Marketing Mix Analysis of Lululemon Athletica - Research Paper Example

? Marketing Mix Analysis Table of Contents Distribution (Place) Strategy 4 Marketing Channel Format and Intermediaries 4 Wholesale Channel 4 Online 4Factors Affecting the Distribution Channel 5 Competitors 5 Regulation 5 Technology 6 Consumer 6 Product Type 6 Economic 6 Company Strength and Culture 6 Social 7 Pricing Strategy 8 Pricing Constraints and Objectives 8 Demand and Revenue 9 Cost Volume and Profit Relationships 10 Approximate Price Level 11 Quoted Prices 11 Special Adjustments 12 12 References 13 Bibliography 15 Distribution (Place) Strategy Lululemon Athletica believes that their “vertical retail distribution” strategy distinguishes them from their competitors. This strategy signifies that the company sells what it manufactures. The company has a distribution facility in Vancouver, British Columbia and in Renton. At Washington of the United States the company operates its distribution through third-party vendor (Lululemon Athletica Inc, 2010). Marketing Channel Format and Intermediaries Wholesale Channel Lululemon’s products are sold at third-party resellers, which the company feels is parallel to their company. Such resellers may include premium yoga studious, fitness centers and health clubs. Speciality Store and Franchises are among of the company’s reseller. However, the wholesale channel of business does not generate overall revenue for the company. Thus, the strategy is generally opted to create brand awareness in new markets (SlideShare Inc, 2012). Online Lululemon’s products are based on target segmentation. Most the company’s products are based on young women. Thus, the company is present in social networking sites which have created a new attraction for the youth and also has enabled to spread product related awareness. Online selling options are available on the company’s websites. The company online sales had grown from 4% in 2009 to 8% in 2010 (SlideShare Inc, 2012). Factors Affecting the Distribution Channel Lululemon’s products are segment centric. Therefore, the products are mainly based on a small demographic population. A person who is fitness oriented and has the tendency to work out in gyms or in any similar places generally are the target segment for the use of the company’s products. Thus, the limited products that the company offers are a bit of concern for increasing the sales (Hughes, Schafer, & Hipperson, 2010). Competitors Lululemon has a wide range of competitors that have been doing business from a longer period. Adidas, Nike and Reebok are the biggest competitors of the company. They are almost present all over the world, whereas Lululemon has not yet started to operate their business in spread worldwide way. They are present in only a few of the global nations. Thus, the non-availability of the company’s products at a wider global location has been giving the competitive edge to their competitors (Lululemon Athletica Inc, 2010). Regulation Lululemon generally follows code of conduct as well as ethical standards in the business operations which enables them to operate their business and distribute their offerings in a convenient way. Technology Lululemon’s distribution facilities consist of automatic equipments that are controlled by the computers. Thus, it implies that their operations are complicated and risks of system failure or virus attack are at large. Proper operations of hardware and software and interruptions due to non-power supply may also affect the distribution process (Lululemon Athletica Inc, 2010). Consumer Lululemon’s consumers are primarily people who prefer to visit gym and exercise centers. Product Type The products offered by Lululemon are generally athletic apparels as well as accessories. Economic Lululemon’s products are costlier in comparison to its competitors. Thus, the company can only distribute its products to those markets where the buying power of the consumers are high. Therefore, the costlier products have been affecting the distribution process which in turn is affecting the sales of the products (Lululemon Athletica Inc, 2010). Company Strength and Culture Lululemon’s success depends upon their value and reputation of their brand. The company relies on social networks to promote their products. The company distributes its products through its online website. The online distribution process is primarily for those customers who are technologically advanced. Therefore, at times the distribution process is hampered due to the lower population of consumers using the online services (SlideShare Inc, 2012). Social Growing fitness trends across the world can be a positive impact for the company’s distribution. The availability of their products at places like yoga studios as well as health clubs will influence the fitness communities. Thus, the company is focusing on athlete products to be available at these places which are almost present in all the countries (Lululemon Athletica Inc, 2010). Pricing Strategy Lululemon’s products are priced generally higher than its major competitors. The company targets the upper class people of the society who are the common visitors to yoga studios and health clubs. Lululemon focuses on the growing trends and adds value to its products so that the brand image prevails through the consumers (Hollie, 2009). Their highly priced items are being sold from very less number of stores which has led it to attain per square foot of sales of USD 1,700 through its corporate possessed stores. The sales per square foot are much higher compared to its competitors like Abercrombie and Fitch - USD 489 and Gap- USD 398. Thus, the pricing strategy facilitates to capture greater revenue for Lululemon with smaller operating costs. The company captured gross margin of 53.3 percent in 2011. It also gathered 18.2 percent of operating margin in the year 2011 (SlideShare Inc, 2012). Pricing Constraints and Objectives Value Added Pricing: Lululemon implements this pricing strategy to each of its products. This strategy defines that an extra value or additional input has been made to the product which has resulted in the additional cost of the product. Rather than cutting costs and lowering their quality, the company includes extra features to the product that justifies the price differences between their and their competitors’ products sales (Hughes, Schafer, & Hipperson, 2010). The constraints that the company faces by implementing value added pricing strategy is small but can affect the overall sales of the product. The inclusion of extra features makes their product costlier which are afforded by richer communities of the countries. Sales in the countries where there are mixed populations and the poorer communities at large have affected the sales of their products. Prestige Pricing: Though Lululemon cannot be compared with a few of the prestigious brands like Rolex or Louis Vuitton, however, the brand is considered exclusive and prestigious in its product category. The company’s target market likes the brand which represents their trendy fashion and health conscious lifestyle sales (Hughes, Schafer, & Hipperson, 2010). These approaches to pricing can only be successful at places where people’s purchasing power is more. The company’s products are available at countries where the majority of the population is rich and modern approaches to lifestyles are followed. Thus, the middle class and lower income groups are not being aware of the company’s products and the profits are being affected in terms of sales. Demand and Revenue The demand and the revenue of a product is a factor that will be generated by its prices. Generally, price of a product is determined through its demand in the market. However, this is not the case for Lululemon. During the recent recession, the company did not cut its costs and managed to preserve the profitability of the company (Lululemon Athletica Inc, 2010). Though the price of Lululemon’s products is quite higher compared to its competitors’ products, however, the demand for their products has not declined. The revenue of the company is generated not through maximizing sales but through profit margins. The targeted segment’s demand hardly decreases because of the purchasing power of the customers. Their exclusive products are targeted for the richer communities which rarely is a factor for their targeted group (Lululemon Athletica Inc, 2010). Cost Volume and Profit Relationships Lululemon’s cost of production is higher due to the use of expensive raw materials. The products are based on technologically complex fibers and manufacturing techniques which are limited to the number of appropriate manufacturers. Therefore, the company works with third-party suppliers for both fabrics and finished goods. Comparatively, the company’s fixed cost for production is higher than their variable costs which are required, post production. The company has strategically lowered their product prices where the consumers are looking for cost effective ways of exercising, which include giving up gym and health club memberships. On the other hand, the company priced a few of its products such expensive that they earned full margin in those products, such as organic cotton and natural fabric lines which have expanded gradually (Cambrian Group, 2011). Approximate Price Level Lululemon’s product prices are fixed with regard to earn full margin. The company’s unavailability at many countries has affected the sales of its products. Therefore, the company decides the price level after determining all the price constraints that are required for the ultimate finished products. The prices of products that are largely expanded through the targeted segments, are decided in such a way that the margin of profit is almost full as regards to the fixed and variable costs incurred by the company (Cambrian Group, 2011). Quoted Prices Quoted prices are of two types, namely flexible price policy and one-price policy. Lululemon uses both the policies for setting their prices. The use of cost effective measures for exercising can reduce the demand for their products. This situation is forecasted at a few health clubs and yoga studios, by consumer’s withdrawal of memberships. The company cuts its prices at these places for such products which are expected to increase the sales. However, they make up the losses at places where the trend for health attentiveness and healthy lifestyles are growing (Lululemon Athletica Inc, 2010). Special Adjustments Though Lululemon is purely based on exercises and yoga products, it has offered discounts for their in-store purchases. The company is offering 15% discount on their manufactured goods to the specialized instructors in exchange of precious feedbacks on their designs (Lululemon Athletica, 2012). References Cambrian Group. (2011). Lululemon strategic report. Retrieved from http://economics-files.pomona.edu/jlikens/SeniorSeminars/Cambrian/Final%20Reports/Lululemon.pdf Hughes, M., Schafer, K. & Hipperson, M., (2010) Sigma (“self-energy”) marketing Lululemon marketing plan phase 3. Retrieved from https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&ved=0CFoQFjAG&url=https%3A%2F%2Fwiki.usask.ca%2Fdownload%2Fattachments%2F230195728%2Flululemon%2Bmarketing%2Bplan%2Bphase%2B3.docx&ei=YRyET8ixD8HwrQfWv_GtBg&usg=AFQjCNFHZq51dIfGE5W7JrFZM6zhlHwV-g&sig2=S-7tzTDSI8S0SZptYownpw&cad=rja Hollie, S. (2009). Price cuts not part of Lululemon's strategy in sales slump. Retrieved from http://www.montrealgazette.com/business/fp/price+cuts+part+lululemon+strategy+sales+slump/1685264/story.html Lululemon Athletica. (2012). Team research and development. Retrieved from http://www.lululemon.com/community/rd_team Lululemon Athletica Inc. (2010). Form 10-K. Retrieved from http://files.shareholder.com/downloads/LULU/1162409927x0xS950123-10-28033/1397187/filing.pdf SlideShare Inc. (2012). Broad overall analysis. Retrieved from http://www.slideshare.net/carolinathomas/lululemon-mba-marketing-plan Bibliography Armstrong, G., Harker, M., Kotler, P., & Brenan, R. (2009). Marketing: An introduction. United Kingdom: Pearson Faul, H. M., Jones, K., Kropf, T, & Moffat, K. (2010). Marketing plan project for Lululemon Athletica. Retrieved from http://www6.conestogac.on.ca/~eeeweb/jonesk/portfolio/Lulu%20Case%20Study.pdf Read More