Situation Analysis and Marketing Strategy of Michael Hill - Assignment Example

? Michael Hill Marketing Report Executive Summary Michael Hill International Limited, hereafter Michael Hill, is a jewellery firm headquartered in Queensland, Australia. Based on the firm, this report seeks to provide an in-depth analysis of the marketing strategy of the company. Following the conventional marketing report, it also analyzes the situation and position of the firm, evaluating the market segment and competitiveness of the business. In addition, the report analyzes the firm’s business and marketing strategy, including the marketing mix of the company (Hill, 2012a). Furthermore, the report also provides a break-even analysis emphasizing on the cost/price and volume relationship. Lastly, the report examines the control in place in the firm’s operation. Most of the information comes from the firm’s website and financial statements, as well as other reliable secondary sources. The report has four parts: situation analysis, marketing strategy, break-even analysis, and controls. Situation Analysis Market Summary Market Demographics Michael Hill engages in jewellery manufacturing and retailing. The firm sells both men and women watches and diamond jewellery. Essentially, the company operates in the highly priced diamond jewellery market. The firm operates retail outlet stores for watches and jewellery under the major brand name: Michael Hill. Moreover, the firm provides other services, including jewellery inspection, cleaning, and repairing. The firm also offers customized services to its clients by designing the chosen diamonds for jewellery. Through a chain of 240 jewellery stores, the company and its subsidiary operates in New Zealand, Australia, United States, and Canada. However, the headquarters is in Queensland, Australia (Gray, 2011). The diamond jewellery market is a rather delicate and emotional sector, just like the clients. Clients in the jewellery market have different characteristics. However, all of them are well above the poverty line, as the products and services offered by the company and the market in general are relatively costly (Kotler, Burton, and Keller, 234). In other words, the diamond jewellery market appeals to the elite societal class with a taste for fashion and glamour. Market Needs At the time of establishment, the jewellery market had a stiff and formal atmosphere attached to it. Hill, the entrepreneur, sought to establish a new philosophy in the market that would make jewellery buying more accessible to the entire public and less intimidating. Therefore, Hill introduced a new product mix strategy, subsequently removing the store clutter of giftware such as imported glassware, Chinese ornaments, and cuckoo clocks. The window display of the stores was simple, exhibiting around five enticing items changed regularly. This, combined with the attention-grabbing advertisement, significantly enhanced the attraction towards the stores. What the jewellery industry required at the time was a reconsideration of the service aspect, as the products are largely emotional. Realizing this, Hill quickly designed a marketing strategy that would meet the needs of the customers to their level of enthusiasm and passion (Hill, 2012a). The Market and Trends Based on a 1996 statistic report, New Zealand, the headquarters of Michael Hill, had 550 retailers, 153 wholesalers, and 293 manufacturers operating in the jewellery industry. As with many other New Zealand business settings, these ventures are principally small businesses, privately owned and operated. Among the 293 jewellery manufacturers, only three had more than two outlets. The report also shows that fifteen of the major retailers have more than three stores, and only four specialist jewellery chains having more than twenty stores were present at the time. These were Michael Hill, Pascoes the Jeweller, Kleins, and Gemtime Jeweller. Nonetheless, jewellery was also available from a number of other outlets, including fashion and department stores, antique, craft, souvenir, and catalogues shops (Gray, 2011). Most of the independent jewellers offered customized design work, but vertical integration was seldom in the industry. Market Growth Retail sales in the jewellery and watch market were far from attractive over the five-year period ending 2011-12, despite the sale of diamonds. Nonetheless, trading conditions remained even for the retailers during this period as far as continuous demand and disposable income levels are concerned. The industry experienced an annual growth of 0.3% in sales, a low rate attributed to decreasing customer confidence, a softer retail market, and economic condition downturn. However, the market is regaining and restructuring its marketing strategy, and experts project sales to grow annually by 8% for the next five years (Hill, 2012b). SWOT Analysis Strengths Michael Hill stores stand out as a unique in the diamond jewellery industry due to the ambience and design. One of the proprietor’s intentions was to break the traditional stiff and formal atmosphere associated with jewellery and gift shops, thus he initiated a new store design which essentially displayed a few enticing items that were changed regularly. In addition, the stores do not display other giftware such as Chinese ornaments, sporting trophies, and cuckoo clocks. Their unique design creates an eye-catching and less intimidating atmosphere for clients. Another important factor that makes the firm to stand out is the constant revenue growth, despite economic, technological, or socio-cultural influences (Hill, 2012a). Despite the recent financial crisis, the annual sale increased by 0.3% during the five-year period ending 2011-12. Weaknesses The most profound weakness of Michael Hill is the over-dependence on New Zealand as its major revenue market. Since the region is the headquarters, the firm relies on the region for a larger portion of its revenues, though it has other retail outlets in Canada and US. Another significant weakness of the firm is the high inventory, which generally indicates that the firm is struggling to turn over inventory and increase sales. Such a level of inventory is unhealthy, as it represents a zero-return rate investment (Kotler, Burton, and Keller, 265). Opportunities The globalization, technology-driven production, and capitalist-friendly governments are more likely to enhance the growth of plutonomies. This will create a good business opportunity for Michael Hill to sustain and grow in the jewellery industry. Another great opportunity is the growth of the global jewellery market, which may open give way to further expansion of the firm into the global market, especially the East (Gray, 2011). Threats The firm faces significant threats as far as product imitation is concerned. In recent times, the world has witnessed a profusion of product imitation, especially in the fashion world. This may lower the confidence and credibility of the firm to its clients. Furthermore, rival jewellers are instituting intense competition in the market, which may affect the customer base of the firm. Competition Pascoes By 2000, Michael Hill was the largest firm in the jewellery industry in New Zealand with 36 stores. However, there were other jewellery stores such as Pascoes, Gemtime Jewellers, and Kleins posing formidable competition for the firm. Pascoes is a privately owned family business specializing in the traditional products, including gifts, china, and jewellery. The company uses television advertising for promotion of its product and brand. However, the company did not develop its shops in Australia, preferring to acquire 67 jewellery stores that were in receivership sale, thus having 94 stores: 14 under the Edments name and 53 under Prouds name. Moreover, Pascoes has more than six subsidiaries in Australia and New Zealand, including Stewart Dawsons. Therefore, this firm is the most significant competitor, commanding a 25% market share, with annual sales of $329 million and annual net profit of over $34 million (Hill, 2012a). Gemtime The emergence of large jewellery chains affected the competitiveness of independent jewellers who could not achieve comparable economies of scales in design, production, sourcing, and promotion. Nevertheless, these jewellers could effectively compete with the quality produced by Michael Hill and Pascoes, they had limited promotional and buying powers. This led to the formation of Gemtime, an association of over 30 independent jewellers in New Zealand with the primary purpose of achieving economies of scales. The new association promoted their image and brand nationally under the Gemtime catalogue, achieving brand credibility and awareness for the member groups (Kotler, Burton, and Keller, 281). Consequently, the association redesigned its store image to a modern retail style, with the promise of offering customers a memorable experience as well as providing value, quality, and customer service. The stores command a 15% market share, with annual sales of $234 million. The company earns over $20 million in annual net profits. Kleins The other competitor, Kleins, with over 25 stores countrywide, had been the largest franchised chain in the country, boosting of 165 stores in Australia. The primary products of the company are costume jewellery. The firm operates at the bottom of the industry as a discount retailer, with the tag ‘jewellery and accessory for money prices value’ (Gray, 2011). Kleins commands a relatively small market share, 10%, with annual sales of $187milion and net income of over $15 million. Product Offering Michael Hill specializes in watches and jewellery. The major jewellery product line includes chains and bracelets, rings, carrings, pendants, and necklaces. The company also offers customized diamond jewellery and watches for both men and women. Buyer Behaviour The purposes for purchase of jewellery are largely emotional, as most clients buy them for their families and loved ones. Therefore, the buyers have a relatively high expectation in the service and uniqueness of the products, which introduces the concept of customization. We may argue that the buyers do not focus on the price as much as the quality. This means that Michael Hill has to adapt product differentiation tactics to remain competitive and maintain a significant market share. Another point worth noting is that the buyers seldom purchase in bulk. In other words, customers purchase the products one at a time due to their expensive nature. In addition, purchase patterns of jewellery are largely unpredictable, as most buyers purchase them on special personal occasions. Keys to Success and Critical Issues The success of Michael Hill in the jewellery market is attributable to the firm’s strategy of making jewellery purchase more accessible to the public and less intimidating. The New Zealand retailers compete for a population of slightly over 4 million. To gain and maintain a considerable market share, Michael Hill must employ product differentiation tactics. Moreover, the increased competition reduces the consumer confidence index, thus retailers must also emphasize on this factor. A possible strategy to counter these challenges is to continue providing customized products to the customers. Additionally, the firm should stick to their unique display tradition, as well as create a welcoming atmosphere at the stores (Kotler, Burton, and Keller, 315). Marketing Strategy Mission Michael Hill is currently the largest jewellery chain in New Zealand. The company seeks to retain that position, as well as become the dominant retail jewellery chain in Canada and Australia in the next five years. Having already established stores in the US, Canada, and Australia, the company now focuses on attaining a considerable market niche. Marketing Objectives Marketing is among the success factors of the firm. Michael Hill has often emphasized the importance of advertisement and promotion of its brand name and products as an integral success factor, with some earlier advertisement featuring Hill himself. The main objective of marketing for the firm is to attain a 43% market share in New Zealand’s jewellery industry in the next five years, as well as 20% market share of Canada, United States, and Australia in the same period (Hill, 2012b). Financial Objectives The financial performance of the company has steadily increased over the years, with net profit increasing from 12 million NZD in 2010 to 43 million NZD in 2011. On average, the annual rate of growth in net profits has been approximately 236%. The company seeks to attain 250% annual net income growth rate over the next five years (Hill, 2012b). Target Market The nature of products in the jewellery industry makes it difficult to target a particular age group, which has resulted in many retailers underutilizing their market share and customer coverage. However, several jewellery stores have initiated marketing strategies specifically targeting young, fashion-conscious women and women. One the jeweller is Michael Hill. The firm offers custom-made jewellery and watches for the young generation, from the age of 20 to 45 years. However, the firm does not entirely close the door for older customers (Gray, 2011). Positioning The firm positions itself in the highly priced diamond jewellery market, offering customized products for its clients. Nonetheless, the firm also offers affordable diamond products to the public than competitors, a factor made possible by the economies of scales and possession of a manufacturing plant. With numerous outlets in Australia, US, and New Zealand, the company strategically positions itself as a leader in the jewellery market in terms of quality and value (Kotler, Burton, and Keller, 346). Broad Strategy The firm needs a broad differentiation strategy to increase its competitiveness in the retail jewellery market. The strategy will primarily focus on maintaining a presence in all market segments. The firm may gain competitive advantage by distinguishing its products with high awareness, easy accessibility, and excellent design. Adopting these strategies will enable the products of the firm to keep pace with the market, thus offering improved performance and size. Conversely, capacity expands with generation of higher demand (Kotler, Burton, and Keller, 384). Marketing Mix Product Michael Hill is a specialist jeweller selling watches and jewellery only. The primary jewellery product line includes diamond chains and bracelets, rings, necklaces, bangles, earrings, and pendants. Below is a chart showing the annual product group revenue for 1997 (Gray, 2011). Fig 1: Revenues share of product group Price The current pricing strategy stipulates that retail price represent 50 to 60% of the diamond cost. However, the company needs to needs to feature the quality aspect in their pricing strategy. In other words, prices should be indicative of the quality and degree of customization of any particular product. In addition, the firm should integrate price-discounting mechanism in their strategy, such as ‘save’ and ‘was-now’ pricing tags (Kotler, Burton, and Keller, 412). Place/Distribution For access, clients have to visit physically the store outlets of the firm. It may be more advantageous to the firm if they would design their website such that a customer may access the products they offer and the prices. In addition, the website should allow for the direct communication between the firm and the clients (Kotler, Burton, and Keller, 429). Promotion/Integrated Marketing Communication Michael Hill offers payment plans to certified customers only as a promotional strategy. The firm needs to introduce after-sales promotional services to customers, such as repair and resizing at a free or discounted price depending on the magnitude of the work. Moreover, the firm should direct advertising campaigns towards the young, fashion-conscious men and women in the middle and upper income class (Kotler, Burton, and Keller, 523). Lastly, the company may incorporate price-discounting tags. Marketing Research Prior to launching any marketing, it is important to carry out a marketing research on the prices, design, and promotional strategies of industry rivals, especially Pascoes. This will equip the management of the firm with the appropriate marketing strategies that will result in increased sales and customer base (Gray, 2011). Break-even Analysis Sales Forecast and Expense Forecast Forecast for 2012-13 Amount ($) Sales Forecast 571,525,400 Expense Forecast 53,167,200 Controls Marketing Organization Michael Hill has 36 stores spread all over New Zealand. The other major industry players include Pascoes Jewellers, Gemtime Jewellers, and Kleins. The firm has attempted to differentiate the stores further to capture specific market niche. Advertising remains an integral element in developing the brand and products of the company. The use of attention-grabbing television advertisements for every new store has proved successful (Hill, 2012a). Moreover, the emphasis by promotional campaigns on quality and value in promotional is very crucial. Time Frame The designated marketing department is to carry out a marketing research on a monthly basis, as well as propose any necessary changes to the marketing mix as far as industry competition is concerned. Key Performance Indicators Similar to any other business, the main growth indicators for Michael Hill as far as marketing is concerned are acquisition of new customers, turnover, customer profitability by demographic segments, customer attrition, and status of old customers (Gray, 2011). Contingency Planning The possibility of failure of the proposed marketing strategy is very low, but in case of failure, the initial plan would be to revert to the previous marketing strategy. Consequently, a research study will follow, largely focusing on customer preference and views. Based on the collected information, the marketing team will go back to the drawing board (Kotler, Burton, and Keller, 564). References Kotler, P., Burton, S., and Keller, K. (2009). Marketing Management. New Jersey: Pearson Education. Gray, L. (2011). Glittering Treasures. Jewellery Sector, Issue 647. Retrieved on May 9, 2012, from http://www.retail.org.nz/downloads/Jewellery%20Sector.pdf Hill, M. (2012a). Michael Hill. Retrieved on May 9, 2012, from https://www.michaelhill.com/default.aspx#intro Hill, M. (2012b). Michael Hill International Limited Annual Report 2011. Read More