Marketing Management of HMV - Essay Example

?Synopsis HMV has a high level of brand equity based upon range, ity, knowledgeable advice and value for money. However its market share is being threatened by online retailers and supermarkets. Therefore HMV needs to formulate new strategies aimed at maintaining its market position in the long term. The online competition is primarily driven by the Apple iTunes and iPod phenomena as consumers prefer music downloading which offers the advantages of choosing from a wide range of artists at a time and place of their own choosing (Little & Hopkinson, 2007, p. 3). E-commerce sites such as Amazon and Play.com are also sources of competitive threat as they provide the facilities for online purchasing. In online purchasing, the consumers have many of the same advantages when it comes to music downloading. Online purchasing offers greater ease of searching and convenience and the consumers can sample the products and read reviews. Online retailers also have the ability to offer a wider selection of titles than it is possible for a high street store like HMV. HMV has a solid platform from which to launch its new drive. As mentioned before, it has a high brand equity in the market. Therefore any initiatives are likely to be welcomed by the market as the consumers have trust in the brand (Kotter & Schlesinger, 2008, p. 138). The management of the company needs to formulate strategies which address the competitive threats from three sources: downloading, online purchasing and supermarkets. The supermarkets which are competing for the same market share are Asda, Tesco and Sainsbury. The management of HMV needs to consider the strengths of the competitors and formulate alternative strategies accordingly (Pearlson & Saunders, 2005, p. 19, Wang & Rode, 2010, p. 9). Therefore an industry analysis should be conducted (Pascale & Sternin, 2005, p. 73). The threat of new entrants is minimal because of the high competition. The threat of substitute products comes from online. These two threats combine to create a high threat of competitive rivalry. Buyers do have high bargaining power given the wide choice from online. For the same reasons the artists who provide the content have high bargaining power. Alternative strategic options According to Michael Porter’s theoretical model for strategy formulation, an organization has three competitive strategies available: cost minimization, differentiation and quick focus (Gosling & Mintzberg, 2004, p. 55). In the present context, differentiation is a viable option for HMV. The music and entertainment retailing company can arrange to maintain a diverse product selection, thus reducing the competitive threat from online companies which are eroding the attractiveness of HMV’s business model by offering a wide selection of titles. Diverse product categories will also help to attract a greater number of market segments, thus enhancing the company’s market exposure (Winfield & Hay, 1997, p. 55). For example, HMV could increase the range of portable digital products. As the popularity of online purchasing grows, so will the demand for portable digital technology. The range of games hardware and software can also be expanded. Nintendo technology has taken the market by storm. Therefore products in this category should be emphasized upon in implementing the differentiation strategy. The pricing structure could be changed to increase demand. HMV is facing competitive pressure from music downloading because downloading facilitates lower prices. However in modifying the prices, HMV should not forget about maintaining its brand image. If the prices were too low, then it would begin to affect its brand image as the consumers would start to suspect the quality of the products which are priced at such a low level. In pricing its products, HMV has five strategies: skimming pricing, competition pricing, psychological pricing, premium pricing and cost-based pricing (Teece, Pisano & Shuen, 1997, p. 510, Ross & Perry, 2002, p. 121). If HMV were to implement the pricing option, then it would have to consider one of these strategies. The objective of the pricing strategy should be to offer the products and services at a competitive rate while maintaining the company’s brand image. In setting the pricing strategy, the management should take into account the core brand attributes and implement the strategy accordingly with the overall result of improved brand performance. A third option is to implement interactive technology that will increase the quality of its in-store experience. This is the area that critics have complained about. They have already indicated that the scope for interacting with products and services is limited. Interactive technology would address this complaint. The technology will provide additional sources of demand in the future as HMV focuses on providing greater customer service so as to increase the attractiveness and the entertainment value of its in-store experience. This is certainly a worthwhile strategy to pursue since attractive and entertaining shopping will encourage more consumers to move away from online purchasing and thus add to store traffic. As the store traffic increases, HMV will be able to achieve greater scale economies, thus covering the overhead to a greater extent. The greater overhead places HMV at a competitive disadvantage when compared with the online retailers. However if the company were to provide more entertaining shopping experience through the introduction of interactive technology, then it would increase store traffic and increase the profit margin. HMV can also implement the strategy of increasing the online presence by increasing the percentage of online sales from 10% to 20%. This can be achieved through creating strategic alliances with companies which provide downloading and streaming services (Hill & Jones, 2007, p. 67). Strategic alliances with Amazon.com or Play.com would enable HMV to undertake promotional strategies. In this framework, visitors to the sites would automatically come to know about HMV and its online content and functionality. Such a promotional strategy would increase online traffic thus increasing the percentage of online sales. HMV could also work with third-party content providers to increase the variety of digital media that is offered. Because HMV has great brand reputation, it would be able to provide substantial sales potential for third party content providers. Therefore a synergistic combination would be feasible (Aaker, 2004, p. 76). The implementation of this strategy would not only make HMV more competitive online but would also improve brand performance in the physical business model. Formulating marketing tactics Elements of the marketing mix The fourth option is the most feasible one for addressing the current competitive threat that the company is facing. Therefore the marketing mix should be developed in such a manner that it optimizes the online business model. The first element of the marketing mix is the product. HMV’s top two product categories are music and DVDs. Therefore the product strategy should focus upon these two product categories. In these two categories, HMV should provide as wide a selection of titles as possible. The next element of the marketing mix is the price. Since music sales have been contributing less and less to the sales margin, HMV should implement competition pricing. This pricing strategy would enable the company to compete with the online retailers who are providing music downloads. By focusing upon the breadth of range in the product strategy, HMV would be able to compete with the supermarkets while the pricing strategy would be more competitive on the Internet. DVDs have rising demand. In this respect HMV could implement cost-based pricing to incorporate the desired net profit margin. This pricing strategy is feasible given the high sales potential of this product category in the future. The promotional strategy can be addressed by forming strategic alliances with the established online companies. The e-commerce sites by Amazon and Play.com generate massive traffic. Therefore if these sites were to display HMV’s products, then it would enhance the company’s brand awareness to a considerable level (Evans, 2004, p. 87). The promotional strategy should focus upon music and DVDs since they are not only top contributors to HMV’s sales but are also facing significant competitive pressures from online companies. In respect of distribution, HMV could seek to maintain as wide a range of titles as possible in its inventory (Kotler & Armstrong, 2005, p. 12). Organizational implications of decision Implementing the online business model has positive implications in terms of reducing the overhead. E-commerce sites have the ability to provide a greater selection of titles because they have less overhead. By implementing the online business model, HMV would be able to develop the same organizational framework, thus reducing the level of overhead. By enhancing its brand awareness online, HMV would be in a position to enhance sales of the high street stores as well. Because the distribution is taking place online, HMV would not have to open additional store outlets to display the content. Therefore greater investment in increasing the product range is feasible. Implementing the online business model requires strategic focus upon the bestselling items such as chart CDs and DVDs. This is the product category in which HMV faces the highest competition from the Internet and the supermarkets. The distribution channels in this business model are the e-commerce sites. Therefore a distribution strategy in this respect would enable HMV to develop a competitive positioning on the internet (Fred, 2006, p. 43). HMV should be able to capitalize upon its trusted high street brand to implement the online business model successfully (Gottfredson & Aspinall, 2007, p. 63). The result would be an organizational structure that integrates online and bricks and mortar operations. Therefore a synergistic combination is feasible. HMV would have more versatile operations because becoming an effective competitor online would also improve brand performance in the high street. These are the organizational implications of the e-enabled business model implementing which gives HMV an organizational structure built upon lower overheads and shorter distribution channels. 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