I originally wrote this article, “Marketing management” in March 2003 when Mickey Bakshi, the owner of Hide & Chic Luggage sought my advice.
Mickey Bakshi was planning the opening of his new store in Parramatta, Sydney, for October 4, 2001. Mickey had worked in the luggage business for over 10 years; he had started with a stall at the Sydney Markets and over the years had established good contacts with suppliers and wholesalers. When he heard about the new Riverbank Shopping Centre being developed in Parramatta he decided the time was right to open his own store.
Mickey's vision was for a specialised luggage store offering good quality at value-for-money prices. Apart from Grace Bros and David Jones there was no specialised luggage store in the west of Sydney. The concept of a store specialising in luggage and briefcases had been successful in Sydney city. Mickey checked out other shopping centres in the Sydney metropolitan area, before settling on the Riverbank, Parramatta.
He chose the catchy name "Hide & Chic Luggage" for his store. His luggage range included well-known brands: Samsonite, Antler, Paklite and Hedgrain as well as some cheaper unbranded lines. He also offered complementary products: leather briefcases, and small leather goods such as wallets and purses.
Parramatta was the third largest CBD in Australia. The Riverside Centre was close to the CBD and would house 50 stores. Around 30% of the stores were already trading, the rest would open over the next 3 to 4 months. Mickey selected his location carefully, finally settling on a site close to Country Road, Bed BathNTable, and David Jones Foodchain, which he believed would ensure passing customers.
Riverside was being marketed by the developers as an 'up-market' shopping centre, supported by a $2 million promotional spend spread over the next 12 months. Mickey had placed advertisements in the local paper to create awareness of his new store.
Reviewing performance week by week following the opening, Mickey was becoming increasingly concerned. His worst fears were being realised; world events through September and the collapse of Ansett Airlines in Australia were having a serious impact on sales. Luggage sales were virtually non-existent, wallets had been his main seller but these alone would not bring in enough turnover or profit.
Asmorestores in thecentre opened, customertraffic was beginning to build up; the lunchtime period was especially busy with workers from nearby offices. Mickey believed his prime target market was women aged 25-39 but men were also visiting the store.
Mickey decided to extend his product line to include sports bags and other casual bags to counter the falling demand for luggage, and with the Christmas trading season looming. He found he was often having to give a discount to attract customers; he couldn't afford to spend any more on promotion.
Mickey's business had survived - just. Luggage sales had slowly picked up but were still well below his forecast, and he had continued to stock the sports bags and casual bags to boost sales. He was breaking even, mainly because the landlord had agreed to reduce his rent.
Occupancy of the shopping centre had not achieved forecast levels and David Jones had announced the Parramatta Foodchain would close in the next few months. David Jones launched its first Foodchain outlet in Brighton, Melbourne in November 2000, and followed with stores at Hawthorn and St Kilda in Melbourne, and Parramatta, 'Sydney. At Foodchain you could find fresh foods and prepared meals, an extensive range of everyday grocery lines at competitive prices, as well as speciality products from Australia and around the globe.
According to David Jones, an operational review had highlighted operational issues for Foodchain's failure to meet key targets. Whilst some locations were expected to achieve targets this year, Parramatta did not meet their revised site selection criteria and they had approached the Parramatta landlord regarding assigning the lease.
The departure of Foodchain was a blow to the shopping centre, although centre management were confident they would attract one of the major supermarkets (Woolworths or Coles) to take over the Foodchain site.
Mickey was worried about the future direction for his business. Hearing that I was business consultant, he had sought my advice.
Marketing is of growing importance to Hide & Chic. Marketing focuses on the needs of the buyer, as opposed to the sellers needs. Hide & Chic can obtain a differential advantage using the tools of the marketing mix, ie. product, price, promotion and place. A marketing plan is required to implement the marketing concept through SMART goals.Primary and secondary market research information may be obtained at low cost by Hide & Chic. The company needs to be aware of; what triggers the need for luggage, where buyers search for information, evaluation of alternatives, purchase decision influences and customer satisfaction. Hide & Chic can position their luggage to attract target customers within a market segment.
An understanding of the concept of marketing to Hide & Chic Luggage could create the difference between the success or failure of the company. Marketing is a separate and different activity to selling. The two terms are often wrongly used synonymously.
The selling concept focuses on the needs of the seller. The organisation has stock of a product and sells it, without much knowledge or research into the needs of the customer.
The marketing concept focuses on the needs of the buyer. Emphasis is given to providing value to the customer. Companies using the marketing concept get to know who their customers are, what they actually value and strive to give better value than their competitors.
Implementing the marketing concept
The marketing concept involves providing a product or service that meets the value requirements of the customer. Hide & Chic can use four marketing tools to categorize their current and to implement their desired position in the luggage retail market. These are to consider the product, price, place and promotion for Hide & Chic Luggage to obtain a differential advantage over the competition. These four 'P's are known as the marketing mix.
The product can be considered in terms of Hide & Chic's luggage design features, branding, quality and other attributes.
The price component of the marketing mix considers the pricing strategy to be adopted by Hide & Chic and determines the selling price, credit allowed or discounting.
Promotion of Hide & Chic Luggage may be through several avenues, which may include magazine slots, newspaper adverts, sales promotions, etc.
Hide & Chic's place of conducting the business involves a study of the store's physical location, stock capacity and stock variety.
Implementation of the marketing concept also needs to take into account microenvironmental forces and macroenvironmental forces that are affecting Hide & Chic's business. Competitors, suppliers and customers are exmples of microenvironmental forces. Macroenvironmental forces such as recession, terrorism and bush fires also affect the business.
Hide & Chic Luggage need a marketing plan to implement the marketing concept. All businesses have a finance plan to control cash flow. Large companies may also have a mission statement, business objectives, business plan, production plan, etc. Small companies like Hide & Chic need a separate marketing plan, in addition to their business I finance plan. Hide & Chic would aIso benefit from the creation of business objectives derived from a mission satement to avoid the creation of a narrow marketing plan or one focused in the wrong direction.
The marketing plan should consist of an audit of the current situation, goals for the desired outcome and a breakdown of tasks to achieve the goals. Most importantly, constant feedback is required throughout the execution to control and adjust the plan.
Information for marketing
Hide & Chic need information on their market and would benefit from low cost market research methods.
Market research of competitor performance at Grace Bros. and David Jones can be done by relatives or friends staking out stores over given periods to obtain primary data.
Research of market size and fluctuation can be obtained from published secondary data at no cost. For example; government economy statements and forecasts, airline traveller numbers and Sydney demography can be obtained from the internet.
Knowing your customer
It's important that Hide & Chic are aware of the buying decision-making process of their customers. This impacts upon the company's current strategy to offer different quality levels of luggage at the same location. The buying decision process can be chronologically divided into the five processes of trigger, search, evaluation, decision and satisfaction.
What triggers a need in the customer to buy luggage?
Where does the buyer search for information on what luggage to buy?
How does the buyer evaluate the alternatives in luggage available to him?
Who and what influences the buyer to decide to complete the purchase?
How does Mickey retain satisfied customers and minimize dissonance?
The above processes are influenced by psychological, personal, cultural and social factors.
Segmentation, targeting and positioning
Hide & Chic can position their luggage to attract target customers within a market segment.
Market segmentation for Hide & Chic involves recognizing and profiling the customer group for it's luggage sales. The segment can be described in demographic, geographic, psychographic and behavioural terms. Within the market segment, Hide & Chic may identify niches of buyers who want to purchase quality luggage. Additionally, this niche will consist of several people from the local area of Sydney or individuals willing to travel to the store to make a purchase.
Hide & Chic may target customers through concentration, specialisation or even full market coverage.
Concentration on a single segment of the market would be aimed at people in the same location within a certain age group exhibiting similar behaviour and holding the same values.
Specialization in market segmenting could be selective, product or market specialized. The abovementioned single segment market may be too volatile. Selective marketing chooses several, single segments to spread the risk. Product specialization focuses on one product within several segments and market specialization targets one segment with many products.
Full market coverage isn't viable for Hide & Chic. It requires mass-advertising for undifferentiated marketing or a large inventory for differentiated marketing
The timing of Mickey's entry into the sale of specialised, good quality luggage at value-for-money prices is unfortunate. The recent national economy slowdown was exasperated by the further effects of 911 in the travel industry and, consequently, demand for his company's products was lower that anticipated. It's recommended that his company vacates the Riverside Centre because of low occupancy and an uncertain future. The available market passing trade at Riverside doesn't exist. Mickey should re-locate to a large CBD with a proven available market passing trade within his segment for quality luggage. Unbranded luggage should be dropped from his offering. Economic market information is required by Hide & Chic and, when above break even, promotion should commence to increase market share.
Evaluation of Hide & Chic's marketing strategy to date
Hide & Chic's current marketing position can be analysed by investigating the company's internal strengths and weaknesses and considering external opportunities and threats.
|10 years luggage sales experience||No marketing skills|
|Good supplier & wholesaler contacts||No store sales experience|
|Vision for good quality luggage store||No profits to re-invest|
|Proven successful product concept||Riverside store location decision|
|Offering complimentary products||Mix of branded and unbranded product in same store|
|Good passing trade demography||Wrong choice of advertising|
|Wrong identification of target market|
|Product extension to casual bags|
|Discounting to attract trade|
|No promotional budget left|
|Economic upturn in 2004?||Store opened just after 911|
|Only two competitors in West Sydney||Collapse of Ansett Airlines|
|Riverside marketed as 'up-market'||Lower demand for air travel luggage|
|$2 million Riverside promotion||Economic downturn till 2004|
|Workers from nearby offices||Low Riverside Centre occupancy|
|Lower rent to reduce fixed costs||Low passing trade for Country Road|
|Woolworths or Coles at Riverside||David Jones Foodchain closing|
Definition of the problem faced by Hide & Chic
Hide and Chic's problem is that the potential and available markets for it's product have collapsed. The potential and available markets for quality luggage customers contracted in 2001 and will not recover till 2004. The problem can be sub-divided into the three external factors of national economy, travel decline and passing trade.
The national economy is in a downturn till 2004. Retrenched consumers have left the available market and returned to the potential market till they have income. Additionally, the interest of consumers still within the available market has reduced. Quality luggage purchases are delayed by the available market till the return of the 'feel good' factor.
Travel by air attracts less people now than compared to two years ago. Less people have an interest innew travel luggage and have left the potential market.
The ability to attract the interest of the available market through passing trade is less than Hide & Chic envisaged because of transient and long term factors.
Transient passing trade
Hide and Chic are located adjacent to Country Road, Bed BathNTable and David Jones Foodchain. They share a common market segment. The transient increase in passing trade from the correct market segment during a good national economy benefits all adjacent stores. However, the decrease in passing trade during economic downturns is caused by the temporary loss of a whole market segment.
Long term passing trade
Occupancy of the shopping centre has not achieved forecast levels. The overall size of the available market of interested consumers is lower than anticipated by Hide & Chic. Compounded with the transient lower available market, there is effectively no commercially viable available market for Hide & Chic's quality luggage in it's current location through passing trade.
Alternatives for a future marketing strategy
Ansoffs Matrix can be used as a tool to analyse market penetration, market extension, product development and diversification possibilities.
Increase market share for luggage
Introduce travel, leather and hand carried related products
Introduce luggage for additional market segments
Diversify into different markets with different products
The available marketing mix to Hide & Chic is :
|Product variety||List price||Sales promotion||Channels|
|Features||Payment period||Public relations||Locations|
|Brand name||Credit terms||Direct marketing||Inventory|
Evaluation of alternative marketing strategies
Ansoff's Matrix and the marketing mix can be combined to produce several alternative marketing strategies. Certain permutations are not worthy of consideration and, additionally, basic assumptions have to be made about the personal preferences of Mickey Bakshi. It's assumed that:
Product and market diversification is too risky for Hide & Chic
Mickey has no profits to re-invest, i.e. 'breaking even' from the case study
Mickey can't afford to spend any more on promotion
Upturn in the national economy and air travel increase occurs in June 2004
Strategy 1 - Market penetration
Market penetration requires Hide & Chic to capture more of the available market from Grace Bros. and David Jones for the quality luggage and from the Sydney Markets for unbranded luggage.
Market penetration of quality luggage
Hide & Chic would need to make the available market aware of their presence to capture market sharefrom Grace Bros. and David Jones. Mickey has no capital to invest in sales promotion. Passing trade from the current market segment is negligible. Moving to a location with more passing trade would be desirable if Mickey is unable to survive with no profit for the next year. Additionally, offering quality branded products alongside unbranded products at the samestore location depresses sales of the branded products as consumers receive mixed signals and procure the cheaper product or make no purchase at all.
Market penetration of unbranded luggage
Mickey has 10 years of experience at the Sydney Markets selling unbranded luggage. According to the case study, 'he is breaking even ... and has continued to stock the sports bags and casual bags to boost sales'. Riverside Centre is the wrong place to sell sports bags and casual bags alongside Country Road, BedNtable and David Jones Foodchain. The relatively high fixed cost of the store, low return per square foot for unbranded luggage and low available market make this a strategy with a limited life span.
Strategy 2 - Product development
Hide & Chic could extend their product range to serve the same two market segments that they serve now. However, with two market segments for branded and unbranded luggage, sports bags and casual bags, the cost of stock holding and return per square footage would create further problems for Hide & Chic.
Strategy 3 - Market extensions
Market extension would involve Hide & Chic in catering for additional demographic, geographic, psychographic and behavioural market segments and increased stock levels. Do Hide & Chic have the financial reserves to support this strategy?
Specific recommendations for future marketing strategy
Based upon strategy 1 - Market penetration, the following five point plan is proposed for Mickey and Hide & Chic Luggage:
1) Focus on Mickey's vision for a specialized luggage store offering good quality at value-for-money prices. Drop the sale of unbranded luggage and get Mickey to, when economically possible, visit the factories of Samsonite, Antler,paklite and Hedgrain to obtain product and marketing knowledge.
2) Negotiate lease termination with the Riverside Centre on the basis that occupancy of the shopping centre has not achieved forecast levels.
3) Carry out a no cost market research information surveyusing primary data from friends and relatives for a demographic profile of Grace Bros. and David Jones customers. Obtain secondarymarket information for the West Sydney luggage industry from the internet. Invest in a sales promotion in 2004 to take market share from Grace Bros. and David Jonesand take advantage of the growth inthe available marketfor quality luggage.
4) Determine the location for a new quality luggage store and negotiate a lease for a location which has a proven track record of available market within Hide & Chic's target segment for quality luggage.
5) Time the transition from Riverside to the new location to coincide with the expected upturn in the national economy in 2004. Rely upon break even sales for the next twelve months.