The Relationship between Timberland and City Year - Case Study Example

Running Head: TIMBERLAND YEAR Timberland Year Case Study Philip Neal Regis Timberland Year Case Study Introduction Since 1991, Timberland took on a new commitment to community service when the third generation, Jeffrey Swartz, took over control of the organization. The idea was to add an ideological bent to the Timberland brand name so as to associate the organization, not only with quality boots, but with ideals of community service. Problems arose in 1995 when Timberland reported a loss and had to close down two manufacturing facilities and lay off some of its employees. The purpose of this study is to analyze the relationship between Timberland and City Year to determine whether the relationship is having an adverse affect upon the business and financial standings of Timberland and to provide recommendations to assist Timberland's future business. History and Effects The Timberland brand had existed since 1973 and had shown steady growth since then. When Jeffery Swartz took over in 1991, he applied some basic business expertise to the organization, reducing overheads, cutting inventory, and improving customer service significantly. The result was an increase in revenues from $196 million in 1990 to $650 in 1994. Alongside, Swartz made considerable effort to associate the company and the brand with community service. Swartz developed a distinct relationship with City Year, a fledgling community service corps for young people in the Boston area. Between 1991 and 1994, this relationship strengthened from a supply of 70 boots to a level where Timberland stood committed to providing five million dollars to City Year over a five-year period and Swartz taking a position on its Board. City Year in the meantime increased its spread to six major cities across the US and gained recognition as a national community service receiving 50% of its funds through Federal grants. Timberland's practice of modern day philanthropy, although good hearted, cannot go without both challenges and criticisms. In the subsequent analysis, we find that the partnership generated benefits and negatives for Timberland because of the inherent and sometimes acute difference in agendas of a for-profit company and a non-profit organization. However, the most drastic problems surfaced in late 1994, early 1995. The loss for Timberland was financial, leaving many employees worried about an uncertain future. Timberland was forced to scale back its operation, laying off a number of employees and outsourcing labor. City Year also faced funding problems, as Congress threatened to withdraw federal funding. Community service with City Year became a major source of tension within the company as employees found it difficult to accept diversion of major amounts to City Year while colleagues lost their jobs in the company. The problem now became whether and how to maintain commitment to community service in the face of financial difficulties. Literature Review Mason (1993), states that customers may not perceive companies as doing enough even when they are providing good quality at competitive prices. There is increasing emphasis on environment and social involvement among businesses as part of strategy (Fellman, 1999). This concern has been at the root of corporate responsibility discussions that took shape in the Sarbanes Oxley Act, requiring transparency in operations and for companies to demonstrate their commitment to the environment and society through positive action. Studies have shown that customers buy from their business not only based on criteria such as price, quality, and availability, but also other socially responsible acts. According to L&G Business Solutions, a 2001 Hill & Knowlton Harris Interactive poll showed that 79% of Americans consider corporate citizenship when deciding whether to buy a particular company's product; 36% of Americans consider corporate citizenship an important factor when making purchasing decisions. Cause related marketing (CRM) is an accepted and key strategy in brand building as surveys show that consumers show preference for products of a company that have an image of being proactive toward environmental and social issues (Carlson, Grove, and Dorsch, 2003; Lorge, 1998). As a term and strategy, CRM has evolved to include a range of marketing strategies to establish long-term product differentiation and add value to the corporate and brand image (Lafferty, Goldsmith, & Hult, 2004). As different from purely philanthropic activities, CRM must ultimately benefit the company (Varadarajan & Menon, 1988).Commitment to any cause must be consistent with the image of the company and target consumers matched with the cause "by product type, demographics, and geographic location" (Till and Nowak, 2000). Building a brand image through demonstration of good corporate citizenship can be a tactical one-time effort or a strategic long-term initiative (Till and Nowak, 2000). Stisser (1994) emphasizes the need to carefully research target markets and concept testing to find a good match between customers, brand, and cause because the least believable source of information on environmental issues is the business itself and therefore the cause has to be close to the opinions and priorities of the target market. Within the organization, employees care about whether their organization implements corporate social responsibility. A poll revealed that, "78 percent of employees would rather work for an ethical and reputable company than receive a high salary". Employees that work for an organization with strong social corporate responsibility are more willing to stay with the organization (CRS Europe). Such an organizational environment reduces the cost of recruitment and training. Corporate social responsibility can also improve productivity by reducing employee absenteeism. Organizations providing good working conditions often find that they reduce the number of defective products. Triggers Within this study, there were three significant triggers. The initial trigger was in 1992 when Swartz made the commitment to donate $1 million and step across the boundary of cross-hiring and loaning executives for City Year affairs. This initial triggering led to the most significant trigger point in 1994 in which Timberland meshed with City Year to form a product line. This initiative led the vast expansion and burdens that create separation difficulty. From 1994 forward, the two organizations had stake in one another. The final trigger point, which brought about the effects, was the stoppage of funding of City Year from AmeriCorps in 1995. This event brought about financial difficulty and an imposed responsibility by Timberland. Importance With combined values, Timberland's goal is to best serve its charities and operate a profitable organization in which social responsibility is forefront. Timberland is committed to value for consumers, shareholders, employees, and the community. The importance of the issue at hand upon Timberland is the future success and survival of the organization. Without focus and losing site of business will ultimately lead to the demise or hindering of the organization. When organization expand rapidly and are positioned where entities do not bring in revenue, losses are taken. Timberland is a commercial organization and City Year a non-profit organization. Operational imperatives and goals are substantially different. In this setting, it is important that Timberland find a viable line that can be beneficial to both organization futures. These decisions will affect not only the financials but also the stakeholders of the two organizations. Assumptions We need to make a few assumptions before attempting an analysis of the situation and proceeding to recommend the further course of action. The first assumption is that Timberland is financially strong despite the losses in the last year and has complete commitment to carry the business forward overcoming the immediate difficulties. The second assumption is that Swartz will continue to head the company and there is no threat of a takeover or merger in the near future. The final and perhaps the most important assumption is that the commitment shown to social service by Swartz is inherent and not likely to change in adversity. Analysis A brief examination of the company's history and financial reports since 1991 shows that the City Year association is not responsible for its financial woes. For a company with sales in excess of 600 million dollars, expending a million dollars every year on philanthropy or social causes can have no substantial impact on its financial performance. The long-term debt and working capital show a remarkable change (unexplained) in 1993-1994. This translates to increased total assets of the company not supported by increase in revenues. One may safely assumed that the addition to total assets would bear results over time. Expense on City Year association represents nearly 10% of net income; it is comparable to marketing expenses of major companies. In addition, as brand equity established by the association with City Year further impacts revenues and margins this will reduce to a less significant number. The motive behind Timberland's involvement lies in its leader's personal desire to lead a different kind of life, enamored as he is with social service. Despite Timberland rejecting the notion that its association with City Year is a part of a cause related marketing effort (p9) their actions revel that they have made every effort to leverage this association in building brand value. The quality of the product and its unique association with outdoor and rugged life are positives. Additionally, good management practices have brought the company the growth and profitability so far. None of the gains made in the company's phenomenal growth between 1991 and 1994 is attributable to its association with City Year. The benefit of this association is likely to bear on the performance in the immediate future. Timberland's promotional activities present a different picture; there appears no effort to build equity through their increasing involvement with City Year. Pure philanthropic intent drives this association, and the fallout for the company and brand image appears secondary: at least till the time of the launch of City Year gear. The company did not derive mileage that was reasonable and acceptable from the money and effort spent, and this appears to be a mistake. The primary reason behind the existence of every for-profit organization is to earn a profit for distribution among shareholders, owners, and employees to their benefit. Most companies need to reinvest a part of the profit, but the primary goal is to make money for the benefit and use of the stakeholders. Putting every dollar spent to achievement of this goal becomes the primary responsibility of management. Therefore, it is essential that Timberland take a more aggressive line to leverage their investment in City Year operations to build equity for the Timberland brand to derive higher sales and improved margins. The match between the image of the Timberland brand, market demographics, and geographical measures was good only to some extent in the beginning, but with growth of City Year activity there appears to be a larger synergy emerging. Product type is outdoor boots and related apparel. Timberland has spent considerable money and effort to build this image and successfully, as evident from sharply increasing sales and expansion of the marketing network. The City Year organization had a local spread, only increasing to a national level in 1994-95 (p5) and almost simultaneously, there is the threat of a loss of federal funding. Image mismatch is evident from the feedback from the stores that stocked City Year Gear. Only 34% of customers who bought City Year Gear also bought product offerings from the main line (p11). Consider the design of the City Year Gear products and hangtags: except for the 'Racism' and 'Know no Hatred' tees that show a boot on the back, no other product design links to the Timberland product line or logo. Timberland needs to develop further synergy between the two images. On the positive side, eighty percent customers came away with a positive perception of Timberland and seventy-one percent showed a likelihood of future purchase. However, it is important to note that this feedback comes from Timberland's own stores with salespersons coached to promote the product. Whether this will translate to other outlets spread over a larger geographical area and that contribute the bulk of sales is questionable. This implies the need to promote and advertise the City Year initiative directly. Geographic location is a major issue. Timberland's sales come from a marketing network spread across America and 29% sales come from foreign operations. Enough data is not available in the case study to comment on the demographics of Timberland customers to compare with those associated with City Year. It is of critical importance to any marketing effort to assess the needs and perceptions of the target customer and in the case of cause related marketing to determine the cause that is most likely to stir their imagination and create the desired reaction. Timberland did not do this and its involvement with City Year was triggered by the latter's request for a donation of boots. The only conscious effort in market analysis appears at the time of the launch of the City Year Gear. However, the default matching has taken a lot of effort and it is necessary to continue since a large proportion of customers have responded positively. Timberland has derived several positives from its association with City Year. The most important fallout is the team building; to quote Swartz, "I firmly believe that the minds we turn on here at Timberland explode our productivity and effectiveness" (p5). Despite retrenchment of several employees, the company has maintained a positive atmosphere and outlook among its employees primarily because of the association with City Year and evident from the remarks of some quoted in the study. The positive feedback from the stores that launched City Year Gear makes the case for continuance of the arrangement stronger. Recommendations Almost all recommendations suggested require implementation in the immediate timeframe. 1. Environment awareness and explicit dissemination of involvement is important for creating additional value for the customer. Timberland must actively pursue promotion of its association with City Year through advertisement and point of sale promotion to inform customers and thus derive the benefit of this association. 2. Timberland needs to deepen its association with City Year from the longer-term strategy perspective. Environment is not limited to the wilderness and includes cities, Timberland must continue to strengthen its call for community action and encourage both its customers and employees to volunteer for programs promoting awareness and social change. 3. The benefits to employee morale and sense of belonging necessitate increase in the paid time given to employees annually for participation in community projects; and to designate a senior manager to coordinate these activities. 4. The major challenge to City Year funding has to be met immediately. Timberland and City Year need to find alternate sources to replace the threatened loss of federal funding and to ensure that the entire burden does not fall on Timberland or raise the need to cut back on operations of either organization. For this, they need to approach philanthropic organizations like the YMCA and individual donors. Customers may also be approached with a strategy that simultaneously raises awareness and finances through voluntary contributions. 5. The Timberland - City Year association has to be brought to bear on Timberland's own brand products instead of a tepid use to promote a different line - the City Year Gear. In offshore markets, Timberland needs to find not for profit organizations that are in tune with their image and product characteristics through a proper analysis of the needs and consumer perceptions as outlined above. They cannot hope to be twice lucky as they were with City Year. References Austin, J. (2001, August 6). Timberland and Community Involvement. Harvard Business School Cases, Retrieved January 4, 2009, from http://harvardbusinessonline.hbsp.harvard.edu/b02/en/hbr/hbr_current_issue.jhtml. 9-796-156 Carlson, L., Grove, S.J. and Kangun, N. (1993), "A content analysis of environmental advertising claims: a matrix method approach", Journal of Advertising, Vol. 22, September, pp. 27-39. CSR Europe. The European business network for CSR. Communicating corporate social responsibility. Retrieved January 14, 2009, from http://www.csreurope.org/pages/en/communicating_csr_report.html Fellman, M.W. (1999), "Cause marketing takes a strategic turn", Marketing News, Vol. 33, No. 9: p.4 L&G Business Solutions. March 21, 2007. Mom Always Said Be Good, and She Meant It. Retrieved January 13, 2009, from http://lgbusinesssolutions.typepad.com/solutions_to_grow_your_bu/2007/03/mom_alway s_said.html Lafferty, B. A., Goldsmith, R. E., & Hult, G. T. (2004), The impact of the alliance on the partners: A look at cause-brand alliances, Psychology of Marketing, 21, 509-531 Lorge, S. (1998), "Is cause-related marketing worth it" Sales & Marketing Management, June, p. 72. Mason, J.C. (1993), "What image do you project", Management Review, Vol. 82 No. 11, pp. 10-11. Stisser, P. (1994), "A deeper shade of green", American Demographics, Vol. 16 No. 3, pp. 24-9 Till, B.D. and Nowak, L. (2000): "Toward effective use of cause-related marketing alliances", Journal of Product & Brand Management, Vol. 9, No. 7: 472-484 Varadarajan, R., & Menon, A. (1988), Cause-related marketing: A coalignment of marketing strategy and corporate philanthropy, Journal of Marketing, 52, 58-74. Read More