Marketing Strategies for Growth in Overseas Markets: Abercrombie & Fitch - Essay Example

? Marketing strategies for growth in overseas markets: ABERCROMBIE & FITCH BY YOU YOUR SCHOOL DATA HERE HERE Background The development of a marketing strategy involves linking long-term strategic goals for productivity, profitability, and market positioning with actual behaviours that bring the business growth and better market presence. Marketing strategies involve segmenting the potential customer base, targeting them with advertising and promotional materials, and then working to satisfy the consumer using elements of the marketing mix such as product, price, place and promotion. A successful marketing strategy involves understanding how to maximize distribution for costs and efficiency and ensure strategic objectives are achieved through development of the marketing mix. A successful international marketing strategy considers the external environment as well to determine what activities will meet with the most success. Using Porter’s Five Forces Model as the relevant example, a multi-national organisation considers potential new entrants to the sales environment, the bargaining power of buyers and suppliers, the potential threat of substitute products associated with the organisation’s own offerings, and the type of rivalry that exists between different competitors (Porter, 2011). The business does not only need to consider its internal operations and its competitive, core advantages in marketing strategy, it must consider the impact of the external forces that could impede or improve business potential and profitability. Abercrombie & Fitch is a multi-national clothing retailer that provides higher-priced merchandise branded with the A&F logo and phrases, justifying this higher price tag because of its position against competition. Abercrombie operates 316 A&F stores across the world, owns 502 Hollister Co. stores as well as 18 different Gilly Hicks stores, with a total operating capacity of 1,069 stores worldwide (Abercrombie & Fitch, 2011). The organisation operates stores in the United States, The UK, Paris, Dublin, Madrid, Germany and Brussels and has experienced sales growth of 13 percent since early 2011 (tradingmarkets.com, 2011). It is a true multi-national competing in saturated and non-saturated markets and must cater to consumers with widely different socio-cultural backgrounds. The types of products offered is retail fashion that is largely targeted at younger, vanity-inspired markets, competing with the lingerie company Victoria’s Secret, the U.S. based American Eagle Outfitters Inc., Ralph Lauren and the Gap (Talley, 2008). Theoretical framework There are many different reasons why the concepts of marketing strategy are important for the multi-national looking to sell its product offerings overseas. In some foreign markets, there is saturation, meaning there are many competitors offering similar products in key markets. In this situation, promotion and advertising are usually the methods utilised to ensure the business competes or positions itself differently than competition. In some markets, there is limited competition because an organisation is a new market entrant, thus they can achieve brand recognition or brand loyalty before the threat of new entrants obstructs market or profit growth. For multi-nationals, the goal is to establish a well-known brand in their target markets and build brand equity, “the total value that accrues to a product as a result of the company’s cumulative investments in the marketing of the brand” (Warren & Keegan, 2009, p.329). Only when the multi-national understands the threat of rivalry, the current state of competition and their differentiation strategies, and can build successful development of the marketing mix can the organisation achieve overseas success. It is also necessary to understand customer lifestyle and attitude as it is associated with the brand, through psychographics as well as demographics and geographics, that the organisation can achieve brand success overseas. Consumers in the foreign market are often different than domestic consumers and thus marketing strategies usually require adjustment to fit these preferences and demands. International marketing strategy often requires an organisation to accept a market orientation model, one where delivering focused consumer value is necessary to achieve brand success. The market orientation concept has three areas: “customer orientation, competitor orientation, and inter-functional coordination” (Gauzente, 1999, p.2). The organisation must develop a marketing strategy that is differentiated for key markets each holding different socio-economic and socio-cultural preferences and demands in this industry. For example, the Spanish consumer is highly individualistic where having a sense of identity, group membership, appearance and image are valued significantly (Communicaid, 2009). Because Abercrombie & Fitch builds its marketing strategy around these elements, domestic (U.S.) marketing strategies require little alteration and can be transferred overseas to reduce costs of advertising. However, Singapore maintains more collectivist values related to tradition, thus strategies in this country require A&F to redevelop advertising and the product mix in order to suit group-focused clients. To attain true market orientation, the business must understand the dynamics of its different international customers without sacrificing its core intentions related to the brand for youth, vanity, and image consciousness. In international marketing strategy, the organisation must position itself based on the core elements it wishes to project to its consumers target groups. Positioning is owning a place in the consumers’ minds by concentrating on an idea or single word that will best define the organisation as it relates to the purchasing groups (Trout, 2008). Using a positioning map as a template for assessment against competition, the organisation can view the external competitors related to their value and pricing structures to determine how best to position the business. It is a form of differentiation that has many merits for competing successfully. Abercrombie & Fitch positions based on quality, while other competitors focus on pricing, thus it can justify its higher price tag on its merchandise and also stay true to its core values associated with looks and image awareness. Strategy deployment takes into consideration the customer orientation in its operating international markets, develops an orientation against competition, and then coordinates its home and foreign divisions appropriately to offer quality and value as part of a market orientation model. The long-term goals of the organisation related to profit, brand equity, human capital development, and many other factors require inter-functional coordination through organisational structure, procurement, and cost auditing to achieve these goals. Once the organisation has positioned itself successfully against clients, it can then develop a culture related to its mission or philosophy of business as a competitive and sales advantage. Without some form of differentiation that becomes part of the core operating philosophy, a multi-national cannot achieve market growth successfully. Alternatives to market orientation, positioning, differentiation, environmental analyses, and brand equity development include higher promotional investment, strategic alliances, or actually using internal political influence to create competitive barriers to market entry. Some organisations create more intellectual property protections on its merchandise as a means to compete and prevent a key profitable market from becoming saturated. However, this strategy does not work for A&F as an alternative since the merchandise it carriers is protected only by the logo or phrases printed on its branded merchandise. The strategic alliance is successful for some multi-nationals as part of marketing strategy to gain access to capital, marketing talent, or other important operational areas through joint efforts with other market players. However, again, this is not a successful strategy for A&F as such alliances pose too much international risk related to their core marketing strategy and position on the market. Abercrombie & Fitch maintains an air of exclusivity to consumers and therefore needs to protect its knowledge and product in order to maintain this unique market position internationally. Analysis Having identified the important concepts of international marketing strategy, they can be applied to Abercrombie & Fitch as it relates to differentiation, positioning, consumer knowledge and targeting, development of the marketing mix, and psychographic segmentation. Offers the Chief Executive of Abercrombie regarding their core positioning: “Candidly, we go after the cool kids. We go after the attractive kid with a great attitude and a lot of friends. Are we exclusionary? Absolutely. Those companies that are in trouble are trying to target everybody: young, old, fat, skinny” (Handley, 2009, p.16). The organisation uses public relations in order to position Abercrombie, thus adopting a market orientation approach using exclusivity, chic and trendiness, and vanity as their key image components that continue to justify their higher-than-average pricing structures on its merchandise. Thus, in the marketing mix, price and product are invariably linked in order to develop an appropriate strategy based on these core values shared throughout the organisation. “The brand’s embrace of physical beauty – from the shirtless hunks who occasionally greeted customers outside stores to the company magazine that featured nearly nude models in sexually suggestive poses represents sultry marketing and a cooler-than-thou attitude” (Kang, 2005, p.B1). In terms of place in the marketing strategy, there is a distinct strategy that is utilised in virtually every international market using such youth models as well as in-store appearance that is streamlined for visual image, positioning, and brand-building efforts. The stylish multi-national is modelled much like a British traditional manor house, with columns in the doorways, very dark wood panelling, and many different inter-connected rooms such as its “bra library” in order to create an intimate yet modern decor that is designed to stimulate notions of exclusive purchasing (Talley, 2008). Place is a significant international selling strategy for Abercrombie & Fitch and this concept does not change much internationally since the majority of its international and domestic consumers are targeted for their same perceptions and needs for exclusive buying and image consciousness. This is a quality selling point in the marketing strategy and by keeping it streamlined and consistent, the business builds more brand loyalty and brand equity. Place in the marketing mix also differentiates competition through unique architecture and in-store development, thus contributing to its current success in profit. Abercrombie & Fitch experienced significant profit growth in 2008 due to place marketing and exclusive-based positioning (Abercrombie & Fitch, 2008, p.9). The organisation also positions itself using direct-to-consumer sales presentations with its somewhat racy and youth-based catalogue productions. These catalogues serves as public relations media as well as how it relates to distribution and positioning, usually depicting scantily-clad youths in suggestive poses sporting A&F merchandise. In some international markets, the catalogue as a promotional tool has given the business 45.2 percent growth in sales that has changed the scope of its distribution methods (Abercrombie & Fitch, 2007). By producing marketing promotional tools that fit the core values of exclusivity and youth beauty, the multi-national keeps true to its brand legacy and is able to isolate key, identity-inspired customers across the world. The organisation recognises key psychological factors in its target markets globally as it relates to youth and peer affiliation. Gaining acceptance from peers is an important construct as it relates to positive youth development and leads to greater emotions associated with belonging and affiliation (Brown & Lohr, 1987). Additionally, social learning theory is a concept in psychology in which an individual observes who is a “credible” and “attractive” role model and then adopts behaviours associated with this role model based on witnessing what is rewarded or punished (Neubert, Carlson, Kacmar, Roberts & Chonko, 2009, p.158). Therefore, when groups who represent the youth’s ideal peer group sports A&F branded merchandise and are rewarded with peer acceptance and admiration, they are more likely to purchase similar attire in order to belong to their perception of the in-group. Abercrombie understands the youth mentality related to peer affiliation and continues to target youths for this reason. Fortunately for the company, these are human characteristics of youths domestic and foreign and therefore can utilise psychologically-based advertising in order to gain attention and brand loyalty. In some ways, the A&F branded merchandise sells itself to youths for these basic motivational drivers and characteristics associated with youth affiliation and peer acceptance. However, the business should be given credit as a successful multi-national for being able to build a solid youth customer base and brand loyalty through previous promotional efforts. Psychographics are utilised when segmenting customers since peer acceptance and group involvement are lifestyle characteristics of virtually every foreign and domestic youth, thus promotional content requires only small adjustments for markets with different socio-cultural backgrounds and preferences. In some ways, the business does utilise methods to reduce competitive barriers to many international markets. In 2006, Abercrombie partnered with the U.S. Federal Bureau of Investigation to halt counterfeiting of Abercrombie merchandise occurring largely in Asia (Eaton, 2011). Though the dynamics of this partnership are not necessarily important, it does show the success that this brand has achieved through its international marketing strategy that is making it inviting to counterfeiters to develop as a means to erode the business’ market share. The “racy photos” and “soft porn” in its catalogues (Smith, 2005, p.25) along with its higher-than-average pricing structure provide opportunities for counterfeiting to occur that highlight how successful the business is in psychographics, positioning, differentiation, and proper development of the marketing mix. The business has even partnered with PBS Real Estate, LLC to act as an exclusive European and UK real estate consultant to seek out ideal locations that will best support the Abercrombie & Fitch brand values (fibre2fashon.com, 2007). Everything about the organisation is meticulous and exacting as it relates to exclusivity which continues to contribute to its growth each and every year internationally. Abercrombie & Fitch also manages to take negative publicity and spin it in their favour, with most of this accomplished by executive leadership and press releases/public relations dedicated to the core philosophy of exclusive merchandising. The racy catalogue once called for boycotts of the product line from angry parents who believed the organisation was exploiting youths in its advertising (Smith, 2005). Its advertising content “raised parental eyebrows and often intimidate teens that (tried) to shop there” (Kang, 2005, p.B1). This is part of positioning for the business by responding according to their core exclusive-based and youth vanity cultural values whenever public protest occurs regarding their advertising or general operational strategies. Thus, in some fashion, credit for international success should be given to the human capital advantages that the business experiences in executive leadership by being able to establish a presence with the general non-buyer social environment and appeal to youths who favour the brand in the process to gain even more loyalty. Press and media relations contribute to success in the multi-national’s international marketing strategy success. It continues to position the business as wholly-dedicated to its core philosophies and also provides more international exposure in the process, using public negativity as a platform or stepping stone for more brand visibility. Conclusion and recommendations In order to develop a sound international marketing strategy, the organisation must understand, fully, the dynamics of consumer behaviour in each foreign and domestic market. In this case, A&F recognises the socio-cultural dimensions of youth behaviour, especially associated with group membership, and then plays on these emotional and psychological factors in order to generate more consumer revenues. Again, since affiliation and group modelling are largely universal factors, Abercrombie & Fitch is taking the right approach to segmenting and targeting only youth buyers who fit a specific profile of attractiveness and vanity. Unlike competition that might target multi-segment buyers in an effort to expand their sales margins, this multi-national never breaks away from positioning based on core characteristics associated with the brand’s personality and therefore continue to find youth loyalty and profit growth. Abercrombie & Fitch represents a market oriented multi-national that absolutely understands the preferences and social characteristics of all of its domestic and foreign customer segments and then attempts to instil quality and value into these groups. This is done using product, price, place and promotion in a way that is inter-functional, as was described for a successful market-oriented organisation. Core values are expressed in all areas of the marketing mix in order to differentiate the business from competition and then justifying its pricing model based on these characteristics that are, essentially, fed through brand loyalty. This has given the organisation considerable brand equity that allows the company to expand even further into new saturated and non-saturated retail clothing markets internationally. The adjustment required to A&F promotions, especially, are minimal due to knowledge of consumer attitudes and lifestyles and is therefore able to meet strategic objectives related to cost. A recommended strategy for Abercrombie & Fitch, based on the research evidence uncovered, would be to develop contingencies in the event of diminished brand loyalty. Why is this? In 2009, Abercrombie & Fitch posted its first quarterly loss that was caused by the current economic recession being felt globally (Talley, 2009). Because of this, the organisation was forced to, for the first time, lower prices on its merchandise internationally (Talley). Youth markets, those from 16-28 (approximately) represent income brackets in society that have less discretionary income and are being affected with higher unemployment rates due to their skills procurement and lack of adult education. Abercrombie is not immune to changes in the international economy and the business’ success has relied on its higher pricing structure to keep its long-term strategies for expansion in place and moving in the right direction. The research did not uncover any long-term contingencies in place to avoid risk associated with lowering consumer incomes. Reducing prices in higher-end fashion retail is often considered “a dirty word” that can interfere with branding efforts (O’Connor, 2008). Many retailers that have higher price tags on products avoid any discussion of sales and will invite customers to private sales or other discreet discounting events to ensure no damage is done to the exclusive brand (O’Connor). If, in the future, certain markets cause problems with reduced consumer revenues due to changing discretionary income in younger target groups, the business should consider developing private sales through direct mailing literature or private sale websites to avoid publicizing short-term price reductions. There are no other recommendations that would suit Abercrombie & Fitch since the company has experienced such high growth in catalogue sales and is expanding rapidly due to higher credit worthiness and capital availability created through consumer sales. This particular multi- national is a success in marketing strategy since it fully understands the consumer targeted and is able to create inter-functional market-oriented expertise internally to satisfy loyal customers to the brand. It is an organisation that could be benchmarked for its customer knowledge and international marketing strategies. References Abercrombie & Fitch. (2007). 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