Marketing Objectives and Strategy for a New Product Idea of H&M - Essay Example

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Marketing Plan: H&M for Men BY YOU YOUR SCHOOL INFO HERE HERE TABLE OF CONTENTS 0 Executive summary................................................................................................ 2.0 Mission statement................................................................................................... 3.0 Market overview..................................................................................................... 3.1 PESTLE analysis........................................................................................ 3.2 Porter’s Five Forces – relevant concerns.................................................... 4.0 SWOT and competitor analysis............................................................................... 4.1 SWOT analysis............................................................................................. 5.0 New product idea for H&M...................................................................................... 6.0 Marketing objectives and strategy............................................................................ 6.1 Pricing........................................................................................................... 6.2 Product.......................................................................................................... 6.3 Place............................................................................................................... 6.4 Promotion....................................................................................................... 7.0 Segmentation, targeting and positioning.................................................................... 8.0 Three year financial forecast and budget................................................................... 9.0 Metrics and implementation controls......................................................................... References 1.0 Executive summary H&M, a multi-national apparel retailer, will be launching a new line of male grooming products, H&M for Men, capitalising on its strong brand equity achieved domestically and in China. The new product will be piloted, first, with Chinese consumers who maintain some of the most substantial demand and utilisation patterns for male grooming products. Main competition such as L’Oreal maintains 41 percent of market share with double-digit growth in sales due to the hedonistic and collectivist characteristics of male target markets in China. Financial forecasts indicate a 29.1 percent profit margin in 2014, which is lower than desired due to the high costs of operational development in manufacturing and research and development that is necessary for a business not familiar with product line extensions and new branding strategies in this product category. Over time, however this profit margin increases due to more streamlined internal systems and better logistical strategy development. H&M represents a total market value of (forecasted) over 89 billion USD in China, offering ample opportunity for revenue growth of approximately 15 to 20 percent year-on year through 2016. 2.0 Mission statement H&M strives to understand the importance of male grooming in a contemporary cultural environment, recognising the professional and social implications of maintaining a precise and well-tailored appearance. The top quality H&M for men line provides superior value as best-in-class grooming opportunities with the freshness of modish and elegant style. 3.0 Market overview The male grooming products market has experienced significant and explosive growth since 2004. In 2004, approximately seven billion USD were spent on grooming products specifically tailored for male grooming needs, including hairsprays, conditioners, shampoo and even hair colouring treatments (Hairstyles-7.com 2004). In 2010, one of the most prominent beauty companies, L’Oreal, experienced a growth rate in sales of male grooming products of 30 percent (CBS 2011). It is estimated that demand for male grooming products will increase to a massive 28 billion USD by the year 2014. What even makes this industry a more lucrative opportunity is that it is recognised men often use grooming products that are not specifically tailored for male needs, making the industry potentially worth 84.9 billion USD by 2014 (Market Wired 2009). This market is now inclusive of more than simply conditioners and shampoos, but encompasses body washes, deodorants, razors, hair gel, moisturizers and even colognes. In 2012, China was one of the fastest growing markets for male-specific grooming products. L’Oreal, the largest competitor in China, saw double-digit sales growth in 2012 in China, with L’Oreal maintaining a 41 percent market share only in men’s skin care (Euromonitor International 2013). In China alone, sales volume in this product category saw a five percent increase between 2010 and 2011 (Report Buyer 2012). As such, China represents a significant opportunity for market entry by H&M in this product category with ample prospects for gaining target market attention. 3.1 PESTLE analysis The Political forces impacting success in this industry: Male Chinese politicians often engage in dying their hair black, with a social stigma about allowing white hair to be present. White hair is only present on politicians if they are imprisoned or retire from their political careers (McGregor 2010). Thus, there is evidence the Chinese political environment will be supportive of new market entry for men’s grooming products. The Chinese government imposes a 12 to 18 percent import tariff on health and beauty products, thus increasing logistical costs to H&M. Economic Forces The International Monetary Fund indicates that a recent slowdown in GDP growth in China has met with government response to attempt to stave off an impending recession. Despite this, strong performance in the male grooming market illustrates the opportunities despite impending austerity package developments that can impact consumer incomes. Chinese inflation has recently reduced from 6.5 percent in July 2011 to only 2.1 percent in March of 2013 (Trading Economics 2013). This provides more opportunities for higher Chinese market disposable incomes in this product category. A 2012 survey conducted by Nielsen using 3500 Chinese consumers indicated a willingness to spend more due to double digit income growth in larger urban cities (Reuters 2012). Social Forces There is a general social sentiment in China that there are three characteristics that make a Chinese gentleman: nice skin and an elegant mannerism (Wen 2007). Chinese men often dream of using facial creams made out of expensive pearls (Wen 2007, p.107). Chinese citizens are very hedonistic, which is defined as seeking satisfaction and personal pleasure as primary utility goals (Veenhoven 2003). Chinese culture is collectivist, where group membership and opinion from important reference groups within the in-group are significant predictors of consumption behaviour. With such a high prevalence of hedonism, it is likely these are shared values in the collectivist mentality which has substantial implications for effective H&M marketing. Technological Forces As the grooming products for new market entry will be produced in the UK, an environment with ample technological support for business planning and manufacturing, this is not a concern for H&M. Legal Forces Compliance to all regulations established by the China Consumer Protection Commission must be established, including labelling requirements, product safety acknowledgements, licensing and dispute resolutions in retail. Under Article 22 of the Product Quality Law 2000, consumers have the right to inquire to the seller about product quality and make appeals to the Consumer Protection advisory board. This has brand reputation and public relations implications for H&M. Environmental Forces No concerns related to environmental laws or governmentally-derived expectations will impact market entry. 3.2 Porter’s Five Forces – Relevant concerns Porter (1998) identified five forces that impact business strategy and marketing strategy developments in competitive firms. The main considerations for H&M include threat of substitutes and intensity of competitive rivalry. Male grooming products have many substitute products available which lower the switching costs for customers as it relates to defecting to a competitor brand. Unfortunately, H&M is not in a position to create barriers to new market entrants offering male-specific and non-male-specific grooming products with very diverse product lines. H&M will have to rely on effective brand-building and promotion to coerce desirable target markets to select H&M as their preferred grooming brand. The company’s main competitor, L’Oreal, is very adept in advertising strategy that is relevant for male lifestyles and the business has a very respected brand reputation in China. L’Oreal conducts considerable market research studies about lifestyle with a psychographics approach, thus creating ad concepts and in-store merchandising P.O.S. that gains considerable market attention from the male hedonist clientele. 4.0 SWOT and competitor analysis L’Oreal and Nivea are the main competitors for this new market opportunity in China. Though Nivea maintains only a small market share, the diversity of male grooming product brands available from both firms represent legitimate competitive threats that must be considered by H&M in order to successfully differentiate the new line of male grooming products. It is uncertain why Chinese manufactured grooming products do not dominate this market, therefore H&M must be ever-considerate of potential new market entrants stemming from the domestic commercial and retail environment. Figure 1: L’Oreal advertising strategies with lifestyle-centric illustrations Source: Fashionmag.com. (2011). Men’s cosmetics take off in China. [online] Available at: http://mt.fashionmag.com/news/Men-s-cosmetics-take-off-in-China,154820.html (accessed 26 April 2013). Source: Vingying, S. (2011). New customers make up L’Oreal sales in China, China Daily. Available at: http://www.chinadaily.com.cn/bizchina/2011-03/08/content_15958471.htm (accessed 26 April 2013). L’Oreal also understands the collectivist nature of Chinese culture, especially as it relates to reference group sentiment serving as predictors of consumption behaviour. This is evident with the high financial investment in recruiting relevant and respected Chinese celebrities to represent the brand such as Gong Li, Zhang Ziyi and Du Juan (Yan 2009). Ohanian (1990) indicates that when a celebrity endorser is considered to be trustworthy, credible and attractive, it becomes more simplistic to establish brand attachments or brand loyalty when utilising this strategy. China represents a market that is known to be influenced to repurchase intention with the use of celebrity endorsers, common often in collectivist, developed nations. Thus, L’Oreal has managed to gain over 40 percent market share by understanding the values, beliefs and reference group influences of Chinese male consumers. 4.1 SWOT Analysis Strengths H&M is adept in creating lifestyle-relevant advertisement and effective use of important celebrity endorsers. H&M maintains a great deal of brand recognition in China, with a flagship store in Beijing and 113 additional stores as of 2012. A well-established international supply chain preventing new developments for grooming product importation to China; a cost strength. Company owns the domain name hm.com, assisting in name recognition for online sales opportunities. Weaknesses No experience with product extensions could complicate a non-apparel marketing strategy implementation. Volume purchasing strategy often increases inventory holding costs in the UK for H&M. Requires adjustment to avoid international inventorying in a country with high taxation rates. H&M is more experienced in marketing to the 18-30 year old target market. Little practical experience with the older demographic that will be drawn to male grooming products (i.e. older government actors, etc.). Opportunities Viral marketing and social media for better brand exposure in China. Guerrilla marketing in major urban areas for better brand recall and sampling opportunities Strategic alliances with credible Chinese retailer brands to facilitate more effective co-branding and merchandising support. Threats Competitive prowess of L’Oreal. Rising costs in the health and beauty international supply chains. Increased regulation in the UK on product safety. Slowdown in Chinese government revenues could lead to recession that impacts consumer incomes. Ease of market entry for companies with strong cash flows and liquidity positions. 5.0 New product idea for H&M Fortunately, H&M has established some brand loyalty with consumer to the fashion brand through over five years of practical retailing experience in apparel in major Chinese urban regions. As such, the business will be utilising its brand equity as a means of launching this new male grooming line with male consumers already utilising H&M for their hedonistic fashion needs. H&M for Men will consist of an entire line of shampoos, conditioners, shaving creams, colognes and after-shave products, as well as anti-wrinkle creams. H&M will be seeking human resources recruitment to establish its own internal health and beauty research and development team, seeking assistance from previous (or current) employees with specialised knowledge in companies such as Unilever, L’Oreal, Nivea and Lancome. The business will develop an aggressive recruitment programme looking for management talent to assist in procurement, budgeting and compliance to domestic regulations for manufacture of high quality men grooming products. As such, the business will be launching its first line of products in China four months after establishing the capital investment structure for this activity with appropriate management support. Competitive salaries will be offered with incentivized bonus packages to ensure top talent in this area, a weakness of the current H&M model. 6.0 Marketing objectives and strategy The marketing plan has three specific objectives: Build brand recall with important target segments within four months of market launch. Gain 12 to 15 percent of the total Chinese male grooming market by the end of 2014. Expand H&M grooming products into Hong Kong and Singapore by July 2015, two markets with highly hedonistic cultures and high market demand for male grooming products. 6.1 Pricing Pricing for the product will be established against a values-pricing structure, which ensures offsetting manufacture and R&D costs, including loan repayments for the new business division establishment, with a focus on positioning the business under quality and premiumisation that is justified by strong brand presence in China in apparel products. The exchange rate in China is significantly lower than the Euro (the currency vessel of choice of this Swedish-based company) which will require a higher pricing structure to ensure all operational costs and profit expectations are achieved. Initial market entry will be penetration pricing for the first three months, to incentivize instant market demand. Pricing will be adjusted after this promotional period to a more stable, values-based pricing structure. 6.2 Product Research did not uncover a great deal of market demand for organic products or those with ingredient properties maintaining holistic health benefits. Thus, product features and benefits will encompass product focus during the first year of operation in China. Such features as exotic fragrances, tangible anti-wrinkle benefits, and high quality hair dye ingredients will be piloted to observe whether this impacts market demand. Coupled with ongoing consumer market research regarding consumer sentiment about H&M for men and their utilisation patterns of male grooming products will assist in research and development and new product formulations. 6.3 Place Place is not highly relevant for this marketing plan, as H&M will be utilising the retailer network in such major cities as Shanghai and Beijing (as well as established H&M retailers) to promote the product and expand its brand presence. 6.4 Promotion Promotional competency and expertise will be absolutely critical to outperforming major competitors such as L’Oreal. H&M found significant success when opening its flagship store in China by utilising celebrity endorsements and presence of Kylie Minogue that made the flagship opening a tremendous profit success. The business will be scanning the Chinese celebrity and sports figure environment to identify relevant celebrities and then recruiting them to assist in a variety of ongoing ad campaigns. Though this represents a higher promotional investment, it will be absolutely vital to competitive success based on the hedonistic and collectivist characteristics of Chinese male consumers between 16 and 60 years of age. The business will also establish a Chinese language H&M for Men website by which consumers can purchase products. This information will be printed on all in-store and magazine advertisements to entice consumers to receive a one-time 15 percent off certificate valid on their first purchase over €30 (242 Yuan). Tungate (2008) offers a phenomenon in the social environment that will also assist in promotional campaign development. Consumers that are obsessed with fashion tend to look at apparel consumption as a drug, believing that outward appearance changes are directly correlated with internal emotional changes. Since male grooming is intended, by design, to improve outward appearance, it is likely that the consumer will find attachment with H&M for Men that could lead to higher apparel purchases concurrently. H&M for Men is a rebranding strategy for the apparel retailer, which Baker and Hart (2007) iterate that rebranding involves a basket of values, designs and principles that represent a new holistic view of the brand as a total company. H&M for Men must be aligned with the core values and attitudes of the modern and chic H&M brand that has found considerable success domestically and internationally. 7.0 Segmentation, targeting and positioning Hedonism and demand for a variety of male grooming products is relatively consistent with younger and older male Chinese consumer segments. Segmentation, therefore, will involve behavioural segmenting which identifies that lifestyle characteristics and usage patterns of male grooming products with the 18-30 markets and the 31 to 60 year old markets respectively. Preliminary market research will be conducted, using large samples of diverse demographics of Chinese consumers, concurrently whilst establishing the recruitment programme for managerial and leadership support in the new R&D and manufacturing divisions. Targeting will rely on the relevancy and knowledge gained from the research processes, both qualitative and quantitative. However, psychographics (lifestyle, values and cultural capital characteristics) will make up the targeting strategy. Once identified through behavioural research, the business will create relevant lifestyle-centric advertising to gain the attention of these two identified markets. Positioning, as aforesaid in the report, will consist of quality and premium positioning that is justified by the strong brand presence and following in China already established by the H&M fashion retailing model. Whilst L’Oreal focuses on the consumer in positioning, H&M must be conceived as a top quality brand in order to outperform competitive marketing activities. 8.0 Three year financial forecast and budget L’Oreal maintains 41 percent of market share in China for male grooming products. At an estimated total market value of 84.9 billion USD in the country, this illustrates L’Oreal’s earning potential at 34.08 billion USD. With the objective of attaining 15 percent of market share by year end 2014, sales revenues are estimated at 12.7 billion (less operating expenses). Cost of sales represent procurement costs, labour costs in certain business divisions, and other fixed and variable costs that contribute to product manufacture and development, as well as logistical support. The financial forecast illustrates a year-on-year decline in cost of sales due to streamlined logistics methodologies and improved R&D capacity, as well as manufacturing improvements learned through experience and statistical analyses. 8.1 Financial forecast Year End 2014 2015 2016 Sales (in billions) 12,700,000 14,800,000 18,000,000 Cost of sales 6,000,000 5,000,000 4,500,000 Gross profit 6,700,000 9,800,000 13,500,000 Operating expenses 3,000,000 2,700,000 2,500,000 Operating profit 3,700,000 7,100,000 11,000,000 Profit % 29.1 47.9 61.1 The business will improve its profit margin year-on-year through 2016 based on more effective internal systems contributing to product and better operational controls throughout the entire value chain. 9.0 Metrics and implementation controls Market surveys and questionnaires will be critical to understanding whether H&M for Men is achieving effective brand relationships and sentiment with important target markets. In-store at H&M will be rewards provided during the first year of operations, such as a 10 percent discount certificate, for participating in physical surveys delivered to in-store workers. These will be coordinated and analysed by well-trained in-store managers that will input this data, bi-weekly, into a the corporate data mining and analysis software packages. The business will also require the assistance of the information technology group to mine appropriate consumer data input into the sales website online to determine which market demographics are most interested in online sales volumes. The online sales inventory strategy will be maintained domestically, with shipments moving to Chinese consumers, which will save capital expenditures on new facility operations in the country. During the first two years of this new marketing strategy, it is not feasible for H&M to engage in direct foreign investment in this area when such distribution can be coordinated using existing domestic operational resources. However, this new distribution strategy will require the presence of full-time management to ensure proper coordination, cost controls and compliance to Chinese import documentation laws. The business will also adopt a total quality management (TQM) system that utilises a variety of metrics to measure whether quality standards are being met in production and development. The TQM system will be benchmarked against successful companies in this same industry to ensure proper instrumentation is developed and utilised. References Baker, M and Hart,S . (2007). Product Strategy and Management . London: FT Prentice Hall CBS. (2011). Men’s grooming industry growing. 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L’Oreal relying on China in slowdown, China Daily. [online] Available at: http://www.chinadaily.com.cn/bw/2009-03/23/content_7604299.htm (accessed 26 April 2013). Read More