national market has its own particular nuances, such
as higher salaries or higher taxation, therefore it has to adjust the price of
each garment to make it suitable in each country and to reflect these
differences. Shipments leave La Coruňa bound for every one of the Zara stores
in over 54 countries twice a week, every week. The company’s average turnaround
time from designing to delivery of a new garment takes on average 10 to 15
days, and delivery of goods takes a maximum of 21 days, which is unparalleled
in an industry where lead times are usually months, not days. Zara’s business
model tries to fulfil real-time fashion retailing and not second-guessing what
consumers’ needs are for next season, which may be six months away. As a result
of Zara utilizing this ultra-responsive supply chain, 85 per cent of its entire
product range obtains full ticket price, whereas the industry norm is between
60 and 70 per cent.
The successful adoption of the ‘fast
fashion’ concept by these international retailers has drastically altered the
competitive landscape in apparel retailing. Consumers’ expectations are also
rising with these improved retail offerings. Clothes shoppers are seeking out
the latest fashions at value-for-money prices in enticing store environments.
Now other well-established high-street fashion retailers have to adapt to these
challenges, by being more responsive, cost efficient, speedy and flexible in
their operations. The rag trade is churning out the latest value-for-money
fashions at breakneck speed. ‘Fast fashion’ is what the marketplace is
demanding.
Questions
1.
Discuss
how supply chain management can contribute to the marketing success of these
retailers.
2.
Discuss
the central components necessary for the fast fashion concept to work
effectively.
3.
Critically
evaluate the concept of ‘market-driven supply’, discussing the merits and
pitfalls of its implementation in fashion retailing.
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