Marketing report (Strategic analysis of Primark Stores Ltd.) - Assignment Example

?Executive Summary What are the factors that affect the operations of Primark Stores Ltd.? These are the issues that this report deals with. An environment scan is done accordingly to find out the factors that may dissuade the company to pursue expansion and globalization plans. Primark Stores is a leading clothing retail distributor known for its low priced quality fashion clothes. Its growth strategy is drawn from acquisition, mergers and expansions. It is contemplating to enter the markets of China, India and South Africa aside from internal developments in its existing markets. Data gathering as a methodology of research is done in an exploratory manner. Sources of data come from secondary information from published statistics, journals and company website. Result of the situation analysis provides Primark vital information as to changes of objectives, strategies and marketing plan in order to attain profitability of the company. Proposal for new objectives, strategies and marketing plan is recommended. Part 1 showed that economic factors slows down growth of the industry, thus limiting potentials of Primark in UK; their leadership in the market is threatened by stiff competition, and that the image created by their “cheap” product does not augurs well for the company. In view of these findings, part 2 shows changes in the marketing objectives, strategies and marketing plan in order to correspond with the findings. Situation analysis has been done in order to provide information as to decisions for changes and improvement of the company. Title: Strategic Analysis of Primark Stores Ltd. From: To: Date: Strategic analysis of Primark Stores Ltd. Introduction This report comes in two parts. First part reports on the situational analysis of the environmental factors that influences strategic decision of Primark Stores Ltd. Second part details the strategic choices company should undertake in response to the major issues identified in the situation analysis. Part 1 has been guided by the 5C analysis framework which is an environmental scan of five key areas that affects marketing decisions. It covers the micro environment, macro-environment and internal environment situations. A study of the company should include the review of the company (internal), the customers, competitors, and climate (NetMBA) . Part 2 includes recommendation for new marketing objectives, targeting and positioning, growth strategies, competitive advantage and a marketing mix program. Method of research. This will be an exploratory research wherein secondary data is gathered from published journals, company website, books and internet sources. Data is collated to form a concrete opinion and findings. Findings will be relevant to the company in forming strategic marketing decisions to improve strategies and approaches in Primark’s operation. Findings and discussion . Part 1. Report begins with the internal analysis of the company, and the external analysis of customers, competitors, and climate. Company. The Primark Stores Ltd. Started operations in Dublin, Ireland in June 1969. Today, it has expanded operations in other places; has increased the total number of its stores from 191 in 2009 to 204 in 2010 and plans to enlarge the number of their stores thru expansion by region. Their stores are located in Republic of Ireland, United Kingdom, Iberia, Spain and in other places Its product line includes women’s wear, lingerie, children’s wear, men’s wear, footwear, accessories, hosiery and home ware. Image created in the market is the cheapest clothing retailer. Primark has become a fashion sensation through its high quality, high fashion basics culture. Immediate goal is to achieve profitability through expansion into new countries, arrive at new products that will excite customers and staff alike. Primark has established its leadership in the market through low cost and differentiation strategies to get the loyalty of its customers. Primark, in its annual report, has reported a 35% increase in income and is considered as an outstanding growth. This growth has been propelled by opening of new stores particularly in Spain and Belgium. Primark plans to enter developing countries like China and Africa and to establish more stores across Europe. (Associated British Food, 2010) Customers. Primark targets the mass market of males, females and children. Its segment of customers are those from early teens to the middle aged, mostly women buying for the family, age 35s and below. Primark has established position in the market as the cheapest supply of clothing brand in UK and does not use advertising to promote this position (Hoovers 2011). This strategy has considerably differentiated the company from its competitors. However, one thing that deserves space in this report is the concern of a customer about the visibility and recognition of its product. Megan Heart, a customer of Primark, reports that they receive no information about new clothes line of the company and that the clothes are crammed and is not displayed properly. Megan suggests Primark uses product display in their stores, send e-mails to customers, and use websites extensively for promotion. Megan echoes a position of the image created for Primark is simply a “cheap” clothing retailer and does not gain meaningful position as a fashion forward company. Competitors. The closest rivals of Primark in the retail market are the ASDA, Mark & Spencer and TESCO Groups. A brief summary detailing their activities has been shown in Appendix 1. As shown in the table, all these companies are selling clothing and house wares in their stores. Key success factors show that all three have financial strength which is shown in their financial reports. They have the strong staying power having stayed in business for a long time and based on the number of their stores in operation. ASDA has 500 stores, M & S operates for 125 years and TESCO has international branches, banks and other interests. All companies have strong technological breath as they used R & D, and IT in operations. Quickness to respond has not been tackled due to lack of data. CLIMATE Climate refers to the macro-environmental factors affecting operations of the company that includes political and regulatory, economic, social/cultural and technological environment. Most often this is referred to as a PEST analysis, and is considered to be an audit of the organization’s environmental influences with the purpose of using the derived information as guide for strategic decision making. According to Morrison (2010) managing director of CIPD, a PEST is undertaken because of the assumption that “if the organization is able to audit its current environment and assess potential changes, it will be better placed than its competitors to respond to changes”. The climate or macro-environmental factors are: Political & regulatory environment - governmental policies and regulations that affect the market Economic environment - business cycle, inflation rate, interest rates, and other macroeconomic issues Social/Cultural environment - society's trends and fashions Technology Political and regulatory environment Primark has considered expansion and addition of floor spaces in their operation to establish its leadership in the market. However, this strategy is constricted by regulatory factors that make office spaces in Britain the most expensive in the world. The research of Cheshire and Christian (2006) showed that office space in Britain is 40 percent much higher than in Manhattan, even when construction costs are considered. Accordingly, these costs affect planning for expansion of Primark in their future operations. Due to these tax regulations, these authors believe that this government regulation is creating a disincentive for commercial development Economic environment In 2010, analysts made an economic review showing UK retail sales are worse than expected. BBC news reported that retail sales volume rose only by 0.4%, a growth that is much smaller than the 0.6% expectations. Analysts said that the weakness in consumer spending could be the reason of the observed slow growth of sales in the retail market. In this, it was analyzed that the overall economic growth in 2010 will be limited as households are still facing very challenging economic conditions. Accordingly, message of data reflects condition that there has very little momentum in the reported sales growth. Social/cultural environment Analysis of the socio-cultural environments consists of the whole range of behaviors and relationship of an individual that generally includes demographics of the population, values and attitudes, lifestyles and relationships. Paul Weatherly, in his study about the Social and Cultural Environment, chapter 05, defines culture as an attribute to a group or society as a whole; for example referring to the Western culture, that could either mean something as secularism, consumerism or individualism. In UK, for instance, Weatherly refers to the British as more secular in that they possess a “reserve attitude , sensitivity to class differences and a sense of fair play” UKs are more reserved as compared to the openness of Americans and are differentiated by their manners and accents. Demographics of the population plays important role in this analysis because of the target customers of Primark which is those belonging to the 35s and below age bracket, or in their teens. As of 2011, United Kingdom has a total population of 62,698,362; with an age structure of 17.3% belonging to the 0-14 years; 66.2% fitting in the 15-64% years and 16.5% going to the 65 years and above. (CIA World Factbook. 2011). Demography poses challenge to PRIMARK as they have to design their marketing strategies based on the age segments they have selected. Usually, the age bracket of 15-64 years is the prime age of population wherein they have the capacity to earn and spend their income according to their culture and lifestyles. Those who reached 65 years are due for retirement and the propensity to earn and spend is already limited. Technological environment Technological advances have transformed business practices and ordering system for both business and customers. Today, customers can browse through company website, and get the needed information. Transactions can be done through internet as customers can order thru the on line system wherein the images of products on sale are available. Now, buying is more convenient since customers do not need to go to the stores anymore and do their shopping on line. Primark takes advantage of technological advancement and has adopted the on line shopping strategy for is customers. Primark shopping sites makes their products available to customers who are at home, to those whose Primark is not near to them, and even to customers abroad like U.S. Customers save on gas, time and energy when shopping on line (Primark) Conclusion A SWOT analysis portraying the strength, weaknesses, opportunities and threat of PRIMARK is presented using information found in the situation analysis. STRENGTH Long years of experience in the retail business. Position as a leader of low cost clothing store in the industry Use of technology in marketing Strong financial health of the company to back up expansion WEAKNESSES Stiff competition and marketing war on market share Limited use of advertising and promotion. Public image portrays company only as a cheap supplier of clothing, and need for image building OPPORTUNITIES Investments in developing markets like China, Africa and across Europe. Expansion thru merger and acquisitions THREAT High level of investment needed for investments. Economic threat, Constant changes in fashion, Changes in behavior, tastes and income of customers. The economic threat is shown thru the slow growth of consumer spending in UK, and has a tendency to continue for the next years. Thus, the option to invest in developing countries and others regions becomes the best marketing strategy for Primark within the next few years. Part 2. Objectives and strategy development Marketing objectives. The result of the situation analysis shows that there are changes to be done in the objectives, strategies and marketing programs of Primark. At present, Primark has concentrated its marketing efforts in Ireland, UK and Spain . Their Spain stores are reportedly doing good, while the Ireland market has reached level of maturity. In UK, report showed slow economic growth which is partly caused by economic recession. What remains as the next alternative for Primark is to exploit new opportunities in the overseas market. The situation analysis demands that Primark needs to come up with new, creative approaches in marketing. Consequently, the proposed marketing objective is to establish its leadership in the retail clothing industry thru globalization. Accordingly, it should seek opportunities for profitable growth to make certain that this primary objective is achieved every year. The new marketing objective will be specific to the new countries to be served, and will be developed along the core principles of Primark of providing good quality products to the public; selling a wide range of product at reasonable prices; to be friendly and helpful to customers and staff and to treat everyone the same. Target and positioning. The proposed strategies for Primark as a result of the situation analysis is a long-term direction of the business investments in developing markets such as India, China and South Africa and continued expansion in other regions and present markets. In positioning, there are several issues that are important to consider: Product features Brand, quality and price Product benefits Find a need or want of target customers that has not yet been met Positioning against competitor Focus on the product’s strength and not on product against competitor’s product It may be unwise to market solely on price, since your competition can very easily match your position just by matching your price. The proposal to invest in these countries has been based on the basis of the growing economies of China, India and South Africa. a. China By population, China is the most populated country in the world and is ranked as first populated country. Seventy three percent of its population is in age bracket of 15 to 64 years which is the target segment of Primark. However, it has a slow population growth of 0.493% and is ranked as 153 in the world population. It has a Gross Domestic Product (GDP) of $10.09 trillion and is number 3 in standing in the world. It export commodities composed of electrical and other machinery, including data processing equipment, apparel, textiles, iron and steel, optical and medical equipment to trading partners in Hong Kong, South Korea and Germany. Its imports consist of electrical and other machinery, oil and mineral fuels, optical and medical equipment, metal ores, plastics, organic chemicals from Japan, South Korea, Hong Kong, Taiwan and Germany (CIA World Factbook 2011). b. India The population of India comes next to China, and has been estimated at 1,189,172,906 (July 2011 est.) Sixty nine percent of its population belongs to the 14-64 age bracket and population growth rate of 1.44%, ranked as 88th in world country comparison. It has a GDP of $4.06 trillion (2010 est). that places the country in 5th rank of world country comparison. India exports petroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel to UAE, US and China. Its imports of crude oil, precious stones, machinery, fertilizer, iron and steel, chemicals come from China, US, Saudi Arabia, UAE, Australia, Germany and Singapore. (CIA World Factbook) c. South Africa This country has a population of 49,004,031 and is ranked as the 25th most populated in country comparison in the world. Sixty five percent of its population belongs to the bracket of 15 to 64 years, and a negative growth rate of -0.38% that ranked it as the 220th in the world ranking. It has of 300 million middle class out of its total population that showed robust growth from 2007 to 2009. GDP is $524 billion. Exports consist of gold, diamonds, platinum, other metals and minerals, machinery and equipment to China, US, Japan, Germany, UK, and Switzerland.(CIA World Factbook) Growth strategies – the Marketing plan Growth strategies proposed to support expansion opportunities will come from both internal or organic growth and external growth (“Growth Strategy Tools”) In the internal growth, among those proposed are establishment of new markets and channels in the existing countries. Internal growth can also be achieved by taking advantage of on line ordering system thru website wherein transaction can be done across countries. External growth is proposed to be obtained through acquisitions and mergers to broaden the coverage of operation of the company. Both strategies can be used effectively by Primark when engaged in China, India and South Africa. Proposed marketing plan. Based on the above objectives and strategies, a marketing plan to pursue them is proposed. The theory of Gumpert, 1994, p. 45 suggest a marketing plan should identify the key marketing issues that should determine the company’s long term success; it should mobilize the organization around the marketing related tasks and goals and measuring the company’s effectiveness in identifying and attracting customers. The Texas Historical Commission stresses the importance of having a marketing plan as it will help the company see the nature of the marketplace and its historical trends. 1. Assess what is going on in the marketplace as it affects Primark and make decisions about which groups of prospects offer the best opportunity. This includes identifying the market that includes the following: a. Knowing who you are going to sell b. How to sell to them c. Identifying competitors and their influence in the marketplace. Knowing the market segment is vital to Primark because it sells brand name clothes at far below cost, and they are looking for an upscale customers who have an interest in brand names. Specifically, there are identifiable factors in segmentation of customers such as age bracket, are they individuals or companies, how often do they buy and what features do they want. The proposed foreign markets are India, China and South Africa and agreements go under an assortment of names, such as strategic alliances, joint ventures, R & D contracts, licensing arrangements, cross-border partnerships, and outsourcing. Entry strategies proposed are joint venture and outsourcing. In the objective of retaining leadership, Primark can enter into joint ventures of operating the chain of department stores in the country. Added to this is the cost of labor reduction when Primark outsource their production and supplies to these countries. India – joint venture with local partners. Indian laws allow 50% equity ownership in some sectors, and 100% in some (doing business with India). China –joint venture with local partners, in a limited liability capacity. Main advantages are both companies invest together, operates together and takes risks jointly according to the ratio of capitalization (China Detail, n.d.) South Africa - joint venture in a limited liability. A limited liability company Is said to be the most ideal vehicle for investment as it allows flexibility and ideal for joint ventures(South Africa Info) Advantages sought in joint venture with local partners is that it eliminates cultural diversity problems. Locals know about more about their culture, market, customer behaviors and legal environment of the place Competitive advantage of Primark. Annex 2 and 3 show the competitive advantages of Primark. The company is expected to perform better than competition in those markets because of its long years of experience in retail marketing in clothing and established leadership position in the industry. Primark has the skills, assets, finance, relationships and technical competence required to be able to compete. It has a warehouse distribution and ordering system that keeps the company updated and well informed on fashion trends. Philips & Duncan (p. 217) states the competitive advantage of a large scale retailer like Primark that can integrate retailing activities with those of wholesaling and manufacturing, spread its risks, practice greater division of labor, afford to experiment and carry on research activities, extend merchandising ideas developed by one store to another store or departments. Primark, in this sense, is competitively advantaged because it has greater financial strength, employ good managers, purchase in larger quantities, use expensive electronic devices in operations and acquire the prestige which goes with size. Based on the above objectives and strategies, a marketing plan to pursue them is proposed. The theory of Gumpert, 1994, p. 45 suggest a marketing plan should identify the key marketing issues that should determine the company’s long term success; it should mobilize the organization around the marketing related tasks and goals and measuring the company’s effectiveness in identifying and attracting customers. The Texas Historical Commission stresses the importance of having a marketing plan as it will help the company see the nature of the marketplace and its historical trends. Marketing mix program Primark will need to do a lot of marketing tactics in introducing their brand to China, Indonesia and South Africa. As shown in the country analysis, these countries are not included as trading partners of Primark in UK. The term marketing mix refers to the combination of marketing activities used by the management in the processing of goods and services before it reaches the final consumers. In our case, the marketing mix presented here is a broad scope of how the marketing activities of Primark should take shape. Marketing activities has several processes and are aptly described as marketing mix. (Marketing Mix) In entering the new market, first stage is product planning wherein policies are set as to product lines to be offered such as quality and design and branding. Branding is very important to Primark because it is one way of seeking ways and means of retaining and building customer patronage through better product and company images (Philipps & Duncan 1968, p. 605). This will also include targeting of customers: where, when, whom and quantity. In this phase also comes the product research and development in order to come up with the fashion trend, innovation and related matters. Next is the study of the price policy. Primark has been known for low price policy for its clothing line, and a study should follow the price guidelines for the new market. The channels of distribution has to be studied also as there are procedural relations to be followed in trade relations with foreign countries. Other marketing activities pertains to personal selling, advertising, promotion, packaging, display, servicing and physical handling. Primark, in UK and in other countries they are operating are not using advertising and promotions for their product. Since they are entering a new market like India, China and South Africa, they need to introduce their product in the market to gain recognition thru advertising and promotion. The marketing approaches proposed for Primark under the initial stage are briefly stated below: Advertising that includes print, radio and television Brochures, classified ads, flyers, newsletters and yellow pages In store signage and displays, outdoor signage/billboards Social media networks, internet and websites Determining the budget. A budget is part of the marketing plan as this will support the expenses for the activities to be incurred in the new venture. Texas Historical Commission suggests that a marketing budget should be somewhere from five to thirty percent of projected sales, or depending on the target objectives. Recommendation At this point, our marketing plan would be almost complete. But in today’s fast changing environment, a marketing plan is never perfect. It needs to be regularly monitored and improved and should be linked to the company’s business plan, and to ensure that it is compatible with the other areas of the business such as manufacturing, sales and finance. Appendix 1 Competitor’s Capabilities Details ASDA Group Limited * Marks and Spencer Group Plc ** Tesco Plc *** Product summaries ASDA's vast nonfood offering includes apparel, CDs, books, videos, house wares, and more. Its department stores sell mid-priced apparel, food, and household items under the company's private label brands, including Autograph, Classic, per una, and Portfolio. No. 1 supplier of women’s wear and lingerie. The company offers a wide array of food and non food products, including clothing, telecom, fuel, household appliances, home entertainment, health and beauty products, consumer electronics products and electrical goods, banking, stationery, kitchen utensils, soft furnishings and other related products. Tesco also offers several services including travel and flight booking, carbon offsetting, gift card, telecom and financial services. Strengths Owned by Wal-mart Stores. UK’s #2 food seller. Operates more than 500 stores 125 years in business. Has strong corporate identity. UK’s largest supermarket, controlling 34% of market share of the supermarkets. Success built on low cost prices, cultivating customer loyalty. Weaknesses Failures in following government regulations and making false claims Management style affects profitability. Facing criticisms on abuse of monopoly positions; said to be contributor of social and environmental problems Strategies used Low priced, American style shopping with English accent. Practices “price-roll back” and copied Walmart’s marketing strategy. Sells on line Sells on line, Has 330 stores, operates thru franchising in about 40 countries including China, India, Indonesia and South Korea Grown a strong UK core, developed international stores, built good non food sales, expanded into retailing services such as banking and insurance and offered e-commerce successfully. Market outlook ASDA is owned by Walmart, the biggest supermarket chain, so any changes therein will be tied up with WALMART strategy. Sales up in 2011 but provides a cautious outlook and expects challenging conditions due to pressures on disposable income and higher commodity prices. Expected continued growth brought about by international expansion and sales and diversified operations. Its bank has recorded revenue growth, U.S. sales increased and strongly placed geographical locations. Sources: *Corporate Watch.http://www.corporatewatch.org.uk/?lid=800gressive "price-rollback" ** Hoovers.om http://www.hoovers.com/company/Marks_and_Spencer_Group_plc/crrssi-1.html ***Hargreaves Lansdown. http://www.hl.co.uk/shares/shares-search-results/t/tesco-plc-ordinary- Annex 2 KEY SUCCESS FACTORS Company: Primark Financial strength -2 -1 0 1 2 Staying power 2 Strong R & D 2 Technological Breadth 2 Quick Response capability 1 European marketing 1 Competitor: ASDA Financial strength -2 -1 0 1 2 Staying power 2 Strong R & D 2 Technological Breadth 2 Quick Response capability 2 European marketing 2 Competitor: Marks & Spencer -2 -1 0 1 2 Financial strength 2 Staying power 2 Strong R & D 1 Technological Breadth 1 Quick Response capability 1 European marketing 1 Competitor: TESCO -2 -1 0 1 2 Financial strength 2 Staying power 2 Strong R & D 1 Technological Breadth 1 Quick Response capability 1 European marketing 2 ANNEX 3. STRATEGIC CAPABILITY of PRIMARK Physical Resources 215 locations in Ireland, United Kingdom, Netherlands, Germany, Germany, Spain, Portugal & Belgium Financial resources ?2,730m FY 2009/2010 Human resources 36,000 employees Intellectual capacity All of the company’s merchandise is made specifically for Primark. Primark has own brand name. References Part 1 Associated British Foods plc. Retail. Annual Report 2010. Viewed 30 June 2011 BBC News, 22 April 2010. UK retail sales rise worse than expected. Viewed 30 June 2011 > CIA World Factbook. 2011. United Kingdom Viewed 30 June 2011 Cheshire, Paul and Hilber, Christian A. L. (2006) Office space supply restrictions in Britain: the political economy of market revenge. Research papers in environmental and spatial analysis, Geography and Environment Department, London School Hoovers. 2011. Primark Stores Ltd. Company Description. Viewed 30 June 2011 NetMBA. Situation Analysis. Viewed 30 June 2011 http://www.netmba.com/marketing/situation/ Weatherly, Paul. The social and cultural environment. Chap. 05 Environments. Viewed 30, June 2011 Part 2 Corporate Watch 2004. ASDA/WAL-MART Corporate Profile. Viewed 01 July 2011 South Africa Info. Choice of company structures. http://www.southafrica.info/business/investing/regulations/companies.htm Texas Historical Commission. (n.d) Marketing Basics or Businesses. Business Development Journal from the Texas Main Street Program. Read More