retail management

CASE STUDY 1:
Poor Target Market or Poor Positioning?
This is a new retail store concept, which has proved somewhat disappointing for the two owners. Your task in this activity is to evaluate, in your opinion, whether they adequately identified a viable target market and also to evaluate the appropriateness of their positioning.
ACTIVITY/TASK
Julie and Anna opened their store – “Hot Coffee, Cool Clothes” – just 12 months ago. The concept was based on a store that they saw when they visited New York City on holidays in 2010. The idea of the store is quite simple – they wanted to combine a gourmet coffee shop and a ladies clothes shop into the SAME store. They believed that this new type of store would be highly suited to young fashion-oriented females, who regularly shop with friends as a social activity.
Their Research
As this was to be a major financial investment for Julie and Anna, they gathered the following information prior to deciding to open their first store:
• There were only a few smaller stores in New York City that had a similar approach to combining a coffee lounge and a fashionable clothes store
• It appears that around 30% of young females (15-30 years) could be described as ”recreational” shoppers (that is, they enjoy shopping)
• Research with a small sample of their friends (25 in total) indicated that their target market spends around 4 hours per week clothes shopping and spend between $100 to $200 per week on clothes – they also buy around 5 gourmet coffees per week
• There was research to suggest that the atmosphere (that is, the layout, feel, colors, lighting, music, and so on) of the store could influence the consumer to shop longer and generally purchase more
• Chain coffee stores were rapidly increasing their outlet numbers.
The Decision
While Julie and Anna understood that they would face substantial competition from both specialist coffee stores AND specialist fashion stores, they believed that their store was actually meeting a new need in the marketplace – a store where customers could “meet, shop, relax and chat” and a store where “they would always feel welcome.” Armed with a little bit of research and a lot of confidence, the two women borrowed $500,000 (half from their families and half from borrowing against their apartments) to invest in the business venture.
The Set-up
They considered the choice of location to be fairly important to the success of the store. However, they also recognized that they had limited financial resources. Therefore, they eventually decided upon a street location in a trendy suburb of New York City. They hoped that this store would provide access to their particular target market, while avoiding the high rental costs of a shopping center complex.
To ensure that the store had the right “look and feel,” they spent $300,000 on the fit-out of the store. This included: special lighting, an expensive music system, a top quality coffee machine, various refrigerators, quality display cabinets, stylist racking systems, several comfortable fitting rooms, leather lounge chairs, and small wooden tables. Their goal was to make the store appear elegant and stylish (to communicate the store’s high fashion) and also to appear inviting and comfortable (to communicate the store’s meeting place aspect).
They spent a further $100,000 on clothes to sell. They chose three well-known and popular brands that are generally considered trendy and modern by their target market. These brands are also priced at the upper-end of the market. On average, each piece of clothing had a unit cost of $50, and would have a retail price in the store of $100.
This left around $100,000 that they decided to keep in the bank for working capital to be used as needed (most probably for the rent and staff costs in the first few months of the venture).
The Outcome
The first 12 months didn’t go as well as anticipated. While they had a loyal core of customers, which had grown through word-of-mouth promotion, the number of purchases was much lower than initially forecasted. This was because most of their customers appeared to make coffee purchases only and very few of their customers bought clothes.
In response, Julie and Anna tried a number of things. First, they invested $10,000 in radio advertising; however, this did not appear to be effective, as sales did not increase sufficiently to cover the cost.
They then introduced a loyalty program. It gave customers who bought 10 coffees a free coffee AND 10% off clothes purchases. Unfortunately, only a small percentage of customers regularly used the program.
The Future
Julie and Anna are concerned about the future of the store. Although the store is profitable, they have to split it two ways, and they are both able to earn more in alternative jobs (particularly given that they have a major loan to repay). However, for the time being, they have another four years of their lease to run. In the back of their minds, they had the idea of eventually franchising the store. However, they needed the store to be more successful for this to be a serious option. The question was how they could make it more successful?
QUESTIONS:
1. Did they gather appropriate (research) on the market prior to their launch? If not, what other information should they have sought?

2. Do you think that they have identified a true/valid target market? Are there other markets that should been considered? If so, provide supportive proof.

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3. Do you think that have selected an appropriate marketing positioning? What other positions could be considered?

4. What do you think they should do now (that is, continue or revise their strategy)? If revise, how?

CASE STUDY 2:
What’s the Best Marketing Strategy
This producer of pasta and related products is faced with a choice of four different marketing strategies. Your task in this exercise is to determine which strategic path is the best for them. All four strategic options have a supportive rationale, so which one will you choose?
ACTIVITY/TASK
Clive, the owner of the Little Italy Pasta Company, was not happy. While sales were up on last year, profits were well down. This is the fault of the new marketing manager, Mitchell, who was hired last year. Mitchell’s plan was to dramatically increase market share, which he argued would lead to cost efficiencies and increased overall profits. While market share did increase somewhat, there was a dramatic increase in marketing expenses that wasn’t offset in the cost of the operations.
The financial figures are as follows:
Year
Year 1
Year 2
Year 3
Sales ($ million)
7.4
8.2
11
Market share
6.10%
6.50%
7.90%
COGS ($ million)
2.2
2.4
3.2
Marketing expenses ($ million)
1.4
1.5
3.7
Fixed Costs ($ million)
2.6
2.7
2.9
Pre-tax profit ($ million)
1.2
1.6
1.2
Brand awareness
16%
17%
25%

In recent months, Clive had commissioned three different marketing consultants to produce a report on what the firm should do now. The only problem is, that they are saying to implement different strategies. Now, he needs your help.
Consultant 1 – Jasmine
“After reviewing the operations of the Little Italy pasta company, it is clear that the major problem facing the firm is the lack of access to major supermarket chains. This is limiting your sales expansion and the ability to truly build your brand. However, you need a suitable entry strategy into this particularly competitive channel. Therefore, it is recommended that you introduce a range of novel pasta shapes and flavors. This will both create publicity and give your sales team a ‘real shot’ at getting mainstream distribution. In terms of your major objectives, I would suggest that sales growth, channel expansion, and product development goals be set.”
Consultant 2 – Grace
“Little Italy has a number of strengths. It has a good distribution base (outside the major retailers), it has growing customer loyalty, and had good consistent quality and flavor. To target increased growth, however, will be quite difficult. It would require a move into the main supermarket channels, which I would strongly advise against. You do not have the production or distribution capacities to provide the required volumes, plus it would weaken your positioning. Therefore, I would recommend that you enhance your position as a gourmet pasta provider. Stick to your existing channels (of smaller supermarkets, delis, and fruit and vegetable stores) and slowly introduce more up-market versions. This will ensure slow steady growth, while greatly enhancing profitability. In terms of your major objectives, I would suggest that profitability and market positioning be the priorities.”
Consultant 3 – Neville
“People want easy-to-prepare meals that are great value. It’s that simple! Your products are a little too ‘gourmet-ish’ (too up-market). That means that they take longer to prepare and are considered a bit expensive. Your previous market research has highlighted these problems. That’s why the major supermarket chains won’t stock your products – your positioning doesn’t fit with their ‘mainstream’ target market. What you need to do is to go down-market. More pre-cooked pasta choices that can be cooked in 5 minutes – not 12! And cut out some of the fancy ingredients to get the cost down. I would recommend that you set an objective for a much lower COGS (cost of goods sold) ratio.”
According to their current Marketing Manager – Mitchell
“We’re in the middle of a growth market. People are looking for better quality meals that they can easily prepare at home. There are plenty of low-cost – low-quality meals available. That’s a tough market to be in – very crowded and very competitive. What we need to do is to stay ‘gourmet’. But we need to build a stronger brand as soon as possible. That’s what I’ve been working on. That’s the key to our financial future. Sure, with increased production, our average costs will fall a bit, but not enough to cover our investment in brand building. So this means we will decrease profitability for a while – but it’s a long-term investment! Our objectives should clearly be market share and brand awareness – nothing else is important at this stage.”
QUESTIONS
1. What are the key points of each plan? Do they have any aspects in common, or are they quite different strategy approaches?

2. Which strategy option do you consider to be the best for the Little Italy Pasta Company? Why?

3. Should Clive be unhappy with Mitchell, or does Mitchell’s plan have some merit? Why/why not?

4. Is there another strategic approach (not listed above), which could also be viable for the firm?

5. Do you think that there is generally one best marketing strategy option available to firms, or are there usually two or three equally viable plans that they could successfully pursue? If there is more than one, how do you decide what to choose?

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