International Marketing Research and Strategy for Topshop - Essay Example

INTERNATIONAL MARKETING RESEARCH AND STRATEGY FOR TOPSHOP TABLE OF CONTENTS Page 3 2 Introduction 4 3 Core Competencies & Competitive Advantage 5 4 Strategy for Successful International Marketing 9 5 Screening for the best Country 15 6 Bibliography 24 1 Abstract Topshop has launched a new fashion range that has been a great success in UK, US and Europe. This had led the owners to think of expanding and have retained a consultant to advice on the best overseas market for their products. The company’s core competencies have been judged against the Five Force Analysis to determine its preparedness for the International venture. The parameters of International Trade along with constraints and opportunities have been explained and research made into the best possible destination for the International business venture. A comparison of countries was made through a PESTEL analysis. The company’s SWOT analysis highlights the various internal and external factors that will finally have a bearing on the strategic decisions. At the end the consultant has recommended that Topshop should opt for Canada as their next overseas market. 2 Introduction Topshop is an amazing story. Beginning humbly in 1964 in a basement of a retailer called Peter Robinson, in the up-market Oxford Circus of London, today it is amongst the most famous apparel and accessories retail chains in the UK. Indeed it dominates the market with its very affordable Haute Courte fashions for the girls and women on the move. It sells an average of 30 pairs of knickers a minute, 6,000 pairs of jeans a day and 35,000 pairs of shoes every week. “Topshop attracts women from their teens to the 40s searching for a weekly fashion idea”. (Topshop Website). While basically aiming at the female section, it also fashion lines for men as well as babies. It’s co-branding with Kate Moss, the famous Model earlier this year was a calculated move to give it a fresh thrust to move into the lucrative American and European markets, and it has since never looked back. It has 309 exclusive stores in the UK and numerous famous retailers across US and Europe offer it space at their outlets for a varied and extensive exposure. Indeed the first week’s sales at the UK outlets of the Kate Moss collection exceeded £ 3 million, were beyond expectations and are going strong ever since. (Fashion United News). Celebrity names do have a positive impact on sales and profit figures and those especially from the world of fashion and entertainment, after sports, are engaged regularly by consumer product manufacturers and retailers. (Sarah Modlock). Consumers have favoured products sponsored or endorsed by celebrities and this is particularly true for apparel and accessories as people have a penchant to look good and thereby feel good. Introducing and aligning with Kate Moss by Topshop was a brilliant move and has paid handsomely. It is expected to improve the sagging bottom-line of the company and will be a grand success. Topshop is owned by Arcadia Group, which also owns British Home Stores, Miss Selfridges, Burtons, Dorothy Perkins and others, and the financial results for the group at the end September 2007 are as follows. It had a total sale of £ 1.8 billion with profits of £ 293.3 million. Its gross margins are up by only 0.2% compared to last year (Arcadia Group Ltd). Last year the results were disastrous due mainly to the havoc wreaked by global warming which affected all apparel and accessory retailers worldwide. Topshop too was afflicted. 3 Core Competencies & Competitive Advantage The Kate Moss experiment and experience has opened wider world markets for Topshop and it now looks beyond the Home Market of UK and Ireland. It does have a small International presence, but it is now confident of a major foray into larger markets. The competitiveness of a company is a major factor in its ability to market its products, whether in the home or in overseas markets. An important method of finding the competitiveness is by using the Five Force Analysis devised by Porter M.E. (1985), often called the Porter’s five force analysis. This will help the management to devise appropriate marketing strategy to take care of vital issues. Porter divides the competitive environment into five forces of ‘powers’, these are Power of buyers, Power of suppliers, Threat of new entrants, Threat of substitutes, Intensity of rivalry between existing firms. (Porter, M. E.1985) A The Power of Buyers Four different reasons influence a buyers’ decision. They are also known as 4Ps as explained by McCarthy (1964)2. This needs careful study to understand customer behaviour. a) Product. The buyer is greatly influence if the product or service is perceived as useful for him. b) Price. The price is not usually a stand-alone factor. It has to be comparable with other products or services but with weight given to factors like quality and after sale service. c) Promotion. Image plays a very important role. Whether it is the image of the product which enhances value or status or the image of the buyer when he acquires a product or service, both factors are extremely important for the buyer in arriving at a purchase decision. d) Place or Time of offer. It is of great value to the buyer if a product or service is offered to him at a place and time that suits him.. In recent years the 4P concept has come under criticism and as a result different marketing mixes have been put forward by Kotler P,. (1986)3; Mindak and Fine (1981)4; and Nickels and Jonson (1976)5. But the one put forward by Booms and Bitner (1981)6 to include another 3Ps viz., Process, Physical Evidence and Participants has gained the most acceptability and popularity in marketing literature. e) Process. Marketing and Sales policies are important factors that attract a customer to a product. Warranties offered, after-sales service support and guarantees, quick response from employees are comfort levels that promote a product’s marketability. f) Physical Evidence. The general ambience of the store makes for a good marketing strategy as the customer feels comfortable and is more inclined to conclude a deal in congenial atmosphere. g) Participation. Largely neglected earlier, but by far the most important aspect of marketing is the adequate training of the employees that are involved in the marketing process. A satisfied customer is the company’s best brand ambassador and word of mouth publicity is the most precious campaign that any company wish for and this 7th P is no doubt the most important of them all. B The Power of Suppliers When there a few suppliers of components or services, they offer better terms and service to the company but when they are few, they normally offer goods and services as per their own priorities. The external factor that affects quality of service depends largely on the cooperation and coordination of various suppliers. Their quality of service improves, or depreciates, the company’s own service to its customers. The power of the suppliers cannot be ignored. ` C Threat of New Entrants The Evolutionary Cycle of Competitive Behaviour advocates that change takes place only when one of the competitors come out with an innovation and others follow it and improve upon it until it becomes an industry standard, at which time the cycle ends. The two ends of the cycle are Innovation and Efficiency. Then, with the introduction of another innovation, the cycle recommences. The performance of all players is evaluated vis-à-vis the efficiencies they are able to achieve. This theory evolved by Strebel (1966)3 suggests that evolution is a continuous process, no product can expect to be acceptable to customers in its present form and functionality to be for all time to come. This aspect must also be borne in mind when devising any marketing strategy and the company must be ready, willing and able to innovate whenever the situation demands a change for survival. D Threat of Substitutes At any point in time there is always a possibility that, inspired by the popularity and acceptability of a product, a substitute is offered that will replace it due to its better features or innovative idea (J. Schumpeter 1934)4. There is a delicate difference between innovation and invention although one leads to the other. Innovation is the first happening or germination of an idea for a new product or a process while the first attempt to make it or practice it is what invention is all about. Innovation is therefore creation of a new value and invention is the creation of a new product or service that offers this value to the customer. E Intensity of Rivalry Finally the competition never gives up and is always finding newer and better ways and mean to make inroads into the market share of an existing product. This is an ongoing struggle and has to be met head on with innovative practices. A few of the marketing strategies required to ward of the competition are Product Strategies, Brand Management, Publicity and Promotional Strategies. By applying the Five Force analysis it is seen that by and large the Topshop/Kate Moss collection is capable of meeting competition overseas as it has a good product range at prices that are competitive and acceptable in the markets. Of course it must take care to observe the requirements of good promotion and excellent placements as described in the 7 Ps. 4 Strategy for Successful International Marketing There are many uncertainties when a company plans to exports to another country where conditions differ from the home country. Conflicting data and its interpretation make it difficult to arrive at decisions. In absence of adequate information it is impossible for companies to project consequences of their strategic decisions. According to Doole and Lowe (2004), there are many companies with export prospects that keep away from doing business beyond their home market. Often the reason is apprehension. They are afraid of failure on account of the challenges of competence and cultural factors. Protectionism By its very nature International Marketing is fraught with vested interests of both nations and its own industry. Almost everywhere there is some element of Protectionism that is overtly or covertly practiced. Most countries, led by US declare that they favour Open Market policies but indeed protect their own home industries with some form of duties, tariffs or taxations that discourage or at least restrict outsiders from invading their home territories. Unfortunately this is as true for developed and wealthy nations as for the developing and poorer nations. Under the prevailing circumstances the criteria for selection for Topshop for a new International market from some 250+ nations across the world can be determined by examining several aspects related to International Marketing practices. The Importance of Communication Doole and Lowe (2004) opine that the international reputation of a company depends upon the good relationships of the customers and stakeholders. The internal relationship depends on the awareness of the marketing strategies. Communications at different levels have to be addressed with finesse and expertise to achieve a correct image of the company and its products. Internal competencies of a company will not be sufficient to guarantee success. External stakeholders like the distributors have to be fully aware of the marketing policies. The Economic Aspects of International Marketing Organizations are also dependant on their external environment for resources (Pfefferand Salanick 1978), as a result the environmental factors will determine the economics of the international venture of a company. This must be considered when selecting the target country. But it has been explained by Hofer & Schendel (1978) that organizations are able to overcome the environmental challenges through marketing strategies. The International Marketing Strategy The reason for going to the international market will determine the marketing strategy to be adopted. The Home market may be reaching saturation, there maybe intense competition that is stifling market or there maybe an opportunity to exploit a product or idea whose time has come. In all cases the common factors will be careful planning, allocation of adequate resources, organizing contingencies and having an implementation schedule. A careful monitoring of the implementation process with measurable performances is a must to make the whole exercise meaningful and productive. International Marketing Research It is also prudent to make a careful research of the target market. The data for this research is often available at government data collection agencies of the market as well as private agencies that collect data with different objectives. It is important to be able to ask for and obtain the right data as this can sometime be misleading as perspectives differ. This is the secondary data and primary data can be collected through talking directly to various distribution channels. A good way for deciding on choice of market is the twelve point framework known as the 12 c framework for analyzing international marketing Country – Check PESTEL Analysis of the potential market Currency – Check for currency stability or fluctuations Culture - Check for cultural differences that will affect Product/Advertising/Brand Equity Control & Co-ordination - Check for Organising and Monitoring after sales service possibilities Concentration (of markets) - Check for market segmentation Commitment – Check resources/time/skills required and plan for a minimum period for investments. Communication - Check for language/communication problems both inter-personal and media Choices (of consumers) – Check out competition with other foreign/local brands. Channels of distribution – Check for Logistic support and transport problems of area Contractual obligations – Check out for Legal issues while contracting with different stakeholders Capacity to pay – Check out the ability to pay factor of consumer as well as regulations like local taxes/tariffs. Caveats (laws) - Check out for local restrictive laws and regulations The Modes of Entry There are three general modes of entry to a potential export market. The first is by exporting the products directly to them to large customers or buyers who then independently decide on their sales strategies. The second is by having a contractual agreement with a distributor or franchisee that is bound by terms and conditions for sales and marketing. The third is by making investments in the designated country either by opening own property like showrooms or even setting up own factories to assemble or manufacture the product and then sell it locally. “The secret is to select that alternative that is most appropriate for the firm within a particular foreign market setting.” (Darling & Seristö, 2004, p.33). The mode is however determined by the marketing strategies that may be decided. International Pricing Policy A specific Pricing Policy is required by companies according to their situation. Regulation of Tariffs, Taxes and Duties all affect the prices in a given country (Cavusgil et al., 1993). In reality no single strategy in any given condition and Global marketing decisions on Price, Promotion and Distribution depends entirely upon the local environment. (Jain 1989). Although standardization brings in homogeneity across markets as well as customer satisfaction and cost savings in many ways, it has been argued that it also causes economies of scale and offers a low-cost competitive position in the global market (Cavusgil et al., 1993). However this is a very simplistic view and as explained elsewhere an adaptive view of pricing which takes local factors into account is more practical. (Douglas & Wind, 1987; Wind, 1986). This calls for a PESTEL Analysis of the target country. PESTEL Analysis There are many uncertainties when a company plans to exports to another country where conditions differ from the Home country. (Erramilli & Rao, 1993). Conflicting data and its interpretation make it difficult to arrive at decisions. (Boyacigiller, 1990), and in absence of adequate information it is impossible for companies to project consequences of their strategic decisions. (Achrol & Stern, 1988). Indeed this may lead to wrong and harmful decisions effecting performances overseas. (Lee, 1998). To overcome this difficulty Johanson and Vahlne (1977, 1990) and Wiedersheim-Paul, Olson, and Welch (1978) suggest that it is best if the target country is closely similar to the Home country to ensure success. Undoubtedly similarities are easier to manage and less challenging and more likely to succeed. This calls for a PESTEL analysis of the intended market. PESTEL Analysis measures the market potential and situation. These are external factors beyond the control of the Management. POLITICAL Legislation. Regulation of transfer for capital and labour. Stability of political system. ECONOMICAL Development of relevant economic indicators. Business cycles. Unemployment. Industry structures. SOCIO- CULTURAL Population and demographics. Customer behaviour. TECHNOLOGICAL Life cycle phases of products. Research and Development expenses. ECOLOGICAL Environmental Issues Waste Management LEGAL Judicial System Government Regulations Strategic Decisions With the above considerations a Strategic decision is now required to select two or three destination for the new venture. A background and situation analysis will lead to making a Strategic Plan. Such a plan will ensure the success of the export venture. A note of caution is that the plan must include an appropriate marketing mix, meaning a portfolio of adequate products, for a successful export venture. 5 Screening for the best Country Having arrived at a decision to export based on above factors it is recommended that a screening is done of the countries of the world to find out what is the most attractive destination for the Topshop/Kate Moss Collection. There are 193 countries in the world that are recognised by most developed nations. Besides, there are 58 other territories recognised by different nations and they are spread into 5 continents; North America, South America, Europe, Africa, and Asia. There are 9 criteria that must be present and available in the selected country for Topshop entry. The country which will pass this test will be the most suitable destination for its International venture. The criteria are English speaking population High population Influence of western culture High internet penetration Ability to pay – buying power Influence of weather (seasonality) Influence of celebrity factor Channel support Currency stability In the first round of elimination of countries, in North America USA is eliminated as Topshop already has a presence there. The selected country is Canada and others are eliminated for falling short on the above criteria. The whole of South America is eliminated as it is largely a non-English speaking area and the ability to pay in most countries is not large. Also there is high inflation in most countries which makes their currency unstable. There is presence of Topshop products in Europe and although it matches most criteria, the whole of Europe is largely non-English speaking and Kat Moss as a celebrity has a low profile in the area. Africa, with the sole exception of South Africa is eliminated as it hardly matches any criteria. In Asia, the Middle East India and China are attractive but again largely fail on some or the other criteria. Indeed the most suitable candidates are Hong Kong, Singapore, Australia and New Zealand. In the first round of elimination the following countries are selected; Canada, South Africa, Hong Kong, Singapore, Australia and New Zealand. A further analysis is now made to find out the three most suitable countries that match the above criteria. CANADA S/AFRICA AUSTRALIA N/ZEALAND SINGAPORE HONGKONG ENGLISH SPEAKING HIGH LOW HIGH HIGH MEDIUM MEDIUM POPULATION WITH BUYING POWER HIGH LOW HIGH HIGH MEDIUM MEDIUM INFLUENCE OF WESTERN CULTURE HIGH HIGH HIGH HIGH MEDIUM HIGH INTERNET PENETRATION HIGH LOW HIGH MEDIUM MEDIUM HIGH ABILITY TO PAY BUYER POWER HIGH LOW MEDIUM MEDIUM MEDIUM HIGH INFLUENCE OF WEATHER (SEASONALITY) LONG WINTERS LONG SUMMERS AVERAGE SUMMERS & WINTERS AVERAGE SUMMERS & WINTERS TROPICAL TROPICAL INFLUENCE OF CELEBERITY FACTOR HIGH LOW MEDIUM MEDIUM MEDIUM MEDIUM CHANNEL SUPPORT HIGH LOW HIGH HIGH HIGH HIGH CURRENCY STABILITY HIGH HIGH HIGH HIGH HIGH HIGH HIGH – 50-100% MEDIUM-25-50% LOW- 10-25% The result of the above analysis shows the following results. Country High Medium Low Canada 8 - - South Africa 2 - 6 Australia 6 2 - New Zealand 5 3 - Singapore 2 6 - Hong Kong 5 3 - From the above table the obvious three choices in this elimination round are Canada, Australia and New Zealand. However the choice has to be reduced to one and for this first a look is necessary to look at competition that will be encountered in these countries. Competition in the 3 short listed countries Top Brands Style/Type CANADA United Color of Benetton Casual clothing for women, men, and children.   Old Navy Clothes and accessories for men, women, teens, kids, and baby American Eagle Outfitters Casual apparel for men and women.   French Connection British fashion brand known for its clothing, cosmetics, and accessories AUSTRALIA Wheels & Dollbaby From "high society" ladies wear to "rock & roll" wear.   Billion Dollar Babes Cocktail dresses, chiffon gowns, cruise day dresses and more.   Billabong Surf fashions for men, women and children   Grab Denim Jeans, jackets and mini-skirts. NEWZEALAND Chocolat Outfits for race wear, weddings and special occasion dressing. Overland Dramatic new looks to tempt even the shyest shrinking violet,   Yvonne Bennetti The collection features short dress lengths focusing on A-line and structured knee length coats with Swarovski crystal detail on the sleeves and collars. Having determined the competition in the target countries a PESTEL Analysis of these countries will help determine the best option for Topshop/Kate Moss selections. Political Analysis CANADA Democratic System Of Government Free Market Policies No Restriction On Capital Movement Controlled Immigration Policy AUSTRALIA Democratic System of Government Free Market Policies No Restriction on Capital Movement Selective Immigration Policy NEWZEALAND Democratic System of Government Free Market Policies No Restriction of Capital Movement Controlled Immigration Policy Economical Analysis CANADA Import Tax On Imports Including Apparel Unemployment 5.90 % Average Industrial Economy Growing Oil Sector AUSTRALIA Unemployment 4.30 % Mainly Agricultural Huge Mining Industry NEWZEALAND Unemployment 3.80 % Mainly Agricultural Economy Tourism Industry Biggest In Country Socio Cultural Analysis CANADA 33 Million Population 76 % Live In Urban Areas 99 % Literacy Rate Consumers Are Quality Conscious AUSTRALIA 20 Million Population 90 % Live In Urban Areas 99 % Literacy Rate High Consumption Of Consumer Goods NEWZEALAND 4 million population 70 % live in urban areas 99 % literacy rate Consumers highly price conscious Technological Analysis CANADA Little R & D Activity No Significant It Industry Presence AUSTRALIA No R&D Presence No Significant It Industry NEWZEALAND No R&D Presence No Significant It Industry Ecological Analysis CANADA A new poll in 2007 shows that the majority of Canadians (61%) feel strongly about the environment, saying they are "very concerned" with the issue AUSTRALIA In 2004 57 % of the population was aware of ecological damage that can be caused by negligence and purchased environment friendly products NEWZEALAND High environmental consciousness and a variety of legislation for same Legal Analysis In all 3 countries, very sound legal system, based on UK laws exists, and the Judiciary is fair and active. Justice dispensation is fair widely recognized and fast. International Property Rights are also respected. Apart from the PESTEL a SWOT analysis is also carried out. This reveals internal factors that can be controlled or manipulated by the company and help in making strategic decisions.   Strengths Weaknesses Opportunities Threats CANADA Large urban population with purchasing power inclined towards high value purchases (evidence existence of high presence of brands Consumers more influenced by us brands like old navy and American eagle who have high presence Customers are fashion conscious (proof is large number of foreign and local brands) Presence of American and British brands with great brand equity AUSTRALIA Large urban population more conscious of environment friendly products High cost of living limits purchasing power Large percapita incomes encourage high fashion purchases Eco consciousness diverts consumer attention to environment friendly brands NEWZEALAND Big tourism brings additional buyers Low population favouring low value purchases Large number of tourists that are impulsive buyers 70% of apparel market controlled by cheaper Chinese brands The PESTEL and SWOT eliminate New Zealand as the destination as it has a low population and the preference for cheaper apparel from China. But Canada and Australia show a very close resemblance to each other, and since only one destination is to be decided upon, a run-off between the two is made by factoring in some more criteria. The result is as under.   POPULATION PER CAPITA INCOME NUMBER OF CARS URBAN POPULATION CANADA 33 MILLION July 2007 US $ 35,514 1.5 MILLION 76% 25 MILLION AUSTRALIA 20 MILLION July 2007 US & 33,037 0.9 MILLION 92.7% 18 MILLION 6 Conclusion The choice becomes more obvious now. Canada should be the final choice as it has a higher population as well as a higher percapita income. This means there will be more customers for the Topshop/Kate Moss collection in Canada and therefore it is the most attractive destination for its International venture. 6 Bibliography Achrol, R. S. & Stern, L. W. (1988). Environmental Determinants of Decision- Making Uncertainty in Marketing Channels. Journal of Marketing Research, 25 (February): 36-50. Boyacigiller, N. (1990). 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New York: Harper & Row. Wiedersheim-Paul, F., Olson, H. C. & Welch, L. S. (1978). Pre-export Activity: The First Step in Internationalization. Journal of International Business Studies, 9 (Spring/Summer): 47-58. Wind, Y. (1986). The Myth of Globalization. Journal of Consumer Marketing, 3 (Spring): 23-26. The Economist, 2006, 14 September Print Edition, London. World Wide Web Arcadian Group Ltd available at: http://www.arcadiagroup.co.uk/about/financial_results.html Accessed on 26 October 2007 Fashion United News available at : http://www.fashionunited.co.uk/news/topshop.htm accessed on 26 Oct 2007 Modlock. Sarah,. Are Celebrety Endorsements Worth it?, available at: http://money.uk.msn.com/mymoney/womenandmoney/article.aspx?cp- documentid=4881712 accessed on 26 Oct 2007 Topshop available at: http://www.topshop.com/webapp/wcs/stores/servlet/StaticPageDisplay?storeId=1 2556&catalogId=19551&identifier=ts1%20about%20topshop accessed on 26 Oct 2007 Read More