General Environmental Trends on the Industry - Gap - Essay Example

?Gap case study- Analysis of current strategy Business enterprises operate in competitive markets in which success depends on both internal and external environments. While the environmental factors are not easily controllable or non-controllable at all, in case they are external, appropriate management ensures organizational success. This paper, based on a case study, seeks to analyze Gap’s business environment. General environmental trends on the industry Gap Inc operates in the family clothing stores industry. The industry’s general environment comprises of factors such as “demographic, economic, political/legal, socio-cultural, technological, global, and physical trends” (Ireland, Hoskisson and Hitt, 2008, p. 45). The demographic trend include factors like the number of target consumers, age mix, distribution of people across target geographical areas, population composition by ethnicity and trends in income within target market. These factors have significantly remained constant for the industry, except income distribution that could have been caused by the economic recession in the year 2009. The industry’s target market that defines its geographical environment is also global due to regional and international trade. Its economic environment is however variable and depends on factors such as interest rates, inflation rates and recession (Ireland, Hoskisson and Hitt, 2008; Thompson and Strickland, 2009). The industry is also significantly influenced by political factors that include legal systems and governmental agencies that protect consumer interests and include legislations and regulatory bodies and sociological and cultural factors such as general attitudes, health concerns, and cultural beliefs among the target market that significantly affect the industry and are particularly influenced by morality, taste, and preferences. Industrial operations’ dependence on technology for production and marketing also identifies technological trend as a factor to the family clothing industry’s environment besides globalization that facilitates international competition (Ireland, Hoskisson and Hitt, 2008). Porter’s analysis of the industry’s competitive forces The industry operates in a free competitive market. Its competitive forces can be explored through the Porter’s approach of that identifies “threats of new entrants, bargaining power of suppliers, competitors, bargaining power of buyers and threats of substitute products or services” (Henry, 2008, p. 71). Threats to new entrants into the industry are weak because of the nature of the industry that includes established participants with consumers’ retention strategies. One of the factors that make it difficult for new entrants is the branding strategy that key players have adopted. With five major firms in control of the market and their established branding efforts, consumers have developed preferences and are reluctant to try products from new firms. As a result, inability to penetrate the market discourages potential new entrepreneurs and those that venture into the industry do not exert significant pressure on existing market players, especially the major players. The small profit margin factor in the industry that requires economies of scale for sufficient profitability is another factor that regulates potential new entrants into the industry, as small-scale ventures are largely unprofitable and new firms finds it difficult to command a large percentage of the market. Developed preferences through branding also ensures consumers strictness on supply chains or outlets from which they acquire brand commodities, as new channels and outlets are treated with suspicion. This preserves existing participants’ position in the industry (Thompson and Strickland, 2009; Henry, 2008). Buyers bargaining power is another factor in the Porter’s forces model. It defines the collective ability of a group of buyers or a single buyer to dictate relations with an enterprise in sales terms such as prices and other terms and conditions. The power of the industry’s buyers is moderate. This is majorly because of two factors, the nature of the industry that is competitive and allows consumers a range of options to choose from and a high level of differentiated products towards branding and a consequential brand loyalty. Product branding plays an important role in weakening consumers’ power though a developed level of loyalty towards an enterprise’s competitive advantage. This approach ensures retention of customers even if an organization’s product features does not yield the best utility in the industry. Availability of a variety of players in the industry with unique products for varying utilities also means that consumers have the capacity to try new products. This particularly becomes effective when an enterprise’s supply chain fails to deliver products on demand, forcing consumers to look for alternatives. The two forcers therefore counteract to moderate consumer’s power (Henry, 2008). Suppliers’ bargaining power is also weak in the industry. This is majorly because of the concentration of the industry’s operations on a few players. This focuses suppliers interests on the few parties that can offers large scale and reliable purchases for products and identifies competition among suppliers that gives the industry’s enterprises a strong bargaining power over their suppliers (Ahlstrom and Bruton, 2009). The industry also faces competition from other industries such as “big box store industry, men’s clothing store industry, and children’s and infants’ clothing store industry” (Thompson and Strickland, 2009, p.C 164). Other departmental stores also exist with products that can perfectly substitute the industry’s commodities. This identifies the competitive force to be strong as the substitute commodities may offer similar utility to consumer as opposed to competition within the industry that is characterized by differentiated and highly branded products. Competition among firms in the industry is however considerably moderate. This is because of two forces, both pull, and push, that interacts to establish equilibrium impacts of rivalry among firms in the industry. While existence of a number of companies in the industry, especially the major players with significant market control, induces intense competition for consumers, their marketing strategy of branded goods establishes customer’s loyalty for retention. Product differentiation also ensures a regulated competition basis in which utility guides consumers (Henry, 2008). The key driving forces in the industry The industry’s major driving forces are economic factors and social factor. Economic factors include inflation rates, people’s ability to save for purchases as well as production costs. These affect the industry’s performance in general, with every player feeling the effects. High inflation rates and inability to save for example identifies lower demand for the industry’s products and low-level revenues for each player. Social factors such as cultural shifts and change in taste also drive performance within the industry and relates to competition among firms within the industry as well as competition with firms from other industries that offer substitute commodities. This identifies dynamism through product differentiation to match changing sociological factors (Thompson and Strickland, 2009). Key success factors in the industry Four success factors majorly drive the industry. These are product differentiation, supply chain efficiencies, successful branding, and technology. Product differentiation establishes a wide range of commodities from which consumers can derive utility. As a result, it leads to a developed wider consumer base for high revenues and profit levels. A firm with highly differentiated products is therefore more likely to succeed in the industry than one that only specializes in a few lines of products because of a wide consumer base. Extensiveness of an enterprise supply chain with respect to the ability to avail commodities to consumers, on demand is also a critical factor to success in the industry. This is because firms have strong customer retentions strategies and scarcity of a commodity brand may force a customer to try another firm’s product and change taste. Firms should therefore ensure effective management of supply chains to prevent loss of customer through such shifts (Thompson and Strickland, 2009). Products’ branding is another success factors in the industry because of its ability to create utility and consequent loyalty that ensures a firm retention of its established customer base and even capture more customers towards high revenue levels and profitability. Technology, as applied in production process for quality products and sales initiatives also ensures a firm’s strong competitive advantage in the industry because it drives sales (Thompson and Strickland, 2009). Competitive analysis The industry’s inter firm competition is defined by the major participants, American Eagle Outfitters, Abercrombie & Fitch, Ross Stores, and TJX Companies. All these players have their different approaches to competing in the industry. Both TJX Companies and Ross Store derive their competitive advantage from price reduction and discounts to buyers, approaches that have been successful following their increasing profitability. The two entities are therefore competitive and win customers for high revenue levels. Abercrombie & Fitch has however established its competitive position in the industry through product branding that is followed by high prices, another identity branding approach. The strategy has been effective in affecting competition in the industry as it has prompted an increase in the firm’s profitability from 2009 to 2010. American Eagle Outfitters also commands competition in the industry through market segmentation and application of technology, approaches that have ensured its profitability even during the recession period. The Gap Inc has however not been successful in its strategy of exploring international markets, improving its products quality and incorporating celebrities in its strategies, as its revenues have been on the decline. It is therefore less competitive. The following strategic map summarizes the industry’s competitive position (Thompson and Strickland, 2009; Henry, 2008). Industry profile and prospects The family clothing stores industry is therefore a small industry that is dominated by a few players. While it is subjected to external environmental factors that influence its general trend, each of its players has strategies for competitive advantage. Each of the major players has also successfully implemented strategies towards increasing revenues and profitability. Gap Inc has however not been successfully competitive and experiences decline in its revenues. The industry is therefore very attractive for its major players, except Gap Inc. References Ahlstrom, D. and Bruton, G. (2009). International management: Strategy and culture in the emerging world. Mason, OH: Cengage Learning. Henry, A. (2008). Understanding strategic management. New York, NY: Oxford University Press Ireland, R., Hoskisson, R. and Hitt, M. (2008). Understanding business strategy: Concepts and cases. Mason, OH: Cengage Learning. Thompson, A. and Strickland, A. (2009). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases. Ontario, Canada: McGraw-Hill Irwin. Read More