Marks and Spencer Plc Marketing Strategy - Essay Example

?Letter of Transmittal 22 July CEO Marks and Spencer London England Dear Sir, Per your request a situation analysis of Marks and Spencer is enclosed. The purpose of the report is to identify Marks and Spencer’s current market position relative to its products and to provide information and data that can aid in making decisions with respect to marketing Marks and Spencer’s products so as to prevent a crisis and to reverse current declines in sales. The report which includes a SWOAT analysis has been completed and is attached for your review and consideration. Yours Sincerely Name i Situation Analysis Report: Marks and Spencer Plc. By Student Name Course Tutor Institution Date ii Contents Situation Analysis Report: Marks and Spencer Plc. 2 ii 2 Contents 3 Executive Summary 4 Introduction 5 I.Situational Analysis Report 6 1.2 Background/History 6 1.2.3. The 1998 Crisis 10 1.2.4. Response to the 1998 Crisis 12 2. SWOT Analysis 12 3. Conclusion/Recommendations 15 Appendix 16 Bibliography 16 iii Executive Summary This situation analysis report examines the market conditions and the external and internal environment that led to the 1998 crisis for Marks and Spencer. It has as its primary purpose the identification of the factors that led to the crisis and the appropriate strategies utilized for reversing the crisis of 1998. Therefore a SWOT analysis is conducted with a view to identifying each of the pre-crisis factors, the crisis factors and the appropriate responses. This report concludes that Marks and Spencer had grown complacent in its brand and had not taken advantage of the opportunities accorded it for communications marketing strategies. Marks and Spencer also failed to identity the threat posed by not taking advantage of this opportunity. This report concludes by identifying ways that Marks and Spencer can improve its market share and return to the market force it once was. Essentially, this report identifies the extent to which long years of success in single branding and extending and mixing product ranges led to complacency for Marks and Spencer. The result was an unexpected and unanticipated decline in profits and sales in 1998. This complacency reflected a disconnect between Marks and Spencer and its consumers, putting the company at a disadvantage among its competitors and forced Marks and Spencer to redefine its brand and to its marketing strategies so that it made itself relevant among consumers once again. This report identifies the strengths, weaknesses, threats and opportunities for Marks and Spencer, where it is now and how it can improve its market shares by altering its marketing strategies to receive optimal results. In the final analysis, Marks and Spencer is on the right track with its communication strategies. 4 Introduction Marks and Spencer Group Plc (M&S) is a retailer situated in the UK with more than 21 million consumers entering its stores weekly. M&S sells home products, clothing and food and wines. In the UK, M&S sells women’s clothing and lingerie and men’s and kids clothing and home and food products. M&S food products are comprised of grocery items, pre-prepared meals, fresh produce and wines. There are 703 M&S in the high streets of the UK together with stores located in retail parks, stations, airports among others. M&S also has 361 franchises either wholly or partly owned in 42 European locations, the Middle East and Asia. Customers can access products either in the store, online and by telephone. 49 percent of M&S business is focused on clothing and home products while the remaining 51 percent is in food (Thomson Reuters 2011). The fact is, M&S is one of the best-known retailers in the UK and has built a brand that associates the company with value, quality and reliability (Moss and DeSanto 2002, p. 259). Perceptions were that M&S set standards for other retailers to match and was acknowledged as among Britain’s “best-managed companies with an enviable track record of successful growth and profits” (Moss and DeSanto 2002, p. 259). M&S became a brand name comparable to that of Harrods in that it had grown into a “national icon for British business in terms of honourable trading” (Moss and DeSanto 2002, p. 259). In 1998 however, M&S encountered its first serious crisis which resulted in a new brand strategy (Toda and Jackson 2009, p. 81). Hence M&S ushered in a new era expanding product range and moving farther away from a single brand era into a multi-brand era amidst 5 fierce competition from rivalling retailers (Toda and Jackson 2009, p. 82). The purpose of this situation analysis is to identify how M&S has managed to build its brand and reputation successfully, to identify its strengths and weaknesses and to identify and predict weaknesses that M&S might expect to encounter and how best M&S might respond to those challenges. Audit reports, financial statements and markets analyses will be used to construct this situation analysis. Thus the report is set out with a background setting out the history of M&S’s brand development, followed by the 1998 crisis, and responses to the crisis. Throughout M&S market situation relative to its product and brand will be highlighted and analysed. A SWOT analysis will be concluded identifying and highlighting the strengths, weaknesses, opportunities and threats facing M&S. I. Situational Analysis Report 1.2 Background/History M&S remains among the UK’s top retailers and is the UK’s top womenswear and lingerie providers. M&S is also increasing its market share in men’s clothing, children’s clothing and home products partly as a result of its online facilities (Marks and Spencer 2011). This is entirely understanding because advances in modern technology in the context of communications, information technology and computers have changed the way consumers access markets and therefore changed marketing strategies (Ferrell and Hartline 2008). Businesses are no longer able to manipulate consumer preferences. Instead consumers are now in control since they can now access information and compare shops and products on a wide range of forums such as ebay and Amazon. Customers are now able to communicate 6 with each other and compare products and prices (Ferrell and Hartline 2008, p. 3). Any business wanting to be a part of those discussions will have to be highly visible online. M&S has come a long way from its meagre beginnings in 1884 when Michael Marks, “a Russian born Polish refugee” set up a stall in the Leeds Kirkgate market (Marks and Spencer 2011). Ten years later in 1894, Marks opened a shop at Cheetham Hill Road in Manchester and partnered with Tom Spencer who had been a cashier at IJ Dewhirst. In 1901 Marks and Spencer established a warehouse and main office at Derby Street in Manchester. In 1904 the partners opened a shop at Leeds’ Cross Arcade. Spencer died in 1905 and two years later Marks died in 1907. By 1908 the next generation of Marks and Spencers took over the business and by the 1920s the business was making its purchases directly from manufacturers. In 1926 the public company Marks and Spencer Limited was established (Marks and Spencer 2011). In 1928, M&S registered its trade mark St. Michael and in 1928 the flagship shop was established in Marble Arch in London. A food product line was introduced in 1931 which included produce and canned foods. During the 1930s Cafe Bars were established in many of M&S shops. In 1934 M&S established a research lab for the purpose of investing in new fabrics. In 1948, M&S introduced on a trial bases its first self-service at a shop in Wood Green London. In 1973, M&S sold wine for the first time. The following year in 1974, M&S introduced its Indian and Chinese foods. In 1975 M&S opened its first stores in Europe in Paris and Belgium (Marks and Spencer 2011). In 1985, M&S introduced its M&S Chargecard on a national basis. In 1986, M&S opened “its first edge of town store” in Gateshead’s Metro Centre (Marks and Spencer 2011). 7 Furniture was introduced and was supplemented by a Home Furnishing catalogue. In 1988, M&S purchased Brooks Brothers which is an American clothing retailer and US food chain Kings Super Markets. During the same year, M&S opened a shop in Hong Kong. Online shopping was introduced in 1999 at Marks and Spencer’s own website. In 2000, M&S introduced a Count on Us product range of food. In 2001, machine washable men’s suits and the Bioform Bra were introduced (Marks and Spencer 2011). What can be gleaned thus far is that M&S has committed a substantial number of years to building its brand, expanding its product range and introducing new products and acquiring new products and businesses. M&S has demonstrated a practice in this regard that is consistent with process-based brand equity. Process-based brand equity targets the “value of relational and experiential aspects of branding” (Baker and Saren 2010, p. 382). The role of brands in “services, business-to-business and electronic marketing” are important (Baker and Saren 2010, p. 382). As Baker and Saren (2010) explain: Customers’ interaction and relationships with the organization providing the goods and services play a more important role than simply brand differentiation or identity (p. 382). From the perspective of the relational area, the business provides the main characterization of the brand’s equity over the “consumer-packaged goods marketing” in which products determine brand equity (Baker and Saren 2010, p. 382). In other words, brand functioning is more important than brand identity. Therefore the consumer’s relationships and their experience with the business are significant indicators of the meaning 8 and equity attached to the brand. Of primary importance is the business’s reputation and identity and the “corporate brand” is connected with the brand (Baker and Saren 2010, p. 382). The process brand-based equity is expressed in the history of M&S in its expansion of stores and products. This is indicative also indicative of a network-based brand equity which is closely tied to the process-based brand equity and is inclusive of “co-branding, brand alliances and networks” (Baker and Saren 2010, p. 383). In its history, M&S acquired a US clothing chain and a US super market. Thus M&S recognized that the brand’s equity not only emanates from the consumer, but from the relations operating within “the marketing system” as well (Baker and Saren 2010, p. 383). M&S can be described as taking what Schumpeter describes as “offensive and value-creating” functioning in its earlier years (Sundbo 1998, p. 132). This is so because M&S began small and gradually expanded introducing new products, mixing products and expanding the product line with the purpose of expanding the market by introducing new products such as food and home furnishings. The introduction of menswear can be seen as mixing the product range since M&S already had a successful womenswear product and brand. Innovations such as the introduction of the online shopping and the chargecard can be seen as consistent with the rationalist theory in which innovation is meant to respond to problems in sales or fear that a sales problem might arise (Sundbo 1998, p. 132). 9 1.2.3. The 1998 Crisis The crisis suffered by M&S in 1998 was significant enough for Mellahi, Jackson and Sparks (2002) to describe it as M&S’s “fall from grace” with the result that the business was “fighting for its life” (p. 15). Although M&S attributed the crisis to external threats, Mellahi, Jackson and Sparks (2002) internal factors were also responsible for the crisis. Be that as it may, based on the business model described in the previous section, up to 1994, M&S held 18 percent of the UK’s retail market, 33 percent of women’s lingerie market and 20 percent of men’s suits (De Nardi-Cole 1998 p. 159-166). Up to 1998, M&S controlled 40 percent of the UK’s undergarments’ market and 14 percent of the clothing market (Financial Times 1999). M&S also had 4.3 percent of the food market (Mark and Spencer Press Release 1999). These kinds of market shares speaks to M&S’s brand reputation and as a reputable retailer. However, by 1998, M&S’s stock dropped by 34 percent. It’s net profits dropped by 41 percent and its market share fell by approximately 1 percent. In 1999, M&S’s reported profits were 630 million pounds a half of the profits for the previous year in 1998 (See Marks and Spencer’s Financial Statements for 1999 and 1998). The crisis left M&S losing its grip on its market shares and unable to stand up to the success of a comparable company (See appendix 1 for a description of M&S’s market position in 1998 and how it compares to Walmart, the U.S.’s leading retailer). According to Marks and Spencer’s Press Release (1999) the company’s crisis was due to an unexpected sales’ decline, a downturn in markets abroad and its purchase of Littlewoods stores for 90 million pounds. The recession in Europe and particularly in Asia 10 was cited as having constrained profits abroad. Meanwhile competition both locally and abroad has increased with the introduction of large merchandise stores such as Walmart (Ion 2000, p. 2). Investors were not convinced that the threat came solely from external sources since M&S’s stocks “underperformed other British retailers by more than 25%” (Ion 2000, p. 2). Investors and analysts: Blamed M&S management for dully merchandising, poor inventory control, and lagged response time to competitive environment conditions. Industry commentators have criticized the color, size and shape of their clothes, the lousy retailing climate, the unglamorous stores, the overpriced products and the personal services (Ion 2000, p. 3). The fact is M&S has faced formidable competition in every aspect of its brand and products. For instance, Top Shop, Kookai, Miss Selfridge, Jigsaw, Oasis, Warehouse and the Gap provide “more fashionable designs and trendier labels” (Ion 2000, p.3). Moreover, Next, Debenhams, and BhS provide greater value in clothing. Food competition also comes from Tesco, Waitrose and Sainsbury who have also introduced ready-to-eat meals (Ion 2000, p. 3). In its Press Release (1999) M&S admitted that it had not responded effectively and efficiently to the growing competition which obviously negatively impacted its profits and market shares. 11 1.2.4. Response to the 1998 Crisis Previously, M&S did not invest significantly in marketing and preferred to let its reputation and brand-based equity and value pricing strategies speak for itself. It trade name, St. Michael had built significant value and “has become synonymous with quality in a broad segment of products” (Ion 2000, p.5). However, focusing on St. Michael has cost M&S the “marketing backing of popular brand names” (Ion 2000, p. 5). Advertising was left only for promotions and M&S’s expenditures on media was 4.7 million pounds when other top retailers spent 18.8 million pounds (Jardin 1999). Following the crisis of 1999, M&S has reversed this trend. Advertising expenditures have increased significantly to 20 million pounds. Moreover, M&S immediately extended an invitation to advertising agents to bid for preparing a television campaign (Jardin 1999). Moreover, as previously noted, M&S began to use online shopping and introduced a chargecard to make it more competitive. There was also investment in research and development to improve its fabrics. 2. SWOT Analysis Strengths The 1998 crisis resulted in M&S taking a more holistic approach to consumer preferences and attitudes by taking a look at the competition and the choices that customers had. Customer satisfaction became a pivotal focus with the increased expenditure on advertising, the introduction of online shopping, a chargecard and product expansion and 12 research and development investments. These movements are demonstrative of M&S commitment to consumer satisfaction and this could translate into to improves sales. By increasing its advertising expenditures, M&S is engaging in a renewed marketing strategy which is a strategy in communication. This kind of strategy improves brand equity and value generally (Davidson 1997). By taking this approach, M&S has chosen to redefine its brand positioning which is accomplished through a marketing communication strategy via increased advertising. A recent campaign features sports legend David Bechham modelling menswear. This sports legend is used to communicate with the young male segment of the market. Online shopping has also opened up communications with customers as it provides an open forum for consumers to browse the internet and find M&S’s products when conducting a search for products. Weaknesses Obviously, M&S had not been spending enough on communication as a marketing strategy. Communications are a tried and tested method for introducing products and brands and keeping them present in the consumer’s mind (Fill 2002). By failing to spend significantly on media campaigns, M&S cut off an entire segment of the market by failing to reach out to consumers. M&S had far too much confidence in its brand and expected that to sell its products. In the meantime, M&S’s competition were spending far more on communication marketing strategies. Therefore there was a greater market awareness attached to the 13 competition and this automatically meant a decline in sales for M&S. Moreover, M&S failed to use online shopping and as such cut out an entire market segment: consumers who do not have time to go to high street stores or who search online for comparable prices and products before going into a high street store. Opportunities M&S reduced its reliance on the single brand in St. Michael and introduced other labels and brands. By using David Beckman M&S has created a new brank and a new connection to its consumers. This was an opportunity to expand its brand. M&S also seized upon the opportunity to introduce a M&S chargecard which would induce consumers to shop at M&S rather than a store where they may not have a chargecard. This provides consumers with an opportunity to earn points which can be applied to the payment of bills and for making purchases at non-rival stores such as Boots and Dixons. This will provide M&S with the opportunity to acquire consumer loyalty and to appeal to a variety of consumer types. Threats Obviously the failure to invest significantly in communication marketing strategies was a threat to M&S as its competitors were investing exponentially in communication strategies. Competitors are in a position to reach and communicate more successfully with consumers and give the impression that the consumer matters while M&S gives the impression that they do not. This was an unintended result, but it was a threat that M&S did not understand completely until after its sales dropped and it lost a significant market share. 14 3. Conclusion/Recommendations M&S has consistently demonstrated a willingness to be innovative in terms of expanding and mixing its product range. However, it has placed far too much confidence in its brand equity and value and expected the brand to sell based on sheer reputation. The advances in modern technology however, have made it possible for consumers to turn their attention to other brands and products. M&S previous failure to take advantage of modern communications and media advertising contributed to its failure to keep up with the completion and thus resulted in the financial crisis of 1998. M&S has made strategic changes to turn this situation around by adding a marketing department and investing in media communications. This is likely to return M&S to a formidable rival as it keeps its brand and products visible not only in communication marketing strategies via media advertising but via its online shopping facilities. At this point M&S should take advantage of mass communications technologies and use an online forum at it website to solicit consumer feedback. It should also communicate directly with consumers at its website. By taking this approach, M&S will be in a better position to canvas consumer satisfaction, preferences and attitudes in a direct and immediate way. M&S will be in a better position to respond effectively and efficiently to changes in the consumer market. 15 Appendix M&S’s Market Position in 1998 Compared to Walmart’s1 Marks and Spencer Walmart Market Capitalization $18 billion $204 billion Sales $13.3 billion $150.7 billion Sales Abroad 16% 17% Representation in Countries 34 10 Revenue $14 billion $144 billion Assets returns 13% 10% Equity Returns 18% 23% Existing Ratio 0.98 1.30 Ration on earning price 31 44 Price Trends over 52 Weeks -31% 63% 16 Bibliography Alon, I. 28 April, 2000. “Marks and Spencer: A Case Study in International Retailing.” http://www.elearning.ulg.ac.be/old_demos/HEC/html/marks.pdf (Retrieved 22 July 2011). Baker, M. and Saren, M. 2010. Marketing Theory: A Student Text. London, UK: SAGE Publications Ltd. Davidson, H. 1997. Even More Offensive Marketing. New York, NY: Penguin Books. De Nardi-Cole, S. 1998. “Marks and Spencer.” Cited in Sternquist, B. (Ed.). International Retailing. 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Marks and Spencer Annual Report and Financial Statements 1999. http://corporate.marksandspencer.com/documents/publications/archive/1999_annual_report.pdf (Retrieved 22 July 2011). Mellahi, K.; Jackson, P. and Sparks, L. March 2002. “An Exploratory Study Into the Failure in Successful Organizations: The Case of Marks & Spencer”. British Journal of Management, vol. 13(1): 15-29. Moss, D. and DeSanto, B. 2002. Public Relations Cases: International Perspectives. London, UK: Routledge. Sundbo, J. 1998. The Theory of Innovation: Entrepreneurs, Technology and Strategy. Glos, UK: Edward Elgar Publishing Limited. Thomson Reuters. 2011. “Mark and Spencer Group PLC (MKS.L). http://uk.reuters.com/business/quotes/companyProfile?symbol=MKS.L (Retrieved 22 July 2011). 17 Toda, Y. and Jackson, P. 2009. “Changing Brands-Changing Image? The Historical Analysis of Brand Management in Marks and Spencer.” Charm, 81-82. 18 Read More