HMV Group's Strategy - Research Proposal Example

Strategy Report HMV GROUP TABLE OF CONTENTS 1.0 HMV overview………………………………………………………………. 3 2.0 Current financial situation at HMV………………………………………….. 3 3.0 Strategic options for HMV Group……………………………………………. 4 4.0 Shareholder influence………………………………………………………… 9 5.0 Stakeholder strategies………………………………………………………… 10 6.0 Further diversification efforts………………………………………………… 10 7.0 Further ventures with Fopp…………………………………………………… 12 8.0 Conclusion…………………………………………………………………….. 13 References Strategy report: HMV Group 1.0 HMV overview HMV Group is currently one of the UK’s largest media and entertainment facilities, offering a wide variety of products including books, music, stationary and other media formats. As the owner of Waterstone company, the business supplements its total profitability through a chain of bookstores which sell everything from fiction to non-fiction as well as an assortment of children and special interests books. As of the beginning of 2009, HMV maintained 379 bricks-and-mortar stores in the United Kingdom, Canada, Ireland, Hong Kong and Singapore (Annual Report, 2008). In addition, HMV Group offers music and media products online at Hmv.com, however this particular segment of the business only makes up approximately 10 percent of total HMV Group revenues, which suggests an opportunity for strategic changes to build higher sales volumes in the online environment. This report highlights the various strategic options available to the HMV Group as well as an analysis of the potential effectiveness of these new strategies based on the current strategic position of the organisation. 2.0 Current financial situation at HMV By early 2009, HMV had experienced sales growth of 11 percent, however this appears to be an isolated incident which did not stem from higher consumer patronage and online sales, but from the sale of HMV Japan (Bryant, 2008). It appears that HMV Group was experiencing minimal sales volumes in the Japanese division of the company, thus the sale of this particular business unit was performed in order to increase total company liquidity and make the company’s stock appear more viable for long-term investment. The implementation of the Japanese HMV division did not bring adequate sales results to the company, thus this was an initial failure at diversifying the company’s total business portfolio. Additionally, and much to the surprise of the HMV Group leadership, the company experienced its best Christmas sales in December 2008, largely due to video game sales in the HMV division (Financial Times, 2008). This seems to have taken the company on a new strategic direction by January 2009, with a much higher focus on video game sales and less focus on music sales and downloads. 3.0 Strategic options for HMV Group The company is currently facing a considerable amount of competition stemming from the rise of online retailers, the digital download environment competitors and also supermarkets which appear to be attempting to cash in on music and other digital media sales (Bryant). There is no research evidence which suggests why consumers are moving toward supermarkets and online retailers for their music and digital media selections, however since these competitors are eroding the firm’s total profitability, the company needs to select several new strategies in order to build competitive advantage and emerge, again, as the leader in this type of digital format sales. Pricing Strategy: From a sales and marketing perspective, the company would benefit from taking both a price-based strategy and a differentiation strategy in order to build the type of sales growth expected by the company. In today’s difficult economic environment, it is relatively common knowledge that many consumers have cut back on their spending habits due to fear of the short-term effect on personal consumer income. The company should adopt a low price strategy and a low price guarantee, which agrees to match any competitors advertised price. Utilising the internet and other forms of direct marketing, the business can establish that it understands the needs of consumers in difficult economic conditions and is willing to provide low cost digital media, books and music in any form which is comparable to competition. This new pricing strategy can be justified by the recent sales increases at the company, giving them a much larger cash position by March 2009. Customers have a vast variety of retailers and online sellers to select from, with each likely posting small difference in price on their favourite music, books, games and other media formats. By establishing a new pricing model, which fits into the financial feasibility of the company, it is likely to draw a higher consumer volume in pursuit of a good deal to satisfy their current economic needs in a tough international economy. In the short-term, these small pricing losses by establishing this new pricing guarantee would erode profitability by a small margin on each (per unit) piece of merchandise, but also guarantee a higher sales volume by customers searching for the aforementioned bargain. Differential Strategy: Additionally, marketing strategies would benefit HMV Group over that of competition by making the companies stand out amidst a wide variety of tough competitors. A differentiation strategy is set up in the pursuit of making one company appear to have better offerings, better customer service, or simply a better format by which to buy digital and print media than that of competitor activities. However, this would require an analysis of the current capabilities of each business unit (Canada, Singapore, Ireland, UK, etc) and scan the external environment to determine what the differentiation strategies of competitors in similar marketplaces are currently. For example, Canadian competitors may have found success through focused differentiation, perhaps highlighting the many features and benefits of their own online sales teams and sales environments. If the online environment appears to be more satisfactory in terms of overall website appearance and browsing options, HMV Group can elect any number of website developers to create a more appealing-looking website and then utilise creative marketing (through a variety of marketing options) to build a more positive image for HMV Group. The generic consumer, based on theories of consumer behaviour, is often drawn to lifestyle elements when selecting which specific brands to purchase. HMV can utilise a focused differentiation strategy to the effect in order to make HMV appear to be a better value, a better opportunity, and a company by which the consumer can build a positive long-term relationship. This might be accomplished by adding visual graphics to the website pages which appeal to the youth buyer or to create new logo presentation and design in order to capture a flexible and contemporary company which is willing and able to evolve with changing consumer needs and values. Positing Strategy: The solution, as part of a new focused differentiation strategy, might be simply to position the company differently, focusing not just on value but on quality or issues of service. Kurtz (2006) offers the marketing strategy of positioning which involves placing the company at a certain location or point within the minds of prospective buyers. Currently, HMV Group appears to utilise no positioning strategies, but relies on the product itself to generate higher sales volumes. Instead of focusing on product attributes and features (or selection variety), HMV can appeal to consumer needs toward application of the product. Since the majority of HMV products, both in the HMV Company and Waterhouse, are utilised to satisfy consumer needs for media entertainment, the company could utilise similar strategies adopted by Whirlpool Company, the maker of electronics and appliances. Whirlpool utilises a positioning strategy, in an attempt to differentiate the company from other appliance manufacturers, with the slogan “Wash your world clean” (Kurtz, 2006, p.309). This differentiation strategy identifies the consumer need for cleanliness and does not rely on the product’s benefits to sell the products. HMV could utilise similar differentiation tactics as part of a new positioning strategy with slogans such as We’re MUCH more than just books or Get your game on!, in order to create the necessary lifestyle connections which appear to have found great success with other companies in trying to reach broader markets. This would make HMV Group products stand out in a variety of ways, likely boosting sales volumes in the short- and long-term. Diversification: Additionally, the company attempted to diversify its business portfolio, as mentioned previously, with the implementation of a media division in Japan. Despite its actual failure and the need to sell the unit, the company had taken the correct strategy for diversifying the business. Since the company already has a very well-streamlined supply chain operation for both are in-store and online product sales, the company should utilise this business strength by offering more than simply media products. There really is no research and development team at HMV since they act much more like a marketing intermediary (middle man), thus the company has a multitude of opportunities to expand its current product lines by branching into home and garden products, fashion, or even the sale of digital and electronics products. Such a strategy would involve research into the current marketplace regarding new product offerings so as to witness the current success ratios for different product manufacturers and then work to build new product lines into the online environment, perhaps with a new website, and test the success of the new marketing and sales opportunities (a six month initial trial system) to determine whether consumers are lured to the new image and offerings given by HMV and its affiliate businesses. Acquisition Help Diversification: Because the company currently maintains a strong cash position, boosted by the sale of the Japanese unit and higher sales volumes from 2008, acquisitions of other struggling companies is another strategic option which would fit not only into diversification strategies, but also build a new, modern image of a company which is much, much more than just media and digital entertainment. In todays touch economic environment, there are likely many businesses which are currently struggling to remain profitable. It would be the recommendation that the business’ senior leaders examine possible opportunities for acquisition of these ailing companies and utilise a feasibility analysis (both financial and in terms of resource capability) to find the perfect acquisition and fit for the new HMV Group. Others Marketing Strategy: Currently, the company is not focused, strategically, on changing the scope and diversification of the business, but remains focused on revitalising its current businesses by adding more gaming selections and the media electronics necessary to play these games (HMV Group, 2009). Additionally, to boost consumer patronage to their variety of stores, the current strategy is the implementation of customer loyalty cards which offer discounts to consumers who return again and again to HMV for their media and entertainment needs (HMV Group). This represents a strategic focus on the core business with no opportunities for expansion or growth through acquisitions or various strategic alliances with similar retailers struggling in today’s economic crunch. Says the current company chief executive officer, “We continue to plan and adapt by refocusing our mix of products and enhancing our store environments” (Annual Report, 2008, p.6). This next generation store revitalisation does not appear to be a viable strategy when it is the external market environment (changing consumer behaviours and rising competition) which is affecting whether or not the firm experiences high profitability. Because of the aforementioned lack of focus on expanding the business to include entirely new product lines, the likelihood for success through in-store environmental changes and adding new gaming and digital media offerings is minimal. Though the company did recently acquire the Fopp brand, another retailer of digital media and entertainment (Annual Report), the product offerings will still be the same as prior to March 10, 2009. This does not represent a viable strategy for diversifying the company but only serves to add an additional brand to what appear to be becoming a competition-saturated marketplace. In order for the company to survive over the long-term, the business needs to move away from focusing solely on core business practices and illustrate to the generic consumer audience that HMV is truly much more than just books and electronic entertainment retail. 4.0 Shareholder influence The value of this publicly-traded company, prior to March 2009, was £127 per share (HMV Group). This high share price, based on shares outstanding on the market at the time, represents a company with minimal debt and represents a sound investment to shareholders across the globe who are interested in investing with HMV. After the sale of the Japanese division of HMV, the company resumed a buy-back on its outstanding shares, which further gave a stronger appeal to investing in HMV over the long-term (Hume, 2007). The current cash position of a company is strongly influenced by shareholder expectations and belief in the future success of a company based on sales volumes as well as overall business strategy, therefore the company’s current strategic plan toward share buy-backs and improving the per-share value of the company has been bringing the firm considerable success in overall, measured value on the FTSE market. There is no research evidence that these strategies have managed to damage the share price of the company, which indicates that its core focus does maintain, at least, value from the view of the external shareholder. 5.0 Stakeholder strategies In terms of dealing with various stakeholders, namely the consumer, HMV Group maintains a wide variety of potential strategies to connect with their unique needs. One competing retailer, Comet, which takes a more progressive approach to in-store sales, has been known to cause consumers to turn against this competitor. The reason? Loud music which has been cited as blaring from loudspeakers in an environment which not only sells music and digital media, but also electronic equipment such as televisions and computers (Goldstein-Jackson, 2008). Such an in-store strategy represents only a niche selling strategy which is likely unappealing to mass consumer audiences. For this reason, HMV and its more docile selling environment, does maintain a positive strike toward finding success in meeting the needs of a broader consumer audience and does not require in-store theatrics simply to appeal to a niche consumer. Hence, the current revitalisation of the in-store selling environment does have its merits in terms of current business strategy at HMV. Where the business appears to be lacking is in understanding what actually drives consumers to buy from different companies or from HMV. In terms of the overall suitability of HMV’s focus on revamping its core business and avoiding the marketing gimmicks of in-store theatrics and loud music presentation, indicates that the strategy, in some fashion, is suitable for reaching a broad consumer market. 6.0 Further diversification efforts One notable diversification strategy implemented by HMV Group in late 2008 was the development of a social networking website, getcloser.com, in which music and gaming enthusiasts can discuss their various joys of digital and electronic entertainment (Annual Report). This represents that the company does maintain a focus on satisfying the contemporary propensity of consumers to utilise the online environment for meeting people and sharing ideas. However, since this website is relatively brand new to the company, it is impossible to measure whether or not the site has found significant success in terms of generating higher revenue streams. Clearly, the company has examined the feasibility of creating new social networking sites and has determined that it can obtain the capabilities and resources necessary to launch, monitor and overhaul the site as required by consumer patronage volumes. However, it is recommended, as a further strategic option, to outsource the website functions and maintenance to save payroll and labour costs associated with HMV Group employees who are currently monitoring the social networking sites. Outsourcing, though it might call for the elimination of several jobs within the HMV Group, would be beneficial to its many shareholders who are looking for ways to improve the cash position of the company. Since the company did experience a drop in cash flow from 2007 to 2008 (Annual Report), this would be beneficial for improving shareholder relationships whilst also developing new and innovative (modern) online efforts to boost the overall brand image of the HMV Group and build connection with consumer audiences. One notable and significant failure of the current strategy for HMV Group is failing to recognise the growing trend of consumers toward downloading music and video rather than buying in traditional CD and DVD format. An analyst for HMV Group stated in 2007, “We are firmly aware…that greater downloading of films will have a dramatic effect on DVD sales” (O’Reilly, 2007, p.17). Despite this yearlong recognition, there is no research evidence that the HMV Group is currently pursuing a strategy of establishing digital download services to cater to the new consumer behaviours for buying media in the online format. This represents a significant drawback to existing business strategy, as this is likely the future of buying digital and other media. It is recommended, based on the company’s current high cash availability, and having the resources (people and finance) necessary and the firm recognition that this is an acceptable business strategy to both appeal to the modern consumer and build higher sales revenues, that the company establish new buying options by offering digital downloads at a per-download price which is comparable to other competition in this sales market. This will not only diversify the company further, but expand its marketing reach to a much broader demographic and build higher sales volumes in the short- and long-term. Since the consumer behaviours are shifting away from CD and DVD sales, which makes up a significant portion of the firm’s total revenues, this is an unexploited (and very necessary) strategy in order to remain competitive in the digital age. As of March 10, 2009, there is no indication that HMV Group is actively pursuing such a sales environment. However, in order to align the business properly to remain competitive and seize advantage in media sales, this action might be beneficial by pursuing an alliance with established companies which offer this service currently and build a better brand for HMV in the process. 7.0 Further ventures with Fopp It had been established previously that the acquisition of the Fopp brand may or may not return positive long-term benefits for HMV Group. Fopp, according to Marketing Week (2007), does not actively pursue modern advertising and marketing efforts, but prefers to rely on word-of-mouth advertising in order to build its brand image. HMV does not intend to change this principle (Marketing Week). This represents a significant failure in differentiating the Fopp brand from other music and media retailers as it fails to exploit modern marketing theories and the ability to cater to different niche markets through creative advertisements. Even though marketing represents a strain on budgets, there are only seven Fopp stores currently in existence, which speaks strongly to the necessity to advertise if the company desires to open more Fopp in-store locations. Word-of-mouth advertising is only effective in community settings and does not have the ability to capture the full essence of what Fopp brand is all about, therefore the company has been missing out on potential opportunities to exploit their new acquisition. It is recommended to allocate a small portion of the HMV Group marketing budget to expand the reach of Fopp and further delight consumers by creating the necessary differentiation strategy to make Fopp stand out as a leader in the HMV family of brands. 8.0 Conclusion Clearly, there are several strengths to the existing strategies at HMV Group as of March 10, 2009, however the research evidence suggests that the company maintains a larger volume of failures related to the firm’s short- and long-term strategic positions. There is clearly a need to diversify further, to cut costs when appropriate, and it is necessary for the company to establish a stronger reputation for the whole of the HMV Group. It is largely the external environment which impacts whether or not the company should expand or revamp its existing business environments, and there is clearly a weakness in understanding or predicting what drives current buying behaviour. Many of the firm’s strategies are not suitable for long-term gain, even though some are feasible only in the short-term, such as the establishment of a social networking site but not exploiting it for its full capabilities. The company’s strong cash position also justifies making acquisitions when possible to the extent of not damaging shareholder or stakeholder relationships in the process. There are a large volume of potential threats to the business in terms of higher volumes of retailers selling media products and those which have already developed a sound strategy to take traditional CD, book and DVD format and offer these online for a per-download price. HMV Group appears to remain in the shadows of emerging businesses and the company remains too focused on the core business as a long-term strategy. These efforts clearly require adjustment and, if the company follows the recommended strategies, they will emerge a leader in digital media and entertainment sales into the future. References 1. Annual Report, 2008, ‘Annual Report and Accounts 2008 – HMV Group’, 6 March 2009, , 2. Bryant, A, 2008, ‘HMV’s Earnings Soar on Japanese Unit Sale’, Wall Street Journal, New York, NY, 2 Jul 2008. 3. Financial Time, 2008, ‘Record sales for HMV as games demand surges’, London. 18 Jan 2008: 17. 4. Goldstein-Jackson, Kevin. 2008. ‘One way of staying in tune’, Financial Times, London, 21 Jun 2008: 10. 5. HMV Group, 2009, ‘About us – Our strategic plan’, 6 March 2009 http://www.hmvgroup.com/aboutus/ourmission.jsp. 6. Hume, Neil. 2007, ‘WH Smith bucks losing trend in London’, FT.com, London. 19 Jun 2007: 1. 7. Johnson, G., Scholes, K, and Whittington, R. 2008, Exploring Corporate Strategy, 8th ed, Pearson Education. 8. Kurtz, David, 2006, Contemporary Marketing, 12th ed. United Kingdom, Thomson South-Western: 309. 9. Marketing Week, 2007, ‘Analysis: HMV tries to turn Fopp into a hit’, London. 9 Aug 2007: 8. 10. O’Reilly, Gemma, 2007, ‘Teaching the old dog new tricks’, Promotions & Incentives, London. Oct 2007: 17. Read More