Marketing Management of A.S. Watson Group - Essay Example

?EXECUTIVE SUMMARY This report formulates a retaliatory marketing plan for A.S Watson Group (ASW) in response to its second biggest competitor AEON abranch of the global retailer, AEON. AEON has reduced its prices by 15% in order to build on its customer base. However, ASW being the market leader, must also come up with a campaign in order to refute AEON’s strategy. The report discusses the target market in detail with an analysis of the retail business environment in which the players operate. Previous trends in the industry sales are disclosed along with the labor market and external impact of the economy on the industry. ASW’s course of action is formulated and analyzed as per the market situation. In the Marketing Strategy section, the target market is discussed and recommendations of introducing an exclusive web portal for the customers on which they can place orders from their homes and pick it up as per their convenience. For this, ASW will need a strong technological backing in order to execute this plan. Alongside this, ASW must open more stores in the format of High Street supermarkets because the company experienced lagging sales in the winter because of the snow where people could not access the stores. The report also gauges the campaign’s financial feasibility with a tentative budget. All in all, the campaign would prove to be a success because of its appealing idea of convenience to the customers for which they are even willing to pay a little extra. TABLE OF CONTENTS TABLE OF CONTENTS 2 INTRODUCTION 3 SITUATION ANALYSIS 3 Analysis of the Industry 5 Competitor Analysis 6 Target Market 6 Brand Positioning for ASW 7 (Hong Kong Retail Management Association. 2010) 8 Retail Marketing Strategy 8 Product 8 Price 9 Place 10 Promotion 10 FINANCIAL PLAN 11 EXECUTING THE PLAN 12 IDENTIFYING RISKS 13 CONCLUSION 14 REFERENCES 16 INTRODUCTION ASW was officially found in 1828 and has now grown into a global giant with presence in 33 countries and more than 9000 stores worldwide. Since its establishment, ASW has grown from just a food and grocery retailer to a manufacturer as well and has added non-food merchandise into its merchandising mix. The company employs a workforce of about 98,000 people across the globe spread out in the markets of the UK, Europe and Asia (aswatson.com, 2011). ASW’s strategy is to strengthen its assortment in the category of non-food items further and bring it up to the level of its food category. It is also to illuminate its presence in global markets alongside global giants. One of the company’s strengths is its ability to connect with the community in which it operates. This ability has led it to growth in the international markets because ASW tailors itself according to the needs of its customers. Besides this, ASW usually uses the Joint Venture mode of entry into international markets which minimizes risks and compliments the company’s strategy of localizing according to different markets (baltictimes.com, 2004). SITUATION ANALYSIS According to the Hong Kong Retail Management Association, the regulatory body of the Hong Kong retail industry states that there are approximately 60,000 retail businesses in all in the industry, including food, non-food, round-the-corner store, multi-channel, small and large retailers. The retail industry records a turnover of HKD 300.03 billion hence contributing 87% to the total GDP. (Business Monitor International, 2010) This organized retail industry consists of a few major players with ASW being the leader. It faces competition from giants such namely Harvey Nichols, Lane Crawford, Sogo, Seibu, AEON, UNY, Wing On etc (Chine-HongKong-travelguide.com, 2010). After the global financial turmoil, the Hong Kong economy is slowly on its way to recovery. As far as the retail environment is concerned, despite the economic slowdown in the year 2007, the industry has shown growth and the industry has registered increases in sales in the year 2010 (Business Monitor International, 2010). Besides that, the industry is expected to experience further growth as past trends have shown persistent increase. Besides this, the government has also introduced a minimum wage law which has led to further redundancies (AFP, 2011). Retail industry of Hong Kong is saturated where the market is organized and measurable. All the major players in the market are highly competitive however ASW is the market leader with a massive 30% of the share to its credit. The market itself is expected to grow by 15% in the upcoming span of five years. This means that firms will have to operate and survive on decreasing margins. If our second major competitor AEON cuts its prices by 15%, this would mean that it is working harder on its competitive advantage which seems to be the ability to operate at low margins despite the fact that the government has introduced a minimum wage (AFP, 2010). Having said this, AEON Stores’ parent company is AEON Co. Ltd, a global corporate giant with about 154 holding companies, has the competitive advantage of buying in bulk so much that it becomes the largest global customer of the world’s largest FMCG corporations namely Unilever and P&G. This is bound to either revolutionize the Hong Kong retail environment or crush its competitors with strong integrated systems and heavy investments. In order to achieve this, AEON might have either laid off some of its labor force to cut costs, discontinued stocking of unprofitable merchandise through an efficient system of merchandising and shelf spacing or have achieved a technological break-through which has resulted into economies of scale and hence cut down its costs. As AEON is already known for providing value to its customers in the form of low prices, a 15% cut in prices is most likely to be met by a dramatic response from the consumers. MARKETING STRATEGY With AEON, introducing a 15% cuts in its prices, ASW is bound to face the problem of falling sales as the consumers would automatically switch to a better price value offered by AEON. However, ASW’s strategy to reposition itself as a convenience store would enable it to have more locations to meet the customers’ convenience needs. Analysis of the Industry With 15% reductions in prices, AEON would be a threat to ASW’s customer base. A market place which is already saturated does not leave room for ASW to further expand itself. The companies in the industry cannot build a whole new customer base and markets for their brand based on current market situation. ASW must therefore focus on the High Street/convenience stores in contrast with other superstores namely AEON and Seibu (China-HongKong-travelguide.com, 2010; Hong Kong Retail Management Association, & Asia Market Intelligence. 2009). The sales figures have shown an increase in the years even when the economy was going through a turmoil. This means that the retail industry is doing comparatively better than the rest. The retail stocks experienced a downturn from the second quarter of the year 2008 which prolonged a yearlong till the figures started towards a slow recovery. A somewhat same trend can be observed in the overall industry Sales however, it started to recover from the start of the year 2009 (Business Monitor International, 2010). Flanking along the mortar trade industry, the internet has been having a growing role in the retail scenario. The internet has also been a major contributor to the total retail spends in the Hong Kong retail industry. This leaves an opportunity open for ASW to further explore this channel (Sun et al, 1996). In the next five years, the internet will be the largest contributing channel to the retail environment of not only Hong Kong, but throughout the world (Hong Kong Retail Management Association, & Asia Market Intelligence, 2009). Competitor Analysis ASW is positioned as a large departmental store however it carries private labels as well. This factor avoids ASW to go into head-on competition with its competitors AEON, Seibu etc. ASW must realize that it cannot compete with the marketing skills of P&G and Unilever whose brands have established strong brand equity in the market. This is the only factor on which AEON may be working on that is, the more in bulk they order, better discounts they’d get and hence, can operate on smaller margins; unlike ASW which cannot maneuver its focus on procuring its products/commodities from the vendors or either in-house production facilities (which it later brands as private labels). Target Market ASW targets both youngsters and the parents with its merchandising and in-store environment. With its private labels of winces, the company has a strong base of dedicated consumers who would visit ASW to purchase their brand as compared to other retail stores. The store will target Focused Fulfillers who specifically would stop to buy certain products, impulse customers, who would just make low-involvement purchases while passing by and the Driver Buyers who just know what they want and make their purchases faster (Dunne et al, 1999). ASW must realize that their key to further growth in the retail market is to focus on convenience because of the busy life of the city. In order to refute or break the customers away from AEON, ASW must play on the convenience factor, where the target market does not mind paying a little extra for convenience. ASW is however still known as a large departmental with the segment families. The store also targets youngsters because of its wide assortment of merchandise. ASW not only deals with daily groceries but also has clothing range, accessories and music. Besides this, the store leaves large room for operations on the internet. This also presents ASW with an opportunity to develop a strong online channel through which, it can meet its consumers’ needs. This market is targeted because of the purchasing power of SEC B and C and the location advantage which ASW will have over its competitors in this market. With its new stores, ASW must target the young audience with a preference for convenience. This means that as the working families have less time for shopping every now and then, they would not mind paying a bit extra for convenience. The market must comprise of people aged from 19 to 50 both male and female. They must belong to SEC B and C who will be willing to pay more for convenience. Brand Positioning for ASW ASW is positioned as a large departmental store in the market. Seibu and AEON are in direct competition with ASW however, they are positioned more as supermarkets whereas ASW positions itself as a large departmental store with high fixed costs. In order to refute a 15% price cut by AEON along with the minimum wage rate, ASW will have to compromise on its profits and margins until the new strategy comes in effect and produces results. ASW must position itself as a highly convenient solution for every household’s grocery supplies. Following is the positioning map which further explains how ASW needs to position itself: (Hong Kong Retail Management Association. 2010) Retail Marketing Strategy Product ASW carries a wide assortment of merchandise ranging from daily groceries to electrical appliances. However, ASW being the leader in the Hong Kong market must not alter this merchandising mix so as not to disrupt its current sales. ASW must incorporate the convenience factor and technology into its operations. Introducing better systems of Supply Chain, Shelf Space Management and Procurement would leverage ASW’s ability to compete as a retail store’s profitability depends on its merchandising management. Besides this, ASW is also establishing an online order system where the consumers could choose their weekly or monthly groceries from a list of most frequent SKUs purchased by an average household and place their order. This order could either be delivered at the consumers’ doorsteps or if they wish to pick it up themselves if some of the items which they want are not on the list. This would complement the convenience factor which ASW would be known for. Apart from that, ASW being a departmental store is repositioning itself by opening more convenient stores throughout to meet its brand promise of convenience. This convenience would help ASW to build a stronger customer base and it will be easier for it to connect with the customers and offer customization in their merchandising needs as per the markets of different locations of the store. Besides this, the quality of the service will be greatly improved as the stores could provide its customers personal attention to a much greater extent than a huge departmental store can. Price Introducing all the convenience for the customers will evidently raise costs for the firm. ASW would be saving more by keeping strict merchandising controls in its stores i.e., discontinue the unprofitable SKUs and stock up only those traffic builders which result into a higher sale of the Profit Earners. The prices are to remain the same if not rise, with additional investments to back the campaign for a short-term until the new campaign takes an effect in the market. However, the new stores will carry trade promotions with mark downs and reduced margins via effective retail merchandising management. Place The campaign would also include setting up of new stores where necessary to complement the convenience factor which would come with the brand. More convenient locations will provide more accessibility to the markets as compared to a departmental store which is usually located in the outskirts of the city. The distribution channel will also include the internet through which the consumers can place their orders and hence, the firm can record a sale (Amsgaard et al, 1999). Promotion ASW needs to undertake a fully fledged 3600 marketing campaign in order to create awareness amongst the consumer that ASW would now become more accessible to the society. ASW would advertise its USP of convenience through the print and electronic media and because of enormous use of the internet, online social media networks would also feature ASW’s advertisements informing the consumers about the new Convenience Drive which ASW would embark on. Besides this, Brand Activations will also be carried out to connect with the audience and to attract new market segments of the youth and young professionals. Because of time constraints, ASW would be conveniently located in the target segments’ whereabouts where they can conveniently stop by or even place their orders on the internet and pick up their groceries on their way home. FINANCIAL PLAN In order to execute the marketing plans to compete with AEON’s price cuts, ASW will have to back its efforts with a mass campaign with strong financial support. The following budget is prepared for the year 2011. (The figures are based on assumptions and are fictitious) 2011 (000) Advertisements HKD 375,000 Promotions & Discounts HKD 100,000 New Store Locations HKD 500,000 Salaries HKD 10,000 Websites HKD 20,000 Sponsorships HKD 60,000 Administrative Costs HKD 30,000 System Installation* HKD 100,000 Merchandising HKD 500,000 CSR Costs HKD 150,000 Total Expenses HKD 1,845,000 Gross Margin Sales (%) 6% Expected Sales HKD 1,955,700 Operating Profit HKD 110,700 * = System installation includes the new integrated system from the internet which would enable the customers to place their orders online. The data would be integrated with the central ERP system of ASW which takes care of Inventory and Merchandising Management of ASW. This means that as soon as the order is placed by the customer, the system would automatically generate an invoice and the database of ASW’s merchandising would get updated (Sun et al, 1994). ASW would carry out BTL activities which include CSR initiatives and sponsorships. Besides this, additional stores will be opened up at more convenient places so as to attract more pull amongst the consumers and offer convenience to them. Having more store locations would mean that the consumers can simply fulfill their grocery needs by coming back from work and hence, would not have to travel far to large stores. The budget is applicable only for the campaign which means that all the figures and particulars apply to the campaign exclusively. The campaign is expected to generate additional sales of approximately HKD 1.9 billion in Honk Kong’s market as per the margins of ASW. EXECUTING THE PLAN ASW needs to make its merchandising policies stricter and must not waste its shelf space in unprofitable merchandise. ASW’s merchandising therefore needs to have the most number of profit earners as compared to the traffic and image builders. This is because the company would have to operate on smaller margins in order to maintain the price incentive amongst its customers. Moreover, the web portal of the company and the customers will also have to be developed and integrated with the supply chain management system of ASW before the activities are launched. That done, there will be BTL activities going alongside trade promotions and discounts on ASW’s stores. The BTL activities would feature brand ambassadors in parks and other recreational spots with mini-stalls branded under the name of ASW, who would, besides selling snacks and personal-care products, register customers on the company’s new portal based on the convenience and ease which ASW would offer. This would ensure that enough awareness is generated amongst the customers who would get registered as a trail of the new service. Besides this, the activity would aim to leverage the image of convenience which would be a synonym of ASW. The outcome of the activity will be gauged as per the number of registrations after the BTL campaign. Besides this, ATL promotions will be launched simultaneously positioning ASW for its convenience. Not to forget, this activity is also likely to generate a counter campaign from the competitors. Besides that, in order to further complement ASW’s system of merchandising and supply chain management, ASW would need to upgrade its systems and for that, external vendors will be contacted to make updates to the current system so that more profit earners could be stocked. As far as our suppliers are concerned, ASW will push for further trade discounts based on its additional investment in their brands. All these activities will be monitored towards the end of every quarter and Sales figures will be monitored to gauge the effectiveness of the company’s marketing activities. IDENTIFYING RISKS This campaign is likely to be received by retaliatory campaigns from the competitors especially AEON who will already be bringing its 15% price cuts in notice to the target market. The advantage which ASW will have over the global giant AEON will be the level of convenience which ASW will offer. Besides this, one of the important factors which ASW needs to see is that the web portal may prove to be an extra hassle for the company. This is because the company would need to hire extra employees in order to look after this venture. Besides this, the technical aspect of this portal will have to free of any loopholes as this will be ASW’s direct link with the customers and hence, the company cannot afford a system which will fail because of any sort of shortcomings. Otherwise, ASW’s reputation and image/ new positioning strategy will be seriously affected. Opening new stores nationwide seems to be an effective solution if ASW needs to have a greater access to the market. However, this would mean that company’s fixed costs will rise. This would damage the stores’ contribution margin and the new venture may take longer than expected till it can start operating at its optimum level based on the customers. This would mean that sales and profit targets may take a while longer than the targets. For that, ASW needs to have an additional investment in the backlog as the company’s fixed costs will increase resulting from investments in new stores (Mok et al, 1994; Chan, 2006). Furthermore, ASW also needs to keep its logistics in-line with the stores so as to complement its cost cutting activities. The better and efficient ASW’s supply chain would get, the lower the business’s warehousing and storage costs would be (Chan, 2006). CONCLUSION ASW is already known for the convenience which it has to offer to the customers. However, because of the past snow in the winter, ASW experienced a fall in its sales. This means that ASW needs to have more store locations where it will be accessible to the markets. The business targets the segments of both the young and their parents where they can make their weekly purchases with one stop to their nearest store or stop by just to grab a couple of snacks on their way back home. The BTL marketing activity will target both the segments by engaging them in registering online to enable them to place their orders online. Besides this, opening new stores and positioning itself as a High Street Store would give ASW the access to the markets it needs. Studies have shown that people will be willing to pay some extra in return of the convenience which ASW has to offer. Because of more geographical access to the market with new stores and reach through the internet, ASW will not only have a short-term impact on its financials, but also will build long-term brand equity amongst the customers as a conveniently located ASW with all the answers to their daily needs. REFERENCES BUSINESS MONITOR INTERNATIONAL LTD. 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