Conduct an environmental and organizational audit of the organization making use of PESTEL, Porter’s 5 forces; SWOT Analysis, Value Chain analysis etc. (use any 2 strategic audit models).
Based on the chosen organization, analyze business portfolio by using any 2 strategic models e.g. .BCG Matrix, Ansoff’s matrix etc
Develop & evaluate possible alternative strategies for the organization you have chosen.
Outline an implementation plan for the chosen strategies in question 4.
BURBERRY FASHION HOUSE
EXECUTIVE SUMMARY:
This report is on Burberry fashion house which is a leading fashion house in UK. The project discusses the formulation of strategies for the working of the organization. The formulation includes the company’s mission, vision, the environmental and organizational auditing. The strategic planning is being discussed in detail which consists of the competition, planning systems, strategic planning issues and the techniques. The selection of strategies and their evaluation is further included in the report. The evaluation includes their market entry strategies, substantive growth, and limited growth and disinvestment strategies. Concluding the report is the implementation of the various strategies used by the company. The various teams involved, the communication, allocation of resources, human resource department, all these points are covered in the report.
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ABOUT BURBERRY
Burberry is a luxury fashion house from Britain which manufactures clothes and fashion accessories. It was founded in 1856 by Thomas Burberry, who opened his first shop on sportswear in Basingstoke, London. Burberry has got its own stores and global franchisees and sells through concessions in third party stores. Burberry has now become a leading clothing luxury brand with a large global business. Burberry is well known for its unique British heritage, positioning into luxury arena, integrity of the outerwear depending on the principles of quality, function and modern classic style. Today after so many years the brand is distinguished by its women wear, menswear, children wear and non-apparel with its unique outerwear as the foundation. Along with retailing, they also deal in wholesaling and licensing.
MISSION
Burberry is a luxury brand which is recognized internationally with a worldwide distribution network. The mission of the company is to maintain its integrity and vitality of their brand, at the same time, continue to develop the business which remains relevant to ever evolving markets and consumer tastes.
This mission statement shows that the brand mainly emphasizes on the integrity which is maintained from a long time keeping in mind the current demands and choices of the customers. They also believe in developing the business in every possible global markets.
VISION
Burberry has a long history of exploration to be proud of which includes innovation and desire to improve at the heart of its work. They also work on maintaining the highest quality standards of their products.
The brand is defined by its
Authentic British heritage
Unique democratic positioning within the luxury arena
Founding principles of quality ,function, and modern classic style based on the integrity of its footwear
The icon portfolio which is recognized globally which are the French coats, trademark check.
The vision says about a specific culture/ heritage followed by the organization. It also states the segmentation of the brand which includes only the niche market. The competency of the company being their unique modern classic style considering quality management which also is a very important factor for production.
STRATEGIC INTENT
Strategic intent is a high level statement of the means by which the organization will achieve its vision. Strategic intent is the company’s vision of what it wants to achieve in the long term.
(http://drypen.in/featured-articles/strategic-intent.html)
In order to achieve its mission and vision, Burberry follows a specific strategy which is as follows:
P
Pursuing operational excellence
A
Accelerating retail led growth
L
Levering the franchise
I
Intensifying non apparel development
I
Investing in under penetrated markets
Pursuing operational excellence
Burberry continues to pursue its goal to be recognized as much for operational expertise as for product and marketing excellence
Accelerating retail led growth
The processes and the culture of the company being a static wholesale model is shifted to a dynamic retail model. Retail led growth refers to the operation of Burberry’s own growth along with a fundamental shift in the group’s operating structure
Levering the franchise
Due to a high brand image and quarter integration of its global organization, Burberry can enhance consumer responsiveness more efficiently and effectively. So the very first strategy of Burberry is to increase its franchise which lies in hands of both front and back of house operations.
Intensifying non apparel development
Along with garments focus is on intensifying non apparel categories to further leverage Burberry’s unique positioning design and merchandising ,expertise and iconic branding through investment in product development supply chain and marketing.
Investing in under penetrated markets
The focus is on new market development, in developed markets such as USA along with the emerging markets like Middle East ,India and China. They use marketing synergy that is, all distribution channels (retail, wholesale, and licensing) are used to optimize these opportunities.
Pursuing operational excellence
Burberry continues to pursue its goal to be recognized as much for operational expertise as for product and marketing excellence.
Burberry product-model
Burberry product/brand model
(http://www.slideshare.net/smarkalfat/burberry-uprise-and-downfall)
Mature group in the life cycle Burberry
(http://www.slideshare.net/smarkalfat/burberry-uprise-and-downfall)
SWOT ANALYSIS
The patent Burberry checks is the only reason for the brand’s sales, products other than the checkered ones are not sold.
The emerging customer worries have chances of alienating current customers
It has a distinctive British Heritage and it’s a global luxury brand
It is one of the most recognized icons in the world
Selling of goods in Burberry is through a diversified network of retail, licensing, digital commerce, wholesale
Burberry being a luxury product is not particularly affected by recession e.g. Total sales in 3 months from Oct – 31st Dec 2009 raised 12percent to 39 m pounds which is generally around just 3 percent high.
And they were further more confident about profitable growth in the year 2010-2011
High competition in same target segment like Ralph Lauren, Gucci
Market place and current trends are constantly changing
Burberry’s competition in lifestyle segment is Ralph Lauren and in fashion.
Repositioning the brand(attracting younger customers while keeping a strong base to the current customers)
Upgrading product line along with current market trends and developing a consistent look throughout
Starting new non apparel products in current markets
Expanding in new segments as well as in new markets
PEST ANALYSIS
(annualreview2009-10.burberry.com/downloads/index.html)
PEST ANALYSIS
P
POLITICAL ENVIRONMENT
E
ECONOMICAL ENVIRONMENT
S
SOCIAL ENVIRONMENT
T
TECHNOLOGICAL ENVIRONMENT
POLITICAL ENVIRONMENT
Burberry operates in markets which are already emerged and also in some emerging markets. In every country there are various legal and regulatory systems which change time and again. Some of the countries in which Burberry operates and have not had stable governments historically and so they have been subjected to political instability. Whenever there is an entry into a new market, the implementation programmes are being monitored by the governance processes, which includes legal, tax, audit, risk departments, and company secretariat. Political environment particularly affects public sector, debt is high and tax revenues are failing.
ECONOMICAL ENVIRONMENT
Global economic downturn affected the sales of the group. During recession when disposable incomes are lower, the level of consumer spending on discretionary luxury items is lower, hence resulting in low sales. In some markets like Middle East,Chinese,Japanese and other Asian markets, the sales are dependent on customers who purchase while traveling overseas or domestic. In times of recession ,there is a decline in travel volumes which affected the above ,mentioned markets.
SOCIAL ENVIRONMENT
This has an important part in Burberry group because they have to change a lot according to consumer demands. The ability to procure innovative, fashionable and functional products is very important. Every market has various distinct customers with distinct demands of various apparel and non apparel categories.
Burberry group has appointed a very responsive product team to exploit trading categories, launch new categories, and to balance core apparel and non apparel categories. The team is responsible for product refreshment and replenishment to be more responsive to fashion and consumer trends and to respond more effectively to changing circumstances.
TECHNOLOGICAL ENVIRONMENT
The group uses global media for its marketing in various markets/countries along with the continued development of its IT infrastructure has been very beneficial. The distribution networks and licensees in all countries is being majorly relied upon so that all the products are sold in environments consistent to the luxury image. Also the development of global supply chain and a number of other technological changes proves very profitable for the group.
All the processes are monitored by the governance processes for every major program. They also manage the progress of these initiatives. All these processes are analyzed by monthly operational meetings with senior management to review operational procedures.
(www.burberryplc.com/markets)
3. ANSOFF’S MATRIX
PREVIOUS
MARKET PENETRATION
classic garments for existing target market
PRODUCT DEVELOPMENT
Burberry accessories like stadium hats,handbags,toys,fragrances etc
MARKET DEVELOPMENT
diffusion ranges in mid 1990’s for wider audience (younger consumers
DIVERSIFICATION
NA
NEW
MARKET PENETRATION
28 STORES AND CONCESSION RENOVATED IN PARIS AND NEWYORK
PRODUCT DEVELOPMENT
NA
MARKET DEVELOPMENT
21 MAINLINE STORES
DIVERSIFICATION
FIRST FLAGSHIP STORES IN ASIA OF SINGAPORE’S ION ORCHARD
MARKET PENETRATION
To enhance the growth of existing markets, Burberry renovated 28 stores and concessions during this period to ensure greater consistency of brand expression and customer experience, also for improving service to top customers, Burberry launched a pilot initiative for meeting the specific demands of the customers.
MARKET DEVELOPMENT
The focus was mainly on the under penetrated markets like China, India and the Middle East. The group announced a joint venture in India in Nov-09. Burberry also operated 50 stores with the help of franchise partner in China. They also emerged in a developed market of USA too, where they saw strong growth potential in both wholesale as well as retail channels.
PRODUCT DEVELOPMENT
Along with the iconic apparel clothing line of Burberry, it now intensified its focus on the non apparel categories such as large leather goods. Men’s wear, soft accessories, shoes etc. Burberry started a joint venture with Japan which is the world’s largest accessories market to establish its no apparel business in Japan.
PORTER’S 5-FORCE ANALYSIS
POTENTIAL ENTRANTS THREAT OF NEW ENTRANTS
SUBSTITUTE- THREAT OF SUBSTITUTE PRODUCTS OF
SERVICE
SUPPLIERS- BARGAINING POWER OF SUPPLIES
CUSTOMERS- BARGAINING POWER OF CUSTOMERS
INDUSTRY COMPETITORS- RIVALRY AMONG EXISTING FIRMS
THREAT OF NEW ENTRANTS
Burberry being a well established luxury brand is a fashion icon since so many years. It is positioned as functional luxury in the minds of consumers. The segments and the type of consumers which follow the brand are loyal. Burberry has set a position in the market due to which the new entrants are not a threat to Burberry at all. It has tied up its customers because of its authentic British heritage and unique democratic positioning within the luxury area, due to which any new entrant will not have any impact on the Burberry sales.
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COMPETITOR RIVALRY
Burberry has 3 primary collections being womenswear, menswear and accessories. Its main competitors include Polo, Armani, and Gucci. Coach primary positioning is on handbags along with watches and shoes to scarves and dog collars. Coach is primarily in the accessory end of fashion and holds 6 percent of the accessory share and which is priced low, affordable, and accessible to the general population.
Polo, another competitor, which has market positioning more towards clothing. It is ranked no 2 in the top luxury brands, has a most market share for apparel but lower priced than Burberry. Other competitors being Gucci, Armani priced almost the same as Burberry but held a higher position than Burberry in the luxury brand section.
To cope with these competitors, Burberry has adopted a term called continuous fashion. To respond to the day by day fashion trends Burberry introduces its products on a collection by collection basis. They have tried to maintain their collection and also kept in mind the competitor’s collection, while brands like Coach and Gucci have more focus on accessories and Armani and Polo focus on the apparel Burberry has succeeded in handling both markets while remaining a luxury good. Burberry having different lines within the brand allows for more and higher end goods and goods which are feasible for purchasing by the general population
CUSTOMERS
Burberry has a unique customer segment, the people who follow the brand starting from 1856, when Thomas Burberry created a fabric called gabardine which was waterproof and breathable. This created the customer base of people who went out in extreme condition. The coats were so successful that the British army took it as the official coat in World War 1.
Later when Burberry introduced its check pattern in 1920’s and 1930’s, it became the signature trademark. The pattern changed the customer base from the soldiers to politicians, celebrities and famous adventurers. The brand prestige was built up during this period because the French coat started appearing in all sorts of Hollywood movies by famous actors and actresses. A luxury image of the brand was created as the designs and quality favored among the British royalty which opened it into British crust following.
In between 1955 and 1990, when the Great Universal Stores PLC bought Burberry it had been licensed to a variety of product categories which were inconsistent with the brands image. The brand grew worldwide and the customer base was all over, with different licenses, brand was sold at different locations at different prices depending on locations.
Throughout this time the brand always stuck to the niche customers even when they moved on to the older mates and Asian tourists in 1990’s. till mid 90’s they got the brand image of being conservative and sturdy with the old customer base being the youth section while keeping the current one. Burberry created a new line for youth, sticking to the brand’s position and lifestyle.
Burberry’s customers thus include 25 yr old s to 60 yr old males which is cross generational but keeping the image of style protection and functionality.
SUPPLIERS
Burberrys raw material procurement is from relatively reputed wholesalers, leather, fur, Uzbek cotton and Sandblasting.
For leather, the company joined the BLC leather working group to understand the environmental impact of tanneries, investigate the possibility of hide traceability and collaboration with other similar brands to improve environmental standards within the leather industry.
With the increasing consumer demands of natural hides Burberry continued its use in the outerwear trench coats which has been it strong heritage. Fur being very much in demand, its suppliers is also spread allover. In this case, Burberry only sources fur from places which are very well known for maintaining high standards of ethical treatment of animals.
Burberry previously used Uzbek Cotton as a raw material which was imported from Uzbekistan cotton industry. After the reports of allegations of child labor were known in Uzbekistan, Burberry excludes all suppliers from Uzbekistan and removed it from its supply chain totally.
In case of Burberry, the bargaining power is mainly with the suppliers of leather and fur raw materials. With increase in demands of those materials, mostly all brands produce their goods using these materials and hence the suppliers being few have maximum bargaining power. Burberry imports raw material from the best suppliers because they do not compromise on quality. Suppliers with the best quality raw materials are few in number.
BCG Matrix (Boston Consulting Group)
After the year end on March 31st, this year (2011), Burberry climbed 6% to 1215 pence which was the highest price since its initial IPO in 2002. In the last quarter which ended March 31, the revenue rose 32% to 390 million pounds, which was 295 million pounds last year excluding that of Spain where the revenue was comparatively less.
With this, Burberry raised as the UK’s largest luxury retailer. Burberry has a very large market share and the growth of the market is also not low. In the already existing markets like UK, where the brand is penetrated into the market, they have added 21 mainline stores in this year along with the renovation of 28 stores and concessions. They have also developed e-commerce and digital integration due to which Burberry had 60% growth in the year 2011, in this channel.
In this manner, Burberry falls in the BCG matrix in the star sector
Market Share Position
High
STARS
BURBERRY
PROBLEM CHILD
CASH COWS
DOGS High
Sales
Growth
Low
Low
BCG MATRIX
4. Alternative Strategies
a. Growth
b. Differentiation Strategy
c. Sustaining Competitive Advantage
a. Growth – Organic Growth
It is the primary method of growth for many organizations, for a number of reasons. Organic growth is achieved through the development of internal resources.
The process of development of a new product helps the industry understand the market and product in a better way.
Innovations in designing and technology
Organic growth can be planned more meticulously and offers little disruption.
It is often more convenient for managers as organic growth can be financed easily from the company’s current cash flows, without having to raise extra money.
The same style of management and corporate culture can be maintained.
Economies of scale can be achieved from more efficient use of central head office functions such as finance, purchasing, personnel, management services etc.
b. Differentiation Strategy
It seeks to provide products or services benefits that are different from those competitors and that are widely valued by buyers. Successful differentiation can mean greater product flexibility, greater compatibility, lower costs, and improved service, less maintenance, greater convenience or more features. A successful differentiation strategy allows a firm to charge a higher price for its product to gain customer loyalty because customer may become strongly attached to the differentiation features.
C. Sustaining Competitive Advantage.
Sustaining price/differentiation based advantage
Price- based advantage
An organization pursuing low-price strategies may be prepared to accept the reduced margin. It may be prepared to sustain and win a price war with competitors either because it has a low-cost structure or it has deeper pockets to fund short-to medium term losses with the aim of driving out competition in the long term. An organization has cost advantages through organizationally specific capabilities driving down cost throughout the value chain. Porter comments on cost leadership as the low-cost producer in its industry, who must find and exploit all sources of cost advantage.
Differentiation-based advantage
Create difficulties of imitation and imperfect mobility of the resources and/or competences that are sustaining differentiation is another reason why sustainability may be possible. This is concerned with whether or not the resources and competences of an organization could be traded.
5. Implementation of strategies
Growth
In 1997, when Rose Marie Bravo took over Burberry as the CEO, this was the time when actually Burberry started its growth. She believed in constant creativity and innovation of products. She hired world class designer Christopher Bailey to redesign and reframe the tired fashion line of Burberry to a new high-end fashion brand. She believed in teamwork and hence chose the best of designing team which was lead by Christopher Bailey. During her tenure, ideas were taken not only from the designing team, but also from the sales, marketing and accounting departments. She was very successful in her business tactics of team management. Under her leadership, Burberry had become one of the most valuable luxury fashion brands in the world, in less than a year
This growth was then accelerated by Angela Ahrendts who stepped in as the CEO in 2006. Her definition of growth was to expand the brand in many countries in already existing markets as well as the emerging markets. She had a lot of changes done in the product line with variations in the heritage pattern of check. Ahrendts shut down 35 different product categories each with check because she believed all those products were devaluing the brand instead of elevating it. Bailey under Angela’s leadership then developed new Mega Check, Beat Check, Exploded Check and Haymarket Check in the product line. With these changes, Bailey strengthened Burberry into a global, high growth luxury brand with a very British sensibility. Burberry became more centralized as an organization where vertical integration took place as they also took over the distributorships to pull businesses in-house.
Company’s goal of entering into under-penetrated markets was a significant expansion. in 2008, when Burberry opened its new stores in Cape Town, South Africa, Russia, Aspen, Colorado, India, China, Jakarta, the Middle East, they helped drive Burberry’s growth.
Differentiation Strategy
Burberry has recently entered new markets like USA, China and also emerging markets like India, Bahrain and Lebanon. In all these areas if Burberry tries a new technique of making products suitable to their environment and their social atmosphere, the strategy can be very much successful. The market segment should be the same just new products development and a new product line should be adopted.
Also product development in the markets in which Burberry is already established can be very helpful. To act differently from its competitors Burberry can also start new marketing and promotion techniques for it to come into the eyes of the consumers. Shifting from the heritage trench coat to designing a different designer product line can also add to the differentiation strategy. The new designing should also need less maintenance and more convenience and possibly low costs.
Burberry’s sustaining price/differentiation competitive strategy
Burberry belonging to a higher luxury segment has got high prices and its competitors include GUCCI, Armani etc. if they lower the prices of their non-apparel collection, than their competitors for a certain amount of time, the volume of its sale will be more and it will be easier to know the consumer demands. This strategy can help in driving out competition in long term. Burberry can at least start this strategy in the newly emerging areas.
Sustaining differentiation strategy can be achieved by continuous new innovations and designing clothes according to latest fashion trends. Varying in checks pattern and different new products with same checks can add to innovation and at the same time be different from others.
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