External Trends, Opportunities and Threats at Kohls - Case Study Example

HERE HERE YOUR HERE HERE Case Study – Kohl’s: Dressing Up External Trends Managers at Kohl’s had to deal with many different external trends that were impacting the business model and profit. First, there has been much duplication of Kohl’s semi-low frills business model from competitors such as JC Penney, Wal-Mart and Old Navy. These competitors have been offering more youth-focused merchandise similar to that of Kohl’s, giving them new opportunities to seize market share from Kohl’s. However, the case study seems to emphasize that Kohl’s managers are flexible and adaptable and will continue to partner with famous designers to build better brand reputation and quality. Even though competition is able to use their high capital resources to mimic the Kohl’s model and merchandise, Kohl’s continues to rely successfully on place marketing in order to gain higher revenues and, ultimately, brand loyalty with key target demographics. To the advantage of Kohl’s, one external trend has made this stand-alone retailer more important to key revenue builders in their modest income target market. Consumers have been growing tired of long lines in retail stores, poor inventory management, poor selection, and many other issues. Because of this, the convenience and largely hassle-free shopping environment at Kohl’s provides removal of these barriers to a quality shopping experience. According to one respected business theorist, “A strong brand image is the only asset a company can develop that cannot be copied” (Nanden 266). Kohl’s has managed to gain a great deal of customer interest and loyalty in its positioning strategy toward price and convenience. It is a brand with a great deal of brand recall and recognition, something not easily duplicated by consumers. Dealing with competitive actions in the external environment simply involves focusing on brand-building as part of strategic policy in a way that serves as competitive advantage. Another external trend that is of relevance to Kohl’s is measurement of customer satisfaction to ensure the brand is still viable and relevant to consumers. When a company must rely on its brand reputation in order to maintain higher market share and consumer interest, the model relies on consumer patronage to ensure longevity in the market. Consumers in the United States are often price sensitive, as one example, and are willing to defect to other brands that can provide more perceived value to the target markets. Kohl’s should be exploring the external environment to find out different psycho-social attributes in target markets in order to maintain relationships and ensure that customer satisfaction is being achieved in all areas of business operations. To measure this, a variety of low cost qualitative or quantitative studies could be performed in random sampling methodology. Surveys and questionnaires would provide valuable market related data and determine where Kohl’s is currently positioned in the minds of important consumer markets. In addition, using online data in data mining can provide important demographic data for advertising purposes to determine which regions, ages, etc. are most interested in Kohl’s. What Management should Desire As a strategic decision-maker, I would want to know about costing issues associated with the operational model to ensure that the organization was maximizing productivity and providing capital to the right, profitable business units or divisions. I would want to conduct thorough strategic management accounting practices in areas of research and development, marketing, and a total value chain analysis. Strategic management accounting is a system of identifying cost drivers and analyzing strategic objectives related to marketing, competitor costs, and even supply chain dimensions (Wu 70). I would want junior management or those in the organization responsible for gathering external information to provide data about competitor cost in their supply chains and competitor behaviors associated with promotion and advertisement. Uncovering comparative weaknesses in competitor supply chain can help create a model for Kohl’s about what factors can be driven out of the current supply chain that are giving competitors significant weaknesses. It can also identify opportunities for transport consolidation or any other cost saving measure. Such analyses in strategic management accounting can also provide Kohl’s with opportunities to assess the capital investment in marketing to determine whether it is meeting with expected return on investment. As Kohl’s store manager, I would want information about procurement and sales volume to determine efficiency opportunities in the stocking and inventory management process. Holding inventories in the organization puts many financial burdens on the retailer. At the same time, as fashion is a fickle market, it would be beneficial for Kohl’s to understand the product life cycle of procured merchandise to ensure faster turnaround and less holding costs. I would compile weekly and monthly sales reports and then correlate the data to determine whether there are noticeable trends in purchase frequency, time of day, styles, and total expenditures. This could help develop a more successful procurement and sales model that avoid over-purchasing of safety stock or other financial burdens placed on retailers today. As the Kohl’s store manager, I would also want external data on the labor market. Since it was identified in the case study that many consumers are growing frustrated with other retailing models, it would not always be a quality strategy to rely solely on pricing and convenience positioning. I would develop contingency plans for recruitment and selection by doing thorough jobs analyses internally and then using external labor market data to come up with a plan for organizational culture development. A new focus on gaining the proper talent for human capital advantage could be a back-up strategy for improving brand credibility and reputation by putting knowledge associates into the sales model through training imperatives teaching superior customer service skills. A good Job Assessing the External Environment? Whether Kohl’s management has done an adequate job scanning and assessing the external environment is questionable. First, Kohl’s clearly understands the nature of competitive behavior in the market, thus it illustrates that leadership is constantly watching what competitors are doing to ensure that mimicry or outperformance does not occur in key areas (such as merchandise procurement). As far as having a handle on what is driving competitive advantages or gaining market attention through competitive advertising, Kohl’s is a leader in understanding how to successfully compete. This requires ongoing observation and quantitative analyses of the external environment. It is often hard for a business to conceptualize when its products are about to enter the decline stage along the product life cycle (Komninos 8). It is not until the business begins to see actual revenue declines that they realize something of the product is no longer in high demand and will put burden to maintain the product in the decline stage. Though Kohl’s actively seeks out important marketing partnerships with famous designers, there was no evidence available showing that Kohl’s understands how to assess the life cycle of its merchandise selections. It seems that the business runs with the notion that procurement is one of the most important elements of revenue growth, but does not consider the trend-focused consumer that drives life cycle longevity. Kohl’s, it would seem, should be conducting much more marketing research to find out about social and psychological scenarios in key target markets to determine longevity of in-house merchandise selections. In one important area, place marketing, Kohl’s is a benchmark for scanning the external environment. By selecting areas for store development that are likely to have high volumes of its target consumers with lifestyle attitudes fitting the Kohl’s brand concept and personality, the business is able to stay a market winner with much consumer loyalty. The business conducts preliminary studies of feasibility on what areas would provide the most competitive revenue growth and then carefully begins the development process. In marketing, place is one of the most important factors to ensure profit growth. Kohl’s could not have achieved this superior market position without understanding demographics, psychographic segmentation principles, and consumer lifestyle attitudes that can only be achieved through significant market research. Kohl’s could do more to assess the external market, such as conducting Five Forces Analysis to determine market entry barriers by potential new retailers or the level of buying power held by suppliers in this market. Identifying any potential weaknesses to the Kohl’s model related to pricing, quality or efficiency is something Kohl’s should develop more significantly to achieve its profit and market share expectations. Opportunities and Threats at Kohl’s Psychological and brand theory indicates that the consumer, through driven by personal and unique motives, is often unaware that motives drive their behavior (Blackwell, Miniard and Engel 38). Consumers have many complicated emotional aspects that determine their level of trust and engagement with particular retail brands; however they are not consciously aware of these motivations that determine their buying behavior. Kohl’s has opportunities to become more integrally engaged with consumer target groups for more effective relationship development. The business already has a valuable web presence and the company could expand this to include other e-business dimensions such as social media for real-time consumer engagement. By providing incentives periodically, it would drive the motivation for consumers to explore Kohl’s merchandise and also give them a more interactive experience. Anything that provides opportunities for self-expansion is what is going to bring more dedication and loyalty to the Kohl’s brand. Kohl’s, since it is now being mimicked by competition, now has the opportunity to consider using its brand equity in expanding product line or product categories. Even though the current business model seems to appreciate lower-frills and streamlined operations, Kohl’s could begin selling Kohl’s-branded merchandise in-store carrying the logo. The business could pilot, in test regions, the ability of the business to move Kohl’s-branded merchandise to determine whether it should be rolled out nationwide. On important or sentimental merchandise, such as candles, Kohl’s can establish its own line of products with pricing and quality as top differentiation tactics. This would give the business a back-up strategy in the event that anything associated with the company’s current strategic model meets with failure or declines quickly in the service/product life cycle. Furthermore, Kohl’s can also take advantage of more partnerships and sponsorships that are highly publicized to give the brand more clout and brand visibility in key (and new) markets. The products procured by Vera Wang that were sold in-store at Kohl’s were not heavily promoted (an observational assessment), thus it could not have caught the consumers’ attention as vividly. As Kohl’s manager, I would direct more attention to the promotional function, looking for methods of securing brand visibility and innovation in procurement. When allying with important designers with established brand clout, Kohl’s would be successful in piggybacking on the partners’ market successes and allow the new in-store products to speak for the organization. Threats to Kohl’s, assessed through the case study, include more dynamic pricing occurring with competition to outperform Kohl’s lower price model. Mimicry of this business model and method of procurement could also provide Kohl’s with long-term problems sustaining current market share. Kohl’s must stay ever-aware of what is driving competitive function and develop many different contingencies to the sales plan or procurement plan to ensure that competition does not outperform the business. Kohl’s should ensure that pricing on products is satisfactory for the most important markets; however, this requires ongoing external analysis of competitive behaviors. Another threat to Kohl’s is the rising cost of real estate, taxations, supply chain and other operational components that require a great deal of capital. When Kohl’s wants to expand, some markets are recovering from a housing and commercial real estate crisis, thus adding more annual costs to sustaining multiple, physical operations. Kohl’s has over 800 stores in the U.S., each requiring utilities, maintenance, emergency management, security labor and many other critical dimensions to aesthetics and tangible operations. In many ways, property assessments for improving markets are out of the control of Kohl’s leadership. However, the business can consider, as another opportunity, making use of various hedging practices to attempt to offset some losses occurring through asset management and depreciation (as well as tax structures). This is a common practice in business to attempt to use investment (even with risk) to offset losses in some areas of operations. Works Cited Blackwell, Roger D., Paul W. Miniard and James F. Engel. Consumer Behavior, 2005. Mason: Thomson South-Western. Print. Komninos, Ioannis. Product Life Cycle Management, Urban and Regional Innovation Research Unit. 2002. Web. November 17 2012. http://www.urenio.org/tools/en/Product_Life_Cycle_Management.pdf Nandan, Shiva. “An exploration of the brand identity-brand image linkage: A communications perspective”, Brand Management. 12.4: 2005. Wu, G. Henry. “The Cost Drivers, Revenue Drivers, and Value Chain Analysis in Strategic Management Accounting”, International Journal of Knowledge, Culture and Change Management. 9.2: 2007. Read More