Strategic Marketing for Classic Knitwear Company - Case Study Example

Case Study on Strategic Marketing Name Institution Case Study on Strategic Marketing Introduction Strategic marketing is the critical tool in attaining the competitive edge in world markets over the competitors. Baker (2010) stated that the technology advancement and the rising globalization has intensified competition as business cross borders to search for new markets to maximize their revenues. In the process, the modern managers seek for the best strategies in expanding to the new markets. Some of the best and effective strategies which have been mentioned in entry of new markets or market segmentation are strategic partnerships, direct entry, licensing and exporting among others (Hitt, Ireland & Hoskisson, 2012).. Similarly, this strategy can also be used to launch a new product in collaboration with an established company. Quelch & Girardi (2013) claimed in 2005, Classic Knitwear was contemplating introducing insect repellent clothing and the opportunity presented in a well established company in the market. To enhance the profit margins, the firm considered partnering through a licensing with Guardian company, the insect repellent manufacturer which had produced quality repellent technology for the clothing. This paper will therefore conduct external and organizational analysis SWOT & TOWS of Classic Knitwear Company, develop objectives and alternative strategic sets which the company can use, and evaluate these alternative strategic sets. 1. External and organizational Analysis Observations; External Analysis Strategic Implications 1. The use Apparel market has many market players (Platzer, 2014) 1. The US clothing industry consists of firms which design and manufactures cloths (Lu, 2014). Even though, Classic Knitwear Company is one of the players in the industry, they are more established companies which operated over the years. The strategic implication of this is that the consumer has several choices to choose. 2. Baranda (2012, p.37) stated that the US apparel industry has several products offered by different companies. 2. Product designed in this market consists of basic categories like the underwear and vest, to luxury products such as, bed sheets, curtains cashmere, alligator-skin handbags and sweaters (Baranda, 2012, p.41). In the past, an apparel firm sold their items on the wholesale basis that then marked-up products and traded to consumers at large profits. According to Kapferer (2012), the strategic implication is that consumers have the varieties of products to choose from. It also gives them high bargaining power. 3. The product is sold into two categories wholesale or retail (Quelch & Girardi, 2013) 4. Quelch & Girardi (2013) contended that in the past firms either sold their product to the wholesaler or the retailers. Nonetheless, it has become more complex to draw the line between retailers and wholesalers as the majority of the apparel firm now work under these forms of operations (Spencer, n.d). The advantage of selling to both categories is because it enables companies to maximize profits. 4. Profitability and trend 4. On the recent years, the U.S. apparel stores have been more profitable compared to the last decade (Spencer, n.d). The growth was slowed in 2008 just after Classic Knitwear Company had signed licensing agreement with the Guardian company to use its technology and other opportunities to introduce a new product line (Quelch & Girardi, 2013). The slow growth was as a result of the global financial crisis of 2008. However, the industry improved significantly from 2011 (Biery, 2014). The growth and trend help Classic to make the decision which can ensure it exploits the growth. 5. Market size Today, the industry is today worth $225bn (Biery, 2014). According to Platzer (2014) the U.S. clothing industry is ranked as the world largest with 28% market share. The textile and Apparel are among the largest Companies worldwide. Globally the total apparel exports are estimated to be worth USD 412 billion while textile company exports USD 294 billion globally (Biery, 2014). The strategic implication of knowing market size is to make classic understand growth and competition of the industry it operates it. 6. Product life circle The increased rise of concentration in the market share is characterized to the positions by the retailers' in Company. The clothing company in the United States of America is slowly growing, highly fragmented, mature, and large (Baranda, 2012). The apparel purchased in U.S.A is manufactured both internationally and domestically. Customers who are college graduates prefer purchasing few products but are of high quality while others prefer purchasing many. Nguyen (2004) claimed that the most important thing is to have good value and 93 percent of customers say that both the quality and the price of a product matters hence preferring some retailers and not others. Understanding product life circle can enable Classic to understand and cope with challenges of developing products. Observations; Organizational Analysis Strategic Implications 1. The company has state-of- the-art product ion plant (Quelch & Girardi, 2013, p.2) The state-of- the-art plant enables Classic Knitwear to compete with other players in making the latest design of clothing. 2. Product development Classic Knitwear embraces product development and innovation so as to differentiate its product portfolios from other market players. Due to innovation and competition taking place in the US industry, in 2006, Chief Marketing Officer, Brandon Miller announced a plan to launch a new product line which is insect repellent clothing with an aim of increasing the gross margins (Quelch & Girardi, 2013, p.1) 3. Market segmentation Classic use psychographic segmentation to casual wearers and satisfy their needs. Similarly, the segment has a rapid growth in the US market (Quelch & Girardi, 2013, p.2). Critical Issues 1. Competition – the company face competition domestically and international from well established companies. 2. Limited financial base – the company has a low capacity plant hence low production. Low production is recipe for low profits. 3. Market share- the company has insignificant market share thus posing less competition in the market. SWOT Analysis Strengths weaknesses 1. The company operates in fast growing casual knit clothing market segment. 2. Modest cost advantage. 3. Market research. 4. Product development. 5. Presence in many countries, e.g. the US and Dominican Republic (Quelch & Girardi, 2013, p.2). 1. The company is a weak brand. The company also suffers from low brand equity and poor brand marketing relations. 2. Inadequate financial base. 3. Low production. Opportunities Threats 1. Improving disposable income in US 2. Use of Guardian technology. 3. Partnership with established company Guardian. 1. Competition in both unbranded and branded knitwear. 2. Fluctuation of the economy. Source of Competitive advantages 1. Focusing of unbranded causal wears 2. Partnership with Established company 3. Product Development, i.e. insect repellent clothing (Quelch & Girardi, 2013, p.1). PEEST Analysis Political decisions normally influence how companies operate. The US government placed tariff in clothing industry, a situation which is likely to reduce imports and favor Classic Knitwear Company in terms of sales (EmergingTextiles.com, 2006). Economic factors have been a major challenge to the US apparel industry. Even though, cloth is a basic need, the purchase consistency is largely depends on disposable income. The trend of buying cloths after global economic downtown improved significantly due to economic growth of the United States. In fact in 2010, the US apparel industry witnessed a massive growth of sales by 14 percent in value terms (Biery, 2014). However, this was not in the favor of Classic Knitwear Company since the company was overshadowed by more established companies. It is for search reasons why the company is using one of the strong brands in the industry, Guardian company to launch its new product. The clothing of US has also greatly impacted technology. Hutt & Speh (2010) argued that the use of technology has improved marketing and sales because companies can now communicate their products to larger market. The advancement in technology in the industry is an opportunity for Classic Knitwear Company which is contemplating introducing insect-repellent apparel (Quelch & Girardi, 2013). Since Guardian has a patented technology which manufactures insect-repellent apparels, getting into a licensing contract with it is an opportunity to use the infrastructure. The profitability of this company is determined by components of Porter’s Five Forces. Threats of the new entrants In the US apparel market, the threat of new companies joining the market is high because of low regulation (Doeringer & Crean, 2005). This situation is likely to create a fierce competition in the US in future as more companies join the market. This means Classic Knitwear Company must differentiate its products to remain competitive. When an economy is less regulated, many entrants get into the market making it highly competitive with less profits. Furthermore, large sum of money is required to start and manage the business in terms of branding and advertising (Ferrell & Hartline, 2011). The threats of the Substitutes Basically, cloths do not have specified substitutes. However, the substitute in this regard can be different types of apparel in particular casual wear or official wear. Classic Knitwear Company is a company which focuses on casual knit wear it faces competition for official which is mostly used on weekdays by people who have formal jobs. Buyers’ bargaining Power Abernathy & Weil (2004) argued that buyers in US apparel market posses a higher degree of bargaining due to the fact that this sector has numerous companies offering both premium and low-priced cloths. According to Quelch & Girardi (2013, p.1) Classic Knitwear Company has concentrates fully on casual knit apparel because it offers raid growth. However, presence of many players particularly the most established ones such as FlowerKnits and JamesBrands might derail its profits. Additionally, consumers often need high quality clothing and mostly trust strong brands. Supplier’s bargaining power Suppliers have a low bargaining power in the US apparel market because of presence of many market players both in branded and unbranded category (Quelch & Girardi, 2013, p.1). Similarly, there are many suppliers both domestic and foreign who offer product in this market. In the process, the suppliers cannot influence the market and as result Classic Knitwear Company stand a chance to get raw material at a cheaper price. Competitor analysis The Apparel Company is very competitive and fragmented. They have some few main players, but also have limitless private industries and functional stores which cater for particular demographics (Baranda, 2012). Also, there is competition brought by foreign industries and general merchandisers. Therefore in order for the Clothing Companies to survive in the industry, they will need to be very competent and nimble. Doeringer & Crean (2005, p.12) asserted that acquiring right products is very important; the trends in fashion frequently change thus industries must adapt quickly to the varying taste of a customer. In their various sectors no company has greater than 3.0 percent market share. The forty largest clothing industries have market shares of 1/3 and majorities are based in the America (Platzer, 2014). Brands that are from foreign are quick in fashion trends; however there is still room for upcoming companies. Market leaders usually supervise various brands so as to protect their big Companies. Customer analysis Stocks of Apparel are sensitive economically. Since clothing is one of the basic needs, individuals tend to be very careful on when to change on their wardrobes and the spending that is required. During good times, the sales of clothing are generally fast. Nonetheless, at times of economic contractions and certainty, clothing is one of the things that individuals can limit easily on their spending. By the end of 2015, the top most company participants are required to jointly give account of 42.6 percent of the total revenue of the company (Ferrell & Hartline, 2011). This being an indicative of a fairly concentrated company over the past five years it has marked an overall rise. Quelch & Girardi (2013) claimed that some of the top market players in the industry such as JamesBrands, Greenville Corporation and FlowerKnit have been able to grow even during the economic downtown by offering their products at low prices. In addition, these two companies have been targeting price-conscious customers. All products from the Gap Company have different prices and its products are supported by the Gap trusted brand (Ferrell & Hartline, 2011). Americans are judgmental and believe in brand names. The brands that they use define their differences in terms of the poor from the rich, old from the young, and Yankee from the Southerner. Nowadays customers’ tend to believe in brand names than before, they are more comfortable and put more trust in the known brands all through the years. Another research held that that about 76% of the United States of America buyers prefer buy bargains (Lu, 2014, p.23). Current Marketing Strategy Some of the current marketing strategies used by Classic Knitwear Company are focus, differentiation and cost leadership so as to gain competitive advantage. Focus Kotler & Keller (2013, p.1) asserted that in using focus strategy, a company often chooses niche markets where it can sell its products. This form of strategy needs detailed knowledge of the market in terms of competitors and consumers. A stated before, Classic Knitwear is apparel company from Florida which focus on manufacturing and distribution of casual knit which are unbranded (Quelch & Girardi, 2013, p.1). Some of the products it deals with include T-shirts, sweatshirts, sport shirts and fleeces, among others. Classic focus on casual knitwear segment because a study conducted on the market held that it provided rapid growth to potential retail companies. Differentiation With this strategy, the company makes products different from those of other market players so as to enhance their value and competitive edge. (Quelch & Girardi, 2013, p.1) Stated that in 2005, Classic had entered into partnership with Guardian in which they would be using the latter’s name in launching and selling their new product, insect-repellent apparel. Through product development, the company is trying to differentiate its products from those of competitors. Cost leadership Mullins, Walker & Boyd (2010) opined that companies normally use this strategy to enhance profits by lowering price whilst using sector-standard prices. Cost leadership is considered one of the competitive strategies used Classic Knitwear. In reference to this strategy, the Classic Knitwear promotes low pricing practices as a business level strategy (Quelch & Girardi, 2013, p.3). Even though, Classic has varieties of prices, its pricing is actually lower to attract more customers since its brand is still weak. It some cases it provides discounts to customers to act as promotion pricing during special occasion such as Christmas and back to school (Quelch & Girardi, 2013, p.3). The company set prices lowers so that consumers can compare with competitors’ and make a decision on which to buy. Financial Analysis Financial position of a company is critical to its operation, product development and market expansion. Large part of the Classic revenues (75%) come from wholesale category while only 25% comes from retail (Quelch & Girardi, 2013, p.4). The company revenue has increased constantly since its inception in 1995. In 2005, Classic Knitwear posted profit worth $550 million in the US market (Quelch & Girardi, 2013, p.1). The CEO thinks that this revenue is still less and risk for expansion in the foreign markets. In 2005, the market revenues were dominated just by established non-branded knitwear manufacturers which include JamesBrands with 4.5 billion from the U.S. market sales, FlowerKnit $1.26 billion and the TopTops, a division of Greenville Corporation with $632 million in the same market (Quelch & Girardi, 2013, p.2). The situation makes it hard for Classic to compete with the big three. On the contrary, Classic could only compete with less recognized brands like the B&B Activewear which posted $590 million and has a market share of 23.6%. 2. Development of Objectives and Alternative Strategic Sets Core Problem Statement How should Classic Knitwear compete with established companies for the market share? The problem of low market share has affected Classic brand equity and even competition. The market share of the company has affected its price, product, price, promotion, distribution and positioning, cannot compete in equal measures with other strong market players such as FlowerKnit, Greenville Corporation and JamesBrands. Strategy sets Strategy 1. Strategy 2 Strategy 3 Product Development Insect repellent shirts Insect repellent trousers Official wear The company has does not have limited finance to carry out product development of several products at one. Furthermore, the company was yet to taste the success of its new product, hence conducting multiple product development would result to huge losses. At the present, the company carries out low production due to its small-sized modern plant both in the US and Dominican Republic (Quelch & Girardi, 2013). Therefore, these strategies cannot be mutually exclusive. Price reduction -6% -12% - 20% The company can only reduce prices to 6% because it is the only level that will guarantee profits after production and selling. More reduction beyond this point will result to massive loss and even closure of the company after a short while. As less established company in the US apparel market, low cost will act as a penetration price to attract new consumers who are price-conscious. However, not all these price can be adopted at once, but one; hence these strategies are regarded as mutually exclusive. New Markets Europe Oceania Asia Expansion to these regions is likely to increase the company’s profits, and as result enhance its market share. For instance, economic growth currently happening in Asia has increased disposable income which can used in buying items such as casual clothes (Baranda, 2012, p.43). However, the company current revenue cannot support an expansion to foreign. In 2005, the company posted only worth $550 million (Quelch & Girardi, 2013, p.1). Since the company cannot enter to any market at the moment, the three strategies can be considered as mutually exclusive. Objective setting Strategy Set 2. Strategy Set 2. Strategy Set 3. 1. Improve marketing communication by embracing online platforms such as facebook, google+, blogs, you tube, tumblr twitter and linked among others. The social media marketing is effective and cheap. 1. Increase distribution channels 1. Develop its technology. Objectives or KPI 1 Objectives or KPI 2 Objectives or KPI 1 1. Kotler & Keller (2013) held that effective marketing through scan increase brand awareness by more than 60% within a year. Meaning, if the company starts effective social media marketing today, it is likely to increase the company’s brand awareness May 1 2016. Social media experts argued that business retailers who use social media marketing have witnessed 133% rise in revenues (Kapferer, 2012). 1. Increasing distribution channels increase brand awareness and accessibility. Increasing distribution between 100 and 200 by June 2 2018 increases opportunities for the company to explore different market and enhance its market share. 2. By the end of December 2020, Classic needs to have its own technology in which it can manage its stock, production, marketing and sales. Currently, Classic relies on Guardian patented clothing technology to launch and market its new products which is not good for a growing company (Quelch & Girardi, 2013, p.4). This is because Guardian can still their idea and use as their own in future. Kotler & Keller (2006) Argued that embracing technology helps the company to keep its secrets, self sustainable and competitive. Similarly technology enable businesses to save time, expand rapidly and operate effectively (Kapferer, 2012). 3. Evaluation of Alternative Strategic Sets Final Recommended Strategy Set Expected Impact / Objectives to be Achieved (how much by when) 1. Creating loyalty programs 2. Getting to strategic partnership with more established apparel companies in the US and in foreign countries 1. The impact is to a large and loyal customer. This program can be achieved within a span of 3 years (from 2015-2018). 2. The Strategic partnership will enable Classic to penetrate various markets in the US and beyond within a short time. The best strategic partnership takes 3 years, i.e. from 2015 to 2018 to also enable the company to continue on its own. Justification and Rationale 1. Kotler & Keller (2006) contended that loyalty program is significant factor of customer retention hence companies must endeavor to implement it. According to Guyen & Mutum (2012, p.400) an effective program ought to be simple to launch, maintain and well managed in order to deliver immense and exceptional benefits to a company. There are several loyalty programs which can be adopted by Classic including redeemable rewards and discount points, customer loyalty partnerships and joint-ventures, and non-monetary rewards. Discount points are where the customer earns points on number of time he shops. Such points can later be redeemed so as to acquire free discounts and even goods. The rationale of the reward system is to stimulate customers’ passion for creating the emotional affinity on the Classic’s brand. This process builds a perception of the additional value resulting to more purchases, enhanced sales and the profits. 2. According to Hitt, Ireland & Hoskisson (2012, p.46) a strategic alliance can be formed between two or many parties to realize a mutually benefits. At the moment, Classic Knitwear is just in licensing agreement which allow agreement which allows it to use Guardian name and technology to market its new. Licensing has its flaws since the company can lose its control over its products (Hitt, Ireland & Hoskisson, 2012, p.51). Strategic alliance is good for Classic particularly in foreign countries which it has no presence. This strategy enables new opportunities rapidly even with limited resource. This is because an alliance can be created where Classic can access the resource of its partner, use its knowledge and technology to get into a certain market. In addition, the rationale of strategic alliances is to lower barriers to entry into new markets. Hutt & Speh (2010) stated that strategic alliance can increase brand awareness by 65 percent. Conclusion The markets have become very competitive in the 21st century as more companies scramble for new markets. The research has established that less regulation in the apparel global markets and advancement in technology has encouraged more entry into the market hence fierce competition. As a result, established companies and strong brands have competitive advantage over new and companies with limited resources companies like Classic. In awake of such competition, companies with limited resource must create their competitive strategies not to driven out of the market. For Classic to compete strategies such as low-pricing, product development, strategic alliance, loyalty programs and expansion into new potential markets are highly recommended. Product development and low–pricing will enable Classics to differentiate its product from those of competitors and provide value which there are seeking. 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