A Marketing Plan for UNIQLO Business Model - Report Example

MARKETING PLAN: Uniqlo BY YOU YOUR SCHOOL INFO HERE HERE TABLE OF CONTENTS EXECUTIVE SUMMARY 0 Introduction............................................................................................................... 2.0 Background / the environment: internal and external, the people and the social context.................................................................................................................. 2.1 Market attractiveness.................................................................................... 2.2 Corporate taxation structures and tariffs................................................... 2.3 Social, demographic and cultural characteristics of consumers............... 2.4 Internal analysis: using local labour talent................................................. 2.5 Justifying market entry methods................................................................. 3.0 Marketing approach.................................................................................................. 3.1 Two important considerations....................................................................... 3.2 Pricing.............................................................................................................. 3.3 Promotional opportunities.............................................................................. 3.4 Brand personality............................................................................................ 4.0 Recommendations and conclusion............................................................................. References EXECUTIVE SUMMARY This business report aims to understand whether Brazil is a viable market opportunity for Uniqlo. The report assesses the economic, social, cultural, industry-related and internal factors at the company that could theoretically hinder or improve business success upon market entry into Brazil. Focus of the report was on whether or not Uniqlo was properly positioned for the radically different retail environment in Brazil that is quite unique from that of the Asian markets where Uniqlo has been accustomed to operating and managing. The report was compiled as Uniqlo had established a desire to become the number one fashion retailer in the world, demanding approximately a quadrupling of its current revenues of $10 billion USD. In order to achieve this goal, further market expansion is necessary. It is necessary for business leaders to understand the multi-faceted aspects of a new environment if the company is to find success and competitive advantages. Examination of the Brazilian culture, economy and industry factors are highly important to contemporary businesses as one cannot create promotions, pricing structures, or build integrated communications that are relevant to new consumer needs and characteristics. To gather the evidence, this report consulted with marketing and business journals, secondary research including business reports, Brazilian economy and culture statistics, and other relevant theories pertaining to the 4Ps of marketing that were relevant as compared to Brazilian market characteristics. This report identified that a new pricing structure would need to be developed in Brazil as a result of significant taxation rates for corporations, cost of logistics, and import tariffs at 35 percent for finished apparel products. The report also identified a rather hedonistic attribute of Brazilian consumer culture, providing recommendations for utilisation of celebrities with aspirational attributes to gain consumer attention and build relationships with new markets. Further research would be required to gain a more holistic view of Brazilian market conditions, however the report provided a solid template by which to consider new promotional activities, build an effective pricing structure, and ensure appropriate procurement of merchandise from China (Uniqlo’s main producer). It is recommended that Uniqlo seek a different market than Brazil, however the report provided a foundation by which to attempt a new Brazilian operation. 1.0 Introduction Uniqlo is a highly profitable business model, finding considerable market success in Japan since becoming a wholly-owned subsidiary of Fast Retailing Co. Uniqlo, in an effort to expand its brand identity and improve revenue growth, the company has expanded into 13 different countries whilst sustaining over 1300 stores internationally (Mitchell 2013). The retailer, which provides affordable fashions for a younger consumer market, competes against major international retailers such as Zara, H&M and Gap. Because Uniqlo operates in a highly saturated competitive environment with its main competitors also offering affordable fashions, the company must transform its business model in order to achieve its goal of increasing profits to its towering objective of $50 billion USD by 2020. This is a substantial objective considering Uniqlo currently boasts global sales of $10 billion USD (Pilling 2013). This will entail expansion into a region outside of Asia in order to sustain significant revenue growth. A non-Asian market entry opportunity, Brazil, is explored to determine the viability and profit potential in this country. The main problem is that the company is accustomed, primarily, to providing service and communications to Asian consumers which maintain radically different consumer behaviour profiles, social attitudes, and fashion needs than countries in North and South America. Research has indicated that in order to find market success in Brazil, the company must be considerate of cultural characteristics, adjust its promotional strategies and reposition the company in terms of brand. 2.0 Background / The environment: internal and external, the people and the social context This section analyses the external market in Brazil and internal characteristics of Uniqlo’s Japanese-based culture and structure to determine its viability for the Brazilian fashion retailing market. 2.1 Market attractiveness The Brazilian economy has experienced significant economic problems between 1990 and 2012, due largely to unproductive financial policy developments and national reliance on commodities products to build economic growth. The country’s consumer price index (CPI) is also impacted by substantial inflation rate increases, impacting supply chain costs and unpredictable interest rate variations which tend to reduce consumer spending. For example, the debt-to-GDP ratio in the country is currently over 50 percent, which is much more troublesome than other developed countries around the world (Blanchard 2005). With an inflation rate at roughly four percent year-on-year, the availability of disposable income for consumers is significantly reduced. In 2003, the country experienced a scenario known as hyperinflation, where the country witnessed a 17 percent inflation rate in a single year, impacting the cost of utility services, tariff costs, and even sewage and water services (Business News Americas 2004). Today, the country’s President works much more closely with the national Central Bank in order to implement a fixed exchange rate economic policy to stabilise inflation rates and stimulate foreign investment, however, in January 2014, the country’s inflation rate was still at 5.9 percent and has remained consistently above five percent since 2012 (Trading Economics 2013). Concurrently, a very volatile stock market in the country impacts the national economy and, according to a regression analysis conducted by Budden, Cope, Hsing and Zee (2010), the presence of a healthy capital market is absolutely critical to improve Brazil’s economic strength. Furthermore, a whopping 67 percent of the country’s entire gross domestic product stems from the service sector (i.e. hospitality, restaurants and health care), limiting the earnings potential of consumers in the middle class, representing the most viable consumers for Uniqlo. Coupled with volatile investment markets and substantial inflation rates that persist, available consumer incomes are stressed. As a result, a recent survey of Brazilian consumers indicated that consumer purchase intention in the category of apparel and footwear declined 5.3 percent between 2013 and the first part of 2014 (LEK Consulting 2014). The nation’s persistent economic challenges and impact on consumer spending patterns in fashion retailing will pose significant challenges to Uniqlo to promote consumer interest in apparel consumption. 2.2 Corporate taxation structures and tariffs Corporate taxes in Brazil are substantially high. The corporate taxation rate is 15 percent of revenues, plus an additional 10 percent surcharge for companies earning over $109,000 USD (PWC 2010). Higher corporate taxation policies have been implemented by the Brazilian government to ensure higher government revenue growth as a result of an inferior industry diversification policy. This has significant implications for Uniqlo that relies on an affordable pricing structure to gain the attention of lower-resource youth buyers. This corporate tax rate could force Uniqlo to raise prices to offset taxation obligations which could seriously undermine gaining the interest and attention of price-sensitive youth markets. Also potentially detrimental to entering Brazil is a 35 percent tariff rate on imported textile products and finished apparel products (ITA 2012). Under the current model of procurement, the majority of clothing comes from China and it is understood that Brazil maintains a very weak supply infrastructure domestically for apparel and textile products. This will substantially raise the price of procurement for Uniqlo and could theoretically impact pricing structures on clothing in an effort to offset substantial costs increases imposed by tariff laws in the country. It will be quite expensive to procure products from China, encompassing air delivery and waterway transport over such a large distance, which are expenses that require offsetting usually in the form of higher prices or operational consolidations. Logistically, in order to supply relevant fashions already under cost-effective contracts internationally, the company will have to absorb these costs in order to sustain replenishment volumes. 2.3 Social, demographic and cultural characteristics of consumers Outside of the aforementioned economic and taxation challenges in the country, it is necessary to understand the consumer social and cultural constructs that could potentially impact sales and promotional success for the Uniqlo. Brazil scores very highly in Geert Hofstede’s cultural dimension known as uncertainty avoidance, a phenomenon explaining the level to which a cultural will embrace risk and uncertainty without a set of guaranteed decision outcomes and consequences (Hofstede, Hofstede and Minkov 2010; Katz 2005). In Brazil, the brand Uniqlo maintains no brand recognition, hence making consumer decisions to embrace this new fashion model uncertain and indeterminate. This maintains potential implications for increasing costs of brand management and brand-building to establish brand awareness and promote the benefits and guarantees of the Uniqlo ideology to suit a culture that is dissuaded from illustrating loyalty to unknown consumption outcomes until trust and assurances have been provided. As an example, Mastercard attempted to promote more interest in utilising Mastercard credit cards in Brazil. Initially, consumer interest was low and there was little return on investment for the campaign. Why is this? Mastercard attempted to utilise Western models of promotion that heralded the priceless aspects of the company. After adjusting promotional strategy to include more emphasis on the consumer, allowing consumers to generate over 65,000 consumer-generated stories that were transformed into television advertising, print and the Internet (Galloni 2009). The Brazilian culture is highly collectivist (Hofstede Centre 2013), meaning that peer reference group sentiment and in-group loyalty are very important constructs that shape one’s identity and decision-making (Hofstede et al. 2010). Hence, Mastercard realised that by using promotional communications that provided peer sentiment would reduce collectivist mentality uncertainty about the brand, promoting more interest in signing contracts to utilise Mastercard services. Collectivism and uncertainty avoidance as cultural characteristics have implications for the approach to promotions that should be undertaken by Uniqlo to achieve marketing success. From a more positive perspective, nearly 60 percent of the country’s entire national population is under the age of 29 (Grail Research 2009). This is the most viable target market, demographically, that has always brought Uniqlo considerable market interest and loyalty in the Asian sales environments. With a population of approximately 200 million, this statistically represents potential market availability of over 100 million youth consumers. It is also becoming common practice for retailers operating in Brazil to offer consumers store credit cards as consumers in this country are lured to timed, monthly payment instalment contracts (Suleman 2012). Interest on sales and fees associated with store credit cards, coupled with high consumer adoption of these payment options, provides retailers in Brazil with significant profit enhancements. In fact, in Brazil, the volume of expenditures using credit cards increased 24 percent, nationwide, between 2007 and 2008 (Mastercard Worldwide 2008). Demand for retail store credit cards and consumer propensity to increase their retail expenditures using these services could potentially offset some profit hindrances relating to high corporate taxation rates. 2.4 Internal analysis: Using local labour talent It will be necessary for Uniqlo to utilise local talent in-store and in support positions. There is an advantage when comparing Japanese culture and Brazilian culture. In Brazil, there is a high cultural propensity for subordinates being accustomed to working within hierarchical, centralised structures (Hofstede Centre 2013). The Japanese model operates under this same premise in which decision-making occurs at the top management layer of the business hierarchy with little consultation with subordinate employees (Hofstede Centre 2013). Hence, theoretically, the business would be able to transfer existing HR strategies and its centralised hierarchy of control without substantial expenditures to develop costly and radically-different management systems. Management should be able to operate under centralised structures, thereby giving Uniqlo leadership more control, without consideration of extensive costs to develop a new, decentralised model in which Uniqlo management is ill-equipped and unaccustomed to sustaining. This has many advantages for Uniqlo as there would be less resistance to change policies and more compliance from subordinate employees. 2.5 Justifying market entry methods There is a challenge when determining the most viable market entry strategy for Uniqlo. A recent study indicated that an overwhelming volume of Brazilian consumers have little interest in international brands and have considerable loyalty for domestic brands (Fibre2Fashion 2012), likely a product of collectivist loyalties as a cultural characteristic. A total of 81 percent of surveyed Brazilian consumers indicated they have little interest in international brands (Grail Research). Hence, in order to gain consumer interest and loyalty, it would be most viable for Uniqlo to enter the Brazilian market through acquisition of struggling or established fashion retailers. Such retailers would have brand recognition with the Brazilian market and, through short-term co-branding activities, the company can acclimate consumers to the Uniqlo brand by initially emphasising the acquired brand that already has awareness. 3.0 Marketing approach 3.1 Two important considerations De Matos and Leis (2013) conducted a study on Brazilian consumers and it was identified that the strength of relationship between company and customer was a predictor of repurchase behaviour and intention. Concurrently, there is considerable growth of the price-conscious consumer in Brazil which defines consumption behaviours (PWC). 3.2 Pricing It is understood that in order to maintain adequate in-store supply of fashion merchandise, the company is going to have to absorb the 35 percent tariff rate on finished apparel products. Additionally, a 25 percent corporate tax rate (combined) will significantly impact profitability. Dawes (2004) indicates that price promotions are the primary criteria by which consumers perceive product quality. Currently, in Asian markets, having affordable fashions has been a cornerstone of consumer loyalty and revenue growth. There is a substantial risk of the lower resource consumer with price-sensitivity being dissuaded to patronising Uniqlo as a result of a higher pricing structure, however this would be unavoidable to realise the revenue expectations upon entry into Brazil. The company will be forced to establish higher pricing structures on the majority of its imported merchandise, however this can be offset through the utilisation of price promotions. Upon launch of the product, Uniqlo will select key pieces of merchandise that will be heavily discounted whilst allowing higher priced fashion merchandise to remain at the full price. This will give the very cash-strapped, price-conscious consumer incentive to make purchases at Uniqlo and will build a sense of perceived quality as a result. This is the high-low pricing method which assists in achieving profitability whilst satisfying consumers who make decisions primarily based on pricing (Kotler and Armstrong 2010). Since the brand has little awareness in the country, this incentive pricing methodology will gain more immediate consumer interest in the brand. 3.3 Promotional opportunities Gaining brand recognition is a fundamental goal in Brazil. Upon acquisition of recognised fashion companies, the business maintains ample opportunities to build recognition through aforementioned co-branding strategies. The company would develop an integrated marketing communications campaign that illustrates both the logo of Uniqlo and the acquired company on preliminary marketing literature, such as print advertising, billboards and television. Once consumers make the connection between their favourite acquired brand and the Uniqlo brand, co-branding strategies should be terminated and brand recognition established. Additionally, there is considerable growth in a phenomenon known as ethical consumption, whereby consumers favour those companies that have a more ethical focus on corporate social responsibility. Grande (2007) indicates results of a survey showing the 33 percent of consumers would actually pay higher prices if they believed a company had strong ethical stances. This represents an enormous promotional opportunity for the company considering Uniqlo requires a competitive edge in a market with virtually no brand awareness. Currently, Uniqlo sustains a project known as all-product recycling, in which second-hand clothing is collected and then further distributed to those living in refugee camps throughout the world (Fast Retailing Co 2013). Uniqlo can expand on this initiative in Brazil, a nation where 26 percent of the entire population are living under the poverty line (Sainte Croix 2012). This is a tremendous opportunity to build important ethically-based relationships with consumers unfamiliar with the integrity and values of Uniqlo. In a recent survey, 41 percent of surveyed Brazilian consumers indicated they would pay higher prices for products offered by a company that uses less energy (da Silva 2011). This represents support that Brazilian consumers are concerned about CSR and expanding the all-product recycling initiative in Brazil may well justify a higher pricing structure to offset the costs of corporate taxes and import expenditures. 3.4 Brand personality The establishment of a unique brand personality will be critical to gaining consumer attention in a market characterised by cultural aspects related to collectivism and the importance of peer reference groups. Zhang and Chan (2009) indicate that when a brand is able to provide consumers with perceptions of self-expansion, they are more likely to be loyal and have strong emotional attachments to the brand. Self-expansion, under this definition, is improving one’s social standing and social status. Uniqlo, in order to create a relevant and accepted brand personality, should be utilising youth models and actors in all promotional material that share similar lifestyle characteristics. In Brazil, fashion trends are dominated by national celebrities and the youth market is highly influenced by regional television stars (Grail Research 2009). Figure 1 illustrates a relevant, famous domestic actress representative of a new brand personality for Uniqlo. Figure 1: Brazilian Youth Actress Alessandra Ambrosio Source: FanPop. (2014). Alessandra Ambrosio. [online] Available at: http://www.fanpop.com/clubs/alessandra-ambrosio/images/13689655/title/alessandra-ambrosio-wallpaper (accessed 5 March 2014). Influential celebrity endorsements are highly successful for impressionable youth markets. It is also recognised that Brazilian consumers are highly motivated by social success and image. As a result, celebrity recruitment of domestic celebrities will authenticate the domestic preferences of consumers and create brand recognition at a much faster pace than other traditional promotional methods. Brazil is also considered an indulgent society, one in which consumers seek recreation and the ability to enjoy their lives fully, acting on impulses in this direction (Hofstede Centre). Hence, it is a hedonistic society that is considerate of achieving wholeness through fashion procurement and physical appearance improvements. Therefore the use of attractive domestic celebrities maintaining aspirational features and attributes would serve as a new face for the Uniqlo brand that is relevant for consumer behaviour characteristics in this market. 4.0 Recommendations and Conclusion Based on the high tariff rates in the country for apparel merchandise, high corporate tax rates, and instability in the capital market and currency (coupled with high inflation rates), Brazil does not necessarily encompass a substantial revenue producing opportunity. However, the pricing promotion (high-low pricing strategy), use of domestic celebrity endorsements of relevant youth actors/actresses, heavier emphasis on CSR, and production of a new brand personality for Brazilian markets should provide methods to offset rising costs and also build brand recognition for a very large market of youth buyers. Pricing had always been a competitive advantage in Asian markets against major competitors, however the low-price model that has been successful in an environment where procurement costs are much less due to proximity to China, a radically different pricing approach will be required to establish important relationships with price-sensitive buyer markets. Overall, it is recommended that Uniqlo seek opportunities for market entry in another country, however if the business still believes that Brazil could be a viable and profitable opportunity, it is recommended that the company develop more lifestyle-oriented promotions and communications to gain important consumer attention, interest and to reduce the uncertainty avoidance characteristics that dominate Brazilian culture. 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