Marks and Spencer Marketing - Case Study Example

 TABLE OF CONTENTS Page 1 Abstract 3 2 Introduction 4 2.1 Early Strategies 4 2.2 Revised Strategies 5 3 Defining Strategies 6 4 Positioning as Strategy 7 5 Critique 8 6 Conclusions 12 7 Bibliography 13 8 Appendix 15 1 Abstract Marks & Spencer reached its zenith in profitability in 1998 after which its profits took a steep plunge. A study into the causes reveals that it had lost due to loosing its focus on strategies. A change in leadership and a decisive Positioning strategy has brought it back to its winning ways again and M&S is on way to a remarkable recovery with profits, EPS and share prices on the rise since 2003. The 5Ps theory was explained and applied to come to the above conclusion but there are other theories of management strategies that can be used to analyze the situations. These alternatives were also explained in the essay. 2 Introduction Mark & Spencer (M&S) is the second largest retail chain store in the UK and has a market share of 11.1% in clothing and 4.3% in food. It has 760 stores in UK and 30 countries around the world. (Annual Report) M&S profits peaked in 1998 when it crossed the £ 1 billion mark that year. It was the highest achieved by a UK retail chain. From then until 2002 it was downhill. In 2004 a new CEO Rose took over the reins and M&S slowly but surely got back to making higher profits every year since, although they are still far from the billion pounds they made in 1998. (see Appendix 1) The cause of the steep fall post 1998 was its poor strategy and it was a change in strategy again that has seen reversal of the lean period. 2.1 Early Strategies Several major factors affected profits, the barometer of public support and financial performance. Rivals had switched to source their products from abroad at cheaper prices while M&S continued with the costly UK suppliers. As a result margins came under pressure, sales became stagnant and profits plummeted. From a high of a billion pounds in 1998, the profits fell to a low of 145 million in 2001. M&S were forced to curtail their dependence on UK suppliers and resort to other means for sustenance. (see Appendix 1) The second factor was the company policy not to accept credit cards. This had become a universal phenomenon and denial was luring younger and more mobile customers away to other rival outlets that offered this facility. The third factor was that M&S had abandoned its high street image and had gone for low end products like rivals were doing and it suffered an image loss. It was earlier known for quality of its products and it was no longer a leader in that segment. 2.2 Revised Strategies This forced a serious rethinking in the boardroom and let to a total revamp in both control and strategy of the company. A new post of Chairman as well as a new one for a CEO, as against a combined post, were created and have since seen the company’s fortune turn around. M&S, chastened by the serious erosion in customer loyalty and profits decided to revert to its roots. It introduced a new range of classical clothing for women and it was reported by Jess Cartner-Morley, the Guardian fashion editor, in 2001, that M&S has resorted to regain the title of Britain’s best loved store: Women’s Institute Chic, and has abandoned attempts to compete with Top Shop (Arcadia), Hennes, Zara and Mango who dealt in cheap catwalk copies. They decided to go back to their core customer, the highly fashion and style conscious woman. In 2004 it changed the management and Stuart Rose was inducted as CEO. He has since then transformed the company as can be seen from the financial results. The results went zooming from £145 millions in 2001 to £745 million in 2006. Then came bad weather and 2007 dipped slightly. The dividend soared to 18.3 p in 2007 Balance sheet (Chairman’s Foreward) and the EPS rose to 34.4 p in April 2006 from zero in March 2003. (Appendix1) By 2007 UK general merchandize sales recorded a 2,9% year on year increase suggesting that M&S sales have been better than rivals, despite the vagaries of weather that have affected every retailer in the country, including M&S. Analysts are of opinion that M&S have probably done better than the rest as the latest figures of the rest have yet to come in. . According to report by Richard Ratner of Seymour Pierce, the present status of M&S looks a little less glamorous but the market is yet to see the competitions figures. However it is felt that M&S has outperformed the market despite having little exposure to big items and depending largely on food and clothing alone. (The Guardian, 11 July 2007). But the figures do not tell the behind-the-scenes-story that really led to this revival. 3 Defining Strategies It has been stated by Hamel and Prahalad that companies that desist from competing for future market opportunities are doomed and forgo corporate value creation that they had achieved in the past. (Hamel and Prahalad). Growth is dependant on momentum and it is an integral part of business strategy. Growth is a also a very difficult decision as it involves investments; and an investment may become wasteful or a burden if there is no adequate return in a reasonable period of time. Corporate strategies have been divided into Five Ps by Mintzberg and they are Plan, Ploy, Position, Pattern and Perspective. While each is a separate type of strategy with its attendant qualifications, yet they are usually present in all strategies to some degree. The real difference lies in the fact that one of them will be dominant and others will play a supportive role. (Mintzberg). Among the strategies, Positioning is a long term objective of corporate operations and requires more attention to detail and a firm commitment to accept the consequences and to overcome roadblocks. It is an assertive policy that will require substantial investments and total cooperation of all stakeholders otherwise it might fail. The stakes are huge and results are very rewarding. The one big risk is that in case the objective is changed due to influence of external factors, the whole strategy will have to be abandoned at great cost. Therefore it has to be planned and well thought out over a period of time. It is preferable to first test this strategy for a short period on a smaller scale to confirm its feasibility and acceptance before making full fledged commitment. 4 Positioning as Strategy The Green movement has gained worldwide momentum and the consumer is becoming more acutely aware of the damage to environment. The Greenhouse effect of climate change is no longer a fiction but a fact. In some parts of the world carbon emissions have already reached alarming levels. Therefore the consumer is favouring companies who are consciously offering environment friendly products and activities. M&S were at a loss to recover their lost glory and needed a new strategy to reposition themselves as leaders in the retail market. There was nothing more terrifying than the Greenhouse effect that was being touted around the world. They took up this gauntlet and considered this as their salvation; and they were right. They hit the bull’s eye. M&S have positioned themselves as an eco-friendly company that is committed to reducing the carbon emission that its stores produce and willed on themselves to have a 100 point well thought out eco-plan called Plan A, at a great investment to tell their customers that they have a unique proposition. It has extended this strategy to its suppliers as well and is now converting to green policies in a big way. (see Appendix 2). This new strategy was formulated after taking views from several stakeholders including customers. employees, shareholders, government regulators and NGO’s. This resulted in £ 200 million Plan A. (M&S Annual Report) Their Corporate Social Responsibility Report (CSR) for 2006 states that they have achieved 22 targets they set for themselves and support their enthusiastic efforts towards this objective and highlights the various visible and calculable results of their efforts. (CSR). The highlight is the reduction in carbon emission (106,000 tonnes) they achieved in 2007 over 2006 figures. (CO2 emissions) The clothing division of M&S had already taken a beating in the market in the late nineties when the company shifted its focus to cheaper varieties in order to face competition from other retailers. However this strategy backfired as firstly they lost their image as a high fashion brand and the fashion conscious women and girls shifted loyalties. Secondly they could not match the prices of the competition that were sourcing their wares from third world countries operating on sweat-shop practices. For positioning themselves they decided to shift their focus to food and hence the emphasis now came to be on wider variety in new eco-friendly packaging that was now offered to the customer. This meant they had to change the layouts of their stores to offer more legroom to the customers and better displays. M&S undertook to standardize their store layouts all over the world. While this provides better ambience and larger spaces for customers, it is also an attempt to form a recognizable pattern to give it some distinction and recognition. This aspect has a dual role. It is a Positioning exercise with an aim to providing an eco-friendly environment at its stores. This pattern registers well with the customers who then sub-consciously accept it as a standard by which they judge and evaluate other outlets. This is a very subtle way of adding value to their stated objectives. M&S also found that the centre of power that lay with the Chairman who also doubled up as CEO was not in tune with changing demographics and customer preferences. In late 1998 and 1999 the younger customers had different outlook and the earlier values and vision of the last fifty years required a change to suit the mood of the customer as well as the financial market. The company was advised to change its drab outlook and to bring in fresh blood. In 2001 Roger Holmes was made CEO, and in 2002 Luc Vedervelde was appointed Chairman & and he commenced restructuring the company. By 2004 the exercise was frustrating as by closure of some European branches, sale of some properties and a continuance of earlier policies did not quite work out and the plunging share prices indicated the shareholders displeasure. Desperation turned to despair, business strategy was unfocussed; and in true fashion both the Chairman and the CEO were replaced in May that year. Paul Myners took over as Chairman and Stuart Rose took over as CEO. Restructuring was replaced by Positioning as strategy and it worked. In 2007, Lord Burns, the latest Chairman reported that the company was well on its way to attaining the eminent position that it had in 1997-98 riding on the new positioning strategies. 5 Critique Strategies have always been used as a process to for setting long term goals and objectives of the organization. These are necessarily followed by implementation processes that are then evaluated to find the results of these strategic maneuvers. But the shaping of strategies is much more complex than it appears to be. It is significant to mention here that although the 5Ps of strategy expounded by Mintzberg is a simplistic method for analyzing strategies of corporates, there are other views that have been developed offering more accurate reasons and analysis. For instance Hamel and Prahalad have argued that core competencies are the route to future developments and that they define the inventive and transformational aspect of business today that looks for future positioning. (Hamel and Prahalad). Without development of these competencies, that have to be extensively deliberated upon prior to planning, the idea of positioning will be superfluous. M&S did exactly this and took a long time to look hard at facts that will have a lasting influence on their customers. The strategic decision was that as the world is veering around to the acceptance of global warming, and both leaders and the masses are eager to participate in saving the environment, their own efforts, no doubt at great expense, will offer physical evidence that will register with everyone as positive action. The preparation that they are undertaking, without apparent concern of its contribution to the bottom-line, actually brings out the sympathies of the customers who flock to their stores to show their solidarity with the company. That this will bring in good returns by way of higher sales was the primary motive of M&S and was achieved with distinction. Then there is a “fitness to landscape” theory from Kaufmann stating that states that all companies work hard to achieve glorious heights that can be viewed like a mountainous landscape with high and low peaks. In this case the height of a feature is a measure of its fitness. It is further explained that these are not static highs and lows but are dynamic and corporates change positions to gain maximum advantage. (Kaufmann). In actuality when a company embarks on a positioning strategy, it is beset with several roadblocks en-route. It is able to surmount them but within these attempts it sometimes prolongs the effort and at times is able to quickly realize its goals. The sum total of efforts is quite dynamic and results in highs and lows. Its endeavour is to achieve the maximum in the quickest possible time to prove to its customers that its success rate is high. This is how Micheal Porter (1996) explains these efforts as “jockeying for position”. (Micheal Porter). In this scenario too outwardly the company struggles to come to terms with the various changes that it has undertaken to go through to achieve its noble objectives, but the underlying cold calculation is again aimed towards catching customer attention and to gain more footfalls resulting in higher sales and returns. The customer is attracted more by the efforts and contributes by aligning himself with a company that is visibly trying to overcome difficulties to improve the customer’s future life. The more the company tries to fit the landscape the more customer appreciation they earn; it is incidental that they earn a higher profit in the process. M&S positioning strategy fits very neatly into this theory and they have perfected the art of convincing their customers that they are doing this for the benefit of humanity at large. The reward they reap is in the shape of soaring share prices showing shareholders acknowledgement of the company’s ability to entice customers with their winning positioning strategy. 6 Conclusions In effect what M&S did was to use the method called Stealth Position of their product. They could not do much on changing the range of products as no significant innovation was available or possible, so they raised the ambit of selling products sourced from environment friendly sources and selling them through environment friendly outlets. The focus shifted from competitive products to saving the environment. The Product Life cycle was thus enhanced and competition, which sold similar products, was overcome on a different platform. 7 Bibliography Chairman’s Foreward 2007 avaialable at: http://www.marksandspencer.com/gp/node/n/43436031/202-7927409-1015818?ie=UTF8&mnSBrand=core CO2 emissions, Annual Report pdf. Available at: http://www.marksandspencer.com/gp/node/n/43436031/202-7927409-1015818?ie=UTF8&mnSBrand=core CSR , How We do Business pdf. Available at: http://www.marksandspencer.com/gp/node/n/43436031/202-7927409-1015818?ie=UTF8&mnSBrand=core Hamel, Gary. and Prahalad, C.K., The Core Competence of the Corporation. Harvard Business Review, May-June, 1990. Hamel, Gary. and Prahalad, C.K., Competing for the Future, Harvard Business Review, May-June, 1996. How we do Business pdf, Plan A, 100 Commitments available at: Kauffman, Stuart., At Home in the Universe, Oxford University Press, 1995 Kauffman, S. and Macready, W.,Technological Evolution and Adaptive Organizations, Complexity, Vol. 1, No. 2, 26-43 M&S Annual Report pdf available at: http://www.marksandspencer.com/gp/node/n/43436031/202-7927409-1015818?ie=UTF8&mnSBrand=core Mintzberg, Henry., THE STRATEGY CONCEPT I: FIVE Ps FOR STRATEGY Mintzberg, Henry California Management Review; Fall 1987; 30, 1; ABI/INFORM Global Mintzberg, Henry. and Waters, James A., Of Strategies, Deliberate and Emergent, Strategic Management Journal, Vol-6, 257-272, 1985 Porter, Michael.,.What is Strategy., Harvard Business Review, November-December, 1996. The Guardian available at: http://www.guardian.co.uk/Archive/Article/0,4273,4211977,00.html accessed on 2 Nov 07 The Guardian available at: http://business.guardian.co.uk/story/0,,2123321,00.html accessed on 2 Nov 07 8 Appendix 1 Until 1999 M&S' financial year ended on 31 March. Since then, the company has changed to reporting for 52 or 53 week periods, ending on variable dates. Year ended Turnover (£ M) Profit before tax (£ M) Net profit (£ M) Basic eps (p) 1 April 2006 7,797.7 745.7 520.6 31.4 2 April 2005 7,490.5 505.1 355.0 29.1 3 April 2004 8,301.5 781.6 552.3 24.2 29 March 2003 8,019.1 677.5 480.5 20.7 30 March 2002 8,135.4 335.9 153 5.4 31 March 2001 8,075.7 145.5 2.8 0.0 1 April 2000 8,195.5 417.5 258.7 9.0 31 March 1999 8,224.0 546.1 372.1 13.0 31 March 1998 8,243.3 1,155.0 815.9 28.6 31 March 1997 7,841.9 1,102.1 746.6 26.7 31 March 1996 7,233.7 965.8 652.6 455.8 2 Plan A PLAN A Plan A is our five-year, 100-point plan to tackle some of the biggest challenges facing our business and our world. Climate Change We aim to make our UK and Republic of Ireland operations carbon neutral in five years. We will minimise energy use, maximise the use of renewables and offset only as a last resort. Waste We’ll reduce packaging by 25%, find new ways to recycle and stop sending waste to landfill from our stores, offices and warehouses. Sustainable Raw Materials From fish to forests, our goal is to make sure our key raw materials come from the most sustainable sources available. Fair Partner By being a fair partner, we’ll help improve the lives of hundreds of thousands of people in our worldwide supply chain and local communities. Health We’ll help customers and employees choose healthier lifestyles through healthy food ranges and clear labelling. To find out more visit www.marksandspencer.com/PlanA Read More