Competitive audit

Macro-Environment and Competitive Audit

Competition Audit in the Global Market

There is a domination of large companies in the industry. It is a highly labor intensive industry with great demand for qualified sales representatives. The competition for A&F includes

  • Gap
  • Benetton Group
  • Tommy Hilfiger
  • Urban Outfitters
  • Wet Seal

A&F positions itself in a highly differentiated manner that brings quality and carefully selected prices together for a value for money pitch. The first aspect of its product positioning, therefore, comes in the form of product differentiation. The second positioning aspect comes in the form of service differentiation where in the customers are provided not only just the highest quality of end product but great service while they are experiencing the brand. Thirdly, the products are positioned in the context of a highly trained and customer friendly staff that makes them personnel differentiation as well (Carter, 2000).

With regards to the repositioning of its product in the face of the competitors, one can see the targeting and capturing the high-end segment may be one of the choices. A&F has already done the upscale market target in repositioning. With its venture into the high-end ladies market, it was not successful. One of the most important reasons in the failure was its failure to distinguish between its core product and the new line that resulted in a confused brand perception in the customers. It can be said, however, that it was not the idea that was wrong but the way it was implemented which had issues. Therefore, A&F should maintain its core product positioning as it is but also create a sub brand that focuses the high-end market. Both these brands should be positioned quite concretely and the marketing efforts should be handed by separate entities.

A&F should not have different positioning strategies for different markets in a sudden execution. There are two major problems that will be faced by A&F if it goes ahead with an aggressive variation in positioning strategy across different markets based on what the optimum customer demand and need is in different geographical location.

The first problem comes in the form of confusion of brand name. Customers will not be able to associate a particular market value and brand value to A&F. At a time when the business climate is so highly globalized, a product positioning strategy in one part of the world will have an impact on the overall brand value in the international market. The risk of diluting the brand name might result in a loss of customers all over the world. Customers might not feel comfortable in associating something concrete with A&F that is one of its major strength, the ability to focus on a niche market very successfully

The second problem will come in the inefficiency of supply chain around the world. If the product is differentiated across the world in different manners, not only will there be separate marketing efforts required but different production requirements will be there all over the world which would mean greater cost and an extremely high compromise on economies of scale which is one of the single biggest advantage of the supply chain and outsourcing of production being done by A&F right now (Cuneo, 1999) (Driessen, 2005) (Drisoll, 2003).

However, what can be done is a subtle and slow repositioning across the world in order to make sure that individual demands of the customers are met. However, the central positioning and focus of the brand should remain the same no matter where A&F is marketing itself around the world

This is especially true when A&F enters those markets that have market leaders in the very same niche where A&F is positioned. In this case, A&F can create a sub brand under the umbrella that positions itself differently from the market leaders and competitors in that particular market. This would ensure that not only A&F does not dilute itself as a brand and create confusion in the minds of the customers around the world but also be able to implement a completely unique marketing strategy for the sub brand in that part of the world (Torkells, 2001)

External Environment

PEST:

Political Factors: These have an influence on the operations and supply chain around the world such as cross border outsourcing of labor

Economic Factors: The economic conditions implicate the buying power of the consumers.

Social Factors: Trends and Generation Y Consumption patterns are the important factors in this construct. Celebrity endorsements and peer pressure influences the buying behavior a lot.

Technological Factors: Technological aspects such as information systems and ERP systems can facilitate operations and production life cycles.

To understand the key success factors for A&F, sources of competitive advantage and level of sustainability of this competitive advantage, let us first look into the five forces that are surrounding the Retail Apparel Industry

Five Forces

The Risk of Entry By Competitors

  • This risk is quite moderate
  • It requires a high level of capital to build a brand like this
  • It requires ah high level of capital to build the chain of retail outlets that makes an international brand competitor to A&F
The Bargaining Power of the Suppliers
  • The bargaining power of the suppliers is quite low
  • There are two justifications for this low bargaining power
    • The first one is the fact that there are a high variety and options of suppliers available for A&F
    • Secondly, A&F was vertically integrated before and only decided to outsource such processes because there were much cheaper supplier options open
  • This means that even if all suppliers decide to increase their prices, A&F has already shown its potential to vertically integrate
The Competition Threat
  • The competition is quite high
  • There are a lot of strong brands in the market
  • The competition is both in terms of price and quality
Bargaining power of Buyers
  • This threat is in the middle of moderate to high
  • The reason it is on the higher bracket because there are no switching costs associated to buying a new brand
  • The reason there is a moderate power is because replacing a brand in the clothing is usually not that ideal for buyers
The threat of substitute products

There are virtually no threats in terms of replacements for casual clothes. If any, there is not enough mileage in them to act as a threat in the niche market that is targeted by A&F

Internal Analysis

As a part of its product strategy, A&F views itself and strategizes as more than just a retail unit of casual apparels. The central focus of its product strategy has been its ability to incorporate critical aspects of customer services as a constituent of its product. So apart from the usual and critical elements of being a strong brand, having a definitive style, logo and bringing about excellent quality, it also incorporated exceptional service in a highly tangible form at all A&F stores around the world. Due to this service intensive strategy, customers are able to associate excellent service as a part of the product that is sold by A&F at its store. This strategy involves the empowerment and training of employees and channeling this energy into the culture of the stores. This can be traced back to a highly customer centric vision and thinking of the very leadership of A&F

Second important feature of A&F's product strategy is setting high value for money standards in its products. A constant effort is made to improve the very value of the product that is being sold. Value for money is also improved by researching into what features and elements are most important for the customers and potential customers of A&F. Constant feedbacks and room for requests for adaptations in designs are present in order to give greater perceived value of the product in the eyes of the customer

Third important part of the strategy is the quantity of core products available in its retail stores that are quite low. This allows for greater responsiveness in its product design strategy and quicker delivery in the supply chain life cycle. Because of its focus on less variety and less number of core products, there is greater control and response time to the changing trends of the apparel industry (Safer, 2003).

As per the Porter model there are three strategies that can taken up by a firm which is 1) Cost leadership Strategy 2) Product Differentiation Strategy and 3) A focus strategy. A&F emphasizes on a combination of focus and differentiation strategy. The differentiation comes in the form of quality of product as well as service with an emphasis on employee training. It differentiates itself on the basis of the highly service oriented product strategy. Right alongside this strategy it is also focusing on a niche market that are the customers who want value in their product with great quality and an extremely excellent service to go with it to ensure a healthy shopping experience.

Even the expansion of A&F to other market is done very cautiously to ensure that the core focus on the niche does not go away. In a way A&F has been successful in keeping a flexible niche strategy where it is not stuck in just one market but moves from one niche to another quite successfully.

It is this mix of differentiation and market focus that drives the business strategy at A&F.

The A&F corporate strategy has evolved from being highly vertical-integration intensive towards a more focused-towards-core strategy. First A&F had decided to integrated upward into the supply chain with the establishment of manufacturing plants to make sure there was better control on the quality as well as an optimization of the cost on the long run. However, with the economic crisis in Asia, it became cheaper to actually outsource these processes to manufacturing plants outside its own in Asia. This is why A&F decided to shut down its plants and focused on its own product retail outlet and outsourcing most of its manufacturing processes. This has allowed it to be more focused towards its core competency i.e. being customer centric and service oriented in the stores

Sustainable Internal Operational Assets

Design

The design success factor is moderately sustainable because it relies on the intellectual capacity and supply chain efficiency, both of which have potential to sustain

Supply Chain Life Cycle Efficiency

This can be highly sustainable provided the firm keeps on investing on information technology, information systems, data mining techniques and relationship building around the world for optimum suppliers. Investment in stock control and inventory management must continue in order for the efficiency to sustain itself. Since the competitors can copy off this factor, A&F must stay ahead in the industry through this constant improvement (Safer, 2003).

Branding and Marketing

This is moderately sustainable with great risks that have to be countered by consistent and intelligent marketing and branding efforts. Continuous strengthening of the equity has to be done through improvements in customer service and advertising campaigns

Customer Service

This can be easily sustainable because of the highly trained staff available. The culture and training program investments need to be retained. Since this factor is a part of the A&F culture now, one can say it is one of the most sustainable success factors

Unique Selling Points
  • A really strong integration of efforts on the marketing front
  • Strong brand representations of high-energy youth segments, many from college campuses
  • Strong emphasis on high service quality and brand image
  • Strong target on Generation Y
  • Positioning Strategy focuses on sexuality in the advertising appeal
  • The stores are designed in a premium manner with elements such as comfortable armchairs, large photos, loud music, dimmed light and strong scents

SWOT Analysis

Strengths

  1. There is an excellent design strategy that focuses on fewer products. This allows for an extremely quick response time to changes in the industry trends
  2. There is a flattened organizational structure, which allows for greater employee empowerment, better coordination, excellent communication, better employee participation, strong human resource quality and high performance management. Eventually this allows for better assessment of market, greater ideas and better customer centric approach
  3. An excellent supply chain life cycle utilizing modern logistics and information technology and effective control of the inventory results in great efficiency as well as cost optimization. The efficiency results in better response time to customer demands and greater flexibility to fashion changes. The cost reduction results in greater end value given to the customers with respect to money enforcing their value for money product positioning (Porter, 1996)
  4. Great brand quality and marketing qualities which results in great brand image to the target niche
  5. Great service given to the customers in a market where the firms are only concentrating on products. This results in great customer satisfaction not just with the quality of product but the service provided at the store
  6. Strong human development strategies which involves training the employees and translating that into value perceived by the consumers in the overall A&F experience
Weaknesses
  1. The biggest weakness for the brand is its limited geographic reach so far.
  2. Weak CSR track record with a number of law suits filed against the brand with respect to employment practices.
Opportunities
  • There are great opportunities for expansion into new markets around the world
  • There is room for greater operations and logistical life cycles through investment in the infrastructure
  • Greater room for sales through the online web portal
Threats
  1. The slowdown in the US economy poses a threat to the growth and sales volume of the brand
  2. Greater strictness around the world on labor laws may increase the costs
  3. Unpredictable fuel prices
  4. A&F face significant threats from audit bodies with respect to socially responsible governance

References

  • Carter, A. (2000). Abercrombie: Is it the right fit? Money, 29, 30.
  • Cuneo, A. (1999). Abercrombie and Fitch takes its ads to TV. Advertising Age, 70, 1-3.
  • Driessen, C. (2005). Message Communication in Advertising: Selling the Abercrombie and Fitch Image UW-L Journal of Undergraduate Research VIII
  • Drisoll, M. (2003). Abercrombie and Fitch: Priced to buy. Business Week Online.
  • Torkells, E. (2001). Abercrombie and Fitch. Fortune, 143, 198.
  • Safer, M. (2003). The Look of Abercrombie and Fitch. 60 Minutes. CBS. Available: www.cbsnews.com/stories/2003/12/05/60minutes/main587099.shtml

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