Evaluation Of Business And Strategy Analysis Burberry Group Marketing Essay

INTRODUCTION:

BURBERRY’S STRATEGY:

The group’s strategy is marked by leading market position combined with strong franchise in established countries along with usage of emerging countries platforms to drive earnings growth and volumes. The group also focuses on meeting ever changing consumer demands through continuous innovation and expand the product portfolio, directly operated stores network, selective wholesales distribution channels and enhance operational capabilities, which resulted in healthy growth in the recent years. Group’s is in a better position to optimize the high growth prospects in Asian regions for that reason Group announced an amendment to its apparel licence in Japan. Group is continued to evolve and enhance its products and brand span over all consumer-facing platforms. In stores, the Group continued to roll out the Burberry Experience, a comprehensive sales and service programme. Group strategy is to bring greater clarity to the brand’s segmentation and focus on operational improvements, which has allowed greater speed and responsiveness in delivering products to consumers, pointing the way to a further evolution of the Burberry business model that will provide fresh merchandise to stores and online with greater frequency. Group’s strategy to involve in digital and web world like live streaming and social media where its gets social platform, successfully creating the new communities of interest. The core purpose of the Burberry brand is to protect, explore and inspire which are at the heart of Burberry, its culture and behaviour as a company. Group is now Shift company culture and processes from a static wholesale model to a dynamic retail model. Retail-led growth refers not only to the operation of Burberry’s own stores, but also to a fundamental shift in the Group’s operating structure.

Burberry’s strategy formulation under Resource Based Theory:

The resource based theory advocates the efficient and effective use of resources and capabilities. One of many facets of this view is the acquisition of already working entities in the regions in which the company is planning to enter (Jay B. Barney, 2007).

In a resource-based view, Burberry has strong excellent world-class talented people worldwide. As the business grows and the demand for expertise and ability across the organization increases, Burberry is ensuring that it develops a robust ‘pipeline’ of talent throughout the Group. Burberry unique brand have more than 150 years history which broad consumer appeal across genders and generations; a unique demographic positioning within the luxury arena; and broad global reach that allow Burberry to charge premium prices gives Burberry a competitive advantage. Burberry rare activities which doesn’t follow by their competitor is everything the consumer sees is developed centrally under Chief Creative Officer, Christopher Baile. It is actively embracing digital and social media to extend the reach and appeal of the brand, especially to the luxury customer of the future.

Besides resource based theory, the strategic capabilities of Coca Cola Hellenic may also be evaluated through PEST analysis.

PEST analysis of Burberry to evaluate strategic capabilities:

The PEST analysis looks into the Burberry’s exposure to Political, Economical, Social and Technological factors, which may affect its strategy formulation capabilities. The following factors may be considered in this regard (Wetfeet, 2008):

Political:

(Kluyver, 2010)

The Group operates in many countries including the emerging markets. These countries subject to changes in laws and regulations, including accounting standards, taxation, (tax rates, new and tax laws) and environmental laws in domestic or foreign jurisdictions particularly in times when public sector debt is high and tax revenues are falling.

Burberry faces intense competition from developing countries due to cheap copies of his brand where no copyright law exist.

Political conditions like civil unrest, unstable governments historically and have been subject to political instability and restrictions on the ability to transfer capital across borders.

Ability to penetrate developing and emerging countries, which also depends on economic and political conditions, and how well they are able to acquire or form strategic business alliances with local fashion trends and make necessary changes which also affects the luxury brand of Burberry

The Burberry has strong luxury brand, which is only feasible in some geographic environments and demographics.

Economical:

(Griffin, 2006)

The global economic downturn affected the level of consumer spending on discretionary luxury items.

Increased regional competition by other international as well as local brands.

Customers (in particular Middle Eastern, Russian, Japanese, Chinese and other Asian customers) who purchase products while travelling either overseas or domestically generate a significant proportion of the Group’s sales. As a result, shifts in travel patterns or a decline in travel volumes could materially affect trading results.

As economies develop, is for staple items such as food and clothing to lose their relative importance in the typical household.

Social:

(Grant, 2005)

Social environment of countries also affect the Burberry because different cultures, different lifestyles.

Dress codes have reflected social attitudes of people .Dress are integral to how they regard themselves.

Technological:

(W. Glenn Rowe, 2010)

The effectiveness of company is advertising and marketing is crucially changed due to latest technological trends in advertising. New uses of internet and television that incorporates special effects for advertising may make some products look more attractive to consumers.

Introduction of digital world and web in the world effect the way of doing business. Burberry live streaming allowed consumers to purchase runway items for expedited delivery -another first for the luxury sector

Through use of technology Burberry, creating a platform of social media, which helps in, opens new ways of communities of interest.

Group also launched artofthetrench.com; a social media website that introduces the iconic trench coat to the digital generation and is attracting the new, younger luxury customer to the brand may give a competitive advantage.

SWOT analysis of Coca Cola Hellenic:

Strengths:

(Bohm, 2009)

Strong brand: Burberry has iconic of trench coat, which linked to Authentic British heritage and its Unique democratic positioning within the luxury arena .This gives the company a strong brand standing.

Globally recognized icon portfolio: the trench coat, trademark check and Prorsum horse logo.

Burberry stores are among the best vehicles to communicate the full brand message to consumers.

Global Reach: Burberry has broad geographic portfolio including Europe including Spain accounted for 44% of sales, Americas 27% and Asia Paci¬c 24%. Emerging Markets, which spans across all regions and includes China, India, Russia, Eastern Europe and the Middle East, contributed 10% to retail and wholesale revenue.

Multi-category competency: womenswear, menswear,non-apparel and childrenswear with innovative outerwear as the foundation.

Channel expertise in retail (including e-commerce),wholesale and licensing.

Burberry as the leading employer in the luxury sector

Weaknesses:

(Fine, 2009)

Lack of expertise in the field of supply chain in the target market

Local competition and lack presence in particular areas of the world.

High luxury brand

The product segmentation of Burberry is weak between men,s and womens appral lines.

Opportunities:

(Fine, 2009)

Group has the opportunity to amend its largest license agreement in Japan market where challenging consumers conditions available.

There are opportunities for Burberry group in the heritage menswear business; the young children swear division, or quickly developing shoe category. While emerging markets such as China offer great excitement, excellent potential remains in all geographic regions.

Burberry have opportunity in Spain integrating the market with global Burberry is in the long-term best interests of the brand.

Non-apparel continues to be a key driver of growth for the Group and have more potential to grow.

Strengthening of brand image through advertising.

Threats:

(Nadine Pahl, 2009)

Competition from local brands.

Imitation: Cheap copies of brand are available in the developing countries.

In developing countries where customers are getting more sophisticated and price conscious. This may shift the demand from luxury products to cheap products, which is not the core product of Burberry.

Politics and economies are primary sources of threats to a brand in the fashion industry.

Number of key product categories Burberry is reliant on a small number of suppliers which threat to its brand.

APPRAISAL OF PERFORMANCE SINCE 2009

The global luxury goods market had grown by around 8% per annum before the great economic downturn in l2008. In 2009, it is estimated that the global luxury market declined by around 9%, as consumer confidence and buying powers of peoples fall. Industry analysts expect the sector to show some recovery in 2010, although not as high as the 8% seen prior to 2008. The deteriorating economic environment and unemployment rates have their impact on aggregate demand throughout fashion industries. Sales revenue has been increase by 7% from 2009 to 2010 in a highly uncertain consumer-spending environment, which shows a remarkable achievement of the management of Burberry.

In 2009/10, the dramatically slowed consumer environment pressured both gross margin and expense structure with a management entered the year emphasizing profitability over revenue growth.

In a luxury market, Burberry achieved revenue of £1.3bn, 7% reported. Operating profit increased 22% to £220m, Retail/wholesale gross margin increased from 52.1% in 2008/09 to 59.7% in 2009/10.while diluted EPS increased 16% to 35.1p. After-tax return on capital remained strong at 28. The Group

generated £254m of cash, resulting in a £262m year end cash balance. Relative to luxury products Burberry’s performance was among the best in the sector during 2009/10

The Greek Economic Crisis:

The Greek economic crisis had a massive impact on Coca Cola Hellenic’s results. Lower customer confidence, rising unemployment rate (15% at the end of June 2010) and pressure on the tourism sector are still deteriorating Hellenic’s volume and channel mix in Greek markets (which accounted for approximately 8% of the group’s total volume during 2009). As a response to higher pricing competition, Coca Cola Hellenic has increased its promotional and marketing activity in the country, which will have a resultant negative impact on the group’s profit margins. Management expects this steep trend to persist until at least towards the mid of 2011. Additionally, the Greek government has initiated austerity measures, which are impacting negatively on consumers’ wages (the government is currently considering increasing VAT on soft drinks to 23% from 11% and/or increasing excise duties) and affecting Hellenic’s results. Among these government measures was the implementation of an “Extraordinary Social Contribution Tax” which led to a charge of €21 million in 2010 and which the government has indicated will prevail until the end of 2012. Meanwhile, the government is also considering a new tax on distributable profits of companies operating in Greece, which may force Hellenic to provide shareholder returns via means other than dividends (Yasmina Serghini-Douvin, 2010).

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Exposure to Currency Movements:

Due to diverse internal market, Burberry’s profits are highly exposed to foreign currency rate exposures. The Group has the Group has a policy of hedging foreign currency denominated transactions by entering into forward foreign exchange contracts , resulting in a £7.3 million negative impact on its 2010. Overall, Burberry’s Gross margin in 2010 was 59.7%, which higher as compared to the 52.1% in 2009, the group’s operating profit margin increased from 9.8% to 11.6%, largely due to gross margin benefits and savings from the global cost efficiency programme (Yasmina Serghini-Douvin, 2010).

Returns to Shareholders:

The financial structure of Burberry comparatively stable over recent years Board has recommended a 17% increase in the full year dividend to 14.0p worth £52.5 million at the end of 2010.

Porter’s generic forces

Cost Leadership: It explains gaining of competitive edge by having the lowest cost in the market. Burberry not a following cost leadership because its deals in luxury items.

Differentiation: Burberry luxury brand has iconic figure in the fashion world which show company follows the differentiation strategy. There may be several approaches to differentiation:

Different design

Brand Image

New technology

Number of features

Product Quality

Focus or Niche Strategy: Burberry may as well get into niche of focus markets. Such move may result in firm growth in those particular niches.

Burberry and Ansoff Matrix:

Ansoff matrix describes various moves a company can adopt in the market to gain a competitive advantage. It describes four different situations which are enumerated in the form of a table as follows (Griffin, 2006):

Existing Product

New Product

Existing Market

Market Penetration

Product Development

New Market

Market Development

Diversification

Market Penetration: Market penetration can be achieved by Burberry in three ways:

by getting competitors customers,

improving the product

Attracting new users or persuading current users to use more through marketing etc.

For example, Management successfully executed the £50m cost efficiency programmed announced in 2008/09. Approximately half of the gains were driven by supply chain and corporate process efficiencies. Cost reductions, including rationalization of internal

Manufacturing, showroom closures and intensive expense and headcount management, accounted for the remainder.The company plans to re-invest these savings to assist future growth in market share in recent years to come.

Market development: Market development is defined as opening up new markets for products .For Burberry; these consist of China, India and the Middle East. All distribution channels (retail, wholesale and licensing) are used to optimize these opportunities. Burberry added a net 20 stores in Emerging Markets, of which 13 stores were in China and six were in the Middle East. Of the total, 97 are operated under franchise, 12 by the Burberry Middle East joint venture, and two by the Burberry India joint venture. In North America, which Burberry has also identified as an underpenetrated market, underlying retail and wholesale revenue increased by 2% in 2009/10, with an improved performance in the second half (up 10%).Japan non-apparel joint venture is established to build the brand’s non-apparel business in Japan, the world’s largest accessories market, the joint venture became fully operational during the year.

Product development: Product development means launch of new products in existing markets. This may help to maintain consumer awareness, drive growth and increase profits and it’s only beneficial when company have strong brand name, strong research and development and strong design team. As an example, Burberry focus on and invest in under-penetrated non-apparel categories to further leverage Burberry’s unique positioning, design and merchandising expertise and iconic branding through investment in product development, marketing and supply chain. Non-apparel continues to be a key driver of growth for the Group. For the third consecutive year, it was the fastest-growing product area within Burberry, and continues to offer scope for further gains across a number of under-penetrated categories like (Large leather goods, men’s non-apparel, Soft accessories and Shoes). Burberry continues to grow outerwear by continued product innovation.

Diversification: Diversification means selling new products in new markets. There are two types of diversifications are related or horizontal diversification and conglomerate diversification (non related). Both diversifications are achieved trough acquisitions. We have already seen that Burberry has a rich history of entering new markets and introducing new products. Burberry also benefits from a great degree of product and brand diversity, Diversified offering which leads the Burberry brand has broad consumer appeal. The business is balanced between non-apparel (36% of 2009/10 revenue), women’s wear (35%), menswear (24%) and the smaller but high potential children’s wear division (5%). Outerwear, which is the core of the apparel offer at over half of sales, is the category in which Burberry is top of- mind among consumers. Another key strategy is to grow non-apparel where revenue increased by 10% underlying in 2009/10.

BCG Matrix

(Kluyver, 2010)

Stars: Stars are those products, which have a high relative market share and high market growth. It is market leader In case of Burberry, Growth has been primarily due to in non-apparel products, now the largest product category, increased by 10% underlying, with good growth across all product categories. Large leather goods accounted for half of non-apparel retail sales and grew by 30% in retail, with particular strength in Asia. Further design and product development expertise benefited shoes.

Cash Cows; these products have high market share but low growth market possibly going into negative. Because it have high market share it is the market leader, which help him to earn cash. In the case of Burberry their women wears have strong market share with but have little growth Burberry will use his higher full price sales and increased awareness driven by artofthetrench.com.

Question marks: Those products that have relatively low market share in high growth markets. Children’s wear grew by 37% on an underlying basis, which is 5% of the revenue but have high potential market. Burberry aims to drive children swear to 10% of total Group sales over time.

Dogs; these products have low market share in low and static market that is not a market leader. Dogs might lose money and more cash used to earn something. In the case of Burberry Men’s wear have low and decaling market share with low growth it benefited from benefited from continued innovation in styles, fit and fabric. In retail, the relabelling of Burberry Brit contributed to good volume and value growth in all product categories, especially in Asia.

POTENTIAL FUTURE STRATEGY:

Agreements:

In October 2009, the Group announced an amendment to its apparel license in Japan which gives better positions to optimize its presence in Japan and the high-growth Asian region over the medium term. The restructuring of the Group’s business in Spain integrating the market with global Burberry is in the long-term best interests of the brand. This arrangement would help to support the strategic and operational alignment, and would provide a stable shareholding base in the coming years.

Porter’s Diamond:

(Griffin, 2006)

Factor conditions: Burberry should look into different markets to gain the advantage of demand factors like cheap pool of labour with skills in industry, government subsidies, low cost raw material etc. Burberry has favourable factor conditions like excellent network of transports and telecommunications in UK. In Japan the conditions is not favourable for Burberry because of shortage of land which leads companies to develop just in time system.

Demand conditions: In developing and emerging counties, the higher level of competition affected by lower-value cheap brands. A new joint venture in India was announced in November 2009, combining the strengths of the Burberry brand and organisation with the expertise of a local partner to address this young, exciting luxury market. Burberry is in fashion market where customers expectations and demands always high which forced to create new brands and innovative fashion lines.

Related and supported industries: the existence of large number of related industries’ edge should be sought in the future like purchase raw materials and fabrics from developing countrie.high quality R&D strong links with firm gives Burberry innovation in the field of production which also very supportive in UK.

Firm strategy, structure and rivalry: Burberry is highly exposed to developing and emerging territories. At the highest level, the Group’s primary objectives are the continued elevation and building of the Burberry brand, and ensuring the Company remains firmly on a path of sustained. Burberry faces a strong competition from their rivals because the fashion industry ever changing environment where every time new things come to the market. However, the wide range of countries in which Burberry operates lessens the underlying associated risk.