Product Development at Marks and Spencer
|✅ Paper Type: Free Essay||✅ Subject: Marketing|
|✅ Wordcount: 3264 words||✅ Published: 1st Jan 2015|
Marks & spencer started as a stall in 1884 by Michael Marks in the Leads market using L5 loan from wholesaler. Its main vision is to be ‘the standard against which all others are measured’, its main mission is ‘to make aspirational quality accessible to all’, and its main values are quality, service, innovation and trust. (www.Marksandspencer.co.uk).
Its philosophy is to sell durable merchandise at a moderate price. It has merchandise made to its specifications. Marks and Spencer (M&S) of Britain (often referred to as a Marks & Sparks by locals) is a general leading retailer that sells clothes, gifts, home furnishings and food under the St. Michael trademark in the UK, Europe, the Americas and Far East. They also offer financial services. In 1901 a new partner Tom spencer acquired by the company along his 35 Outlets. By 1949 all the company’s stores carried mostly private label (St. Michael) products produced by British suppliers. In 1953 their approach towards customer relations was very précised by “The customer is always and completely right”. After 1963-72 they expand their business globally, and they improved food quality and home products. Their all stores were operated under the franchise. In 1973 they adopted strategy Market Development (By Ansoff Matrix) they did expand their business in Canada. But due to the size of the outlets was smaller than British outlets and their stores were not up to date, this strategy completely flopped. In 1990 they adopt Product Development strategy (By Ansoff Matrix) highlighting to modernize and enhance their business but all their efforts were gone useless. Due to huge business loss 38 stores were closed at that time (marks& Spencer close ahead of schedule c a(www.cbc.ca)). In 1998 M&S applied both strategies Product development and Market Development by acquiring Brook Brothers an American clothing company and King Super market US food. And also expanded their business by opening a new store in Hong Kong and their benefits were at the top. In 1999 they adopted a new business model “Merchant model” for online shopping. They did attention to the customer loyalty inflation, because rivals were using generic strategy “cost leadership” (Michael Porter) by importing their goods from low cost countries. At that time M&S belated concentrate overseas suppliers a core part of its appeal to public. These all factors were responsible for sudden fall back. All shareholders and investors were surprised, share price fell down and profits fell from billions of pounds (Mark & Spencer recent history telegraph.co.uk).
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In dessert M & S took 18months to develop a unique product “The melting middle chocolate pudding” to compete their rivals. Success was achieved and the result was a real hit with customers. Similarly in 2006 the Limited Collection introduced ‘fast fashion’ to Marks & Spencer. High street shops were expected to make catwalk trends more quickly available. So Marks & Spencer take 4weeks to make first sandals which were totally unique. Again M & S took the advantage of uniqueness.
Marks and Spencer have 718 retail stores in UK and across 34 countries. Almost half of the group’s oversea stores are franchised to local partners. The financial includes providing account cards, personal loans, life insurance and pensions. Retailing industry generated 96% of fiscal 2000 revenues and financial services generated 4%.
If we see the profit history of M & S we will find company gained profit year by year. You can see in table.
Profit before Tax (£M)
Net profit (£M)
31 March 2001
30 March 2002
29 March 2003
03 April 2004
02 April 2005
01 April 2006
31 March 2007
29 March 2008
28 March 2009
Current Strategic Situation
An internal and corporate analysis in terms of strength, weaknesses, opportunities and threats (SWOT) will assist in gaining an understanding of where Marks & Spencer’s is currently in terms of strengths and where improvement is required within the business and what outside environmental threats it may face as well as what new opportunities are available to the company in the short and medium term.
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STRENGTH: Main strength of the M & S is diversification of products; it is dealing in food, clothing, furniture, wine, home and financial products. Due to financial services it has very good cash flow position. It is leading Premium Quality food retailer in UK. It has a very strong Brand Name awareness. M & S have very skills human resource which are used for innovative ideas and making new products. M & S has developed oversea supply chain entirely separated by its local retailers. They have very good organization structure which is based on its five main divisions: UK retail; International retail; financial services; property and ventures. M & S has globalization due to which they have international positioning. They have long term relationships with employees and suppliers.
Weaknesses: They have a lot of rivals in the market so competition is very high. There is perception in the market that M & S’s prices are very high due to which customers don’t take interest. Due to instability in prices of raw materials the cost of main product becomes very high and profit goes down. Due to bids M & S loses a lot of shares from the market. They have diverted focus from the local market to the international market. They don’t have attraction for the youth market. Due to worldwide economic recession all business suffers.
Opportunities: There are opportunities if they keep diversify in styles of clothes. Bring new ideas in the market.
Threats: There are a number of substitutions in instant food retailers like Sainsbury, john Lewis. There are a lot of rivals like ASDA, TESCO, and Morrison etc. Bargaining power of buyers and suppliers.
When we see the development and trends of M & S in the Macro environment with the help of PESTLE ANALYSIS (political, Economic, Social, Technological Legal and Environmental analysis).It provides framework of macro environmental factors that a company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction of operation.
Political: Due to European integration and FTA (Free Trade Agreement), the market has opened for all British companies to invest in Eastern Europe. Tesco already has 60 Hypermarket store in Hungary. It makes company to import their products easier than before. M & S’s rivals took more advantage because of its higher cost structure.
ECONOMIC: Due to event of 9/11 the economies of world have suffered heavily, stocks dived and prices are at all-time low. M & S’s rivals are very specialized in niche products and consumers. For cost reduction they prefer to import their products from other countries, it is biggest disadvantage for the company.
Social: Changes in consumer demands and lifestyle represent both opportunities and threats for the company. Opportunities in terms of new market and consumers, however, there are added threats in terms of social acceptance to alcohol. Consumer demands are more fashionable clothing and high quality but they are very price sensitive so they don’t think that British products as a high quality.
TECHNICAL: Changes in retailing methods as such clothes sales via internet is now a common place in retailing. Paperless operation, the management and administration of the company are undertaken on IT systems, which are accessed through secure servers; provide flexibility in the running of the business. Moreover due to technological changes and media, they contribute great role for spreading new fashion to consumers.
ENVIRONMENTAL: Products produced by suppliers have a more effect on environment. How these products used and disposed by consumers it effects the environment. The threats are in terms of legal consequences for livestock’s in term of health and safety.
LEGAL: Product quality is necessary according to the requirement of customers. M & S knows how to deliver best quality products to the consumers.
Porter explains that there are five forces inherent in a market, which will jointly determine the intensity of competition and profitability of M & S and food retailing industry. Threat of New Entrants: There is a big barrier for new entrants because of huge capital expenditure and customer confidence. Moreover clothing and food market is sensitive to reputation. There is a tight competition in retailing outfit sectors in the market like Matalan buying high quality of clothes at low cost. Threat of Substitute: The threat of substitute is very high in retail sectors. Customers are ready to pay for similar products at low cost. Maybe BHS and Top Shop or ASDA and Morrison could consider introducing low cost home products. In food industry Sainsbury and John Lewis are substitutes. Bargaining power of buyers: This is very strong for both M&S and the entire food retailing industry because there are a lot number of alternative suppliers, therefore, the aggressive pricing strategy. Bargaining Power of Suppliers: This is comparatively low in the food industry, due to dual sourcing strategies, using a range of alternative source of supply for products. Competitive Rivals: There is very high competition in retail industry. M&S has many competitors who are more customer oriented and they fulfill the demands & needs of the customers e.g. ASDA, Next and Zara offers the demand of young people. Tesco and Sainsbury are in food sector. Internal Analysis: M&S operates 450 stores in UK and it has 150 stores worldwide, including over 130 franchise businesses operating in 30 countries. This indicates its strength. Human & Resource: M&S is has hardworking and experience staff but the management structure is top to down which is not good. There is communication gap between staff and headquarters which cause of loss. Financial: M&S’s profits were in declining from 1998 to until 2000. It demonstrate that M&S have not healthy profit which discourage it to expand in UK and America, in general it has sufficient cash flow. Intangible: M&S have no proper management system. Transformation of market, competition and low cost because of its customer loyalty declined. Marketing mix strategy includes all the elements associated with the product that effect on consumer buying behavior. There are many factors which influence the consumer’s decision to buy something and these are all part of the marketing mix 4ps. Price: M&S is using differentiation strategy for pricing. They charge very high price. Products: M&S known as a good quality product supplier and reliable products. Place: M&S products and services are sold through its large number of stores in city and town centers. And now they have expanded their sales distribution channel through internet and website. Promotion: M&S promotes their goods via advertising, sale promotions using media, advertising on internet, TV, magazine and newspapers. Market segmentation: M&S using focus strategy to select its market for products. M&S targeted its customer by age, sex, income and occupation. They treat similar customers in similar way. They target the 30plus age group with high incomes and belong to rich families. Many products in M&S’s clothing range have a premium priced, high quality segment (M&S, Clark and faith), mid-priced segment (Top Shop, River Island) and a lower price segment (Barratts) e.g. shoes.
Conclusion: Using both environmental analysis techniques (SWOT & PEST) and portfolio analysis we come to know that M&S have various internal strengths and weakness in its current business activities as well as number of opportunities and threats. In BCG matrix M&S’s products lies in either ‘dogs’ (cash in balance) or ‘question marks’ (cash user). In food and clothing (with its focus differentiation generic strategy) relative market shares is low with low industry growth and Financial services industry growth is high but M&S’s market share is low and will require substantial capital investment to turn them into ‘stars’.
M&S generic strategies: Porter suggests three main generic strategies Cost leadership strategy, Differentiation strategy, focus strategy. M&S’s core products are food and clothing; it implements a focus generic strategy as concentration on a narrow segment Executive buyer group, high-end market segment, product feature freshness. M&S also used to adopt differentiation strategy from Tesco and ASDA via change their characteristics of the products because differentiation strategy based on uniqueness, brand image, quality and exclusiveness of the product.
There are three strategy choices available for future response of external and internal pressure.
Corporate level strategy: BCG matrix is used to understand the business terms and effect of market share on market growth. Company’s market share is declining because of steady growth in market. The M&S Company is mature and stable industry in which it operates & for market share it is difficult to gain it. M&S is declined phase organization it is assumed (Stockport, 2000)
Business level strategy (strategy clock): In the growth stage M&S rivals trying to gain the market share it is essential and invests in the market to regain its market share. By reducing the prices of product and services it try to gain the market share and it also be done by spending high volume of money on advertisements and selling. Using the business level strategy, the hybrid strategy is the best option for M&S to achieve differentiation and prices should be lower than its rivals (Johnson and schools,2 002)
Strategy development direction (Ansoff model): Peter Salisbury implemented Market penetration strategy but M&S did not get any success. M&S objectives for the strategy of the year are; creating clear profit centers, building customer facing organization, restoring overseas profitability, creating financial service sector (Product development). Then vendevelde decided to follow market penetration strategy to flourish domestic brands then move overseas. He decided to increase number of staff which made shopping easier and enjoyable. Rebuild the stores with different looks, different colors, packaging and labeling. He divided the organization into five operating divisions which will help to recognize the problems appreciation from consumers.
The GE/McKinsey Matrix can be used to screen M&S’s portfolio of strategic business units (SBU). This matrix is similar to BCG grid in that it’s useful for showing a portfolio of products/services. Industry attractiveness is determined by market growth rate, market size, industry rivalry and macroeconomic factors as analysis earlier in the PEST. Business unit Strength is analzed via market share, brand equity and profit margin. M&S has three SBU in GE matrix where Financial services/products has a high market growth and high industry rivalry, but M&S’s strength in terms of market share and profit margin would be at best medium/low. Clothing has high industry attractiveness but M&S’s market share (11% share of the UK market) and profit margin relative to competitors is low. Food has medium industry attractiveness but M&S’s market share being only 3.2%; growth in market share, brand equity and distribution channel access can all be classified as medium/low, however, brand equity is high (leading provider of high quality food).
Action Plan or Marketing plan of M & S: M&S spent 5years to make strong foundation long term plan. They have launched the Plan A “Doing the Right Thing” in January 2007 – ‘Committing to change 100 things over five years, because we have only got one world and time is running out’. Three years on Plan A is making a real difference to the environment and for our customers, employees and people working in our supply chain (Climate Change, waste, Natural Resources, Fair Partners, health and wellbeing). They have some achievements and some challenges in Plan A like; cut carbon emissions from our operations by8%- and improved store energy efficiency by 19% (after weather adjustment). Government has changed the rules for reporting renewable electricity so we are working in partnership with BRE/Pure to decide the best way to meet our commitments to have carbon neutral operations by 2012. In March 2010 they announced 80 more commitments and revised structure adding two new pillars to the existing five (Involve customers in Plan A, Make Plan A how we do business).
Due to this Plan M&S got very much advantage in business. They have primarily focus on UK and republic of Ireland Business, which accounted for around 95% of our group revenue in 2009/2010. And they got very good feedback from stakeholders that’s why they revised Plan A and include new 80 commitments. Supply chain working condition in M&S’s most important fair partner issue-in particular paying a living wage. They have to ensure and demonstrate that buyers support ethical trading. Now recently they are going to start event from March 24th for its spring ‘One Day Wardrobe Clearout’ event, in partnership with Oxfam. The national clearout event will help significantly reduce the amount of clothing going to landfill and raise crucial funds for Oxfam. In which 367 stores of M&S will take participation and every customer that donates old clothes will receive£5 money off voucher when they spend £35 on fashion in store, redeemable until 30th April 2011. In this event too many clothes still go to landfill when they could be making money for charities and helping environment. Moreover customers will come to donate their clothes: it’s an easy way to make a difference and you get a great M&S money-off voucher. Due to PLAN-A M&S’s aim to be a world’s most sustainable major retailer by 2015. Launched in 2007 and extended in March 2010, it takes a holistic approach and tackling issues such as climate change, waste, raw materials, health and being a fair partner.
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