Victorias Secret Market Performance - Case Study Example

Victoria’s Secret Case Analysis Executive Summary This paper will conduct a case study analysis of Victoria’s Secret fashion underwear brand by Victoria Beckham using the STP model to identify how Victoria’s Secret should create a marketing mix for the brand. Victoria’s Secret is the largest lingerie retailer in America with sales of $6.2 billion in 2013 and their mission is to deliver a captivating, best in class, and branded experience for the consumer. The process of strategic market planning moves from a statement of the organization’s mission to selecting target markets and formulating positioning objectives and a marketing mix for each service or product offered by the organization. Market segmentation acts to develop an organization’s competitive scope, shaping the value chain configuration and significantly enhancing the firm’s competitive advantage. There are several ways in which in which an organization can segment its market, including along demographic lines, according to psychographics, based on customer behavior, and market segmentation on the basis of geographical location. After market, various strategies of selecting the specific target markets are used, including undifferentiated targeting, concentrated targeting, and multi-segment targeting. Finally, positioning improves the consumer’s perception about their experience if they choose to buy the service or product. Segmentation for Victoria’s Secret can be divided into different types of consumers and users, including variety seekers/switchers, brand-loyal users, non-users, and heavy users. After dividing Victoria’s Secret’s market into different segments, which are women of different age-groups, targeting normally utilizes product specialization, in which Victoria’s Secret targets premium and mid-segment women. Finally, Victoria’s Secret positions its products as comfortably fashionable and sexy, seeking to become a target segment leader focused on women who want to have the feeling of intimacy, sophistication, sexiness, and youth. Introduction Victoria’s Secret was founded in 1977 and, since then, has become the largest lingerie retailer in America with sales of $6.2 billion in 2013. Using its website, catalog, and its stores in the US, the company sells womenswear, lingerie, and beauty products (Lutz, 2013: p1). As the biggest intimate apparel company in the United States with one of the most visited websites in the fashion industry and over 1,500 shops globally, their mission is to deliver a captivating, best in class, and branded experience for the consumer that enables consistent growth of profits and sales and builds consumer loyalty. Victoria’s Secret mainly targets women aged between eighteen and forty four, mainly in the US, Kuwait, Canada, UAE, and the UK, where it possesses strong brand recognition (Lutz, 2013: p1). Its major competitors are Playtex, Wonderbra, Aerie, American Eagles, Sephora, Abercrombie’s Gilly Hicks, and Loreal. This paper will seek to conduct a case study analysis of Victoria’s Secret fashion underwear brand by Victoria Beckham. Specifically, the STP model will be used to identify how Victoria’s Secret should create a marketing mix for the brand by understanding precisely the benefits provided by the product, as well as which customers may desire these qualities or benefits. Literature Review According to West et al (2013: p41), the process of strategic market planning moves from a statement of the organization’s vision and mission to selecting target markets and formulating positioning objectives and a marketing mix for each service or product offered by the organization. The organization, in this case, basically follows a sequence of value creation and value delivery. During the first stage of this sequence, which involves selecting the value, strategists proceed to segmenting the market, choosing an appropriate target in this market, and positioning the value of their offer (West et al, 2013: p41). Accordingly, this formula, which involves segmentation, targeting, and positioning, is a fundamental essence in strategic marketing. Segmentation of the market is identified as an adaptive strategy, consisting of marketing positioning in order to select at least one market segment that the organization can target by adapting particular marketing mixes to the specific needs of the market. Market segmentation, however, is not a strictly adaptive strategy and may also involve selection of segments that the organization is suited to serve as a result of possessing a competitive advantage in relation to its competitors, which reduces adaptation costs in gaining a market niche (Blythe, 2011: p45). Applying market segmentation acts to develop an organization’s competitive scope, shaping the value chain configuration and significantly enhancing the firm’s competitive advantage. Strydom (2010: p33) notes that segments differ in terms of structural attractiveness, as well as their competitive advantage requirements, which raises serious questions on strategy with regards to where an organization should compete within the industry and which segments would be sustainable if focus strategies were used after barriers are created between the segments. Market segmentation enables an organization to increase value offered to customers through the development of a marketing mix, which addresses the particular concerns and needs of the chosen segment. Boone and Kurtz (2012: p39), using economic terms, contend that the organization can create oligopolistic or monopolistic market conditions by using various demand curves for a specific category of service or product. As an extended application of the price discrimination microeconomic theory, the firm in this case seeks the highest price that segments are willing to pay with price broadened to include all aspects of the marketing mix’s 4Ps. Applying this theory of microeconomics is especially salient where the product categories have high levels of competition, as well as where there are adequately large markets that possess unique value preferences (Boone & Kurtz, 2012: p40). Moreover, Rix (2012: p40) also states that applying microeconomic theory is useful to organizations that choose to create a stronghold proactively through building value preferences among an identified set of potential customers. As a process, segmentation is made up of identification of a segment(s), selection of the segment(s), and crafting a marketing mix for the selected segment. After the segmentation process, the outcomes should lead to true segments of the market that adhere to three specific criteria. Crawford et al (2014: p54) identify these criteria as group identity, systematic behaviors, and efficiency potential regarding costs and feasibility of accessing the segment. The group identity criterion requires that a true segment should consist of homogenous groupings within the segment, as well as heterogeneous groupings across the segment groups. In addition, the systematic behaviors criterion requires that a true segment reacts similarly to specific marketing mixes. Moreover, Moore and Pareek (2010: p49) recommends that organizations must consider the stability of the segments over different conditions of the market and over time. Marketing segmentation, according to Harrell and Frazier (2010: p61), involves the grouping of customers in segments with common needs, as well as similar responses to marketing actions, specifically because every segment has a different reaction to the marketing mix strategy, while each segment offers alternate opportunities for profit and growth. There are several ways in which in which an organization can segment its market, including along demographic lines that focus on the customer’s characteristics, such as income bracket, gender, age, job, education, and cultural background. Markets can also be segmented according to psychographics, which refer to the lifestyles of the customer groups, such as personality, lifestyle, social class, attitudes, and opinions (Pride & Ferrell, 2014: p71). In addition, segmentation can also be based on customer behavior, such as prior purchasers, brand preference, shopping centre customers, and online shoppers. Finally, market segmentation may also be conducted on the basis of geographical location such as rural, city, province, state, country, or continent that the group of customers resides in. Dibb and Simkin (2013: p55) contend that following market segmentation on the basis of classes and groups, the organization needs to choose their targets and that all consumer groups do not fit into one strategy, thus making it important for the organization to develop particular strategies for their selected segments. Various strategies of selecting the specific target markets exist, including undifferentiated targeting, which views the market as a single group without individual segments and, therefore, uses only one marketing strategy. Such a strategy, Kotler and Armstrong (2011: p38) claims, could be useful for products or businesses with minimal competition that do not require tailor-made strategies for distinct preferences. Another strategy for selecting the target market is concentrated targeting, in which the organization focuses on the selection of a specific niche of the market on which they can targeted their marketing efforts. This focus on a single market segment is so that the organization can concentrate on intimately appreciating the wants and needs of the particular market. This strategy is especially beneficial for small firms, since the focus on a single segment allows them to effectively compete against bigger organizations. Finally, Joubert (2013: p30) also identifies multi-segment targeting, which is used where an organization has to focus on more than one well-defined segments of the market and wants to come up with different strategies for each. This targeting strategy is beneficial but costly, especially as it requires management to increase their input, increased promotional strategy, and increased market research. Before selecting a specific strategy for targeting, the organization should carry out a cost-benefit analysis between all strategies available to it, determining the strategy that best suits the situation (Joubert, 2013: p31). Finally, Fahy & Jobber (2012: p33) identifies positioning as the development of a brand image and the product in the consumers’ minds, which can also involve the improvement of the consumer’s perception about their experience if they choose to buy the service or product. The organization can influence its chosen customer base’s perceptions using strategic promotional strategies, as well as through careful definition of their marketing mix. In order to position the service or product effectively, the organization needs a good understanding of benefits sought by their targeted market segment, as well as of the competing services or products. Moreover, it also requires the organization to come up with a differential advantage through which they can effectively deliver required benefits against the competition (Fahy & Jobber, 2012: p33). The organization should seek to define their product and brand in the customer’s eyes regarding their competition. Case Study Segmenting and Targeting Segmentation for Victoria Beckham’s underwear brand with Victoria’s Secret can be divided into different types of consumers and users, including variety seekers/switchers, brand-loyal users, non-users, and heavy users. As part of the Victoria’s Secret brand, the underwear line’s audience will be heavily brand-loyal, especially as the company controls at least 42% of the market for lingerie (Team, 2014: p1). The audience for this brand will reflect females aged between 18 and 30 with the current age demographics of women buying Victoria’s Secret’s products aged between 18 and 44. The brand will seek to be a dominant life style brand for young women in university and starting their careers. The brand’s fashionable prints, bright colors, and smaller and younger apparel appeal to the non-professional, casual market. Victoria’s Secret audience includes trendy, younger women, who should be the core audience for the underwear brand (Team, 2014: p1). Victoria’s Secret also targets higher-income bracket women, especially for their premium brands that the underwear brand will be part of. Women with a bachelor’s degree have a median salary of $48,300, which are below most women’s average income especially younger women who shop at Victoria’s Secret, although older women who shop at Victoria’s Secret have masters and higher level degrees, meaning they can afford increased prices charged by the underwear line (adbrands.net, 2014: p1). As a result, it would benefit Victoria Beckham’s underwear line to expand its market segment demographics to also target the 30-40 age brackets. Regarding geographic segmentation, Victoria’s Secret has a wide geographical reach in Canada, the United States, and the United Kingdom. For women aged between 30 and 40 with professional and college degrees, there are four different categories. The first is referred to as the Winner’s Circle and women in this segment like to eat out, travel, go to theaters, and shop at high-end stores. With a median income of ~$106, 300, this category has high disposable income levels and is ethnically diverse (adbrands.net, 2014: p1). The second category is the upward-bound group, which includes the stereotypical working moms who are likely to have a college degree, have a family, and buy family-oriented products (Brown, 2014: p1). This group has a lower median income than the Winner’s Circle, although they still have a relatively high level of disposable income and should be the target segment for the underwear brand. With regards to psychographic segmentation, the underwear brand from Victoria’s Secret is aimed at female customers who are confident, sexy, and possess a desire for sensuous clothing and fashion. This segment believes that all items of clothing matters and must be a good fit for their present activities. They also do not purchase products from any store and prefer stylish and fashionable stores that enable them feel like a celebrity (Brown, 2014: p1). After dividing Victoria’s Secret’s market into different segments, which are women of different age-groups, including young women in campus, women entering the job market, and women with young families, a decision must be made about the segments that present Victoria Beckham’s underwear line with the best potential (Margee & Michael, 2013: p469). This will become their target market and, in this case, the target groups for Victoria’s Secret are normally women in the premium and mid segment groups. Targeting, therefore, should utilize the product specialization choice for targeting, in which the underwear brand should target premium and mid-segment women. This target group has relatively high disposable income. Women aged between 25 and 34 earn a salary of $51,380 every year, while the amount is higher for women aged between 35 and 44 at $63,630 on average (Margee & Michael, 2013: p470). In addition, women aged between 35 and 40 tend to spend more money on sexy underwear than those aged between 25 and 34. However, women aged between 35 and 49 spend the highest on sexy underwear, followed closely by the 25 to 34 age-group. As a result, in order to target premium and mid-segment women, Victoria’s Secret has focused on these slightly older women. Positioning After identifying the target market, marketers will normally follow up by developing and introducing a positioning strategy. Victoria’s Secret positions its products as comfortably fashionable and sexy, seeking to become a target segment leader focused on women who want to have the feeling of intimacy, sophistication, sexiness, and youth (Lutz, 2014: p1). Victoria’s Secret has used the product positioning strategy of strengthening their present perceptions among the consumers. User positioning is one of Victoria’s Secret’s most critical strategies, especially in targeting women who want to feel sexy and sophisticated when undressed, on the beach, and comfortable in the workplace. Victoria’s Secret has always been about making women feel confident and sexy in intimate situations. The brand’s positioning has mainly revolved around style and intimacy. Indeed, the customer buying lingerie, underwear, and other intimate clothing from Victoria’s Secret is buying the company’s style that they feel makes them sexy and stylish. Price for this customer is not a major influence as they have strong brand-loyalty (Lutz, 2014: p1). Rather, emotions are the main influence that persuades the customer want to wear Victoria’s Secret brands. Recommendations There are several strategic strategies that should inform the segmentation, targeting, and positioning of Victoria’s Secret’s fashion underwear brand by Victoria Beckham. Since Victoria’s Secret is one of the largest lingerie and intimate wear companies in the world, developing an underwear brand to target premium and mid-segment women aged between 25 and 40 would result in generation of positive results in the long term. An effective and attractive 3600 campaign that is supported by promotions, public relations, advertising, and digital, mobile, and social media efforts should be used to position the underwear brand as a comfortable, sensuous, sexy, and stylish brand (Kim & Zauberman, 2013: p44). This would contribute by reinforcing the brand’s perception to the target segment, especially as a product made by an organization that they already know about. In addition, because of this brand loyalty and Victoria’s Secret’s market leadership position in under-garments, they should also offer the new underwear line by Victoria Beckham at a higher price, especially as they are targeting premium to mid-segment women. This, as stated, should be supported by a strong marketing and promotional campaign. Victoria’s Secret should introduce the underwear brand to women aged between 25 and 40 in the premium and mid target segments as an extension of the different types of under-garments that the organization already sells in its stores. In this case, this should be underwear targeted at women who want to feel sophisticated and sensuous in any situation. The product should not be modified because it will be serving the needs of a customer segment that already patronizes Victoria’s Secret stores. The brand should seek to create comfortable environment that enables women to shop for intimate underwear comfortably, especially as the target segments also involves slightly older women. Moreover, it should also allow men to shop for women from the identified target segment. For men, the sales staff should be helpful in helping them browse for the appropriate style, while also helping the women try on the right size of underwear (Kim & Zauberman, 2013: p45). With regards to positioning, Victoria’s Secret’s underwear line by Victoria Beckham should seek to deliver the best quality product and customer service, especially so as to justify their relatively high prices that they will charge premium and mid-segment customers. The strategic intent for the underwear brand should be to become a brand that is well known for its style, sexiness, comfort, and sophistication until at least 2016. The business objectives for the brand should be to increase the sales of Victoria Beckham’s underwear brand among the premium and mid-segment women aged between 25 and 40 by 30% in the next three years. In addition, the marketing objectives should inform the target audience aforementioned about the benefits and features of this product, including its comfort and stylishness that offers confidence to the wearer, and its competitive advantage, resulting in a sales increase of 10% within the first year. Finally, the price strategy’s basic objectives should be to offer relatively higher prices for underwear products by Victoria Beckham, using this higher price to increase perceptions of quality and sophistication among the target segment, gain a competitive advantage over its competitors relying on differentiation and focus strategies. References adbrands.net. (2014). Victorias Secret | L Brands (US). Retrieved December 7, 2014, from adbrands: http://www.adbrands.net/us/victoriassecret_us.htm Blythe, J. (2011). Essentials of marketing. New York: Pearson Education. Boone, L. E., & Kurtz, D. L. (2012). Contemporary marketing. Mason, Ohio: Thomson South-Western. Brown, G. S. 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