H&M: Principles of Marketing - Assignment Example

H&M: Principles of Marketing 1. Executive Summary 1.1 Purpose of the assignment This proposal is going to provide a case study of Marketing strategies, Hennes & Mauritz AB had successfully re-import the formula of low-priced, quality fashions that had provided the inspiration for its own beginnings more than 50 years before. This assignment draws all the marketing mix that provides Hennes & Mauritz AB to organize wide range of subsidiaries and to develop its brands of product. The focus of the report is to show via any organization what marketing is, how this organization uses marketing strategies and techniques, why marketing is essential to Hennes & Mauritz AB and how its use of marketing has changed and will change in the future. 1.2. Company’s Background Hennes & Mauritz AB (operating as H&M) is a Swedish clothing company, known for their inexpensive and fashionable clothing offerings mainly for men and women 18 to 45, children's apparel, and its own brands of cosmetics. The company designs cheap but chic clothing. It was established in Västerås, Sweden, in 1947 by Erling Persson, though at the time it only sold women's clothing and was called Hennes, Swedish for "hers." In 1968, Persson acquired the premises and inventory of a Stockholm hunting equipment store named Mauritz Widforss. Included in the inventory was a supply of men's clothing, prompting Persson to expand into menswear. Accordingly, he renamed the store Hennes & Mauritz, later abbreviated to H&M. H&M has more than 1300 stores in 29 different countries with direct sales operations in selected areas and has more than 50,000 employees (H & M ,1998, Economist , p10) 2. Marketing Marketing is one of the operative functions (as distinct from managerial function) of management. Modern concept of marketing is different from the traditional concept. 2.1 Traditional concept According the traditional views, marketing is the process by which goods are made available to the consumers by the manufacturers. Thus the traditional concept of marketing focuses merely on the physical process of distributing goods and services. 2.2 Modern concept According to modern view, marketing consists of sensing, stimulating, servicing and satisfying the needs and wants of present and potential customers in more effective and efficient manner than its competitors. The modern concept of marketing holds that the key task of organization is to determine the needs, wants and values of the customers and to adopt the organization to delivering the desired satisfaction more effectively and efficiently than its competitors. There are two key elements in this concept. Customer orientation and Integrated marketing planning and control with those of other departments like manufacturing, finance, inventory control and so on. 2.3 Elements of modern concept of marketing The modern concept of marketing of marketing has the following two elements as under: (a) Customer Orientation - identifying and determining the wants and requirements of customers through marketing surveys, forecasting and researches (b) Integrating the marking planning and control with those of other departments (like manufacturing, finance purchase, inventory control, personnel research and development) keeping in view the ultimate goal of customers’ satisfaction. It may be noted that the customers expect satisfaction not only in terms of genuine and wholesome products and services but also several other considerations such as prompt and regular supply of production/services reasonable price, availability of efficient after sales service and so on. 3. Marketing Management Marketing management consists of planning, organizing, directing and controlling the activities related to the marketing of goods and services to satisfy the customer’s wants. According to Philip Kotle, “Marketing management is the analysis, planning, implementation and control of programmes designed to create, build maintain mutually beneficial exchanges and relationship with target markets for the purpose of achieving organizational goals.” (Kotler, 2003 p-19) 3.1 Objective of marketing management Mintzberg defines a mission as follows:” A mission describes the organization’s basic function in society, in terms of the products and services it produces for its customers”. A clear business mission should have each of the following elements: [Source: Taken from Gupta & Nair, (2006). Marketing Management. Pp-1.3] The important objectives of marketing management are shown below. (a) To create demand Marketing management enables the firm to determine what the customer needs and wants, and then to design the products/services in tune therewith and o make the utilities of those products/services known to customers in advance and thus, to create demand. The steps involved in creating demand can be shown as (b) To capture a share in the market After creating the demand for the product in the market, the firm wants to capture a share in the market. Marketing management enables the firm to capture a reasonable share in the market through appropriate advertising and other promotional activities (c) To build and promote reputation Marketing management enables the firm to build and promote reputation through various Image building activities e.g., prompt and regular supply of products/services f required quality at reasonable price, availability of efficient after sales service and so on. (Barrow, 2005, p-19) (d) To attain the long term goals Marketing management enables the firm to attend the long-term goals, growth and stability through customer’s satisfaction and customers and earning reasonable profits. Hence the objectives of marketing is not the maximization of profits through volume of sales but profits through the satisfaction of customers, Thus modern marketing starts with the customers and ends with the customers. 3.2 Functions of marketing The scope of marketing is very vided. It may be analyzed in terms of marketing functions. Marketing functions are inherent in ever marketing process and these functions may have to be performed many times in the marketing of a given product. Classification of marketing functions Marketing Functions Of Exchange Functions Of Physical Supply Facilitating Functions 1. Buying and assembling 1.Transportation 1. Marketing Research 2. Selling and dividing 2. Storage or warehousing 2. Product Planning and Development 3. Standardization or Grading 4. Packaging 5. Branding 6. Pricing 7. Promotion 8. Financing 9. Risk Taking [Source: Taken from, Cateora (2002).International Marketing P -13, Fig 5] I. Functions of exchange Functions of exchange refer to the functions, which are concerned with the exchange or transfer of goods from the producer to the customers. These include the following: (a) Buying and assembling- buying as a part of marketing function means the purpose of raw materials for use in manufacturing purchase of finished goods for the purpose of resale Assembling involves collection of same type of goods brought from different places under a common roof (Cateora , 2002 pp 19). (b) Selling means finding the customers and transferring the goods to them for value or money. Selling function involves performing the following activities: (i) Identifying buyers (ii) Finding out their preferences (iii) Pursuing them to buy the goods (iv) Negotiating the terms of sale, mode of delivery and terms of payment, and deciding upon the after sale services to be provided. II. Functions of Physical Supply Functions of physical supply refer to the functions, which are concerned with the physical supply of the goods. These include the following: (a) Transportation - Transportation refers to the physical movement of goods from the places of production to the places of consumption. By carrying the gods to such places where they are needed, it creates place utility. (b) Storage and warehousing - Storage is the process of holding and preserving goods during the time of their purchase/ production and the time of their sale/use. Warehouse facilitate the storage function by bridging the gap between the time of production and consumption, storage creates time utility. III. Facilitating functions Facilitating functions refer to those, which facilitate the marketing. These include the following: (a) Marketing research is the systematic investigation of the facts relevant to various aspects in marketing with a view to facilitate the decision making process. It may be conducted on any problem in marketing e.g., product selection, product design, pricing policies, distribution channels sales promotion techniques etc. The objectives of marketing research include the following: (i) To find out the scope of introducing a new product (ii) To select the product to be introduced (iii) To design the product (iv) To decide about the price of the product (v) To select the distributions channels (vi) To adopt the appropriate sales promotion techniques (vii) To get the feedback of the existing products (viii) To observe the performance of competitions and their strategies in the market Significance Marketing research function facilitates the management to take various decisions in the area of marketing on the basis of factual information (supplied by marketing research) rather than on bunch. (Cateora, 2002 P -45) (b) Product planning and development is concerned with anticipating customers need, developing new products and improving the existing products so s to meet the expectations of the customer. Basically the function is concerned with what to produce and for whom to produce. Keeping in mind the needs of the customer, product is planned, developed, and improved so as to satisfy their needs. (c) Standardization and grading-standardization refers to the process of setting certain standards for a product on the basis of its desired qualities. When the products are standardized and the customers are aware of it , customers are not required to verify the qualities of those products. Grading refers to the division of products into lasses made up of units possessing similar features in accordance with the predetermined standards. (d) Packaging is the act of designing and reducing the package for product. It reduces the risk of spoilage, breakage, leakage etc. In the process for storage and transportation of goods by providing a protective cover for the products. It also provides useful product information in printed form. A package is a wrapper or container in which a product is enclosed, encased or sealed. (e) Branding is the act of designing and producing a brand (label for a product to create a distinct image of the product in the market. A brand is the name, sign symbol design or a combination of all, used to distinguish the product of one firm from that of the others. (f) Pricing is the process of fixing he price of a product or a service. Generally, the firm bases its pricing policies on an overall assessment of three factors- the cost of production, the demand for the product and the nature and extent of competition. (g) Promotion refers to all the activities designed by the manufacturer to influence buyer’s behavior to make the product and price known and acceptable to customers. Advertising personal selling, displays, demonstration, posters, banners, etc. are all examples of promotional activities. (h) Financing in relation to marketing refers to the provision of the money and credit necessary for the producer or seller to male goods available to the customers. The provision of credit in the course of marketing gives rise to the need of the finance. (i) Risk taking - Marketing involves number of risks, which may be due to natural factors or man made factors. The various types of risk are summarized as under I. Due to natural causes Loss of goods due to fire, flood, earthquake, and cyclone II. Due to man made factors Loss of goods due to theft, dishonest, negligence etc. Loss of production and sales due to strikes and lockouts III. Due to market forces Loss due to change in customer’s preferences, needs, habits tastes and income distribution due to innovation in product, processes or marketing techniques. 4 Competitive analysis Business is taking place in a steeply competitive, volatile environment, so it is important to understand the competition. (SBA, Competitive Analysis.) Currently, there is no product in the market that uses the same casual, down-to-earth yet fashionable image clothing as that of H&M’s broad patent coverage will prohibit other market participants from legally marketing any products with the same technology in the next ten years of patent valid period (H & M ,1998, Economist , p120) 4.1 The Market and Customer Analysis “According to the American Marketing Association, marketing research is the systematic gathering, recording, and analysing of data about problems relating to the marketing of goods and services.” (SBA, Marketing research.) Although market research is imperfect science, it deals with customers and their continual changes feels and behaviours, which are influenced by innumerable subjective causes. (SBA, Marketing research.) 4.2.1 The market and its customers Inputs Channels Processor Output (Response) Factors influencing buying behavior [Source: Taken from Gupta & Nair, (2006). Marketing Management, Pp-2.1] 5. The marketing activities 5.1 Marketing mix Marketing mix represents the total marketing programme of H&M LEARNING. It involves decision, with regards to product, price, place and promotion. Marketing mix serves the linkage between a business firm and its customer. Thus marketing mix is a blending of decisions in the 4 P’s. It is a system comprising the subsystems of product, promotion and distribution. These elements of the marketing mix are interrelated because decisions in one area affect the others. Marketing mix is a dynamic concept as it keeps on changing with changes in markets and the environment (Cateora, 2002 P -110). Philip Kotler has defined the term marketing mix as “the set of controllable variables that the firm can use to influence the buyer’s response”. (Kotler, 2003 p-59) The marketing mix denotes a combination of various elements, which in their totality constitute H&M LEARNING ‘s “ marketing system”. These elements are often described as FOUR P’s: Product, Price, Distribution (Place) and Promotion. Concept of Market Mix [Source: Taken from Gupta & Nair, (2006). Marketing Management, Pp-3.3] In order to fulfill the objectives there are several variables that have to be incorporated into the elements of the marketing mix: Product – must be high in quality. Price – must be at a premium price/high value. Promotion – media and merchandising coverage. Place – must be available at local shops, supermarkets and other retail outlets. People – people provide most services. Physical evidence – must illustrate the service quality through physical evidence. Process – choose among different processes to deliver the service (Gupta & Nair, 2006, p-3.4) Thus, Human Resource in H&M LEARNING system has designed a marketing mix to analyze the mark the marketing problems. The problems are analyzed: (a) By utilizing the importance emanating from the market, which influences the marketing problems operations of H&M LEARNING. For example, product acceptance, demand, price etc (Hennes & Mauritz, 2006 Market Today, p -36) (b) Adopting, procedures and policies for an efficient marketing programme. For example, distribution policies, promotional policies, etc. The product will effectively be introduced into its new market incorporating the main factors and variables which consumers deemed important/wanted in an electronic dictionary market. Positioning the product as a product ‘high in quality’ will satisfy the needs of the consumer. It will also portray the product as being fashionable. This will form the basis of the products unique selling point (USP). However, using the USP alone to generate sales will be insufficient. To further assist in forming favorable attitudes and creating intentions to purchase, other elements within the marketing mix should be considered. Simply relying upon price and the actual product as a differentiator from the competitors would be inadequate (Kotler, 2003 p-71). 6. Marketing Concepts Of Hennes & Mauritz Ab In 1980, H&M under managing director Stefan Persson continued its international expansion, steadily opening new stores, while retaining tight control of the H&M image. 1. Company Perspectives and Customer orientation "Fashion and quality at the best price" is H&M's business concept (H & M, 1998, Economist, p20). It has a design and buying department, which creates H&M's collections, making it possible to offer the latest fashions. H&M ensure the best price for their goods by doing market survey and research and acquiring depth and breadth of knowledge within every aspect of textile production; buying the right goods from the right market, buying large volumes and efficient distribution mechanism (i) Measures were implemented to secure and raise the quality of the goods, and by tightening the quality standards, (ii) Developing and improving its suppliers. (iii) Carry out careful and effective quality controls. the garments are manufactured without the use of environmentally hazardous chemicals or harmful substances and that they are produced under good working conditions. 2. Diversification of business By 1970, Hennes & Mauritz added a line of children's clothing to its stores, the company introduced clothing for much of the family. Clothing for teenagers and babies, were added in 1976 and 1978, as continuation of diversification. Diversification of Mauritz expands the company’s clothing range and transforms the company's product offering itself. For new generation youth Hennes & Mauritz started sportswear led the company to H&M began to develop the casual, down-to-earth yet fashionable image clothing that marked its success (H & M, 1998, Economist, p25) 3. Targeting customer Stefan Persson had been quick to recognize the emergence of fashions and trends--born of MTV, Hollywood, Madison Avenue advertising, and the revolutionary Internet piercing the protective cloak of the most insular of nation states Globalization of Innovation is the key for the production as well as processing of knowledge in H&M, for last few decades. Stefan Persson described the time as "global fashion.” (H & M, 1998, Economist, p29) H&M, with its emphasis on uniformity among its stores, was well positioned to appeal to this new generation of consumers. As agreement with the times, the H&M, also lined up in its store a new line of clothes, under the BiB (Big is Beautiful) brand name. 4. International Expansion and capturing market H&M embarked on its international expansion and entered Netherlands in 1989, the company moved into Belgium in 1992, Austria in 1994, and Luxembourg in 1996. The company's sales had topped SKr 13.5 billion by 1994. That same year the company's German stores overtook Sweden to become H&M's largest single market. H&M continued its International expansion and opened some 60 or more stores per year. In 1997, H&M entered Finland; the following year, France was the next market to be tapped as six H&M stores appeared in Paris and surrounding areas. H&M launched its first American store on March 31, 2000, on New York's famous Fifth Avenue. Following the success of that flagship store, additional stores were opened in the Gramercy, and Herald Square areas of Manhattan, followed by several mall locations H&M opened, in 2006, a store in Dubai's Mall of Emirates. H&M expanded into Asia in March 2007, with its first store opening on 68 Queen's Road Central, Hong Kong H&M has proposed, to open stores in Australia in 2008 (Hennes & Mauritz, 2006 Market Today, p -54) 7. Risks and Contingency Plan 7.1 Market uncertainties To be an entrepreneur who has ideas that occur on a daily essence. The real challenge, though, is to gather good ideas. Good ideas are more than just ideas – they are opportunities. (Mullins, 2004 p-201) As a new product concept, H&M products have been tested in the market. While H&M are confident about the technology and product, and are in the process of conducting both consumer and competitive research to prove more accurately the market potential for H&M brands. [Source: Taken from Gupta & Nair, (2006). Marketing Management Pp-4.2] 7.2 Threats from imitation As protection of intellectual property rights is rather weak in Asian countries even though H&M is unique it is still possible that other companies, especially those that are producing similar products may imitate H&M concept and technology. When this kind of scenario happens, H&M will seek legal counsel and fight against the imitators. 7.3 Technical Risk With technology advancement, there always exists the possibility that disruptive or superior marketing technology would replace H&M or provide the same benefits at a lower cost (Hennes & Mauritz, 2006 Market Today, p -40). Thus, H&M would continuously improve their marketing and brand technology and products in order to meet consumers’ ever-changing needs. 8. Marketing Environment Marketing activities are influenced by several factors inside and outside the business firm. These factors or forces influencing marketing decision-making are collectively called marketing environment. It comprises all these factors, which have san impact on market and marketing efforts of the enterprise. According to Philip Kotler, marketing environment refers to “Eternal factors and forces that affects the company’s ability to develop and maintain successful transactions and relationships with its target customer.” (Kotler, 2003 p-126) The marketing environment may be broadly divided into two parts Microenvironment Macro environment Microenvironment implies the factors and forces in the immediate environment, which affect the company’s ability to serve its market. These factors are given below: Suppliers Market intermediaries Customers Public Macro environment refers to those factors, which are external forces in the company’s activities and do not concern the immediate environment. Macro environment are uncontroable factors, which indirectly affect the concerns ability to operate in the market effectively. (Cateora, 2002 P -135). The components of macro environment affecting the company are as stated under (a) Demographic forces (b) Economic forces (c) Political and legal forces (d) Social and cultural forces (e) Physical forces (f) Technological forces [Source: Taken from Gupta & Nair, (2006). Marketing Management, Pp-5.6] Competition in the market had been growing. One of the competitors covered nearly 90% of the total demand in the country. The balance of 10% alone was shared by a number of small manufacturers. To seize a share in the market held by the competitors, H&M felt they would need an entirely different type of approach to the marketing environment. They had plenty of financial resources, but were in two minds. Before a decision was taken, the management was examining the sales possibilities if a revised marketing strategy was adopted. 9. Conclusion Thinking about the future Throughout its history, H&M had successfully re-import the formula of low-priced, quality fashions that had provided the inspiration for its own beginnings more than 50 years before. H&M has very full line up goods in the European market market. As a result, it will become increasingly difficult for them to make incremental strides in their acquisition of market share (H & M, 1998, Economist, p 34) H&M must remain adaptable and agile with the ability to make rather quick design changes to appeal to the tastes of the public, and keep up with rapid changes introduced by smaller rival in the market. At some point, upon saturation in the market, he may return to a modified “multipronged” approach, and readdresses their desire to dominate the market, altering their product strategy to meet the specific needs of the market as dictated by their cultural and economic environments. Bibliography & Reference From book: BARROW, C., BURKE, G., MOLIAN, D. and BROWN, R. (2005) Enterprise development: the Challenges of starting, growing and selling businesses, London: Thomson. P-19 BURNS, P. (2001) Entrepreneurship and small business. Basingstoke: Palgrave Macmillan., p- CATEORA PHILIP R. (2002).International Marketing .Mc Graw Hill. P 13-162 DOUGLAS, E. and JEREMY, P. T. (1998) Getting Business to come to you. USA. GUPTA CB & NAIR NR, (2006). Marketing Management. Educational Publishers. New Delhi. Pp-1.3-5.6 "FASHION GURU," Financial Times, May 17, 1999. FITCHETT, JOSEPH, "Will Cheap Chic Win Over Stylish French?," International Herald Tribune, March 13, 1998. "Hennes & Mauritz: Knickers to the Market," Economist, February 28, 1998, pp10-34 "Hennes & Mauritz: (2006) Market Today," India Today Group, New Delhi pp 36 -54 HUGHES, V and WELLER, D. (2003) Setting up a small business. London. KOTLER, P. (2003) Marketing management, 11th ed., America: Prentice Hall. pp 19-135 MULLINS, J. W. (2004) The new business road test. Harlow: Financial Times/Prentice Hall, pp. 201-205 From website: Alibaba.com (2006) Electronic Dictionary. [Cited on 8th January 2006] Bizhelp. (2005) The basics of starting a new business. [On line] [Cited on 2nd January 2006] Hennes & Mauritz AB. [On line]: Fundinguniverse.com H&M, Wikipedia. [On line] SBA. Marketing Research. [on line]. [cited on 3rd January 2006] SBA. Competitive Analysis. [on line]. [cited on 5th January 2006] Startup (2006), Start your business. Step 4: Select a structure. [On line] [cited on 4th January 2006] Read More