Tommy Hilfiger Has Struggled to Compete With Case Study
- Length: 5 pages
- Sources: 8
- Subject: Business
- Type: Case Study
- Paper: #66060257
Excerpt from Case Study :
Tommy Hilfiger has struggled to compete with the upscale brands of France and Italy. The European customers are quality conscious and price is secondary to the quality in Europe. Hilfiger adopted a strategy of internationalization. This was based on several potentially lucrative outcomes being contemplated by Hilfiger management. The initial purpose served by selling internationally is that the company tries to compensate for the loss of domestic sales. Risk reduction and economies of scale are also the benefits of selling internationally. Selling domestically on the other hand entangles the company in increasingly complex and unrewarding strategies. In Europe, Hilfiger merchandise costs more due to higher management cost and inefficiencies in distribution network of retailers and wholesalers. Customers in Europe demand better quality as well. Increasing cost in Europe may leave the brand reflective of a non-uniform strategy. The paper highlights Tommy Hilfiger's issues of doing business in an increasingly competitive business environment, both in Europe and America.
There were several compelling reasons that forced Hilfiger to adopt an internationalization policy. Increased growth potential anticipated by company management led the Hilfiger's CEO deciding in favor of internationalizing the brand. In order to avoidi) creating a non-uniform brand image and ii) increment in costs, Hilfiger planned to sell internationally. By harmonizing the market offering, as well as the marketing strategies, the company can increase its equity capitalization against each dollar spent on research and development. Since domestic market in the U.S. was approaching saturation and the company intended to capitalize on the brand image it has so earnestly created, Hilfiger intended to expand it in other parts of the world. After the integration of European Union (EU) as a single block, political and economic, Hilfiger sensed an opportunity regarding brand's potential to capture the market share. The creation of a value supply-chain that revolved around efficient sourcing strategies was what Hilfiger hoped to leverage upon. Factors of potential growth orientation and increase in revenues also play a role in determining the potential for internationalization (Quinn, 1999). Access to the European market as well as knowledge of this particular market has increased. Therefore, more numbers of apparel brands of the U.S. are exploring this market. By selling internationally, the company also seeks to harmonize its product range, business strategy, and secure its existence as an international fashion brand. Since the company has already adopted a fragmented strategy in Europe and North America, selling internationally can create a coherent brand image, product offering, and aligned business strategies. By not doing so, the company runs into the risk of compromising company's competitive brand image as a favorite sports and celebrity star brand. The brand image already created by the company will easily be communicated outside and across the borders.
Gaining competitive position through internationalizing
By internationalizing the brand, Hilfiger is able to sell clothes to all upscale markets currently occupied by major European brands. Domestic market has many emerging factors that undermine established brands in clothing and convenience goods. Large departmental stores have launched their private brands. With increased bargaining power of local distributing channels, the company cannot afford to lose the market share to new business competitors. Internationalization also compensates for the loss of domestic sales (Hassler, 2003) for Hilfiger. Researchers such as (Li, 2001) have also mentioned that increased firm performance was enabled with internationalization strategy. The experiential learning that takes place for the firm is valuable to create value for the end-customers. Risk reduction is also said to reduce by internationalizing the brand. Introducing uniform prices, with some variation, and improved designs, Tommy Hilfiger will be able to compete with the French and Italian brands of men's clothing. This competition will be on price and quality of clothes.
Increased domestication of brand creates marketing complexities
There are many potential disadvantages attached to selling the merchandise on purely domestic basis. Each geographic market has its own characteristics regarding acceptable price level, designs, distribution, and marketing channels. Issues such those related to distribution and stylistics will also get complicated once the brand is increasingly tailored according to local taste. The 'inspiration' element in clothing designs is eliminated when customized excessively. Other minor issues include difference in preference for fashion model celebrities used for marketing campaigns. Each domestic market, as in case of Europe, requires looks and physical features according to their own 'perception' of being sexy, attractive, and tasteful. Increased product differentiation of Tommy Hilfiger based on factors such as geographical area served, age of consumer, and quality of productwill lead to substantial increment in cost of doing business for Hilfiger.Daniels, Radebaugh & Sullivan (2011) observedthat product changes for Europe increased the 'production cost' of Hilfiger. By eliminating differentiation in product offering on the base of each domestic market, Hilfiger will be able to save that money for resolving issues related to managing a more fragmented retail and wholesale supply chain in Europe. Selling on domestic basis increases complexity of operations and results in cost increment.
Europe: Higher prices and complicated distribution network
Firstly, Europeans perceive France and Italy as fashion centers of Europe and praise their fashion brands. Germany is the largest market for Hilfiger products in whole of the Europe. However, quality demanded by the Europeans is also more than that which is acceptable in the U.S. market. Europeans are also not apprehensive of higher than 'highest' average prices of the U.S. market for Hilfiger shirts. Unlike the U.S. consumer marketfor apparel, cotton shirts are least sought after in Europe. Another instance for quality consciousness of Europeans is that they do not approve of 'cotton sweaters', unlike the Americans. They are willing to pay more money for woolen sweaters. In Europe, luxury items of Hilfiger are also in high demand, specifically in Italy. The company had to discontinue selling their U.S. oriented product line in Europe. This led to alteration ofproduct designs, fabric quality, and marketing channels. All these changes resulted in significant increment in operational cost of the company.Fragmentation of distribution system (retail and wholesale) is another factor that causes operational cost of Tommy Hilfiger to increase. As much as three times of the cost of doing business in U.S. is incurred on doing business in the European market. Productivity growth in the U.S. is primarily driven by retail and wholesale markets. Technology and organizational change (McGuckin, Spiegelman & Van Ark, 2005) has increased the efficiency of retailers and wholesalers in the U.S. Some key factors that provide competitive advantage to the U.S. retail and wholesale system over that of Europe are:
The use of information systems to gather and disseminates consumer data for analysis
Real time information flow through integrated supply chain management system and inventory management system
Considerably decreased operating margins due to investments in technology and management systems development
Such features of the U.S. retail and wholesale distribution system do provide a 50-100% cheaper network of distribution to the manufacturing companies.Supply chain management (SCM) system of European retailers and wholesalers is less efficient as compared to their U.S. counterparts.Distribution network in Europe has yet to be established on an efficient SCM model. Lead supply times within the supply chain also need to be shortened (Christopher & Towill, 2002). Since retail and wholesale markets are less efficient in managing supply chains in Europe, reduction in time-to-market cannot be achieved by Tommy Hilfiger. Thus, maintaining high standards of quality and having to afford a comparatively expensive distribution system of retailers and wholesalers has led to a price hike in Hilfiger merchandise in Europe.
Disadvantage of price hike of Hilfiger brand in Europe
The potential disadvantage that higher prices in Europe as opposed to the U.S. is that this might send an ambiguous and inconsistent message to the target market. There will be a non-uniform brand established in the European market that is already flooded with expensive brands. Tommy Hilfiger might stretch its competition in the European market by increasing the price. By charging higher price in Europe, the brand will be exposed to competitors that it has not planned to compete with. By inviting increased competition and category expansion of its product, Hilfiger will also risk losing the customer age group of 20-30. This age group does value Hilfiger for being a trendy upscale brand within affordable price range. The company will have to provide superior quality for charging more as compared to the U.S. market. Such a strategy could lead the Europeans to startplacing online orders for the Hilfiger apparel from U.S.A that will cost them less as compared to buying clothes from European market.Keeping of two collections in their product offering will complicate the management of operations and marketing. Marketing communication will find it difficult to justify and harmonize both the product lines, in U.S. And Europe. There is an increased integration of markets currently going on in the international markets for apparel. Tommy Hilfiger being no exception is expected by majority of the consumers to promote an integrated look-a-like image of the company.
Currently, the European economies are passing through a recessionary phase. Most of…