Targeting and Segmentation Competitive Strategies Market Driven

Targeting and Segmentation

Competitive Strategies

Market Driven Strategies

Positioning

Value Chain Analysis

Merchandising

Pricing

Communication Tactics

Store Location and Store Atmosphere

Service Level

Support Activities

Infrastructure

Technological Development

Procurement

Primary Activities

Inbound Logistics

Outbound Logistics

Marketing and Sales

Operations

The study is based on the analysis of Next Retail Clothing in Denmark. Next is a United Kingdom-based company. In the study a complete analysis of the retail mix is carried out and the reasons for their success have been highlighted.

NEXT Retail clothing Copenhagen, Denmark has been selected for the assessment. NEXT is a retail chain with over 500 stores in the United Kingdom. NEXT has a directory of a home shopping catalogue and website with over 3 million customers who participate actively in their activities. NEXT International has a presence all over the world and has over 180 stores all across the world. NEXT has a website service for over 30 countries. NEXT has a separate sourcing group, which is responsible for the designs, sources and purchase of the NEXT branded products. The brand which is most famous of Denmark is "Lipsy"; it is extremely popular in the young female population. Lipsy's most of the sales are through retail but they also use internet effectively to promote their brands. The revenues for the year 2011 were GBP 3.5 Billion of NEXT Clothing. ("Next Plc NXT: LSE Company Description" Financial Times, 2011)

NEXT was first launched in the year 1982 and the first store consisted of only styling and clothing items for women. Soon they realized that there is also a market for men and children's clothing and accessories and later ventured into home collections also. NEXT has an in-house designing team which is held responsible to cater to the latest fashion trends. In 1988, NEXT introduced a NextDirectory which was hardbook containing the all designs available for sale. In 1999, online shopping was introduced and the entire catalogue was available on the website. The international website provides service in over 30 countries. Next has a culture which focuses on customer orientation and makes sure that the customers can buy the products conveniently. A new way of delivery service has been introduced which delivers the orders on the weekends just to make sure that the customers can conveniently check the product and receive the deliveries.

Segmentation Variables for the Denmark Clothing Market

There are basic two kinds of segmentation variables for any market; macro and micro. Macro variables cover the demographics and geographic while micro variable consists of behavioral and psychographics. (Woodhouse and Collingridge, 1993) It is crucial to identify the variables which suit the clothing market of Denmark for Next clothing retail. The following table will help us analyzing the major variables which suit them:

Suitability of Segmentation Variables for Denmark's Clothing Retail

Geographic

Demographic

Psychographic

Behavioral

Geographic location is near to the parent company which helps in making transactions and bringing in stuff from UK.

Urban areas are more suited their brand which consists of major portion of Denmark.

Age: People of different age brackets have different preferences which change with time.

Social Class: Socio Economic Class A, B, C are in majority which means people have more purchasing power.

Education: College going students are the major spenders in the clothing industry.

Lifestyle: People in Denmark have a trendy lifestyle.

Fashion Orientation: People like to follow fashion and are updated with the fashion industry.

Speed: People like to buy stuff online because they have a fast lifestyle which suits Next as they have a reliable delivery service.

Usage Rate: People like to switch clothes in Denmark quickly as they want to be up-to-date with the fashion which means there is an opportunity to sell more.

Targeting and Segmentation:

The following is the segment that Next Denmark has targeted:

Geographic

Demographic

Psychographic

Behavioral

Region: Urban

Age: 15-60

Socio Economic Class: A, B and C

Lifecycle Stage: Bachelor Stage and Newly Married Couples

Trendy

Fashion Oriented

Stylish

Individualistic

Positive

Benefits

Occasions (especially Christmas)

User Status: Regular, Potential and First Time

Competitive Strategies

Market Driven Strategies:

A competitive advantage of a firm can be evaluated by Porter's Generic Map which would help in identifying the firm's strengths which can either be based on cost advantages or by differentiation. These strengths can be applied in two types of market; broad or narrow. So to sum the Porter's generic map there could be three strategies 1) Cost Leadership 2) Differentiation 3) Focus industry dependent. (Porter M.E., 2008)

TARGET SCOPE

ADVANTAGE

Low Cost

Product Uniqueness

Broad (Industry Wide)

Cost Leadership Strategy

Differentiation Strategy

Narrow (Market Segment)

Focus Strategy (Low Cost)

Focus Strategy (Differentiation)

(William E. Fruhan, Jr., "NPV Model of Strategy)

Next has employed a cost leadership strategy. The major products of Next are their adult fashion wear which is catering to the people of age group 20-40. Next has been selling their products at low prices which has enabled them to cater to a large audience and they have managed to gain a lot of market share in the troubled financial times. Differentiation is not that important for Next because similar alternatives are available for the target consumers at higher prices so they have focused themselves on working on the processes which can cut their costs and enable them to charge a lesser price. Lesser price does not mean that they have compromised on the quality of the products instead they have carefully monitored that the quality does not suffer. (Wilson and Gilligan, 1998) Strategic group mapping helps the company in identifying their own position relative to the positions of their competitors. It is important to identify the positioning of the competitors as this can give them an idea about the free space in the market from where they can get many opportunities. On the other hand, a company can also avoid entering a space which is already overcrowded. (Kippenberger, 1998)

Positioning:

MARKS & SPENCER

NEX-T

DIFFERENTITION C&A

PRICE

(Kaplan, Robert S.; David P. Norton (2004). Stratgey Maps: Converting Intangible Assets into Tangible Outcomes, page 7)

The above strategic mapping shows that the positioning of all the three competitors is quite different from each other. Marks & Spencer is considered as a high priced brand which has focused on differentiation. C&A lies between in the graph because it has products which are differentiated and the price is also neither high nor low. The target market of Next is mostly the younger generation therefore they cannot charge a high price because the younger generation does not have that much spending power. However even with a low price Next has managed to maintain a substantial differentiation through the efforts of the Next Sourcing department who are responsible for continuous innovation and styling of the products. (Kaplan, Robert S.; David P. Norton, 2004)

Value Chain Analysis

Value chain analysis basically describes the whole process of how the raw materials are bought and then processed to be sold to the end customers. The value chain analysis can be classified into two categories: 1) Primary Activities 2) Support Activities. Primary activities are those activities which are directly involved in the creation and delivery of the product. Support activities are those activities which are not directly involved in the creation and the delivery of the products but it can affect the efficiency of the processes. Strengths and weaknesses of a company can easily be identified from analyzing the value chain of a company. (Barney J., 1991)

Merchandising:

Next Denmark has been focused on the clothing range, however internationally it has ventured into other areas as well. They have gone beyond the clothing market to home appliances and home furniture which have been extremely successful. In Denmark they have been reluctant to open retailing for furniture as they are yet not sure how the market will react. At the moment they are offering a wide range of clothing variety which is offering to different set of consumers. Following are the products that they are offering:

Women

Girls

Boys

Men

Casual Wear

Smart Casual

Jeans

Tailored Looks

Shoes, Sandals and Boots

Swimwear

Lingerie

Sportswear

School wear

Hats and Accessories

Occasion

Shoes, Sandals and Boots

Newborn

Sportswear

School wear

Hats and Accessories

Jeans

Occasion

Shoes, Sandals and Boots

Newborn

Sportswear

Ties

Shirts

Casual Wear

Trousers

Jeans

Tailored Looks

Jackets

Shoes and Boots

Swimwear

Underwear

Sportswear

Pricing:

Next has been globally following a cost leadership strategy and they have implemented the same strategy in Denmark as well. They have been able to maintain low prices due to efficient supply chain and have been able to reduce costs. The low costs have meant that they have been able to reduce the prices as well, in this way they have maintained good amount of profits despite of low prices. (Susannah Streeter, 2010)

Communication Tactics:

For promotions Next relies heavily on Out Of Home (OOH) media as they spend heavily on streamers, billboards, LED screens, Gantries and pole signs. They have also heavily invested in digital forms of media as they have a strong digital presence globally. In store promotions are also a common feature of their promotional plans. There whole communication is based on the insight that their customers are price conscious yet they need quality products so they have based all their ads targeting that psychic of customers. (Finch J, 2005)

Store Location and Store Atmosphere:

Right location and the right atmosphere plays a critical role for a success of a company therefore the selection of the place should be made carefully and a thorough research should take place. Next Retail stores are located in Copenhagen in places which are not far away from the residential areas so that the shopping experience is convenient for the customers. The following table will help in understanding the atmosphere which is created in the stores of Next Retail Clothing as in the first column the customers' psychic is mentioned that what are they looking for, in the second column the stores in Denmark are described and in the third the effect of the stores on customers is highlighted:

Customers

Searching for trendy yet affordable clothes

Wants to be satisfied by trying them

Usually comes along with friends and family for combined shopping

Store

Huge investments on interiors and designs

Spacious stores

Colorful environment

Localized environment is created by including items of traditional Danish art and craft

Trial Rooms

Family Environment

High Technology Security

Effects

Creates a trendy and vibrant image of the brand

Creates an experiential shopping experience

Feels like a member of the Next family

Service Level:

Globally Next has maintained high service standards and they intend to do the same in Denmark also. All the employees go through a training program in which they are taught different skills but the main focus is given on the customer satisfaction. There is a money back guarantee on faulty items. Customers in store are treated with a smile and are taken care in a friendly manner which helps establishing long-term relationship with the customer. The online service makes a large chunk of the sales of Next and in online dealings the staff has to be very careful because it is easy to misunderstand things online. For online transactions they have another team which is trained differently. Online orders have to be delivered in a quick time and often customers make unrealistic expectations which need to be dealt with professionalism.

Support Activities:

Infrastructure:

NEXT Denmark has received a strong financial support from the parent company and has been able to make all the technological and Next is UK-based company but it has a presence in more than 35 countries. It has retail outlets all across UK. They have over 55 outlets across UK which helps them to manage their sales effectively as they do not have to rely on other distributors and retailers for their products to sell. Raw materials are usually outsourced from countries like China and India.

HRM:

Next has an HR department which deals with the basic recruitment and selection process. The recruitment is done through several channels like advertisements, on campus recruitments and word of mouth. Employees are selected on merit and are paid at a handsome amount of money for their services.

Technological Development:

Next continuously strives to get the latest technology so that they are able to reduce their costs. Internet has been a major source of a business for Next so they keep a close eye on how new developments are made in the field of internet.

Procurement:

The company procures the raw material through the bidding process and accepts the bids from the different suppliers then evaluates different bids. The order is then selected on the terms and conditions that a particular supplier offers since the cost of the raw material is quite. The bid that offers more favorable credit terms and conditions is then selected.

Primary Activities

Inbound Logistics:

The main component that they require for the manufacturing is cotton which they buy from outside the country, they are bought at low prices the normal time for the raw material to reach through sailing is 20 days which further takes 2 weeks in getting the clearance from the customs department. The only way to have a benefiting position in the inbound logistics system would be that of advance orders of the raw material to avoid the effect of fluctuating prices that the international market has.

Outbound Logistics:

The product delivery is divided into two segments which include the delivery to the customers buying from retail outlets and the other customers are who buy online. Next is known for its timely deliveries to the customers hence they have an edge over the other competitors.

Marketing and Sales:

The marketing and sales department of Next is quite effective and has been able to add value to the company's position. Next has been using many different marketing channels over the years. There have been many BTL and ATL activities in the last two years to create a strong awareness of Next.

Operations:

The manufacturing processes that are involved are very much standardized. However the distribution processes are not that standardized and the company gets an edge because of its strong presence in the various areas of the globe.

Sustainable Competitive Advantage:

Next has a large investor base and those investors have been making good returns for the past few years so they would be willing to provide Next with a large amount of capital for future ventures also. The company has been able to maintain a strong presence in the international market due to its well established online presence. The online technology provides them a very good opportunity to expand into many other countries and enter into more profitable markets. Brand Image is what the competitors cannot copy. Next has a very good reputation in the market. They have a unique image of providing quality products at reasonable prices. The past customer relationships could be considered as a resource to the company because they can build on from those relations if they are able to keep those loyal customers delighted. Next has an extremely committed and efficient workforce which has been able to give them a competitive edge over its competitors. Cost Efficiency has given them a definite edge over its competitors and has enabled them to charge low prices than its competitors. Organization culture is completely focused on the customer service and has developed relationships over the years which cannot be imitated by its competitors. Delivery system is quite unique and innovate which is not easy to replicate.