Analysis of Hollensen and the Primark store

Analysis of Hollensen and the Primark store According to Hollensen (2007) ,  « global marketing consists of finding and satisfying global customers needs better than the competition, and of coordinating marketing activities within the constraint of the global environment  ». In that essay , it comes to think about: In what way Primarks strategy could correspond to the needs of French customers. In other terms, is there an opportunity to Primark to setting up itself in France seeing the French environment. Irish clothing retailer founded in 1969 under the name of Penneys (still in Ireland) , Primark represented in 2008 3,9% of the global clothing retail value in United Kingdom. and counted 21827 employees. With a revenue which have reached 2,314m  £ in 2009, Primark count today 206 stores split among England as a majority with 144 stores ,Ireland Spain, Portugal, Germany , Netherland and more recently in Belgium. Retail part of the Associated British food group in which it represent in 2009, 25,5% of the entire revenue of the group, Primark enjoy the stability and the power that ABF group bring to the retailer. With a strategy of good quality for cheap price, Primark is after 40 years of experience recognised the second largest retailer in Uk with a growth in 2009-2010 higher than it competitors. With a gloomy economic climate which encourages people to look after the opportunity to buy cheaper, some leaders of the French fashion market as Zara, Kiabi and HM keep watching close this giant that is surrounding France and that nothing seems to stop. In today competitive market, satisfying the customers is seen as the only source of the firm profits. Precisely targeting our market seems to be the key success factor. In segmenting a market, factors such as geography ,demography, psychographic and behavioural would be relevant to analyse . Today, Primarks strategy is to propose an entire concept through all these stores.Allowing to realise economy of scale in the production and marketing, Primark is able to propose low prices. In the target market analysis, it is relevant to analyse if the target market of Primark in the UK would be suitable and have an opportunity of growth in France.(because changing the target market would bring to much costs for Primark). This essay will focus on the clothing part of Primark seeing the fact that Primarks core competencies is clothes retailing, that home market is a completely different market in France as well as baby clothes and required a particular analysis for each of them. Moreover, French clothing market could represent a growth opportunity as we will see below. In 2008, French population from 15 to 35 represented an important part with 38,7% of the total population. In terms of clothing expenditure, in 2009 men consumption in clothing for the 15-25 reached 3,9millliardsà ¢Ã¢â‚¬Å¡Ã‚ ¬ nearly the same than women. However, in a general way, French men clothes expenditure is 15% less than women with an average of 360à ¢Ã¢â‚¬Å¡Ã‚ ¬ for the year 2009. After gloomy 2009 year with a decrease of the consumption on clothing, 2010 represent the stop of the degradation of the clothing consumption with a tiny increase of O,2%With a young population in expansion, a target market still buying clothes and a general consumption of clothing which restart, there is an opportunity of growth for Primark in France. If we look at the Internationalisation motives of Hollensen (2007), one of the proactive reason which pushes a company to internationalize is the managerial urge that he defines by a reflection of general entrepreneurial motivation of a desire for continuous growth and market expansions. In the recent year, Primark showed the desire of conquest the western Europe by entering in new country such as recently Belgium. According to Bason John, financial director if AB foods, the performances of our new shops in the Iberian peninsula gives us the impulsion to continue our development in the European continent. Then, the first motive which could bring Primark in France could be the desire to become an European player of the fashion through it expansion all over Europe. One of the others proactive motives present by Hollensen is a foreign market opportunities and market information. Analytical tool such as PESTLE which allowed to get this information. Both part of the European union, UK and France benefit from the common European Union policy which facilitates exchange and trade. However, through state aid and by encouraging mergers between French firms to prevent takeovers by foreign firms, French government act against EU policy and still maintain a kind of protectionism. However, France benefits from a Political stability and the political side of France should not represent a threat for Primark. With an increasing unemployment rate and a decreasing consumption the last years, it seems that the crisis could represent an ally for Primark. While a study about the purchasing power shows that 49% that the under 35years old thinks that their purchasing power has strongly decreased the consumption habits of French goes forward the last opportunity to buy cheaper. As a study of clothing in France explain, the success of the sales periods shows that the sales drop mainly due to purchase power constraints but not as a fashion rejection. With its strategy  « sales price » all the year round, the change in French consumer habits could represent an opportunity . However, the consumer expenditure on clothing is a lot more higher in UK than in France with an expenditure for 2009 of 37805mnà ¢Ã¢â‚¬Å¡Ã‚ ¬ decreasing in comparison with 2008 in France against 40472mn £ in UK ( à ¢Ã¢â‚¬ °Ã‹â€  46542à ¢Ã¢â‚¬Å¡Ã‚ ¬) increasing in comparison with 2008 While expenditure in UK continue to growth when it decrease in France , it could make Primark think that the clothing consumption habits between UK and France are different and then could represent a threat to Primark implementation. Finally for the consumption, according to the clothing in France report 2009, by 2013, clothing sales are forecasted to reach 26,980à ¢Ã¢â‚¬Å¡Ã‚ ¬millions, a 2,1 % rise in constant value compared to 2008 which let hope for Primark a bright future. In spite of the fact that Primark is an Irish company, from a market research and data point of view it is more relevant to analyse the accessibility of the French market through the comparison with the English implementation which is more important than the Irish one (144 shops in England instead of 38 in Ireland However, from a financial side , it is more relevant to deal with the Irish headquarter company where the money is going because Ireland is in eurozone. Alhtough as a report of associated british food explain, in a uncertain economic environment, price and exchange rate volatilities could be the major threats to the groups profitability By dealing with Ireland, Primark escape that kind of risks. In France, fashion remains an important part of the culture. Then , according to a study , French people are still attached to the brand and the luxury in the fashion sector and would prefer after use the sales period ( 41%) , buy cheapest brand (33%) Then, even if that trend does not automatically represent Primark target market (under 35)which can not necessarily afford luxury brand, French culture in the fashion sector could represent a threat for Primark. France has to face to the ageing of it population. Until 2050, 1/3 of the population will be ageing more than 60 years old. While some of Primarks competitors such as Kiabi (which proposes a fashion for the whole family), could begin a  « senior marketing  » by proposing clothing for senior, Primark could not enjoy this opportunity risking to break its strategy and positioning and lost its target. In an article about the factors of primarks success, Susan Segal-Horn says The focus part of Primarks strategy is the specific customer segment it focuses With a clear positioning , Primark answers to a special target market needs. Its ageing of population represents an indirect threat for Primark because it does not concern its target but it could benefice to its competitors which could gain a competitive advantage. In spite of the fact that the technological aspect is not the most relevant in the implementation of Primark in France, it is important to notice that the evolution and increase of the new technology influence the consumers to purchase more technological product such as mobile phones, internet, or IT equipment to the detriment of others goods such as clothes. In Primarks case ,legal and environmental factors are linked. According to a study, fashion industry remain one of the most exploitive in the word, both to people and environment However, consumers are more and more aware of the environmental aspect of goods. Often critics for this workers conditions, Primark is now part of Ethical Trading initiative which guarantees the protection of workers and environment. Analysis an environment , it also analysis the competitive environment to be able to gain a competitive advantage. According to an article about the success of Primark, primark has got teams of buyers in UK and Ireland travel internationally both to identify fashion trends and to seek out the most competitive suppliers Then, by always looking to reduce its costs Primark prefers to spread its production through a lot of small suppliers which made the power of suppliers low. Highly competitive, the clothing retail industry is already full of players. Moreover, the costs to get in the market is very high which make the threat of new entrants low. This highly competitive market make the power of buyers very high. Indeed, consumers trends in now to look after cheap prices. By having multi choice, they can easily switch from a shop to another. Still due to the multiplayers market, the power of substitutes product is high. Indeed, the competition is more based on the price strategy but the product range that propose all the shop follow the same fashion trend. Then , the products are quite similar from a shop to another. Source: clothing in France, Euromonitor international, October 2009 As we can see with that figures, clothing industry in France does not have a big driver players but still have some strong brands such as Vivarte which groups 24 brands such as LA HALLE, DEFIMODE.. which are, according to their price strategy similar to Primark and could represent potential competitor. However, brand such as ZARA, HM very popular and perceived as trend setters among the French population will represent the biggest competitor for Primark. But those brand proposing price still higher than Primark, Kiabi, by it price strategy similar to Primark could represent a big competitor from a price strategy side. Add to that direct competition, the increasing of the online shopping. According to the IFM group, online clothing sales increased by 31% in value between July 2007 and June 2008 To get a well understanding of the opportunity that Primark has in France, a SWOT analysis will be helpful: According to clothing in France report,  « In terms of market share, the leader have the ability to adapt quickly to market demand by offering many different collection By proposing a fast fashion strategy, Primark has the opportunity to become an important player in France. However, it will have to face to a high competitive industry with some players already well established and some consumers habits. When a company is considering all possible channel strategies when entering in a new market, there are three major modes: Export, Intermediary (or contractual mode) Hierarchical (or direct investment activities). According to Hollensen ( 2007), the choice of the entry mode can not be stated categorically and depend on many internal and external conditions. By analysing some of the Hollensens factors, we will analyse which way should take Primark to its entry in the French market. As a manager from Primark says in the corporate video its quality travel, its value for money travel. Primark is exporting a whole strategy, business and know-how. Franchising , one of the intermediate modes allowing to use an entire business in compensation of money could bring the opportunity to Primark to control the major part of it setting up in France. However, by having strong financial resources, Primark is able to choose an entry mode market which could guarantee it a total control of it business and escape the risk link to an international franchise (quality control, jurisdiction) . A hierarchical model, even highly risky and not flexible, seems to be in the setting up of Primark in France the most relevant. According to Hollensen(2007),  «hierarchical mode is the entry mode where the firm completely owns and control the foreign entry mode and organization. Conscious that few hierarchical modes are possible, the wholly owned subsidiary seems to be the most adapted for Primark setting up in France. Through a total control of it operating companies and by controlling the know how, the decision making, the companys trade secret, the wholly owned subsidiary allowed to Primark which have for objectives to become a European player to be implemented more easily a coordinate strategy. Moreover by choosing a Greenfield investment, which is defined as direct investment in new facilities or existing facilities instead of an acquisition which acquires an existing firm, Primark would be able to keep its production logistics strategy. Although Primark production strategy is the base of cost saving, main factors of its success. By dealing directly with manufacturers mainly in Asia and by ordering in huge volume, Primark is able to sell at very low price notably thanks to the cheap labour cost and by realising economy of scale. Setting up in a very high competitive market, Primark has to adopte a strategy which will allowed it to gain a competitive advantage. According to Michael porter (1985), there are three basics competitive advantage that a firm can possess: Low cost, differentiation, Focus. According to Johnson the low price strategy, seeks to achieve a lower price than competitors whilst maintaining similar perceived product or service benefits to those offered by the competitors. According to Lynch the low cost leader in an industry has built and maintain plant, equipment, labour costs and working practices that deliver the lowest costs in an industry. By always looking for the most competitive suppliers all around the world and by spreading its production in developing economies which offered low cost labour, Primark is able to control it cost and at the end to propose cheap price to its consumers. According to a menswear controller in UK in an interview We do bring extraordinary value to our customers but we do it by bringing extraordinary volume to our factory In proposing the same product everywhere, Primark is able to order huge quantity which allow to realise economy of scale. As the Associated British food report in 2009 summarises Primark offers low price because it purchases very large volumes and has low marks up, minimal advertising and low overheads. The entire Primark concept is built around the control of its logistics, cost and strategy development which allows it to follow a cost leadership strategy when it comes to it setting up in France. By following its strategy, Primark would launch a Price war within the French market obliging its competitors to reduce their margins as HM and ZARA already start to do so However , as one of the article highlighted : it takes a lot of money to look this cheap.and the control of the cost is very hard to manage which explain the choice of the wholly owned subsidiary as market entry mode. IMPLEMENTATION Developed by McCarthys around the four major Ps (Product, Price, Place Promotion),the traditional marketing mix has received criticisms. Including three others Ps (people, physical evidence, Process) suggested by Booms and Bitners, the 7Ps framework is today the reference to analyse the implementation of a strategy. In favour of the globalization, Levitt argues that, the needs of consumers are more and more homogenized creating a single global market pushing towards a global strategy (standardisation instead of adaptation to the local market). Then, implementation is all about whether adapt or standardize. If we look at the factors favouring standardisation such as the convergence of tastes and consumers needs, the economies of scale in RD, production and marketing, then Primark would definitely go towards a standardisation of its strategy when it is setting up in France. Primarks product strategy is to propose the same collection everywhere, with the same clothes in each of its stores which allows them to order in huge quantity and at the end to propose low price. The other part of Primarks product strategy is to put new product on the shelf every week. A season is defined by Primark not as summer, winter or spring but as six week window When Primark will setting up in France, the concept and the product will be the same than in Germany, in Spainà ¢Ã¢â€š ¬Ã‚ ¦ However there is existing differences between French and English clothing style. Indeed as an article about the French style clothing explain, Bold and bright colored clothes, loud prints or lots of embellishments are something French women avoid wearing In a general way, the French fashion looks more classical and simple than the English fashion. According to my shopper experience, Primarks clothing lines are for some of them flowery, with a lot of prints and really colourful. Moreover the size of the dress that English girls are wearing are very short in comparison with what I am used to seeing. An adaptation of the product could be judicious for the setting up in France. However, any adaptation bring costs which could increase the price and do not correspond to Primarks low costs strategy. Primarks product will follow a standardisation strategy in a first time and could like in Spain adapt some clothing lines as the director of the Spanish Primarks explains when he says the taste of the Spanish customers are similar from the British one, in spite of the fact that some clothing collections has been adapted with for example more colour for the Spanish market. When it comes to the pricing strategy, some authors proposed a International pricing framework which take in account the factors influencing the Pricing strategyIn a general way, as we saw fashion industry are highly competitive and the degree of comparability of Primarks product in the French market is high as Primarks strategy is to propose the same product than its competitors but at a lower Price. If we only take in account that factors Primark would have to tend towards a low Price strategy. However the most influencing factors for the pricing strategy in France is the corporate and marketing objectives of Primark. Indeed Primarks strategy is to make their customers primarks addict pushing them to come back every week;(Primark corporate video, 2010) by notably proposing a fast moving product strategy. The target market would be the under 35 which are characterised by a limited income. In order to attract that target and make them come back, Primark has to put a low Price strategy. As we saw in the second part, Primarks strategy is focus on the control of its costs. In notably realising economy of scale and by improving their skills ( what Doole and Lowe called learning curve) Primark has honed its business model into a science which allowed Primark to Proposed very low Price. When it comes to the setting up of Primarks in France, Primark will use an aggressive strategy such as market penetration Price that Hollensen (2007) defined as the use of the low prices used by a firm to rapidly increase sales by stimulating growth and increasing market share, but at the same time discouraging competition. which will allow Primark to launch a Price war in the French clothing market. Finally, it is important to notice that Primarks price strategy is allowed by its communication strategy nearly inexistent with the quasi absence of advertising as an article highlighted when it says Primark is a high street retailer which has a family of brands and focuses much more on buying, logistics and supply chain management than branding According to Hollensen(2007), standardisation in the communication requires that the firms product has a unique selling proposition that is clearly understood by customers. As we already see, Primarks strategy is to sell a unique concept all over its stores which allow it to standardise it communication (even quasi inexistent). When it comes to communication ,while its competitors such as HM or mango spend a lot on advertising , associating their brand name with famous fashion designers, artists or top model, Primark will follow the same way of communication as Zara which does not advertise at all and relies on word of mouth and its natural prestige. Indeed Primarks communication is mainly made through its simple and understandable look good, pay less slogan which remain the same in every country even with different languages , through its blue Logo , through the visibility of its brand ( for example in the Primarks bag that people will carry in the street), the agencement of it stores and the people on it. Primarks communication is made through the last three Ps of the marketing mix which are People, Process and Physical evidence and not through the usual communication tools such as advertising, personal selling more expensive. However as an article from the Irish times, Primarks strategy is reaching the highest number of potential customers at the lowest cost. Defining by Hollensen (2007) as a Online word of Mouth marketing technique that seeks to exploits existing social networks to produce exponential increases in brand awareness, the Viral marketing is one of the tool for Primark in France. Indeed while Primark is not setting up in France, the social network facebook already gets more than 20 groups asking for Primark In France such as for example For the opening of a Primark in France or We want Primark in France Matching its young targets, often heavy users of internet, enjoying from the expansion of its social network, and corresponding to its strategy of word of mouth to attract the maximum of customers, Internet through the internet viral seems to be a real potential way of communication if France as well as for the company as it is very cheap. According to a study about retailing in France , Apart from Price, proximity and convenience were among the majors needs of French consumers. While Primark is looking for highway and huge surfaces, industrial zone (characterised by cheaper rent but high frequentation) or Big malls (which regroup a lots of shop and are often situated in highway) seems to be the best place for Primark. Moreover a part of Primarks target is the teenagers which are characterised by a low mobility and go shopping in easy accessible place.(E.g.: The teenager do not have driving licenses and often go to big shopping centers where a lot of shops are together and with an easiest access than the industrial zone). However in order to define what could be the distribution strategy for Primark in France, it is important to look at the precedent implementation of Primark in Europe. Except in Spain with five stores in Madrid and England with one store in Oxford street (London) Primark do not setting up in the capital. If we look at the German, Belgium and Netherland implementation, Primark has a stores in Frankfurt (richest city in Germany) in Rotterdam ( second city in Netherlands)and in Liege (third most populated city in Belgium). In Portugal it has a stores in Rio Tonto and Amadora (Lisbon metropolitan area). We can see that Primarks implementation in Europe and notably in the recent implementation it also made through test city by not implementing it stores in the capital (often more expensive than the others city) but in important city in the country or in the capital region which could be less expensive and then reduce the costs. Seeing the precedent implementation in Europe and seeing the needs of French consumers and especially the target young target market, a selective coverage in some test area could be relevant and then turn towards an intensive distribution (which correspond better to a low price and high turnover strategy), if the test is concluding like in Spain which has now 18 shops. If we look at the Analysis of the first part through the use of Pestle and Porter five forces model, France market in spite of its high competitiveness seems to be ready to welcome Primark. However those models give a snapshot of an industry at a certain point and the fashion industry is fast moving and change very quickly. Moreover the habits of expenditure in that sector are highly affected by the external environment. As no one can predict what will happen, the setting up of Primark in France seems to be an opportunity but the external environment if suddenly changed (like the crisis in 2009 which slow down the expenditure in most of the sector), could make the setting up of Primark more difficult. When Porter propose three distinct generic strategy, a company dreams would be to mix both of them. Indeed when Primark main strategy is cost leadership, it also could be saying that it looks after differentiation notably by not advertising and through its high fast moving product strategy (higher than it competitors). However the in-between strategy is highly risky and not affordable The mix marketing has to be seen as a basic for the implementation of Primark seeing the current French environment. However a marketing plan has to be flexible during the setting up and during the development of a company in a country according to the reaction and expectations of new customers and in order to match them. This high level of flexibility for a marketing mix can not necessarily be affordable by Primark as every change generate new cost. According to the financial director in Primark in a corporate video, there is still a lot of places where were not and where wed love to be sources. Neighbors of UK, France could be one of those place. Now surrounding France, Primarks success story is it following a country test strategy before its conquest of France ?