1.0 Executive Summary
H&M is currently the biggest fashion retailer in Europe. The company is fast making inroad in other countries such as the US, through its branded stores. The retailer’s main target market is the 15-30 age groups, particularly the fashion and cost-conscious customers. Over the years, the company has grown to have more than 2000 stores located in different locations across the world. Despite the slumps in the global fashion industry, a factor that has plagued most of the industry’s players, H&M still manages to make profits, raking in £243 million in 2015. This translates to a 36 percent increase from the previous year.
H&M attributes its success to its market orientation strategy. The retailer’s stores across the world remain focused on customer satisfaction as evidenced by not only the affordable prices but also the focus on thefashion-conscious age group of between 15 and 30 years. With their perception of fashion as perishable goods, the retailer stocks some of the latest fashion trends in all its shops at lower prices. This, the retailer has done without necessarily sacrificing on the quality of products that they sell to their customers. Additionally, by learning that male consumers in the US are not fashion-conscious, the company has focused on the female teenagers and young adults more adept in fashion and apparel trends.
In advancing its success, H&M can use marketing mix. This involves using the seven elements of marketing mix that include product price, place, promotion, people, process and physical evidence. For the product, the retailer must ensure that the product satisfies the target market’s needs. In pricing its product for growth, the retailer should ensure that the prices are within the means of the target market while at the same time allowing enough for profit margins. Further growth of the retailer (H&M) is possible through anincrease in the locations of its stores, especially for untapped markets with potential for growth. Additionally, the retailer should expand its promotion through modern digital platforms such as the social media and other traditional platforms in expanding their presence and awareness to a larger population. The retailer must also ensure it has the right target market as well as the right people working within its ranks. Further, its growth can only come when the production process and the customers’ purchasing processes are free of controversy and fast, reliable and intuitive respectively. Finally, the retailer should be able to provide physical evidence of its products: a feature that is possible through building the brand, customer loyalty and the attractive outlook of both its virtual and brick-and-mortar stores.
In addressing the challenges, the changing customer profile with a shift towards online shopping and innovative competitors pose the greatest challenges to the retailer. Integrating the brick and mortar stores with online shopping provides a solution to changing customer profile. On the other hand, building a brand and intensifying customer relations can go a long way in averting competitor onslaught on the retailer. This is in addition to building a strong customer engagement program through social media, print and other forms of communication.
1.1 Market Orientation
Most successful organizations put a focus on the customers; with some going ahead to see and meet customer needs way before their competitors have a chance. Such a focus for organizations is referred to as market orientation. In its primacy, market orientation refers to “a group of behaviors and processes or culture to create superior customer value” (Suliyanto & Rahab, 2012, p. 134). This means that companies that use market orientation as a strategy have more customer focus, with specific emphasis on flexibility and faster response time to consumer and market demands. Such are thus the characteristics of H&M, whose market orientation has evidently led to its success, growing the retailer’s fortunes to become the biggest fashion retailer in Europe.
Market orientation as a strategy aims at gaining competitive advantage and predicted profitability. In executing the strategy, the whole organization must contribute to the strategy, ensuring that the different divisions and departments within the organization focus on the customer. In the case of H&M, all its stores across the world remain focused on customer satisfaction as evidenced by not only the affordable prices but also the focus on thefashion-conscious age group of between 15 and 30 years.
Suliyanto and Rahab (2012) enthuse that market orientation marks the first step in a business’ response to the dynamic business environment. Combining market orientation and business learning provide the perfect combination for business success. Thus, by learning faster about the competitors’ competitive advantage, successful organizations must effect a synergy between market orientation and their learning. Creating the synergy, according to Suliyanto and Rahab (2012), “is not only gaining and spreading market information or using market knowledge to find a new way to customer service but also continuously able to investigate market development” (p. 135).
Such a synergy is what H&M has used, employing the combined learning and market-oriented strategy to fuel its success. Perhaps one of the most important lessons the retailer learned is how fast things come and go out of fashion. By discovering this, the company put in place a strategy wherein it stocks some of the latest fashion trends in all its shops at lower prices. This, the retailer has done without necessarily sacrificing on the quality of products that they sell to their customers. Additionally, by learning that male consumers in the US are not fashion-conscious, the company has focused on the female teenagers and young adults more adept in fashion and apparel trends.
Pricing, additionally, has been one of H&M’s most successful strategies. Knowing how price conscious their target market is, the retailer has chosen to keep its prices low while its quality is high. H&M, therefore, stocks apparel with similar trends to high-end fashion companies, but at a fraction of the prices, the high-end retailers and designers charge their customers. However, even in their low pricing, H&M ensures that the clothes are of high quality, the latest trends, and appeal to its target market. Moreover, the retailer manages to avail to its customers fashion trends and designs from renowned designers through limited edition designs. Such promotions, like the rest of the retailer’s apparels, sell at affordable prices, ensuring that they are a success. By offering reasonable prices, great designs, and good quality apparel, H&M ensures that its target market keeps visiting its stores with assured sales.
Further, on market orientation and learning organizations, Suliyanto and Rahab (2012), state that the two are competitive advantages. On their own, market orientation and learning organizations are a way of staying a step ahead of the competition and instilling an attitude of creativity within the organization (Suliyanto & Rahab, 2012). From their study of the market, H&M has been able to implement the two to the success of the retailer. H&M’s market orientation and its staying ahead of the competition are evident through the company’s treatment of fashion. The retailer, as indicated in a case study, treats fashion as perishable goods, and has been able to keep the fashion fresh and moving. This is in addition to identifying trends way ahead of its competitors, and in so doing making fast in-store sales and huge profits.
1.2Market Mix
Within the business environment, an organization puts in place strategies aimed at ensuring the eventual success of the business venture. These strategies come together to form a marketing mix; that enables the organization to propel itself from its current standing in the market to a better position in profits and market penetration. In the simplest form, marketing mix refers to the actions or strategies employed by a business in the promotion of its brand or product in the market (Goi, 2009). The strategies become the deciding factors in an organization’s success or failure in the market. The seven elements of marketing mix are product, price, place, promotion, people, process and physical evidence. As a business in an excessively competitive industry, H&M can use the different elements of marketing mix to grow its business further.
As an element of marketing mix, product is a good or service available to customers from an organization. While the product itself is the most important element, the other element such as the packaging, quality, brand name, features, warranties and product options are important considerations (Goi, 2009). Noteworthy, hence, is the fact that the outlook, function, and support of the products combine to form the final product bought by the customer. It is from such knowledge that organizations should attend to the needs the product bundles satisfy for the customers. Moreover, the bundle should also cater to the needs of its target market (Goi, 2009).
This knowledge applies to H&M, whose target market is the chic and fashion conscious age group, who on the other hand are also cost-conscious. To ensure its success, H&M must not only keep up with the latest trends in fashion, but it must also ensure that the product quality and pricing is right. Further, the fact that its target market is fashion conscious means that its products must not only be the trendiest but also have unique designs, come in a wide range and stay true to the branding its customers have come to known it for.
The knowledge of the target customers is an additional necessity for a product as an element of marketing mix (Goi, 2009). Customer research is thus one of the pivotal elements of an effective marketing mix. It is, therefore, necessary for H&M to conduct customer research into not only the target market but the competitors as well. The knowledge from such a research will allow the retailer to offer its customers products that appeal to their taste while saving the retailer costly mistakes.
H&M has an opportunity for growth in broadening the product bundles that it currently offers its customers. Such opportunities include adding value to its products through customer service. Moreover, having captured the fashion and price conscious market, there are opportunities for growth in other consumers. These are the quality-centric customers that the retailer is yet to tap. By adding value to the products, the retailer may be able to attract these customers and experience greater growth through them.
Price is the second element of marketing mix. Goi (2009) informs that some surveys consider price as the most important element in marketing. In its basic sense, price is the much a seller charges for products or services offered. Setting the price for a product or service is usually delicate and frightening, given the need to sell the product or service. It is for this reason that some sellers go for a low pricing strategy. Such a strategy can nonetheless be costly to the seller as it sends signals of low-quality goods and a damaging image to the organization. In setting prices, then, organizations must ensure that the prices are reflective of the proper positioning of the product and the organization in the market. The prices set should cater for the cost of the items and allow a profit margin.
H&M’s current target market is the cost-conscious fashion enthusiast between the ages of 15 and 30. In pricing its product for growth, it should ensure that the prices are within the means of the target market while at the same time allowing enough for profit margins. Too high prices are bound to put the retailer out of themarket while too low prices are sure to stifle growth. By basing the price on the quality of the product, customer demand, and the competitive environment, the retailer cancontinue its growth trajectory.
Ideally, the retailer currently uses a competitive pricing strategy, selling similar products at relatively lower prices than its competitors do. Although it has so far been successful, its success, in the end, is not guaranteed as some competitors such as Zara are already using a similar strategy. To ensure growth, therefore, bundling competitive pricing with added value can help offset the balance in its favor. Thus, while its competitors offer competitive pricing, its pricing will have more value, ensure that consumers continue to buy from them based on the value and competitive pricing and not only on the pricing with a low value.
Third among the elements of marketing mix is place. This denotes the channels of distribution an organization uses for delivery of products to the customer. The nature of the product is a great determinant of the distribution network. Most large business, especially those that assemble or manufacture their product can distribute their products through either direct sales or using an intermediary. So far, H&M has used direct sales in the sale of its products. Thus, while the design is in-house and the manufacture of the product is done in other places, the retailer’s stores across the world make direct sales to its customers.
Further growth of the retailer (H&M) is possible through anincrease in the locations of its stores. This is especially important for untapped markets with potential for growth. It is necessary for the retailer to conduct market research with the aim of discovering these untapped markets, and establishing their presence in such markets.
Most of H&M sales occur through the retailer’s branded stores. This form of sale allows direct contact with customers, and through the interaction, gain knowledge on market changes and trends. While this has so far been successful, diversifying the retailer’s distribution channel has the potential for the growth of the retailer. H&M can thus enter into anagreement with other wholesalers and retailers for the distribution and sale of its products, to diversify and extend its products’ presence in the market. Moreover, selling through intermediaries has the advantage of freeing some of the inventory space and time, in addition to creating a wider distribution network.
Promotion is the fourth element of marketing mix. This is the advertising and sales element of marketing. Promotion announces the products available for sale by a seller, with the intention of getting the consumers to have an understanding of the products available for sale by the seller, their use as well as give a reason for the purchase of the product. Promotion, therefore, assists businesses in convincing consumers that the product they are offering caters to their needs.
H&M expends part of its revenue (4 percent) on marketing as indicated in the case study. While this is commendable, increasing its marketing budget could go a long way in increasing its brand awareness and driving its sales, as more consumers will be made aware of the existence of the retailers and its products. Given that the retailer’s target market is young and fashion conscious, it follows through that this population is also tech savvy and have access and use of modern technology such as smartphones and the internet. Expanding its promotion through these modern digital platforms such as the social media and through its apps will go a long way in expanding their presence and awareness to a larger population. This will, in turn, translateinto more sales, brand awareness, and future growth.
Like products that require research, promotion also requires market research, especially of the target market. The vision, in this case, is to identify the people who use, or who the retailer can influence to make purchases. After identifying this market, H&M must tailor the promotion message so that it resonates with the target market, in addition to being within the confines of the marketing image the retail wants to create, capture the desired attention and influence them into purchase the products on sale. Most important, however, is choosing the right channel for promotion. In the advent and proliferation of smartphones, electronic advertising will be the most appropriate for the target market. Coupling this with radio, print, television and word of mouth will go a long way in boosting sales and encouraging further growth.
As an element of the marketing mix, people refers to both the customers (target market) and the individuals involved in the daily running of the business. Part of the reason for the importance of the people, particularly those involved in the business is the fact that the brands reputation and its fate is in the hands of the employees. It is perhaps through this realization that Southwest Airlines puts more emphasis on the good treatment of its employees, who then reciprocate the treatment by working towards the achievement of company goals.
To drive its growth, H&M must ensure that it has enough people within its stores, as well as its target market that will create and sustain the demand for its products. Hiring and training employees with the correct mindset, who share the same vision with the company can also go a long way in ensuring better sales and growth. Therefore, sales personnel, designers, marketers and financial analysts should not only be hired, but also strategically positioned for their work to spur further growth for the retailer.
The advent of the internet and internet-enabled gadgets such as smartphones and tablet has made it easier for customers to access information about products as well as compare prices. Customers, therefore, do not merely purchase a service or product, but have a vested interest in the entire process from the discovery of the company, to the final production of the product. With new purchasing methods such as online sales, customers are interested in how fast, intuitive and helpful the system and the experience is while purchasing the product.
Such intricacies among customers require creative and innovative methods of making the entire production and purchase process worth the while of the customer. For H&M, this means avoiding any controversies involving the use of sweat shops in apparel production. Additionally, providing a fast, intuitive and user-friendly internet service with short waiting times and prompt replies to inquiries goes a long way in ensuring customer satisfaction, which guarantees word-of-mouth marketing. The retailer must therefore ensure that the system works to the benefit of the customer and not to the convenience of the company.
In the age of ruses and briefcase companies, providing physical evidence is not only a necessity, but also a vital part of marketing for any company that seeks growth and brand loyalty. Providing physical evidence helps make an unfamiliar product known to the customer. Branding, advertising and market presence provide customers with physical evidence of the availability of a product or service.
For H&M, the availability of its stores in different locations is a way of providing physical evidence to spur further growth. The stores should be clean, tidy and well lit with impeccable placement of products on sale. Such is enough physical evidence that not only attracts customers, but also makes them at ease while browsing through available stock. Branding and building customer loyalty is yet another avenue for H&M to provide physical evidence to its customers. By building customer loyalty, the evidence becomes much more credible as these loyal customers tend to attract even more customers from their testimonies.
1.3 Marketing Challenges and Solutions
One of the biggest challenges for retailers such as H&M is keeping up with the changing customer profile. More of the retailer’s target market is moving online with the advent of new innovative ways of communication such as mobile phones and tablets. Less of these customers go to the brick and mortar stores preferring to shop online. The challenge, therefore, is to keep up with this revolutionary method of shopping.
Integrating the brick and mortar stores with the online shopping experience is the way forward for retailers. This requires an innovative process of linking the online inventory with the brick and mortar stores, finding a middle ground between the two. This way, the retailer can capture both the online and offline traffic. Additionally, establishing an interactive online presence with customers and potential customers can go a long way in bridging the online-offline gap.
Innovative competitors are yet another challenge for retailers. Retailers such as Zara have developed innovative supply chain systems that have greatly reduced the time it takes for manufacturing and delivery of the goods to the customer. Zara’s improved retail chain with an emphasis on speed and integration of store operations with design, sourcing and operations is a threat to other apparel retailers. The retailer (Zara) has a quick eye for trends and items that fly off the shelves and those that do not, making appropriate actions in sourcing, manufacturing and stocking verdicts in themaximization of sell-through and ensure great performance across all seasons.
Building a brand and intensifying customer relations can go a long way in averting competitor onslaught on the retailer. The two are building blocks of an organization’s core competencies, which are pivotal in the fashion industry. Within the organization, it is important to develop consensus-driven forecast founded on sound analytics and certified forecasting techniques. The input for the forecasting must consider both top and bottom sources in addition to historical data and documentation. Coupled with a strong customer engagement program through social media, print and other forms of communication, the retailer is capable of warding off competition, while growing its business presence much more than its competition.
1.4 Conclusion
H&M has grown to become one of the largest fashion retailers in Europe and the world. The retailer’s strategy has been its success, using it for its global expansion. By targeting the young, cost and fashion-conscious market, the retailer has been able to grow its profits, presence, and brand in the fashion industry. H&M’s keen eye for trends, low production, and overhead costs, as well as affordable prices for its products, have all worked to the success of the retailer. The retailer’s marketing mix in trendy products that cater to the target market needs, low prices, conveniently located stores and promotions through celebrity models and designers have all worked for its success. However, competition from other retailers such Zara; changing customer profile are challenges that the retailer must deal with for its future growth. So far, the retailer has proven successful with its strategy. To further the retailer’s growth, innovation, stronger branding, expansion and better market presence are all necessary ingredients that the retailer must infuse in its operations.
References
Goi, C., L. (2009). A review of marketing mix: 4Ps or more? International Journal of Marketing Studies, 1(1), 2-15
Suliyanto, E. &Rahab, K. (2012).The role of Market orientation and learning orientation in improving innovativeness and performance of Small and Medium Enterprises.Asian Social Science, 8(1), 134-145
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