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H & M (Hennes & Mauritz Company) was founded in Vasteras, Sweden, in 1947 as a women's wear store popularly known as Hennes at the time. Hennes opened a branch in Stockholm in 1952 and made a debut in 1964 where it opened its first store in Sweden. In 1968, the founder Earling Persson bought a hunting and fishing store Mauritz Widforss, where he initiated the sale of both men and children products. After the purchase of this store, Persson changed his store name to Hennes & Mauritz (H&M). This company was listed in Stockholm in 197; and 1976, he opened a store outside Scandinavia in London, UK. He introduced Impuls store for cosmetic sale in 1977. H&M later opened a mall in the Netherlands and entire Europe between 1980s-1990s. H&M later ventured globally in USA markets in 2000. In 2004, it collaborated with top designers, including Karl Lagerfeld, McCartney, Viktor & Rolf, Madonna, and Roberto Carvali, Comme dea Garcons, Matthew Williamson, Jimmy Choo, Sonia Rykiel, Lavin Versace, Marni and David Beckham.
H&M ventured into online and catalogues sales in 2006 with the Netherland as the first market in Scandinavia and they secured a franchise store in Middle East. They later ventured in Asia, Tokyo, Japan, Russia, Beijing, Germany, South Korea, Turkey, Europe, Morocco, and Jordan through franchise. It currently operates 2,470 stores in 35 countries with online shopping in eight countries. With Germany, market is contributing 20 % of all its sales. It designs cheap clothing’s mainly for people aged 18-45 (H&M).
To what extent is H&M market oriented?
What evidence is there in the case to support your view?
The market orientation definition with regard to Kohli and Jaworski (1990), Naver and Slater (1990) and Deng and Dart, focuses on a combination of three broad business activities. These combinations consist of market intelligence, dissemination of this intelligence, and organization of wide responses to it. Hence, market orientation is a set of organization-wide activities coordinated in the way that derives customer satisfaction through superior design of products while being competitive in the marketplace (Singh, 1998). Hence, market orientation simply refers to implementation of marketing concepts. Market intelligence is the collection and assessment of customer future and present needs in reference to the impacts of government regulations, competition, and all environmental factors considered. This intelligence should be communicated in formal and informal ways. Market dissemination is thus the responsiveness of the target market, its design and selection, distribution and promotion of the company’s products and services (Satyendra Singh, 2004)
In a case study presented by H&M Company, its marketing orientation can be viewed as being facilitated by environmental moderators, antecedents of market orientation, and business performance. Environmental moderators in the concept are said to engage market turbulence, technological turbulence, and competitive forces to enhance company performance, which results in its market orientation (Satyendra Singh, 2004). In the case of H&M Company, it is evident that the company has been able to engage in the market turbulence due to its low prices. They provide fashionable goods for low prices, leading to its undisputable success. The goods provided are all-weather, including flared jeans and toned hair mills for cool weather, velour hoodies, Indian print blouses, and denim skirts costing $16 and below. These low prices have distinguished H&M from its competitors like Gap Inc., which is by far more expensive. The likely reason is, the company has been embracing technological and innovation capacities, which enable it to produce cheap products while maintaining low overhead costs. Different designer teams from diverse origins ranging from Sweden, Netherlands, Britain, South Africa, and USA have led to production of both nature- and fashion-inspired affordable clothes. H&M has also added a variety of old designs to their new designs of proven sellers. They wash denim and casual skirts with a slight twist to freshen old to a more new fashion, striking the required balance between the innovative designs and any other commercial viable clothes to deliver about 500 designs for their stores in a single typical season.
H&M business performance has resulted from its market orientation, where its financial indicators show how the firm has been performing (Satyendra Singh, 2004). H&M pre-tax in the year 2008 was valued to be 1.7 billion pounds which later increased by 10% to 7.4 billion pounds the previous year. This shows a healthy business with stable returns. In addition, designers engage in travelling to meet buyers and departmental store managers to enquire which items have not been popular and why, especially in Stockolm, where designers work closely with customers.
In reference to the antecedents of market orientation, its degree depends on internal and external factors affecting the H&M (Satyendra Singh, 2004). These include senior management, organizational characteristics, and existing interdepartmental dynamics. Stafan Persson, the son of the H&M founder, insists on keeping prices down while at the same time maintaining the overheads low. He also embraced risk-taking by adopting strategies that drove some companies out of business in the 1980s and by combining high quality with the cheap prices. Persson in the management of H&M is passionate about applying this risky venture internationally. He treats fashion as a perishable product, where he insists on spotting fashion trends before competitors do and turning these ideas into affordable clothes that sell themselves on the shelves. Organizational systems in H&R are well established in teams, designated for a particular age bracket. Johnson, part of the group for the 15-25 age brackets, designed for the autumn Bohemian; a crinkled cotton skirt with matching blouses and sequined sweaters for a nighttime glamour for only $16. This aimed at keeping frequent shoppers at H&M, gaining loyalty from the shoppers even when they become more affluent. This has also catered for customers’ current needs and retaining them for future business venture, since they will save extra dollars for other needs, while maintaining their fashion trends.
Identify and discuss the bases for segmentation that H&M adopts.
Explain the benefits and risks associated with the practice of segmentation
Segmentation is the aspect of breaking the market into distinctive homogenous groups of customers, who are likely to be satisfied by a particular product or service a company is offering. It can be based on geographical location, demographic aspects, and physiographic factors. Moreover, the product can also form a base of segmentation, which is the identification and selection of one or more target markets which the company wants to satisfy (Wedel et al, 1999).
In the case of H&M, they have embarked on both observable and unobservable segmentation. Observable segmentation includes demographic, cultural, and social variables segmentation (Wedel et al, 1999). It has a well-established distinct age brackets used for marketing segmentation. H&M Company uses teams in Sweden, the Netherlands, Britain, and South Africa to design clothing and products for different ages. Johnson, who is among team members mandated to make cheap nighttime glamour and retain frequent shoppers, reveals this. H&M also considers user status of its customers, especially those having low purchasing power. The average cost of an item in H&M is $10. This segmentation targets the less affluent as opposed to other firms like Gap Inc., which produces classic expensive casuals, or Zara, which produces more grown-up Euro chic expensive outfits for the affluent.
Persson insists that quality can be combined with price to cater for the population with low purchasing power through offering affordable fashion clothing, while maintaining low overheads. The company base of segmentation rests on the ability to purchase of common buyers, unlike competitors like Gap Inc., who offer clothing for extremely high prices. H&M Company also considers the frequency of its product flow among its clients since it enhances its product loyalty. The teams offer strategically flexibly designs at $16 per outfit, which encourage repeated buying which later builds up customer and product loyalty. Contrary to competitors, with its cheaper products, H&M creates more stable revenue flow for the company as it seeks other markets to increase its market share globally.
On the other hand, H&M uses unobservable segmentation bases in terms of psychographic values, personality, and life-style. This is because the company uses customer’s perception to acquire its products (Wedel et al, 1999). The demand of customers for cheap quality fashionable clothes has built a solid customer loyalty, since the company is focusing on customer retention. This distinguishes H&M from its competitors like Gap Inc. that states that fashion now should be expensive. H&M, on the contrary, believes that fashion is dynamic, hence hiring excellent designers to add quality in their lines of clothing, while maintaining its overheads as low as possible. H&M Company has specialized in providing wide clothes choices for women, men, and children who are 15-30 of age. The geographic segmentations are Asia, Middle East, North Africa, Europe, North America, and South America. This has been through opening of fully owned stores or franchising arrangements to increase their market share and become the world’s largest retailer.
Benefits of the H&M Segmentations
The main benefits of the market segmentation are bringing more understanding of the users’ needs, their decision criteria and approach, thus directing the management on the current products (Wedel et al, 1999). H&M has critically specialized in the clothing and cosmetic needs of the 15-30 year olds. This has enabled for the Company a massive growth, making it expand from a simple store to an international fashion firm. The best understanding gained gives the feedback on pricing, distribution, and advertising decisions. H&M has been able to set cutting cost-cutting measures that have reduced overhead costs, while increasing high revenue returns. The company buys as cheaply as possible to keep these costs down and provide for less production costs. Segmentation also brings new business growth and venturing in a new market becomes easier and more profitable on entry. H&M has benefited with the age bracket they serve, hence no difficulties in launching their cheap fashionable products, which are easily accepted.
Risks of the Company Segmentation
H&M Company’s segmentations have possible shortcomings. The selling of the existing products in markets can have negative effects mainly on businesses because, the already formed segmented treat its customers as faceless aggregation. This therefore makes the company lose on sales opportunities and fail in penetrating further into existing markets (Wedel et al, 1999). H&M market segmentation hinders diverting its products and services and this in turn can lead to low customer satisfaction, reducing the market share and profitability levels. Failure of H&M Company to venture into other fields may lead to the company reaching a competitive edge earlier than required, making H&M lose its market share to new entrants and lose existing customers (Croft, 1994).
What are the marketing benefits to H&M of commissioning Karl Lagerfeld, Stella McCartney and Matthew Williamson to design limited-edition clothing ranges?
Karl Lagerfeld, Stella McCarthy, and Matthew Williamson were commissioned in the H&M Company for strategic reasons. This is because they may have had a long-term relationship with their already established customers due to their good reputation (Liang et al, 2002) and this gave the company a chance of inheriting these customers, which will increase company revenues.
Karl Lagerfeld also was known for his versatility and expertise in juggling across his roles in the fashion industry through making different labels. He attained remarkable world recognition in 2002 after his he used gold, animal skin, fur, and PETA for his arms clothing exhibition bringing white class shoppers to his latest flash collections. His deal with the H&M Company was actually to make 30 pieces of fall/winter 2004 collections. The company also saw the power of these designers to influence what people wore in the continuously changing world of fashion. The ability of the three fashion designers to prepare collections was also a factor. Their innovations and creativity, inspired by both nature and fashion, were to result in massive returns for H&R Company.
The British designer McCartney designed Camisoles, skinny jeans, and tailored waistcoats, which averaged $40, approximately 15 times cheaper than her own prices. These designers could keep the company up to date with emerging fashion trends relating to fabrics, colours, and shapes. The designers were also capable of understanding fashion technical perspectives in production of patterns, toiles, and specifications for designs, thus enhancing uniformity in production. The three designers commissioned were capable of adapting to existing designs and reworking them to designs that were more fashionable.
Mathew Williamson was signed to design Sienna dress, Keira Knighty’s, and Penelope Cruz’ dresses. Williamson also reworked on his most popular designs of Kaftan dresses, beaded cardigans, and print frocks for H&M retailing giant. His designs sold within hours in all stores showing the quality of the designer and the company itself. The designers also had a strong and efficient bargaining power with suppliers of material (Agcas, 2011). Due to their experience, they could well relate well with both buying and production teams to ensure the production of customer-, market-, and price-sensitive goods in line with the company goals and targets.
What Marketing Challenges are Likely to Face H&M in the future?
Although H&M Company seems to have a bright future, it is faced with future realistic threats and, among them, with poor retailing zone, especially in Europe. They witnessed historic reduction in sales in 2004 to March 2005, where the customer discounts and promotional efforts were employed to bring back the flagship in sales back to average. This caused an increase in inventory prices of the goods in the stores, which were initiated by the massive loss of customers. A repeat of this trend in future can cause adverse effects influencing negatively the profit margin before and after tax for H&M in Europe, which is its primary single source of revenue (H&M, 2006).
The increasing labour costs globally, especially in Europe, due to high living standards, is a major threat to H&M Company. Europe alone is accounting for 77.1% of all its revenues and the rise in labour costs can reduce profitability of the company. The labour cost in 2004 in Europe increased by 2.4%, breeding negative impacts on the company’s bottom line. The future increase of labour cost may result in human resource ethical dilemma of whether to retrench some workers or fire those who will be working at H&M (H&M, 2006).
In addition, the decline of the world cotton production is also a major threat to H&R Company. The cotton production in 2005 declined by 12%, causing a great worry to the company since it was the basic raw material. Cotton serves as raw material for a wide range of H&M Company products, especially the summer and spring seasons, which most customers prefer. The declining production of cotton, on the other hand, makes it hard to for the demand to increase projection of 3% unattainable target due to the opposite directions of cotton decline and demand for cotton causing company worries. The cotton demand shortages in future may lead to increase in prices of raw materials, which will negatively affect the functioning of H&M Company as increasing operating cost may reduce profitability margins and alter the company’s goal of maintaining low competitive prices (H&M, 2006).
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H&M’s future may be affected with dynamic weather changes. The on-going global warming is making weather deviate from normal, negatively affecting the sales pattern. This was observed in Spring 2003 in Scandinavia and Central Europe, where the weather was remarkably cold, followed with summer and autumn. This negative change in weather-affected sales by H&M was explained that the cloth-line released never suited the weather condition. This was a form of lost investment, as such resources could be used in other areas to generate more income for the company. Future weather changes may have adverse effects on the company profit margins, and this can affect decision-making, hence the company ought to be prepared for such weather challenge (H&M, 2006)
H&M also faces challenges of dynamic technology, which is changing as fast as fashion. This can be a challenge as the company embarks on online marketing. Some applications they are using may become obsolete or incompatible with the newly discovered e-commerce applications. This changing information technology is very expensive; it may cause financial damage to H&M, reducing its profitability margin.