Expanding into the European Market by Abercrombie and Fitch - Essay Example

Abercrombie and Fitch: Expanding into the European Market Number: Module and number: Seminar Time and day of seminar: Wordcount: Contents Introduction 3 Question 1 4 1.1 Market Segmentation 4 1.2 Targeting 5 1.3 Positioning 5 Question 2 5 2.1 Standardization: Pros and Cons 6 2.2 Adaptation: Advantages and Disadvantages 7 2.3 Application to European market 7 Question 3 8 Question 4 9 Question 5 11 Conclusion 13 References 15 Introduction The Abercrombie and Fitch Group were developed by Ezra H. Fitch and David T. Abercrombie. This brand is usually considered to be a casual luxury brand belonging to premium segment. Abercrombie and Fitch Group is a United States retailing chain that has opened their wide array of stores across European markets like Milan, London, Copenhagen, Madrid, Paris, Brussels, Hamburg, Amsterdam, Dublin, etc. In this case analysis, various marketing strategies shall be determined which is most appropriate for the company. Internationalization comes along with different risk factors that can cause adverse impact on an organization. The company over the years has implemented experiential strategies in order to attract large base of customers. In this study proper marketing mix shall be outlined which would support the firm to expand its operations in European markets. Abercrombie and Fitch Group’s store implementation within European markets is aligned with their internationalization strategy. This company has its headquarters located in Ohio, New Albany and is a well-known brand for selling accessories and clothes for women, children and men. Since its time of incorporation the company has formulated effective strategies which has generated high revenue margins. Abercrombie and Fitch Group were firstly able to strengthen its market position in United States before it took a step to expand into European market. The turnover of the company as per financial year 2011 was US$4.158bn. In this study different theoretical frameworks shall be utilized for identifying applicable communication policies, distribution strategies, pricing policies, adaptation versus standardization issues, and segmentation criteria. Question 1 1.1 Market Segmentation Market segmentation is an important aspect of marketing strategy that encompasses broader target market. This form of target market is divided into various subsets of countries, consumers or businesses. These segments are predicted to possess similar wants and needs. Their priorities are taken into consideration while performing market segmentation. There are certain criteria’s for market segmentation like it must be wide enough to acquire high profit margins, should be measurable, needs to stable, enables reaching out to potential customers, internally homogeneous, externally heterogeneous, responds efficiently to market stimulus, supports while framing decisions related to marketing mix, defines target market and provides data for formulating positioning statement (Simerson, 2011). The consumer markets can be segmented on basis of geographic segmentation, behavioral segmentation, and psychographic segmentation, segmentation by benefits, cultural segmentation and multi-variable account segmentation. Geographic segmentation is related to dividing entire market on basis of nations, regions, states, cities, neighborhoods, countries and postal codes. Demographic segmentation is executed with the support of variables like gender, occupation, education level and age. Behavioral segmentation is used to divide consumers according to attitude, response, usage rate, knowledge, readiness stage, loyalty status, etc. Psychographic segmentation is also at times called lifestyle. This is basically measured through opinions, activities and interests of customers. In European market, market segmentation of A&F brand should be done on basis of demographic and psychographic segmentation (Wintzer, 2007) The combination of these two segmentation measures would enable the company to target appropriate consumer market. A&F brand is focused towards highlighting current fashionable items like clothes and accessories. The market segment for the brand is individuals belonging to age group of 10 years to 22 years old. As per the brand, customer lifestyle needs to be that of upper middle income group or high level income segment. These customers are brand conscious and are easily adaptable to changing fashion trends in the market place. It is essential for all companies to firstly analyze problems prevailing in target segment and develop solutions to address them. 1.2 Targeting Target market problems can be of varied nature and it is difficult to standardize products for this market segment. The target market for A&F brand is teenagers inclined towards fashionable clothing and accessories. It can be stated that those individuals are targeted who prefers to visit stores which offers best ambience along with wide range of fashion collection. 1.3 Positioning The suitable positioning statement for A&F brand is a brand for young adults and teenagers who desires to adapt classic, preppy and casual clothing style (Lasserre, 2012). Brand positioning plays a major role when it comes to operating in an intensely competitive market segment. The positioning statement needs to be such that it clearly reflects company’s offerings to customers. A&F brand’s positioning statement not only outlines its target market segment but even states their brand style. The company can even include that it offers wide array of trendy accessories and clothing at competitive prices. This would attract large base of customers belonging to target market and generate high profit margins for the company. Question 2 In international marketing strategy there are two forms of techniques like standardization and adaptation. These two approaches are dependent on the relationship between quality, market share and profitability. High market share is obtained through greater conformance to wide array of product specifications. On the other hand, low market share is closely knitted to expensive and superior features. Standardization or adaptation measures are analyzed on basis of various operational procedures. Some companies prefer to design new products or services whereas others are focused on promoting same product line in the market place. In overall context, political, socio-cultural and economic factors help to determine risks in international markets. These risks enable a company to choose between standardization and adaptation measures. The selection procedure is dependent on some criteria’s like culture, market development, competition, laws, economic differences, sociological factors, technological considerations, political environment, marketing infrastructure, customer similarity and physical conditions differences. 2.1 Standardization: Pros and Cons In case of product standardization, a firm is able to achieve manufacturing economies of scale, stock cost reduction, psychological meaning, and economies in R&D, facilitating worldwide uniformity and improved control and planning. Price standardization is implemented by many companies which facilitate better control, consumer mobility and price uniformity. Place standardization is related to transfer of efficiency and experience. It even facilitates gaining economies of scale. Promotion plays a significant role when it comes to entering a completely new market segment. There are different promotional tools which are implemented by companies in order to highlight their brand message and acquire large base of customers. Standardization in promotional aspect is associated with psychological brand meaning and developing world class uniformity. 2.2 Adaptation: Advantages and Disadvantages On the contrary, product adaptation enables meeting consumer differences, technological differences, and addressing required standards (Henry, 2011). Price adaptation even generates high revenue margins through meeting differences of development stage, exchange rate fluctuation, competitive prices and competition, market demand rate, product life cycle differences and political or legal restriction. Place adaptation enables a company to mitigate differences in terms of consumer buying behavior process, physical environment, intermediary size, distribution patterns and structures, logistical decisions, distribution channels and market size requirements. On the other hand, promotional adaptation is linked with determining consumer differences and designing promotional campaign to address fluctuating needs of customers. Consistency in operational procedure can be brought forth by standardization whereas adaptation enables a company to gain competitive advantage in a new market place. 2.3 Application to European market The political scenario of European market is relatively stable which provides a greater scope for companies in context of international expansion. Economic scenario of this market denotes that unemployment rate is comparatively low with high disposable income. The target segment of European market is inclined towards branded products offering superior quality. There are different parameters for selecting standardization and adaptation techniques (Alba and Hutchinson, 2008). A&F brand has been functioning as a US based retail company but it needs to change their strategy as per new market conditions. Adaptation technique could be considered as an appropriate tool for the brand in European market due to different consumer taste and preferences. Question 3 The company has firstly established a strong market position in US markets and has then expanded into international markets. Major objective of the firm in this long run has been to open wide array of flagship stores within large cities. It has been offering trendy clothing and accessories for its target market and is aligned with changing consumer market demand. A&F brand clearly outlines certain similarities along with differences prevalent in European region and markets of United States. These flagship stores of A&F brand are basically located in those regions which customers’ state as prestigious shopping locations. The firm in the current scenario has opted for differential pricing strategy. Price discrimination or price differentiation is a unique pricing strategy that is implemented to be strongly aligned with changing market situations. This strategy indicates selling similar products or services by the provider at different prices in different markets. Price differentiation is associated with willingness of customers to pay. It is all about charging different buyers with different prices for same quantity or quality of product. Preferential pricing is also a term commonly used for differential pricing strategy. There are three frameworks of differential pricing such as personalized pricing, group pricing and product versioning. Personalized pricing is when one-to-one marketing is performed where each customer receives product at a different price. Product versioning is at times regarded as vertical product line strategy. This is also known as second-degree price differentiation where slightly distinguishable products are developed in order to offer it at different prices. Menu pricing is also a form of product versioning where differences in product category can be well determined through their set prices. Group pricing is also called as third degree price differentiation. In this situation markets are efficiently divided into different segments. Similar prices are basically charged from all those individuals belonging to that particular segment. A&F brand has implemented differential pricing strategy in its business operations because consumer market demand in US is highly contradictory to that of European markets. This pricing technique would enable the company to address customer taste differences. However there are some risks associated with this type of technique (Churchill, 2009). The target market might feel that change in prices can have an impact on product and service quality. On the other hand, increase in prices might affect brand loyalty in European markets. There is a correlation between price, quality and market share. Any significant changes in pricing policy are expected to have an adverse impact on total market share. The other principle risk associated with this strategy is disruption in brand uniformity. Customers might feel that low quality products at charged low prices whereas high quality products are quoted high prices. This would affect brand message being communicated to end customers. There is another risk related to bargaining power of customers where increase or decrease in prices in different market segments shall increase customer’s bargaining power. This is bound to increase operational cost of an organization because the firm needs to satisfy its wide base of customers. Question 4 A&F brand has been able to establish a strong market position as a premium casual luxury brand. This group has expanded into international markets after achieving sustainable competitive advantage in local market place. In the current scenario the company owns appropriately 14 sales outlets in foreign markets. Exclusive distribution strategy has been implemented by the company in order to address consumer market demand. Distribution channels play a vital role while formulating marketing strategies. The number of stores built up by the company is limited but A&F brand has its stores located in prestigious locations (Batey, 2012). This in turn enables the firm to acquire maximum percentage of consumer market share. In European market, the company has a total of 74 stores located across different regions like United Kingdom, Spain, Italy, Germany, Austria, France, Denmark, Belgium, Sweden and Ireland. All these locations can be considered as the most preferred places for shoppers. The brand heavily relies upon its image of premium casual wear formed in New York City and USA. A&F brand believes in communicating this brand image across other locations of the world. The company focuses on developing few stores but it creates superior in-store ambience. This form of ambience helps to attract maximum percentage of target market segment. Flagship store launches are well supported with brand identity and brand experiences. These experiences are formed through implementing some rituals like welcoming at entrance, giving souvenir to customers, etc. It can be stated as developing shopping entertainment where purchasing goods become completely a secondary issue. European market is widespread and exclusive distribution channel is most appropriate for functioning in this region. However limited number of store outlets would restrict the company to acquire maximum market share (Bruner, 2007). Opening up flagship stores in identified locations is an appropriate internationalization strategy for A&F brand. It would enable the company to rapidly spread brand awareness. In order to gain competitive advantage in current marketplace it is important to adapt extensive distribution network. While forming marketing strategies it is observed that distribution or place is an essential aspect of marketing mix. The product needs to be delivered at right place and at right time. Distribution framework is a central component in terms of increasing effectiveness of marketing strategies. European market has different needs and wants in comparison to US market. The growth in European market in terms of revenues and shipments can be well analyzed through a graph given in figure1. Figure 1: Market Development As per figure1, European market offers great scope for the brand in context of expanding its business operations and securing high revenue margins. It is important for the company to follow extensive distribution network where more stores shall be launched across the region. All of these stores should reflect brand identity and brand experiences. This would enhance level of convenience from customer’s perspective. Customers do not need to travel a long way in order to purchase their preferred A&F brand. Increasing number of store outlets across European markets would support the company to improve upon its profitability margins. There distribution policy can be a bit reframed where the brand can be made available through franchised stores in order to control costs or availability of the brand in well-known supermarket chain or retail chain. This in turn shall increase visibility of the brand across the globe. Question 5 Communication is an essential component while conducting business operations. The procedures adapted for communication reflects upon the nature of an organization. Companies invest lump sum amount in communication systems and information technologies. There are two forms of communication like external and internal communication. Internal communication is associated with transmitting required information across team members. This is done to ensure that strategic implementation is aligned with workplace productivity (Fill, 2013). On the other hand, effective internal communication channels support an organization to develop a common goal or objective. Communication is an important tool while bringing forth efficient coordination amongst all team members. External communication can be stated as another framework where business communicates with external stakeholders. These stakeholders comprise of suppliers, distributors, retailers, customers, shareholders, etc. All of these individuals play an important role in organization’s success and growth. Communication policy of A&F brand is a critical factor as it determines future growth rate of a company. There are different elements encompassed within this policy such as selection of appropriate channels, brand message uniformity, target audience, frequency of communicated message, etc. In European market, there is large number of players present and this indicates that appropriate communication policy is important for A&F brand. Firstly target audience needs to be taken into consideration while designing communication policy for European market. As per the nature of target audience communication techniques shall be incorporated. For instance age group of target audience determines the nature of communication channel which shall be most convenient. In certain circumstances social media is regarded as most appropriate communication channel and in other cases digital media like television or radio is generally adapted by an organization. A&F brand is inclined towards young adults who are passionate for classic or preppy clothing. In its communication policy apart from needs of target market, most suitable communication channel would also be outlined (Cheverton, 2005). There are two channels which fit with business purpose and goals of A&F brand. Firstly social media can be utilized as a medium to communicate with young adults. This communication platform is widely used across the globe. Branded products can be well displayed through social media sites so as to reach target market. Social media is the most convenient communication channel since it transmits brand message to target audience at a rapid rate. Television or radio communication channel is the traditional approach adopted by many companies. Through these mediums A&F brand can sustain its premium brand message. These two traditional mechanisms facilitate reaching out to broader market segment. Print media is another well-known communication platform that needs to be included within communication policy of the brand (Fill, Hughes and Francesco, 2013). This framework encompasses newspapers, magazines, etc. A&F brand has set its plans to operate across wider base of European market. In this scenario print media shall help the company to enhance its target market reach. This might prove to be an added advantage in an intensely competitive industry. The policy would even include amount to be spend on communication technologies along with evaluation criteria and required time frame. Conclusion As per this study, A&F brand from the past few years has been designing various innovative strategies to strengthen its market position. The company has its origin rooted in United States and is known for offering classic, preppy or casual wear. A&F is a premium luxury brand that target teenagers and young adults. The company in initial stage was more inclined towards sportswear but after bankruptcy product line has been reinvigorated. This kind of strategic change has not only helped to acquire maximum market share but even enhanced brand image. Fashion industry is an ever-changing segment with high consumer market demand. A&F brand was initially centered towards US market but in later phase it had implemented internationalization strategy. Its expansion into European markets has generated high revenue margins. There are differences in context of consumer taste and preferences in these two markets. Adaptation strategy is denoted as most appropriate one for European market. This would enable the firm to address differences and take proactive measures. Adaptation technique will be applied in all fields such as product, price, place and promotion. The company follows exclusive distribution approach where flagship stores are set in desirable locations. These stores are not just retail outlets but they reflect brand identity and brand experiences. Brand identity is build by A&F through creating in-store experiences where buyers can enjoy store ambience while purchasing products. Experiential marketing strategy is followed by the company and inclination is towards creating memorable shopping experiences for customers. References Alba, J.W. and Hutchinson, J.W., 2008. Dimensions of consumer expertise. Journal of Consumer Research, 24(3), pp. 411-454. Batey, M., 2012. Brand meaning. USA: Psychology Press. Bruner, G.C., 2007. Music, mood, and marketing. Journal of Marketing, 64(8), pp. 94-104. Cheverton, P., 2005. Key marketing skills: strategies, tools and techniques for marketing success. Great Britain: Kogan Page Publishers. Churchill, G., 2009. A paradigm for developing better measures of marketing constructs. Journal of Marketing Research, 25(4), pp. 98-116. Fill, C., 2013. Marketing communications: brands, experiences and participation, 6th edition. Harlow: Pearson Education. Fill, C., Hughes, G. and Francesco, S., 2013. Advertising, strategy, creativity and media. USA: Pearson. Henry, A., 2011. Understanding strategic management. New York: Oxford University Press. Lasserre, P., 2012. Global strategic management. Singapore: Palgrave Macmillan. Simerson, B.K., 2011. Strategic planning: a practical guide to strategy formulation and execution. USA: ABC-CLIO. Wintzer, E., 2007. Global competition and strategic management. Germany: GRIN Verlag. Read More