Evaluation of the Company's Strategy - Case of Marks and Spencer - Assignment Example

?Strategic Situation Report for M002 “MARKS & SPENCER” MR.CHALERMKIAT SEEDOKMAI ID 4805430 Executive Summary Marks and Spencer (M&S) being the leading retailer in UK enjoys the position of having loyal customers in spite of the ongoing global recession. Its strength lies in creating exclusively branded products which cannot be replicated by other retailers. It believes in abiding by the government policies both to protect its commercial objectives and also to make contribution towards development of policy for the benefit of the broader public. M&S caters to niche customers because the products are expensive and exclusively branded. This allows the company to focus on the customer’s demand pattern and provide maximum customer satisfaction. With the declining economic climate, M&S has invested in their pricing to ensure premium quality at unbeatable price. M&S encourages its suppliers to remain aware of changing fashion trends to reduce the risks of over-production. The M&S brand is known for its quality as opposed to quantity and hence customers buy less quantity but high quality. Most of the M&S clothing range within great prices and hence are able to maintain their loyal customers. Additionally, the customer loyalty that the company enjoys is great for its market share as well as its profit margins. The company has several drawbacks. M&S products cater mainly to older population and this limits the perspective of younger generation. Moreover, M&S is not quick in adapting to changing fashion trends like its competitors and critics often tag their clothing as insipid and out of fashion. Also, the products are costlier than its competitors. With its resources like exclusively branded products, high quality customer service and trained management team, the company can look forward to a bright and profitable future. Contents I. Introduction ……..………………………………………….….......................4 II. The Macro Environment..………………………………….......................….5 III. Markets, Customers and Competitive Conditions………….........................8 IV. Industries, Value Networks and Strategic Suppliers ……….......................11 V. Strategic Resources, Capabilities and Internal Value Chain...........………13 VI. The Ansoff Matrix..................………………………………………………..14 VII. SAFS Framework.............................................................................................16 VIII. Core competences and dynamic capabilities..................................................17 IX. Synopsis of the Overall Strategic Situation.....................................................18 X. Conclusion and Recommendations..................................................................19 XI. References...........................................................................................................20 Introduction Marks & Spencer is a world famous British multinational retailer specializing in clothes and luxury items. Marks & Spencer is well known for quality and variations in its products like its clothing lines comes in all sizes, colors and styles. The company began its commitment to value, quality and customer service in 1884 when Michael Marks and Tom Spencer entered into a business partnership. The company has evolved to one of the largest retailers globally. The entity ventured into the food business in 1931 and later moved into financial services in 1985 (Marks and Spencer Plc., 2012). Marks and Spencer is one of the leading retailer in the UK catering to 15.8 million customers each week. The number of employees is over 75,000 (Case Study: Marks and Spencer, 2008). The success this can be attributed to the quality home products, stylish clothing and outstanding quality foods sold in 766 stores all over UK, and 418 stores in other countries worldwide (Annual Reports and Financial Statements, 2013: 7). The entity is the best provider of lingerie and women wear and are increasingly expanding their business into men’s clothes and kid wear owing to their developing online business. This report gives a detailed analysis of Marks & Spencer strategy by using some of the widely used business models including PESTEL, SWOT analysis, VRIN and Porter’s Five Forces Model. The Macro Environment In order to get deeper understandings of the external factors affecting the company’s operations including trends and environmental issues. The PESTEL analysis is used to analyse the business market and establish the potential external issues affecting the business in the political, economic, social, technological, legal and environmental circles. Political factors Marks & Spencer believes in working along with the government too establish its commitment towards the communities it serves. It believes in abiding by the government policies both to protect its commercial objectives and also to make contribution towards development of policy for the benefit of the broader public. The government frames regulations for smooth running of businesses. If companies fail to follow these regulations they are either penalize or closed down. In 2005, the UK government allowed M&S to offset foreign losses in its British tax bill which was a great advantage for the company. As part of their food business, M&S also sells alcohol like wine, beer and cider. In response to UK government policies to curb crimes generate by alcohol and anti social behavior, M&S published a response claiming that it sells exclusive branded alcohol to cater to customers’ expectations and convenience (Response from Marks and Spencer Plc., 2013: 2). Recently M&S stores in India has been notified by the government for violating the FDI policy of single brand store which does not allow investors to sell multiple brands in a single store. However, since the policy is not clear about sub-brands and labels, therefore and an M&S spokesperson has denied that any rules have been broken by selling sub-brands of M&S products in the Indian stores (Sikarwar & Bailay, 2013). Economic factors M&S caters to niche customers because the products are expensive and exclusively branded. This allows the company to focus on the customer’s demand pattern and provide maximum customer satisfaction. In order make cost savings, the company prefers to import merchandise. The impact of the ongoing global recession has been hard on M&S. Early 2009 witnessed a steep drop in the consumers’ spending on clothes and luxury items which resulted in 40 percent reduction of profit margin for M&S (Hollender & Green, 2010: 39). In spite of the recession, M&S focuses on advertising for promoting its branded products and maintains its premium pricing. Consumers’ confidence on M&S brands continued in spite of the price-slashing trends going on in rival retailers. This resulted in slight rise in M&S sales by April 2009 (Donnelly, 2010: 2). To prove the impact of the recession, M&S offered two days of 20 percent discount to in-stores and online goods during the Christmas season in 2008 (Marks & Spencer offers 20% off tempter again, 2008) Social factors Marks & Spencer is known for providing exclusively branded products from clothes, accessories to alcohol and other luxury at high prices. For any business, the changing pattern of customer’s tastes and lifestyles can have both positive and negatives impacts, and M&S is not an exception. The economic recession has limited the buying power of consumers which has resulted in retail stores offering discounts on their products. This has given customers scope for widening their choice of store. With the declining economic climate, M&S has invested in their pricing to ensure premium quality at unbeatable price. M&S encourages its suppliers to remain aware of changing fashion trends to reduce the risks of over-production (Thompson & Martin, 2010: 694). Technological factors For any industry, it is important to keep track of changing trends in consumer demands more so of M&S as it deals with clothes and luxury items. Companies need to adopt new technologies in production methods to replace old-fashioned products. In this regard, M&S is behind its rivals. This can be observed from the fact that the company introduced online shopping and loyalty cards after their major competitors. This can have an adverse impact on the entity’s competitive position and it’s a high time the company started using the latest technology in their sales and production process. In 2001, M&S became the pioneer user of RFID (radio frequency identification) technology by “attaching re-useable RFID tags to food trays, to track deliveries of fresh food between its suppliers and distribution centers”. Since, RFID has the ability to track inventory, in 2004 M&S applied this to track clothing items at its several stores in different locations (Violino, 2013). Environmental factors Like any retail story, M&S has to abide by environmental laws in respect to disposal of unsold and outdated products. While disposing of raw materials used during production of goods, M&S has to pay proper attention on how their disposal will affect natural environment and bio-diversity. As a step towards proving itself as environmental conscious organization, M&S launched a new bonus system in 2007 for welfare-friendly dairymen. To avail of the high payments, farmers have to prove to M&S that they abide environmental standards (M&S will pay more to welfare-friendly dairymen, 2007: 20) Legal factors The legal environment in the UK is favourable and the company ensures that all its operations are in line with the stipulated rules and regulations. However, in the past it has faced minor legal problems. In 2011, M&S was fined ? 1m for failing to provide safety to customers and staff from the risk of asbestos exposure in 2006 and 2007 during refurbishments (Marks & Spencer fined ?1m over asbestos risk, 2011). Markets, Customers and Competitive Conditions Porter’s Five Forces Analysis The market in the United Kingdom is currently going through recession with unemployment hitting the highest levels ever recorded and the confidence of the consumers is weak because people are not spending as much as usual at checkouts. Consequently, most retailers in the UK have to adapt to the situation as quickly as they can so as to survive the current economic crisis. The uncertainty in the job market combined with high inflation is some of the factors that have led to people’s disposable incomes reducing drastically. Inevitably, this has greatly contributed to people’s spending reducing now more than ever before (Porter, 2006: 23). M&S suffers the possible consequence of losing customers when they look for cheaper alternatives because M&S is known for providing premium quality products. Threat of new entrants Due to the ongoing global recession, the threat of new entrants in the retail industry has reduced. However, M&S faces severe competition from the new online stores and increasing production variations in supermarkets (Porter, 2006: 27). A new structural change is being speculated in the UK clothing retailing that can be a major threat for M&S. Business analysts have predicted that at least ten major clothing retailers of US will be capturing the UK market share. Previously too, M&S has faced competition from new entrants like Gap and TJX who are not doing business in UK for over 15 years. Threat of new entrants for M&S has intensified in recent years because of globalization of supply chain, congregation of worldwide fashion statements by social media and online shopping facilities (Fletcher, 2012). Bargaining power of suppliers M&S has the advantage that it does not depend on any supplier because it sells products that are exclusively branded. This is profitable because it buys raw materials and not finished products (Porter, 2006: 23). In addition to this, their long time relationships with suppliers have enabled them to negotiate discounts. In general suppliers do not have much bargaining power in clothing industry, however because M&S buys clothes from luxury designers, so suppliers’ bargaining powers tends to be higher. Previously, M&S purchased goods from only British suppliers, but now to reduce the cost it has outsourced globally. Since, M&S is no more dependent on specific suppliers, so the bargaining power of suppliers has reduced. Threat of substitutes M&S emphasizes on maintaining premium quality of products and services. M&S considers Selfridges and Gap as direct competition for them. The difficult economic times presently dictate that customers seek alternative retailers for example Next (Boggan, 2012). Nevertheless, history has shown that the company is slow to react to the dynamic changes in the fashion world. On the other hand competitors are much quicker to adapt to change. Bargaining power of buyers The numerous retailers in the market have resulted in consumer freedom to shop in other areas. M&S must ensure it maintains the trust of their customers by continuing to supply garments that are of the highest quality to make sure they retain their customers (Porter, 2006: 23). M&S needs to realize that the buyers can easily switch to other suppliers. This is more common because of the global recession which has forced many retailers to slash their product prices. Moreover, with diminishing purchasing power of buyers, then tend to buy more from stores offering high discounts. Therefore, M&S must continue to provide the buyers with premium products at affordable prices. Competitive rivalry M&S emphasizes on maintaining best quality of products and services. Its advantages in this competitive market are its brand goodwill and strong relationship with suppliers. Two of its main competitors, Sainsbury and Tesco emphasize on product range, quality and customers’ convenience all of which are also strong points of M&S. Therefore, M&S should study its competitors’ behavior more carefully (Wilson & Gilligan, p.354). Although M&S is renowned for being a higher quality brand that gives its customers value for their money, they need to reconsider their prices to escape loss of customers. However, the recent severe situation of prices as well as re-branding may cost the retailer many customers because of devaluing the brand. M&S also has to face severe competition in clothes sector from supermarkets like Tesco and Asda (Rose, 2004). Industries, Value Networks and Strategic Suppliers Although M&S faces numerous external challenges, its internal environment also experiences challenges. The SWOT analysis will give a detailed analysis regarding the company and how it can grow. Strengths The M&S brand is known for its quality as opposed to quantity and hence customers buy less quantity but high quality. Most of the M&S clothing range within great prices and hence are able to maintain their loyal customers. Additionally, the customer loyalty that the company enjoys is great for its market share as well as its profit margins. Additionally, their aggressive market strategy has yielded fruit and expanded the customer base. Using names that are well known, for instance Shirley Bassey, Twiggy and Elizabeth Jagger has led to memorable advertising that catches the customers attention particularly during season celebrations like Christmas (The History of Marks and Spencer, 2008). Customer service is another strong point of M&S, for instance if women want to buy underwear, then shop assistants can give suggestions regarding size and brand. Weaknesses M&S products cater mainly to older population and this limits the perspective of younger generation. Moreover, M&S is not quick in adapting to changing fashion trends like its competitors and critics often tag their clothing as insipid and out of fashion. Also, the products are costlier than its competitors. Business has become complicated because in recent years M&S has ventured into other activities like credit cards, insurance, homewares etc. Complications arise from independent operations of each sector. Customer service sometimes get hampered because of lack of leadership (Rose, 2004). Opportunities M&S now has the chance to import cheaper fabric from developing markets for example China. This will eventually lead to increased profit margins. Even for the range of suits made from British fabrics, they are put together in other countries (Boggan, 2012). The new website that has greatly been improved is very attractive to new customers particularly those who are overseas. Threat M&S faces serious threat of competition from rivals like Sainbury, Tesco, Asda, Gap etc. Since M&S is slow to adopt to changing fashion trends, its clothing like becomes outdated. Added to this global recession has reduced buying power among consumers and they prefer stores that provide huge discounts which is a threat to M&S because of its expensive product line. Strategic Resources, Capabilities and Internal Value Chain This section will study the company’s resources and the strategies applied for use of the resources. The success of an entity depends upon optimum use of its resources to get the maximum gain. M&S is an international retailer in the food, clothing and home ware business and boasts of having a competitive advantage over it rivals. The company has an adequate number of staff that is properly trained to deliver quality customer service. Some of the attributes that enable the company to stay at the top of its game are mentioned in the VRIN characteristics explained below. Valuable M&S has various resources that add value to company like its exclusive branded products, strong relation with suppliers, premium quality products and loyal customers. Rare M&S has unique resources like excellent customer service, hundred years of goodwill and diversified products. All these give it an added edge over its competitors to retain itself as the top retail market in UK. Inimitable M&S’s resources like exclusive branded products and diversified products are inimitable resources. Also the company’s managers are highly trained and experienced. Non- substitutability Its excellent customer service, branded products cannot be substituted by other strategic resources. The Ansoff Matrix This is a marketing planning tool that guides an enterprise to make strategies regarding marketing of its products whether new or existing in new or existing markets. Market penetration It means capturing market share by the existing products. This involves minimum risk. M&S has the advantage of market penetration because of its product diversification. For instance, its clothing line has clothes of all sizes, colors and brands which helps to attract maximum customers. The premium quality of products appeals to the high class customers. Market development It means capturing new markets with existing products. M&S from being originally clothing retail company has ventured into various other sectors like food, homeware, financing, alcohol among others. With this, M&S has been able to cater to new genre of customers. Also, M&S has stores in other countries thus capturing the global market. Product development It means capturing markets when they become saturated with new products. M&S is known for creating exclusively branded products that are unique and inimitable. Such products help is creating uncontested market space. Diversification It means capturing new market shares with new products. It is a risky approach. M&S by moving into various sectors like homeware, food, financing etc has captured new markets. Boston Consulting Group Matrix Boston Consulting Group Matrix is a business chart that helps to measure the market share of a company in respect to the growth rate of the market. This chart has four different groups – Stars, Question Mark, Cash Cows and Dogs. In what group a company will fall into depends upon its strength in the market along with its sustainability in the competitive market. The clothing and footwear sector of M&S is considered to be Cash Cow because this sector holds a solid market share of 11.2 percent and slow growth rate. The determinant factors of Cash Cow are large market share in slow growing industry. The food sector of M&S is considered to be Star because it has a stable market share of 3.8%, and food industry in UK is a rapidly growing industry. The determinant factors of Star are relatively strong market share in fast growing industry (Annual Reports and Financial Statements, 2013: 12). SAFS Framework With proper evaluation of suitability, acceptability, feasibility and sustainability (SAFS), the effectiveness of any strategy implemented by a company can be assessed. Suitability This factor determines whether a strategy can fulfill the long term objectives. The strategies applied by M&S like exclusive branding of products, not compromising quality of products even in this global recession can bring maximum profit in the long run. Acceptibility This factor determines whether a strategy can satisfy the main stakeholders. Since the strategies applied by M&S are all profitable, so the strategies do not conflict with the interests of the stakeholders. Feasibility This factor determines whether a company has sufficient resources for successful implementation of the strategy. M&S has ample financial resources and sound human capital and these ensure smooth implementation of M&S strategies. Sustainability This factor determines whether the managerial body has the competency to supervise the implementation and execution of a strategy. M&S trains its managers well; so M&S managerial body has enough knowledge and competence to supervise its strategies. Core competences and dynamic capabilities A core competence is proper coordination of resources like advanced technology and efficient managerial talents that puts the firms in a leading position in the production or development of core products. The core competences of M&S are exclusively branded products, trained managers, customer friendly shop assistants, strong working relationship with suppliers and high quality customer services. Dynamic capabilities mean a company’s capacity to create or modify its resources. M&S has superior human capital and trained management body to supervise efficient use of resources. Synopsis of the Overall Strategic Situation For proper assessment of the current strategic situation of M&S, it is necessary to study the past and present strategies applied by the company. In the beginning, it emphasized on creating a brand name, and in 1928 created its own trademark, St Michael (Left, 2001). Consistence in quality was ensured by developing close relationship with suppliers. In addition, the management used the top-down management in all stores. Customer satisfaction and loyalty was enhanced and there was a constant growth in the market share until the 1990s. However, there was increased competition at the top and bottom and this rendered this strategy useless. Today, M&S is known for exclusively branded products that ensure loyal customers. It is also popular for excellent customer service. Conclusion and Recommendations In summary, the company’s success is dependent on market competition and the strategic management in the company. The company’s strategy has developed overtime and the company has to stop using its original strategy as it could not cope with the changing market forces. There is need to retain the strategies that are practical and come up with new innovations in the future. It is important to analyse the expansion business in global markets. There are several areas where future changes can be implemented. The company should improve the food resource to respond to the increasing competition in the market. They should discontinue the use of charge cards and encourage use of M&S in other sectors. Additionally, they should develop the e- commerce department. Finally, they should halt the sale of home wares are they are widely sold by retailers hence this business is faced by excess competition. References 1. Boggan, S. (2012) “Is ANYTHING you’re wearing made in Britain? 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